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For almost three decades a federal law has prohibited American companies from paying bribes to get business in other countries. But due to a lack of cooperation from other governments, U.S. prosecutors have rarely brought charges under the law, the Foreign Corrupt Practices Act. A recent wave of indictments and investigations, however, suggests that this leniency is coming to an end. As part of a larger probe by the U.S. Department of Justice into FCPA violations, former Mobil Oil Company executive J. Bryan Williams pled guilty in June to evading taxes on $7 million, including a $2 million kickback connected to the company’s business in Kazakhstan. In April, American businessman James Giffen pleaded not guilty to charges that he violated the FCPA by paying $78 million in bribes to Kazakh officials. And Exxon Mobil Corporation has recently said it’s also being investigated in connection with related transactions in Kazakhstan. Last fall, Owl Securities & Investments CFO Richard Halford pled guilty to FCPA violations and to tax evasion, after his company’s plan to build a port and beach resort in Costa Rica unravelled under a federal investigation. Also last year the Securities and Exchange Commission brought a civil action against American Rice, Inc., for violations of the anticorruption law. These cases have made FCPA compliance a hot topic among in-house counsel at major American corporations doing business overseas. But it’s not easy to control the actions of every employee or consultant hired by a multinational operation. Plus, it’s sometimes difficult to tell which payments are banned by the law, and which are permitted. “I am seeing a lot of companies anxious to strengthen their compliance programs and their internal systems to detect and prevent violations of the FCPA,” says Mark MacDougall, a former federal prosecutor who’s now a partner in the Washington, D.C., office of Akin Gump Strauss Hauer & Feld. An Uneven Playing Field? But the law’s noble intentions put American companies at a competitive disadvantage, says Joel Cohen, a former federal prosecutor and now a partner in the New York office of Greenberg Traurig. “In many parts of the world, paying off government officials to secure a good contract is standard business practice,” Cohen says. Since most other countries didn’t have comparable anticorruption laws, their companies were allowed to make payoffs with impunity, even writing off bribes as a tax deduction. In turn, foreign governments had little incentive to cooperate with the Justice Department in its efforts to prosecute corruption by American companies, which usually relied on evidence located overseas. As a result, the FCPA was rarely enforced. “You could count on slightly more than two hands the number of successful prosecutions in the first 20 years after its enactment,” says Cohen. Still, American corporations were frustrated that they had to play by a rule that foreign companies didn’t have to follow. So in 1998, under pressure from the Justice Department, the 30 member nations of the Organization for Economic Cooperation and Development signed a convention that required them to pass laws comparable to the FCPA. Now, according to observers, the Justice Department can more vigorously pursue violations of the U.S. statute. The biggest impact has been on corporations involved in multimillion-dollar overseas projects, typically in oil, gas, and mining; infrastructure construction; and defense. In the past many U.S. companies just hired local consultants in corrupt countries who promised not to pay anybody off, but then did it anyway. But these days they must be more careful, say FCPA experts. “Now you really have to do serious due diligence on local consultants to be sure that the fees they receive are only for their actual work, and that no part of those fees are going to anyone else,” explains MacDougall. Employee Training And Due Diligence That’s exactly what in-house counsel say they’re doing. At Unocal Corp., for example, “every employee is required to take an online training program on the FCPA,” says deputy general counsel David Brady. He adds, “In countries where corruption is particularly widespread, we have face-to-face training. I go out nearly every year to places such as Dakar, Jakarta, and Hanoi to conduct FCPA workshops.” The trainings are for managers, local attorneys, and employees who deal with government officials or maintain the company’s books and records. Companies that have already been burned take extra pains to stay safe. After Lockheed Martin Corporation pled guilty in 1995 to bribing Egyptian government officials in violation of the FCPA, it paid a criminal fine of $24.8 million. Now, says assistant general counsel Howard Weissman, “we cannot hire an international consultant for any of our companies without that consultant going through an FCPA due diligence process.” The extra level of scrutiny has forced Lockheed Martin to pass up some potentially lucrative deals. Weissman describes one example in a Southeast Asian country where the company still does business. He traveled to the country to interview a potential consultant and the local officials who knew him, including an air force officer. During the meeting, Weissman says, the officer “[took] an inordinate interest in hiring that particular consultant, [even though] the consultant had no experience or track record in our industry.” Weissman adds that he was essentially promised by an ambassador that if Lockheed Martin hired the consultant, it would get the deal. “[But] we were not going to turn a blind eye,” he says. Lockheed Martin did not hire the consultant, and the work went to a French company that was later accused in the local press of having bribed the selection committee. It’s not always so easy to know what falls on the wrong side of the law, however. For example, the FCPA allows companies to make “facilitation payments” or “grease payments,” as they’re known. Essentially, that means American companies can legally engage in mundane low-level bribery of government functionaries. However, “there’s no bright line” separating legal payments from illegal ones, says MacDougall. “The question is, what’s it for? If the answer is, ‘My shipping containers are sitting in the dock, and the only way to get them expedited is to pay $50 to the port master,’ it’s okay. The core of the FCPA is when payment is made to get a contract or a concession or some business you’re trying to acquire.” The problem for in-house lawyers, of course, is making sure their company’s employees and consultants know the difference.

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