X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
For most of the past quarter-century, law-abiding Americans couldn’t compete for business in the world’s back alleys. A well-placed bribe might land a U.S. executive in prison and earn his company a whopping fine under the Foreign Corrupt Practices Act of 1977. At the same time, a European company could literally claim the equivalent bribe as a tax deduction. Lately, though, the culture of impunity for non-American bribers is beginning to change. In the past year, the World Bank for the first time punished a corrupt multinational. European nations have started to enforce corruption laws passed under a young treaty sponsored by the Organisation of Economic Co-operation and Development (OECD). The French are probing suspicious payments made in Nigeria by a group including the Halliburton Co. (According to press reports, they’d sorely like to subpoena an ex-Halliburton chief executive officer named Dick Cheney.) This year, a United Nations anti-corruption treaty will kick in. Still, the deterrent value of these initiatives can’t compare to U.S. prosecution. The biggest news for bribers is that Foreign Corrupt Practices Act (FCPA) investigations have spiked, and companies abroad are being targeted. If foreign palms are getting less greasy, it’s because foreign bribers fear the long arm of U.S. law. “The rest of the world has begun to crack down on transnational bribery this year,” says Alexandra Wrage, a lawyer who heads TRACE International Inc., a D.C.-based corruption compliance trade group. “But the pace of prosecution and seriousness of purpose is only where the United States was 10 years ago. For now, it’s U.S. prosecution that overseas companies have to fear first. The FCPA is still driving corruption compliance.” The origin of global corruption law may be traced to the Ronald Reagan administration, when U.S. business lobbyists resolved to level the playing field between American bribers and non-American bribers. The obvious way was to relegalize bribery in America. But in that less-shameless time, no Congress member was willing to step forward for corruption. So U.S. lobby groups went with Plan B: In a variety of forums around the world, they began the slow process of pushing for a bribery ban. The first international blow against corruption came in 1996 and 1997, when the World Bank Group created an administrative procedure disqualifying companies that are deemed corrupt from participation in bank-financed projects. Skeptics say that the bank has only used this harsh sanction against small companies. But in July 2004, under pressure from tough foreign prosecutors, the World Bank suspended its first multinational � Acres International Ltd. � after the Canadian engineering firm was convicted by the Lesotho courts of bribing an official to win contracts for the construction of a multibillion-dollar dam. By far the most important step that non-U.S. players have taken against corruption came in 1998, with the signing of the OECD Convention on Combating Bribery of Foreign Public Officials. Loosely based on the model of the FCPA, the OECD strategy is to fight corruption in the developing world by choking off the supply of bribes from the developed world. The treaty obligated 35 wealthy countries, including the nations of Western Europe, to pass anti-bribery laws. Over the past five years, all have done so. But the movement against bribery is not confined to the OECD. The nations of Eastern Europe are also required to pass anti-bribery laws, thanks to a pair of conventions that took effect in 2002 and 2003 and that are supervised by the Council of Europe, a large supranational group that predates the European Union. In addition, the European Union itself is considering adopting a disqualification procedure similar to that of the World Bank. Finally, the United Nations Convention Against Corruption � expected to enter force this year � will extend to the rest of the world an obligation to pass anti-bribery laws. Observers fear that the U.N. convention will be loosely enforced. LOOKS CAN BE DECEIVING Britain’s anti-bribery law, which took effect in 2002, is typical of OECD implementation. It looks stronger than the U.S. law on paper � but is much weaker in practice. The statute bans bribes of private citizens, not just of public officials. Unlike the U.S. law, it makes no exception for petty payments demanded by bureaucrats who supply an essential service. However, the Crown Prosecution Service will not prosecute under the new law unless it is “in the public interest.” In the past, this has been defined narrowly (and quaintly) as preserving “peace in the Queen’s realm.” “It’s difficult to imagine a [U.K.] prosecution of those involved in bribery abroad that would be in the U.K.’s public interest,” says George Brown, an anti-bribery specialist at Reed Smith in London. Others can certainly imagine a more enlightened view of the public interest. Wrage, of the nonprofit TRACE, believes that all nations benefit from anti-bribery efforts in poor nations, because reducing corruption will both improve the investment climate and ameliorate the poverty that breeds terrorism. But this does not appear to be the view taken by Her Majesty’s prosecutors. William Steinman, a corruption specialist at Powell Goldstein in Washington, D.C., warns that lax overseas enforcement by the OECD nations would undermine public policy as well as U.S. business. As Steinman observes: “If American companies face a serious risk of prosecution under the FCPA, while competitors in other OECD countries don’t face the same enforcement risk from their own governments, then the anti-bribery convention will have failed to level the playing field.” So far, no overseas bribery cases have been brought in Britain. Indeed, by Steinman’s count, only a handful of transnational bribery enforcement actions have been taken in all 34 OECD Convention countries excluding America. In fairness, however, it should be noted that the U.S. Department of Justice took its time getting up to speed, too. The DOJ brought only 30 cases during the first 20 years of the FCPA, but that number is sure to soar. Over the past two years, Danforth Newcomb, the head of banking litigation at Shearman & Sterling in New York, counts 27 FCPA investigations that have been initiated by the United States and reported in the public domain. Indeed, 16 such investigations were initiated in the first 11 months of 2004. The prevailing view is that the OECD laws, too, will eventually grow teeth. “It’s only a matter of time,” says Raymond Banoun, who heads the business fraud group at Cadwalader, Wickersham & Taft. “It takes time for regulators to develop expertise, and to get the right test case.” Ironically, the one country where the OECD treaty has surely made a quick difference is the United States. In November 1998, Congress broadened the FCPA to conform to the OECD convention. The original act would only rope in a defendant with a robust physical connection to the United States. Under the amended act, Americans and American companies are liable for bribery even if their conduct occurs completely outside U.S. terrain and they have not used the U.S. mails or otherwise engaged in interstate commerce. In addition, the FCPA now applies to any foreign person or company who furthers a bribe with an “act” even remotely connected to the United States. Thus the FCPA covers any bribe committed by a foreign company that trades on the U.S. capital markets. TAKING AIM Now foreign entities are in the U.S. prosecutors’ sights. According to Shearman & Sterling’s analysis, 10 of the 27 FCPA investigations in the past two years have targeted foreign entities. In perhaps the most aggressive instance, the United States obtained a $16 million settlement this summer with the Swiss-Swedish engineering multinational ABB Group, which pleaded guilty to two felony counts of bribery. Some of the charges involved ABB’s Scottish subsidiary, apparently based on acts committed by employees of a U.S. affiliate to further the Scots’ alleged scheme to bribe Nigerian officials. Allegedly, the Yanks helped the Scots to win a contract for oil drilling equipment by giving the Nigerian officials and their children about $140,000 in gifts, including cash, medical expenses � and pedicures. Equally important, the new OECD laws have spawned a worldwide cadre of corruption regulators that can cooperate with U.S. corruption fighters. The current U.S. inquiry into Texas-based Halliburton is a prime example. At the end of 2003, a French judge, investigating domestic political corruption charges against the French engineering firm Technip, reportedly stumbled on a “slush fund,” kept by a joint venture including Technip and Halliburton. According to press accounts, there is evidence that the consortium, to win gas contracts worth billions, funneled between $130 million and $200 million to Nigerian officials, including $40 million directly to the Nigerian dictator, through an offshore Gibraltar firm run by a London lawyer. French regulators tipped off their U.S. counterparts, setting in motion two early-stage investigations of Halliburton. (A company spokesperson states, “Halliburton’s ongoing investigation has still not found any evidence that supports there were any bribes paid, and we are committed to being part of the solution.”) Beyond the lurid rumors, the larger point is that the OECD has extended the global reach of U.S. corruption prosecution � both by strengthening U.S. law and by promoting the sharing of information across borders. Michael D. Goldhaber is chief European correspondent for The American Lawyer , the ALM magazine where this article first appeared in the January 2005 issue.

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.