Tom Ramstack is a Washington, D.C. lawyer, journalist, author, foreign language translator and owner of The Legal Forum.
There's No Escape for International Corporate Fraud
U.S. Attorney General Jeff Sessions said during a speech shortly after taking office in 2017 that the Justice Department would continue to prosecute corporate fraud. He added that one area where this is critical is enforcement of the Foreign Corrupt Practices Act.
The Act is a 1977 federal law designed to enforce transparency in corporate reports to the Securities and Exchange Commission and to combat bribery of foreign officials. In recent years, it has provided a growing source of document reviews, sometimes ordered by judges before major trials.
What Are Document Reviews, and Why Are They Important?
The reviews typically consist of assigning attorneys to read emails, contracts, financial statements and other internal documents of an organization and to flag any information hinting at criminal or civil wrongdoing using specialized software.
Sessions said the Justice Department would look favorably on corporations that comply with government regulations, cooperate during investigations, disclose any deviations from compliance, and try to resolve problems.
The Foreign Corrupt Practices Act is the primary legislation the Justice Department uses as the standard to determine an international corporation’s compliance. The document reviews often use attorneys who speak foreign languages.
FCPA and Justice Department Events
In recent years, one of the Justice Department’s largest document reviews of international business followed an April 2012 New York Times report saying a former executive of Walmart de Mexico y Centroamerica was alleging use of bribery by company officials.
He said Walmart de Mexico officials bribed government officials to obtain construction permits for their retail outlets. He also said the bribes became known to U.S. Walmart executives after an internal investigation but that they “hushed up” the allegations.
A follow-up report by Bloomberg News said the probe of possible bribery in Mexico may prompt executive departures and steep U.S. government fines if it reveals senior managers knew about the payments and didn't take strong enough action, corporate governance experts said.
Since then, Walmart and the U.S. Chamber of Commerce have lobbied Congress to amend the Foreign Corrupt Practices Act. They said the law needed to be clarified, but their critics accused them of trying to weaken the law.
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Other international business investigations, sometimes including document review, have focused on major corporations such as Monsanto, Halliburton, Lucent Technologies, and Daimler AG.
What Is the FCPA?
The scope of the Foreign Corrupt Practices Act is broad, covering the business activities of nearly anyone associated with the United States who engages in international trade. Some of the people prosecuted under the Act were not physically present in the United States when they allegedly committed the wrongful behavior. Others were not American citizens.
An ongoing controversy with the Foreign Corrupt Practices Act is whether it discourages foreign investment in the United States. Critics say that payments considered illegal under U.S. law are considered fringe benefits by corporate executives in some countries. As a result, they might be discouraged from doing business in the United States if they believe they could face increased liability. Examples include international companies that engage in mergers and acquisitions in emerging foreign markets where corruption levels are high.
What Led to the Act?
Part of the political motivation for the Foreign Corrupt Practices Act resulted from a mid-1970s Securities and Exchange Commission investigation. It found that more than 400 U.S. companies admitted to making payments totaling more than $300 million to foreign government officials or political parties to advance their business interests. They included direct bribes for high-ranking foreign officials to facilitating payments to ensure lower-level ministers or clerks carry out their duties.
- One of the Justice Department prosecutions fell on Lockheed Martin Corp. after the aerospace giant’s executives paid foreign officials to show favoritism toward the company’s products.
- Another prosecution, known as Bananagate, was against Chiquita Brands after the company bribed the president of Honduras to lower the taxes it paid.
Amendments to the FCPA
Congress amended the Foreign Corrupt Practices Act in 1988 with the knowing standard. In other words, the Justice Department must prove anyone prosecuted under the Act either knew they were doing something wrong, engaged in “conscious disregard” of the law or willful blindness.
The most controversial change was the 1998 amendment, in which Congress extended the scope of the law beyond U.S. borders and authorized prosecutions of foreign citizens.
Why FCPA Events Lead to More Document Review
Foreign governments and business owners complained that the U.S. government might intrude into their domestic affairs with such a broad authorization. They also worried that the sometimes enormous fines could seriously hurt their international trade.
- In 2008, Siemens AG paid a $450 million fine after being prosecuted for a Foreign Corrupt Practices Act violation. It is one of the largest fines in the history of the federal law.
- In 2012, the Japanese firm Marubeni Corp. paid a $54.6 million fine for allegedly acting as the agent of an international joint venture that won four Nigerian government contracts worth more than $6 billion. The joint venture won the contracts after paying Marubeni Corp. $51 million to bribe Nigerian government officials.
- In 2014, ALCOA was forced to relinquish $175 in revenue and fined $209 million after its Australian mining subsidiary hired an agent to bribe officials in Bahrain to win a bauxite ore supply contract.
The Justice Department and Securities and Exchange Commission investigations required significant reviews of communications and financial documents. Based on previous successes with document reviews, federal courts have been ordering them during investigations at an increasing rate.
This content reflects the personal opinions of the author. It is accurate and true to the best of the author’s knowledge and should not be substituted for impartial fact or advice in legal, political, or personal matters.