The U.S. Securities and Exchange Commission expects in the next two to six months to slap larger penalties than in the past on a number of companies that have allegedly violated the Foreign Corrupt Practices Act, reminding lawyers in the field that the regulator is taking a tougher stance today on international bribery.
"The dollar amounts in the cases that will be coming within the next short while will dwarf the disgorgement and penalty amounts that have been obtained in prior cases," said Scott Friestad, the SEC's deputy director for the Enforcement Division.
The SEC has increased the number of cases filed against companies under the 1977 law during the past three years, bringing 38 Foreign Corrupt Practices Act (FCPA) cases since January 2006. In the late 1990s, it handled about one per year.
The larger cases and their increased frequency are driven partly by the globalization of business, but also by the stronger enforcement power that the SEC and the U.S. Justice Department have achieved through increased cooperation from other countries, lawyers in the field said.
"They are trying to essentially reform how business is done throughout the world," said Bob Bennett, a partner in the Washington office of New York's Skadden, Arps, Slate, Meagher & Flom, in describing the heightened regulatory effort.
A CASELOAD TWIST
Another new twist in coming cases is that a "significant" number involve violations that weren't self-reported by the companies, Friestad recently told a group of attorneys gathered for an SEC presentation in Washington.
Whereas many of the cases brought in the past two years were discovered and disclosed by the violators, many of the new cases were generated by other leads, such as the SEC's own investigatory work or whistleblowers, he said. The SEC, which only has civil enforcement authority, works hand-in-hand with the Department of Justice (DOJ), which can bring criminal charges.
"It's a ratcheting up of cases to make sure they get people's attention," said Matt Morley, a partner in K&L Gates' Washington office.
One federal probe that lawyers are watching is that of German conglomerate Siemens A.G., which in 2006 disclosed that it had discovered more than $1 billion in bribes that might have been paid in a dozen different countries over six years to help the company win orders.
Siemens recently said that it's putting aside about $1.3 billion in preparation for settling the case with U.S. and German regulators.
A settlement of that size would easily surpass the biggest FCPA penalty to date, which occurred when the oil and natural gas services company Baker Hughes Inc. paid $44.1 million last year to settle charges of bribery and other improper practices in six countries. U.S. v. Baker Hughes Inc., No. 07-00130 (S.D. Texas). Enforcement actions related to the law are typically filed in court when a settlement has been reached.
The SEC and DOJ often require a company to perform its own investigation of the improper practices and install monitors to bar them in the future, putting the financial onus for remediation on the violator.
Companies comply with the regulators' requests in the hopes of softening the enforcement blow as they work toward settlements with the regulators.
HALLIBURTON ACTION?
Other major FCPA cases that have been under investigation for years and could be coming to a head include those of Halliburton Co. and DaimlerChrysler A.G. Halliburton disclosed in 2003 that regulators were probing $2.4 million in payments by one of its subsidiaries for favorable tax treatment in Nigeria. The DaimlerChrysler probe was triggered when a former employee alleged in a now-settled 2004 whistleblower lawsuit that the company had secret bank accounts for bribing foreign officials.
The more aggressive U.S. regulatory actions follow implementation of tougher anti-bribery laws in other countries since the signing of an Organization for Economic Cooperation and Development agreement in 1997. Implementation of new foreign laws has allowed the United States to take more enforcement actions because of better cooperation from other countries, said Peter Clark, a partner in the Washington office of New York's Cadwalader, Wickersham & Taft.
"The United States and other countries are just becoming more skilled at investigating and prosecuting," said Clark, who formerly was deputy director of DOJ's fraud section in the Criminal Division and previously was in the SEC Enforcement Division.
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