On 18 January 2010, 22 business executives were arrested and over 100 FBI agents conducted related searches. These actions were based on sealed federal indictments handed down by a grand jury several weeks earlier, which in turn stemmed from a two-and-a-half year undercover operation.
The indictments claimed that the defendants believed that they were involved in a scheme to acquire a US$15 million defense contract to outfit the presidential guard of an unnamed country. They allegedly agreed to pay a 20 percent bribe to a sales agent, supposedly representing the defense minister but really an undercover FBI officer. This was the first large-scale use of undercover law enforcement techniques to investigate Foreign Corrupt Practices Act (FCPA) violations.
With those indictments, federal law enforcement officials announced to the world that the FCPA landscape has changed. Although perhaps the most dramatic shift, the use of undercover operatives is only one of several new FCPA enforcement techniques. The legal and business communities now know that the U.S. Department of Justice (DOJ) is making good on its promise to crack down on companies which seek to bribe foreign officials in the course of business.
What is the FCPA?
The FCPA makes it illegal for any person acting on behalf of a domestic or foreign company listed on a United States stock exchange to give anything of value to a foreign government official in order to obtain or retain business, or to secure an improper business advantage. Under certain circumstances and in some countries, nearly every aspect of the approval, manufacture, import, export, pricing, sale, or marketing of a product will involve a “foreign official” as defined by the Act.
While the FCPA’s record-keeping and internal control provisions apply only to “issuers” – companies with securities traded on a United States stock exchange or otherwise required
to file periodic reports with the Securities and Exchange Commission (SEC) – its anti-bribery provisions apply equally to “domestic concerns.”
These include “any corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship” with a principal place of business in the United States or organized under its law. Thus, these provisions apply to public and private companies. Indeed, several recent FCPA enforcement actions targeted foreign activities by private American firms.
The FCPA came into force in 1977, but was initially rarely used. Since 2005, though, several enforcement trends have appeared. First, the DOJ and SEC have increased the number of FCPA prosecutors and investigators and brought more cases. Second, the investigations have grown more aggressive, targeting individuals as well as companies. Third, companies have begun to disclose potential violations to law enforcement officials before an investigation has begun. Finally, and more recently, officials are looking more at small and mid-sized companies.
More cases: Since 2005, the DOJ has brought over 60 FCPA cases – more than the total between 1977 and 2005. The Fraud Section of the DOJ’s Criminal Division has developed a group of experienced prosecutors who specialize in this work. Separately, in 2007 the FBI created in its Washington Field Office a squad of dedicated FCPA agents which has since grown in size and experience. The SEC has also created a specialized FCPA unit to focus on new and proactive approaches to identifying violations.
At the end of 2009, the DOJ and SEC combined were pursuing more than 120 FCPA investigations. The penalties can sometimes be dramatic, such as the US$1.6 billion in fines, penalties, and profit disgorgement that Siemens paid in 2008 for FCPA and bribery violations.