By Carrie Johnson
Washington Post Staff Writer
Wednesday, December 5, 2007
Prosecutors and stock market regulators on the hunt for fraud increasingly are targeting companies paying foreign government officials in a bid to secure contracts, according to Justice Department and Securities and Exchange Commission officials.
This year the U.S. government has collected more than $100 million in penalties from oil, chemical and telecommunications companies and secured five guilty pleas from corporate executives. The number of foreign bribery cases filed by criminal and civil investigators in the United States has more than doubled since 2004.
"There's been more prosecutions in the last three years than probably the history of the statute," said Joseph Warin, a longtime Washington corporate defense lawyer and former prosecutor.
Among the forces fueling the trend are the increasingly global reach of business and reforms ushered in after the last round of U.S. corporate scandals, which are prompting executives to dig deeper into their operations to find wrongdoing and turn themselves in, hoping for leniency. U.S. law enforcement, meanwhile, is marshaling more resources in a bid to level the playing field for companies competing against foreign rivals.
Nearly a dozen energy companies are under investigation for alleged payoffs to Nigerian customs officials, and the giant insurance broker Aon recently told investors it had received a subpoena seeking information about its foreign operations, part of what it called an industry-wide probe. Authorities in the United States and Germany are negotiating with Daimler to resolve allegations that the automaker paid foreign officials to win business in Africa, Asia and Eastern Europe.
In all, nearly 60 more federal cases are in the pipeline, according to defense lawyers who make a living by fending off such inquiries. Although the numbers remain small as a percentage of the government's corporate fraud case list, they represent a significant increase in the number of new cases and have become a priority of top law enforcers.
For the first time, the FBI is devoting five agents in the Washington field office solely to enforce the Watergate-era law called the Foreign Corrupt Practices Act, noted Mark F. Mendelsohn, the prosecutor who oversees the initiative.
The law gives prosecutors the authority to target U.S. companies and their subsidiaries, as well as foreign businesses whose stock trades on American exchanges. In a recent speech, Assistant U.S. Attorney General Alice S. Fisher said the heightened oversight is part of a "strategic and deliberate plan" to intensify scrutiny of improper business tactics that can breed corruption and even political unrest.
The issue has been sensitive for American companies because other countries, including France, Japan and Italy, only recently began prosecuting corporate bribes to foreign officials. Until a decade ago, bribes were tax deductible in many European countries.
Britain has yet to bring a successful bribery prosecution, a source of contention for U.S. executives and government leaders. The country has dropped a hot-potato case involving decades of allegedly improper payments by defense contractor BAE Systems to Saudi officials.
Amid the outcry, the U.S. Justice Department opened its own probe of BAE. Among the items in investigators' sights is a Washington bank account controlled by former ambassador Prince Bandar bin Sultan, according to lawyers following the case.
But if Britain has yet to throw its weight behind anti-bribery efforts, the same cannot be said for Germany. A massive, ongoing investigation by German authorities of more than $1 billion in allegedly improper payments by the engineering conglomerate Siemens means "the risk of prosecution has expanded greatly because it's not just the U.S.," said Philip Urofsky, a Washington defense lawyer who prosecuted such cases during his stint at the Justice Department in the 1990s.
Lawyers involved in the cases attribute the growth spurt to a steep increase in companies that are turning themselves in to prosecutors when employees or auditors flag questionable overseas payments. Companies that cooperate with prosecutors are supposed to receive leniency -- an incentive for them to come forward. One was Tyco International, which last year agreed to pay $50 million to settle a civil case over cash and gifts its Brazilian and South Korean employees lavished on authorities to win construction and water business.
Cheryl Scarboro, an associate enforcement director at the Securities and Exchange Commission, said regulators increasingly seek not only corporate fines but also the big-dollar profits that companies earn on contracts awarded because of bribes.
Yet the high costs of investigating and the trouble of gaining access to documents and witnesses overseas can complicate a company's decision to blow the whistle on itself.
Engineering giant ABB paid a $16 million fine to settle government charges, but at a conference in Paris a company executive estimated the total cost of the scandal was far higher because its own investigation ate up more than 44,000 hours of lawyer time, said Alexandra Wrage, president of TRACE International, an Annapolis nonprofit that provides anti-bribery services.
Thomas Schmidt, a spokesman for ABB, based in Zurich, said the company's investigation of suspect payments by a former subsidiary was "a very lengthy and costly exercise" that involved intense effort by a team of outside lawyers and accountants.
Increasingly, businesses may make a different calculation: choosing to take matters into their own hands by firing culpable workers and stepping up oversight of international units rather than bringing the problem to the government, which may not have sufficient resources to uncover far-flung corrupt payments without a nod from company insiders, said analysts who study the issue.
Daimler, the German company whose Mercedes unit is under scrutiny, took numerous steps to strengthen its accounting practices and hand over information to the U.S. and German governments after problems came to light, according to SEC filings. Several executives have been dismissed and one who worked in a Nigeria-based division committed suicide as the probe intensified.
Dieter Zetsche, the company's chief executive, said Daimler had invested "a huge amount of money" and management attention on the issue. "We are really going through every small corner of this company on a global basis," he told Washington Post reporters and editors at a meeting yesterday. Zetsche declined to put a price tag on the cost of the investigation, for which the firm has hired lawyers at Skadden Arps in the District, but said, "It's big. It's big."