InsideCounsel » June 2008
Deceitful Deals
Trends converge to turn up the heat on international bribery.
There’s something about bribery that just seems old school. It calls to mind shady operatives, exotic locales, suitcases stuffed with cash. It’s the stuff of a Graham Greene novel, not a sophisticated global enterprise. Nobody really does that anymore, right?
Well, some things never go out of style. Take, for example, the ongoing corruption saga of the massive German conglomerate Siemens AG: more than $2 billion in international bribes revealed so far; implicated parties as high up the organizational chart as the CFO and the managing board.
It is shaping up to be one of the largest and most expensive internal investigations ever.
But Siemens has good company. Last year Baker Hughes paid a record
$44 million in penalties to settle charges of bribery in Kazakhstan. And there’s
a whole nexus of corruption around the Iraq Oil for Food program: Chevron
($30 million), Volvo ($7 million), Flowserve ($4 million) and Ingersoll-Rand ($2.5 million) are among those that have coughed up major corruption settlements related to the troubled United Nations program so far.
“There is a significant spike,” says William Steinman, a partner at Powell Goldstein who specializes in Foreign Corrupt Practices Act (FCPA) matters.
“Starting in about 2004 we saw a significant enforcement against both companies and individuals. Since then there have been more FCPA cases than in all of the prior years since the law was enacted combined. That increased
volume has sustained itself with no end in sight,” Steinman says.
Up to Speed
Rarely does a trend emerge that is so stark and unambiguous. According to a recent report issued by Shearman & Sterling, the government initiated nine FCPA investigations in 2003. Last year that number was up to 29. There are
currently 82 corporations involved in open investigations.
The dramatic rise in corruption enforcement reflects the convergence of several developments.
The financial certification requirements under Sarbanes-Oxley have forced companies to step up their internal investigations, turning up problems that previously would have stayed under the rug. Increased globalization means more companies than ever are doing business abroad, many of them ignorant of the risks of foreign operations. And the fraud section at the Department of Justice (DOJ), led by Deputy Chief Mark F. Mendelson, is more aggressive than ever.
Perhaps most significantly, a host of foreign and international regulations have come online—notably conventions of the United Nations, the European Commission and the Organization for Economic Cooperation and Development—that facilitate cross-border cooperation among government enforcers. From its 1977 inception to the late 1990s, the FCPA was the only act in town. Not anymore.
“The enforcement community finally has the tools it needs to make these cases,” says Danforth Newcomb, a partner at Shearman & Sterling. “The treaties that have been in place for about 10 years are coming up to speed.”
