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Siemens Rethinks Bribery as a Business Strategy

By Michael D. Berman, Litigation News Associate Editor – February 26, 2009

For the past two years, the level of enforcement of Foreign Corrupt Practices Act of 1977 (FCPA) violations has been at an all-time high. This year looks to be more of the same, with increased international cooperation, prosecution of both U.S. and foreign issuers, and continued voluntary disclosures by companies looking for leniency on the heels of record civil and criminal fines.

Siemens AG
The year started off with a Siemens AG, the German engineering giant, pleading guilty on January 5 to charges of violating the FCPA and agreeing to pay $450 million to the DOJ alone (plus an additional $350 million to the Securities Exchange Commission). Siemens achieved this “victory” by leveraging its “extraordinary cooperation” (after German authorities raided Seimens offices), thus substantially reducing a U.S. fine that had an upward range of $2.7 billion.

Kellog Brown & Root LLC
Similarly, on February 11, the Department of Justice announced that Kellogg Brown & Root LLC (KBR), a former Halliburton subsidiary, agreed to a $559 million ($402 million criminal fine to the DOJ and $177 million in disgorged profits to the SEC) settlement of bribery allegations involving Nigerian officials. KBR admitted paying a total of $182 million in two bribes to win the business. KBR’s former CEO, Albert “Jack” Stanley will be sentenced for his conspiracy in May.

“The recent staggering fines that were imposed against Siemens and Halliburton for their violations of the FPCA will act as an effective deterrent for a number of companies,” says Louis F. Burke, New York, cochair of the ABA Section of Litigation’s International Litigation Committee. Burke added that, while there will always be “aggressive managers” who will try to circumvent the law, “this type of club [in the hands of the DOJ] provides a real disincentive.”

A Record Year for Enforcement
The facts as summarized by the Section’s Committee on Corporate Counsel bear out Burke’s assessment. The In House Litigator reports that the thirtieth anniversary of the FCPA (2007) was a “record year” for enforcement. This included a $26 million criminal fine against three wholly owned subsidiaries of Vetco Gray International companies (February 2007), eclipsed by a $44 million combined civil/criminal fine against Baker Hughes, Inc. (April 2007). To top things off, the DOJ filed 15 cases against individuals, the highest number for any year since the FCPA came into effect.

FCPA Provisions
The central features of the FCPA are the anti-bribery and “books and records” provisions. At its core, the FCPA prohibits giving anything of value to a foreign official for the purposes of influencing any official act or for securing any improper advantage to obtain, retain, or direct business to any person. Because the FCPA mandates that certain regulated entities maintain books and records that fairly and accurately reflect the entity’s transactions, and the FPCA also requires the use of reasonable internal accounting controls, if a company were to give something of value to a foreign official, it would have to “book” that transaction fairly and accurately.

Penalties for Violation
Violation of the act can carry civil or criminal penalties. Fines imposed on an individual may not be paid by that person’s employer. It is an affirmative defense if the transfer was permitted under the foreign country’s written laws, if the payment was a reasonable payment or gift directly related to promotion or demonstration of products or services, or if the transfer was the execution of a contract with a foreign government. Payments for “routine government actions,” such as mail pick-up and visas, are also permissible.

Influence of the FCPA
The DOJ asserts that the FCPA has had “an enormous impact on the way American firms do business.” Though it initially put American companies at a disadvantage, the FPCA caused a “global transformation in the way companies (American and otherwise) did business,” says Judah Best, Washington, DC, past chair of the Section. “The FPCA was instrumental in the passage of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions . . . [and] there is now a level playing field for American and foreign companies doing business abroad.”

Keywords: Foreign Corrupt Practices Act, FCPA, Department of Justice, Siemens, Kellog Brown & Root, Halliburton, bribery


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