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Government investigations and prosecutions of private companies and executives from both public and private outfits for Foreign Corrupt Practices Act violations is widening the field of clients for lawyers specializing in the area. The U.S. Department of Justice (DOJ)’s ongoing shift from relying extensively on self-reporting of FCPA violations, which bars bribes to foreign officials, to investigating companies has heightened the risk for private players, including executives. The U.S. Securities and Exchange Commission (SEC), meanwhile, is also slapping more public company executives with FCPA violation charges, for bribes and faulty record keeping. The enhanced government scrutiny � coupled with the global operations and dealmaking at companies of all sizes � put a wider range of companies, industries and lawyers on notice. Lawyers say global business pursuits subject a growing chunk of corporate activity to FCPA scrutiny. FCPA enforcement has been ramping up at the DOJ and SEC for the last several years, moving the issue up the priority list for public and private companies and individual executives, said Sarah R. Wolff, a Chicago partner who chairs Reed Smith’s securities litigation and enforcement practice group. The DOJ brought 16 FCPA enforcement actions in 2007, compared to just three in 2004. The FBI has 77 pending FCPA investigations. Obscure targets Wolff represented Robert W. Philip, former chairman and CEO of Schnitzer Steel Industries Inc., who settled an FCPA case with the SEC last month for more than $250,000 without admitting or denying the allegations. The case involved allegations of bribes to managers of government-owned steel mills. SEC v. Robert W. Philip, No. 07-1836 (D. Ore.). The government’s increasing focus on individual indictments for FCPA violations ensnared Representative William Jefferson, D-La., last June [NLJ, 6-11-07], but the government is also racking up cases against lower-profile private and public company executives. In the past six months, several justice department FCPA investigations have zeroed in on private companies and executives. Last month, the owners of Los Angeles-based Film Festival Management Inc. were arrested for allegedly bribing a Thai government official to secure a Bangkok international film festival contract. Paradigm Geotechnology B.V., a private oil and gas industry software company headquartered in the Netherlands and operating primarily from Houston, agreed in September to pay a $1 million penalty, add internal controls and hire outside compliance counsel in exchange for a DOJ agreement not to press charges. The DOJ said Paradigm made “improper payments” to government officials China, Indonesia, Kazakhstan, Mexico and Nigeria. In June, the department arrested a former executive of Riverside, Calif.-based Pacific Consolidated Industries LLC for allegedly bribing a United Kingdom defense official to get contracts with the Royal Air Force. USA v. Green, No. 07-2090 (C.D. Calif.); USA v. Smith, No. 07-00069 (C.D. Calif). Some of the information about bribery at Paradigm surfaced while it was preparing filings for an initial public offering. The company voluntarily disclosed it to the government, said Paradigm’s lawyer, Saul Pilchen, a Washington partner at New York’s Skadden Arps Slate Meagher & Flom. Paradigm’s need to make SEC filings made the decision to cooperate very clear-cut, but companies usually favor voluntary disclosure to possibly lessen potential charges, Pilchen said. “Corporate executives seem to have less of an appetite for risk these days,” he said. Pilchen is currently involved in a worldwide FCPA compliance review for a private company in the oil services business. Hedge fund clients are asking Dechert to conduct Foreign Corrupt Practices Act reviews of potential target companies, said Michael Gilbert, a New York partner in Dechert’s securities enforcement defense and white-collar litigation groups. The clients are adding the review to the due diligence process because they realize that the risks of inheriting an FCPA problem are immense, he said. “This recent [Film Festival Management] case . . . may be a real shift into making this an issue across the board for any U.S. person or entity doing business overseas,” Gilbert said. Companies doing business in China are particularly vulnerable to FCPA trip-ups because so many businesses are state-owned, said Mark Srere, a Washington litigation partner at Morgan, Lewis & Bockius. American businesses that create joint ventures with Chinese companies are at high risk, not just U.S. companies that acquire Chinese outfits, Srere said. “If your [joint venture] partner is paying bribes, you may also be on the hook,” he said. U.S. medical device companies, for example, often team up with Chinese companies on joint ventures, Srere said. The joint ventures sell products to Chinese hospitals, which are usually state-owned. The U.S. company needs to find out if the Chinese company’s employees are bribing the hospital workers. Companies understand that bribery is illegal, but they’re perplexed by the FCPA’s broad language, which has vague guidelines such as allowing only “reasonable” hospitality or travel expenses to foreign government officials, said TRACE’s Alexandra Wrage, also a former in-house attorney for defense contractor Northrop Grumman Corp. “Those are the questions that companies struggle with and have teams of lawyers working on because nobody knows the answer,” Wrage said. FCPA enforcement is a DOJ priority, but there’s no particular focus on whether the company is public or private or whether to pursue charges against individuals or companies, said Barry Sabin, deputy assistant attorney general in the DOJ’s Criminal Division. The FBI’s four full-time FCPA agents and the DOJ’s three dedicated lawyers, plus others from each agency when needed, aren’t targeting a particular type of potential violator, Sabin said: “We follow the evidence where it takes us.”

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