Category: Bribery and Corruption

FCPA Conviction

bangkok_film_festival

Gerald Green and Patricia Green, Los Angeles-area film executives, were found guilty of conspiracy to violate the Foreign Corrupt Practices Act and money laundering laws of the United States, as well as substantive violations of the FCPA and U.S. money laundering laws. The verdict was handed down late on Friday.

The Greens were charged by the Department of Justice with having bribed Thai authorities up to $1.8 million between 2002 and 2006 to receive approximately $14 million in government contracts and grants to run the Bangkok International Film Festival.

The conspiracy and FCPA charges each carry a maximum penalty of five years in prison, and each of the money laundering counts carries a maximum penalty of up to 20 years in prison. The false subscription of a U.S. income tax return carries a maximum penalty of three years in prison and a fine of not more than $100,000. Sentencing has been set for Dec. 17, 2009, before the Honorable George Wu in the Central District of California.

DOJ Press Release: Film Executive and Spouse Found Guilty of Paying Bribes to a Senior Thai Tourism Official to Obtain Lucrative Contracts

New Liability Under the FCPA: Control Person Liability

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The SEC charged Nature’s Sunshine Products Inc. with violating the Foreign Corrupt Practices Act after its Brazilian subsidiary made cash payments to customs officials to get their products imported into the country. The SEC also included two officers of the company in those charges. That part of the case was fairly standard.

What was new was that that the officers were not accused of being directly involved in creating the false books and records or authorizing the payment of the bribes. Instead, the SEC used Section 20(a) of the Exchange Act, which provides for control person liability.

Every person who, directly or indirectly, controls any person liable under any provision of this title or of any rule or regulation thereunder shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action.

It sounds like the SEC really wanted to get these two officers but did not have enough evidence to show their direct involvement in the bad acts. It really shows the SEC’s willingness to use all the tools at its disposal to hold individuals liable for acts within a company. They want corporate officers to know that there is personal liability associated with their bad acts.

This case may foreshadow broader SEC enforcement against corporate officers who fail to adequately supervise employees.

References:

Self-Reporting Corruption in the UK

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As part of its renewed efforts to combat overseas corruption, the United Kingdom’s Serious Fraud Office published its new Approach of the Serious Fraud Office to Dealing with Overseas Corruption PDF Document .

Previously, the Serious Fraud Office saw its role as an after-the-event investigator and prosecutor, difficult for a company to engage except in the context of a formal investigation. The new policy statement shows a very different approach in which the Serious Fraud Office is offering to work with a company to avoid criminal prosecution.

What does this mean?

The Serious Fraud Office wants to encourage self-reporting. The benefit is that the Serious Fraud Office will more likely consider a civil, rather than criminal, outcome and the opportunity to manage publicity proactively. A negotiated settlement rather than a criminal prosecution means that the mandatory debarment provisions under Article 45 of the EU Public Sector Procurement Directive in 2004 will not apply.

What about the US Department of Justice?

If the case is within the jurisdiction of the DOJ and the Serious Fraud Office, they expect to be notified at the same time.

What do you need to do to avoid criminal prosecution?

Very soon after they receive the self-report and the acknowledgment of a problem, they want to establish the following:

  • Is the Board of the corporate genuinely committed to resolving the issue and moving to a better corporate culture?
  • Is the corporate prepared to work with the SFO on the scope and handling of any additional investigation the SFO considers to be necessary?
  • At the end of the investigation (and assuming acknowledgment of a problem) will the corporate be prepared to discuss resolution of the issue on the basis, for example, of restitution through civil recovery, a program of training and culture change, appropriate action where necessary against individuals and at least in some cases external monitoring in a proportionate manner?
  • Does the corporate understand that any resolution must satisfy the public interest and must be transparent? This will almost invariably involve a public statement although the terms of this will be discussed and agreed by the corporate and the SFO.
  • Will the corporate want the SFO, where possible, to work with regulators and criminal enforcement authorities, both in the UK and abroad, in order to reach a global settlement?

They are not offering an “unconditional guarantee” that there will not be a prosecution.

What about corporate officers?

There are no guarantees. There are a few questions that will influence their course of action:

  • how involved were the individuals in the corruption (whether actively or through failure of oversight)?
  • what action has the company taken?
  • did the individuals benefit financially and, if so, do they still enjoy the benefit?
  • if they are professionals should the SFO be working with the appropriate Disciplinary Bodies?
  • should the SFO be looking for Directors’ Disqualification Orders?
  • should the SFO think about a Serious Crime Prevention Order?

Conclusion

The Serious Fraud Office is trying to take the same approach that the Department of Justice is taking. Companies should self-investigate, self-report and negotiate to avoid the harshest sanctions.

References:

A Simple Strategy to Avoid Paying a Bribe

Alexandra A. Wrage writes on the WrageBlog about Simple Strategies to avoid paying a bribe:

“Our informant carefully prepared himself to meet with a notorious bribe-demanding functionary for the first time. He scripted his approach to the exchange:
(a) Stand quietly at the functionary’s little window until the functionary looked at him,
(b) Smile confidently,
(c) Say “good morning”, followed immediately by
(d) “I am so relieved that I get to talk to you. I have heard that most of the public employees here demand bribes, but I have also heard that you never ask for a one.” (These words are exactly those used.)
(e) Smile, again and describe his request.
(f) Use an expression and body language indicating that he trusts her to give him what he has requested.”

The Anti-Corruption Principle in the U.S. Constitution

cornell-logoAre integrity or self-governance part of the constitutional framework of the United States? Do we need to give constitutional-like weight to the distortions to our democracy seen in campaign finance, redistricting, term limits and lobbying?

Zephyr Teachout published an article in the January 2009 edition of the Cornell Law Review: The Anti-Corruption Principle (pdf).

The Constitution carries within it an anti-corruption principle, much like the separation-of-powers principle, or federalism. It is a freestanding principle embedded in the Constitution’s structure, and should be given independent weight, like these other principles, in deciding difficult questions concerning how we govern ourselves. Corruption has been part of our constitutional dialogue since the beginning, but in the last 50 years—and particularly since Buckley v. Valeo gave corruption a relatively weak role in the constitutional scheme— the concept of corruption has been unbound from the text and history of the document itself.

The purpose of this Article is to prove this principle.

Professor Teachout argues that the Framers of the Constitution were obsessed with corruption and expunging it from the new government. She points out that Frameres thought the Senate was more prone to corruption since it was smaller than the House. That is why bills for raising revenue come from the House and not the Senate. [Article 1, Section 7]

The Framers resigned themselves to the fact that “man in his deepest natures was selfish and corrupt; that blind ambition most often overcomes even the most clear-eyed rationality; and that the lust for power was so overwhelming that no one should ever be entrusted with unqualified authority.” (citing Bernard Bailyn‘s The Ideological Origins of the American Revolution)

Professor Teachout groups political corruptioninto five clusters: criminal bribery, inequality, drowned voices, a dispirited public, and a lack of integrity.

Blagojevich Investigation Started With Real Estate Corruption

According to a story in The New Yorker, an investigation into real estate corruption ultimately caught the governor of Illinois trying to sell Barack Obama’s Senate seat: Whistle-blower by Nina Burleigh.

According to the story, an Illinois hospital was having trouble getting permits from the planning board. That is until they agreed to hire a certain contractor. That incident started U.S. Attorney Patrick Fitzgerald’s Operation Board Games.  As the probe widened, more wiretaps were put in place, and more corruption was exposed. Eventually, recording Blagojevich discussing the sale of Obama’s Senate seat.

Real Estate Development and Corruption

Wicked Local Newton is reporting that the Maynard, Massachusetts superintendent of public works was arrested for soliciting cash payments from a private developer in exchange for relaxing permitting and inspection requirements: Maynard public works chief, a Newton resident, charged with accepting bribes.

Paul Camilli, 38, of Newton, let an unnamed developer know that he would let the project move easier through the deadlines and technical demands in exchange for cash payments.

At Siemens, Bribery Was Just a Line Item

The New York Times ran an in-depth look at how entrenched corruption had become at the multi-national corporation: At Siemens, Bribery Was Just a Line Item.

For his part, Mr. Siekaczek is uncertain about the impact of the Siemens case. After all, he said, bribery and corruption are still widespread.“People will only say about Siemens that they were unlucky and that they broke the 11th Commandment,” he said. “The 11th Commandment is: ‘Don’t get caught.’ ”

As Chris MacDonald at The Business Ethics Blog points out:

When you pay a bribe, you’re attempting to induce someone to make a decision that is favourable to you, rather than a decision that is favourable to their employer. Perhaps that moral argument is obvious to everyone. The less-obvious point, perhaps, is that bribery also represents an unwanted expense for companies…an expense that all companies would like to be able to avoid, if they could. Paying bribes only works if you out-bribe the competition. If you & your competitors are all bribing with equal zeal, no one wins (and you’ve all suffered unnecessary, indeed, useless, costs). But of course, if everyone else is paying bribes, then the company that declines to is going to suffer losses. It’s a classic ‘collective action’ problem.

Video Inviting You To Help Fight Against Corruption

To mark the World Economic Forum’s International Anti-Corruption Day on Dec. 9, 2008, executives from companies in the Forum’s Partnering Against Corruption Initiative appear in this video inviting ideas on how to fight corruption.

Speaking in the the video are (in order of appearance) Peter Bakker, Chief Executive Officer, TNT, Netherlands; Alan L. Boeckmann, President and Chief Executive Officer, Fluor Corporation, USA; Samuel A. DiPiazza Jr, Chief Executive Officer, PricewaterhouseCoopers International, USA; and Richard OBrien, President and Chief Executive Officer, Newmont Mining Corporation, USA.

By becoming a PACI signatory, a company commits to a zero-tolerance policy towards bribery and corruption and agrees to put in place an internal anti-corruption programme that reflects the PACI Principles for Countering Bribery.