The U.S. anti-bribery law that Wal-Mart may have violated in Mexico has ensnared leading companies from virtually every sector of the economy as federal prosecutors increasingly crack down on a wide range of transgressions, from improper accounting to giving foreign officials computers and bags of cash.
The list of those facing federal bribery inquiries stretches well beyond 100 and includes prominent names such as Pfizer, 3M, Goldman Sachs and Alcoa. Even icons of corporate responsibility such as General Electric and IBM have paid hefty sums to settle allegations, part of a broader effort that has netted the government billions in fines in recent years and landed some executives in prison.
Corporate America has mounted a well-funded lobbying campaign in recent years to persuade Congress to make changes to the law, known as the Foreign Corrupt Practices Act (FCPA) of 1977. That effort now appears stalled amid the outcry over allegations that Wal-Mart engaged in rampant bribery of officials in Mexico.
But the fight over how the law is enforced continues to intensify as the number of enforcement actions increases, from two in 2004 to 48 in 2010. Another significant jump is expected in 2012.
The Justice Department “is looking at another banner year,” Michael Volkov, a former federal prosecutor turned defense lawyer, wrote recently on the blog he maintains about FCPA issues. “Big cases are likely to start appearing on the radar screen. . . . Pharmaceutical and medical device companies are still being hammered. Movie studios may now be under the gun for activities in China. . . . The mill is churning.”
The enforcement spike has drawn praise from Secretary of State Hillary Rodham Clinton and other administration officials, who have hailed its impact in fighting corruption overseas. But it also has produced persistent and growing complaints from multinational companies, who argue that the law leaves too much uncertainty about what qualifies as bribery and that the government’s impulse to prosecute threatens to undermine U.S. competitiveness abroad.
Company officials and their advocates complain about what they see as murky language in the statute on issues such as who qualifies as a foreign official and the liability a parent company has for the behavior of subsidiaries.
The lobbying effort to amend or clarify parts of the law has been headed by the U.S. Chamber of Commerce, which is outspoken in ways that individual companies are not. Several companies that are under investigation or have settled declined to comment beyond what they have disclosed in Securities and Exchange Commission filings.
The Chamber’s lobbying effort is centered in its Institute for Legal Reform, governed by a board of 40 corporate executives, at least 10 of whom represent firms that have been the subject of FCPA probes. Chamber officials say the issue is a priority for many of its members, whether they have been charged with violations or not.
Over the past two years, the Chamber has made slow but steady progress on Capitol Hill, where a lobbying team led by former U.S. attorney general Michael Mukasey met with key lawmakers and their staffs to outline potential legislative and executive branch changes.
The Chamber developed an early consensus among a handful of legislators about the need to clarify details about the law’s enforcement. But those small gains, many observers say, have eroded, partly because of public anger over the Wal-Mart bribery allegations, first reported last month by the New York Times.
“Nobody has any interest in tackling this” on Capitol Hill, said Volkov, who once worked in Congress. “Politically, it is so charged.”
In addition, congressional staffers who requested anonymity said even lawmakers who had shown an interest in introducing new legislation do not want to touch the now-volatile topic during an election year.
That does not mean the legal struggle has ceased. The Justice Department in coming weeks is expected to issue highly anticipated new guidance on the FCPA that could address some of the business community’s concerns.
“There is nothing wrong with ramping up enforcement when a statute and enforcement rules are clear,” Mukasey said in a recent interview. “But when the ramping up exposes things that can be improved in the statute, then it is important to consider them. A lot has changed since this law was passed in the 1970s.”
Back then, it had become clear that U.S. companies had paid bribes overseas and used duplicitous accounting techniques to account for the expenses. Sen. William Proxmire, the reform-minded Democrat from Wisconsin, led the effort to make overseas bribery a punishable offense. After the bill’s passage, federal prosectors pursued a string of mostly successful cases. Along with that came a push to roll back or amend parts of the law.
Some of those efforts were ridiculed by advocates of the law as a “bring back bribery” campaign, said Stanley Sporkin, the former chief of enforcement at the SEC who co-wrote the original statute.
The rapid increase in FCPA investigations in the past decade springs from several sources. After Sept. 11, 2001, the George W. Bush administration placed new emphasis on prosecuting corruption overseas.
In 2009, the SEC set up a separate FCPA unit and gave the enforcement staff new authority to issue subpoenas. In 2010, the Dodd-Frank financial regulatory legislation provided large financial incentives to whistleblowers who flag corporate wrongdoing, a change that has led to a wave of credible new leads.
Perhaps the most important factor explaining the growth in prosecutions is a snowball effect — to reduce penalties, companies under investigation often provide information about other firms engaged in bribery, thus triggering new investigations.
That has led to an emerging phenomenon — probes of entire industries rather than just individual companies. Last year, for example, when Johnson & Johnson resolved a long-standing investigation with the Justice Department, it vowed “to continue to cooperate with the Department in the Department’s investigations of other companies,” according to the agreement.
That type of arrangement suggests that the case “provided a point of entry for an industry-wide sweep,” said Mike Koehler, a Butler University law professor who writes frequently about the FCPA.
That cooperation is thought to have led to SEC and Justice Department inquiries into a dozen drug and medical device firms.
Meanwhile, the film industry has emerged as another sector touched by the growing reach of the FCPA. Some prominent Hollywood studios have received preliminary letters of inquiry from federal authorities about business deals in China.
To critics, the increased enforcement risks inhibiting U.S. companies in emerging markets where bribes are commonplace, and they argue that officials often come down too hard on firms that quickly report and halt misbehavior. They point to companies such as Avon, the beauty products firm, which has spent more than $225 million in legal fees in recent years, in part to investigate itself after the firm voluntarily reported potential bribery violations in China.
Sporkin, the former SEC enforcement chief, said that might simply be the price American firms will have to pay as they choose to expand into riskier but highly profitable emerging markets.
Despite vehement disagreement on both sides, there seem to be slivers of common ground. Sporkin and other defenders of the law say the Justice Department should offer a measure of leniency to companies that demonstrably attempt to comply with the anti-briberies statute. He and other enforcement veterans have suggested a sort of immunity program for companies with strong compliance records.
Close watchers of FCPA enforcement say that might already be happening.
Last week, the SEC and Justice Department announced charges in an investigation of Morgan Stanley and its activities in China. The government did not charge the company itself but specified one company official, a managing director of the firm’s real estate investment and fund advisory business in China.
“Morgan Stanley was conspicuously not charged, and their decision was a bold endorsement of the company’s compliance effort,” said David Smyth, a former SEC enforcement official now representing corporate clients for a firm in North Carolina.
Smyth noted that the SEC’s complaint cited laudable elements of Morgan Stanley’s compliance program and identified the charged individual as a “rogue employee.” He interpreted that as a message from prosecutors to corporations “that if you’re as serious about compliance as Morgan Stanley seems to have been, that you will be okay.”