US: U.S. Cracks Down on Corporate Bribes

The Justice Department is increasing its prosecutions of alleged
acts of foreign bribery by U.S. corporations, forcing them to take
costly steps to defend against scrutiny.

The crackdown under the Foreign Corrupt Practices Act, or FCPA -- a
post-Watergate law largely dormant for decades -- now extends across
five continents and penetrates entire industries, including energy and
medical devices. Among the companies currently under Justice Department
review: Sun Microsystems Inc. and Royal Dutch Shell PLC, according to the companies' disclosures.

At least 120 companies are under investigation, according to Mark
Mendelsohn, a deputy chief in the Justice Department division
overseeing the prosecutions, up from 100 at the end of last year.

The effort began in the wake of a series of business scandals
earlier this decade, including the collapse of Enron, that stirred up a
new corporate-reform movement.

Today, companies across the U.S. are working to figure out if they
are at risk. In some instances, companies have called the Justice
Department to come clean, in hopes of obtaining leniency.

"If we call them before they call us, it's not where they want to be," Mr. Mendelsohn said.

The law prohibits U.S. companies from paying, or offering to pay,
foreign-government officials or employees of state-owned companies to
gain a business advantage. It covers nonmonetary gifts or offers in
addition to cash payments, and is worded broadly enough that it's
spawning an army of consultants, some of whom once prosecuted bribery
cases for the Justice Department, who offer to interpret the gray areas.

"When you have a law that can result in criminal sanctions and jail
time and that you can violate without actually realizing you're
violating it, that's terrifying," said Alexandra Wrage, president of
Trace International Inc., a Washington-based nonprofit specializing in
antibribery compliance.

The gray areas of the law sometimes apply to actions -- for example,
the giving of seasonal gifts -- that can be common in some countries.
This has left corporations concerned about other practices, such as
picking up the cost of trips or meals for foreign officials.

In 2007, the Justice Department settled charges against
telecommunications company Lucent Technologies Inc. for failing to
properly record millions of dollars in travel to Disney World, Las
Vegas and other sightseeing destinations for about 1,000 Chinese
foreign officials who worked for state-controlled telecom companies.
The company, which had characterized the trips as factory tours,
admitted to the conduct and paid $2.5 million in fines.

The FCPA became law in 1977 amid investigations into alleged
contributions to Richard Nixon's re-election fund. At that time, a
Securities and Exchange Commission inquiry revealed that some companies
had been maintaining offshore slush funds used to sway business
decisions abroad. After the passage of the 2002 Sarbanes-Oxley Act,
which is intended to hold executives more accountable for their
companies' actions, the Justice Department dusted off the FCPA law as
part of the overall crackdown on corporate shenanigans.

The FCPA began its recent rise in prominence when, in 2004, a
Justice Department overseas-bribery probe of defense-services company
Titan Corp. sent its stock on a slide and eventually scuttled a $1.6
billion merger with aerospace giant Lockheed Martin Corp.

Titan pleaded guilty and eventually paid $28.5 million to settle SEC
charges that it allegedly bribed government officials in Benin to
develop a telecommunications project.

Mr. Mendelsohn currently has a team of eight Federal Bureau of
Investigation agents working on overseas bribery cases, up from five
last year.

For years, taking business associates to lavish dinners and giving
them expensive holiday gifts, and even outright cash, was expected and
done in many countries. Among them, according to legal experts and
corporations: Nigeria, South Korea and China, to name a few.

As a result of stepped-up enforcement of bribery laws, corporations
are re-evaluating their practices and hiring costly consultants to help
them. If companies sniff out problems in-house, many have felt
compelled to come clean to the Justice Department, which has given a
break to some that do so.

Control Components Inc. of Rancho Santa Margarita, Calif., said in
2007 it began an internal investigation after finding "irregular
payments" in trading contracts. Its parent company, British-based IMI
PLC, said in a statement in the U.K. that it last year set aside £26.3
million, or about $42 million, for legal costs as well as expected
fines in the matter.

In April the Justice Department indicted six former employees of the
company, which makes valves for energy equipment, accusing them of
having made at least 236 payments to win contracts in more than 30
countries. The indictment accuses one former employee of flushing
incriminating documents down a ladies' room toilet.

Control Components hasn't itself been indicted. The company declined
to comment, other than to note that no current employees are being

Several major multinational companies have been targets. German industrial conglomerate Siemens
AG agreed in December to pay $800 million in U.S. fines to settle
bribery investigations involving alleged payments to government
officials around the world to win infrastructure contracts.

Justice Department officials alleged the corruption at Siemens
reached the highest levels of management. In its indictment in federal
court in the District of Columbia, it accused Siemens of spending more
than $1 billion bribing government officials around the globe to win
infrastructure contracts in recent years. Munich-based Siemens, which
didn't admit to the bribery allegations as part of the settlement, said
it had inadequate controls and kept improper accounts. U.S. law applies
to the German company because its stock trades in the U.S.

In February, energy companies Kellogg Brown & Root LLC and its
former parent, Halliburton Co., agreed to pay a total of $579 million
for U.S. charges involving bribery of officials in Nigeria. KBR pleaded
guilty to charges involved in the case. As part of the settlement, the
federal government agreed not to prosecute Halliburton.

The Justice Department probes can be particularly extensive during
merger-and-acquisition activity. As a result, companies are becoming
increasingly careful to scrutinize their own practices when a deal is
brewing to ensure they don't inherit a bribery problem. Just two weeks
ago, Sun Microsystems -- which is in the midst of a potential $7.4
billion purchase by Oracle Corp. -- said in a regulatory filing that it might have violated bribery laws in an unnamed country.

The two companies declined to elaborate on whether the potential
violations would affect the deal. Oracle has said in an SEC filing that
Sun informed it of the matter.

Hiring a consultant to ferret out trouble internally can be costly.
One global investigative firm, Nardello & Co., says it starts its
billing at about $7,500 for each employee a company wants to
scrutinize. The bill can rise quickly if the employee works in multiple

After Weatherford International Ltd., an oil and gas company,
reported in an SEC filing in 2007 that it might have a bribery problem
with a European subsidiary, it started sending compliance officers to
some of the 100 countries where it operates, to train many of its
45,000 employees, according to a person familiar with the company.

A spokesman at Siemens, which paid the largest foreign-bribery fine
to date, said the cost of addressing its own corruption allegations was
nearly as much as its total fine of €1.22 billion ($1.7 billion),
including fines to the German government. The company is spending more
money now on compliance programs and a government-mandated monitor.

A Siemens spokesman said in an email that it's wise for a company
"to have an adequate compliance system in place and a corporate culture
that stands for clean business."

AMP Section Name:Corruption
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  • 124 War & Disaster Profiteering
  • 208 Regulation

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