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Increasing Coordination and More Widespread Prosecution under Anti-Bribery Laws, Contributed by Doreen Edelman and Matthew Tilghman, Baker Donelson Bearman Caldwell & Berkowitz, P.C.

Thursday, September 1, 2011

By Doreen Edelman and Matthew Tilghman, Baker Donelson Bearman Caldwell & Berkowitz, P.C.

In 1977 the U.S. Congress passed the Foreign Corrupt Practices Act (FCPA) to combat the bribery that was endemic in American businesses’ dealings abroad and had been revealed incidentally by the Watergate investigation. Since that time, a substantial transnational legal regime has arisen to prosecute companies and their employees for bribing officials of foreign governments and, more recently, for bribing private commercial parties.

Companies are now paying attention to the rapidly accelerating enforcement of the FCPA by the U.S. and to the passage and enforcement of similar laws abroad because of the high fines and targeted investigations even against individuals within companies. For example, Siemens is paying about $2 billion in fines, disgorgement, and investigation costs as the result of a joint American-German investigation.1 Companies can look forward to future foreign bribery investigations involving cooperating authorities and investigative or adjudicative proceedings in more than one country and enforcement actions that target a broader spectrum of conduct than in the past.

International Law on Foreign Bribery and Local Implementing Legislation
Thirty-eight countries are parties to the Organization for Economic Cooperation and Development (OECD) Convention on Preventing Bribery of Foreign Public Officials in International Business Transactions, and 154 countries are parties to the United Nations Convention against Corruption. Both treaties require states parties to criminalize (and to enforce their laws against) bribery of foreign public officials, as well as to assist other states parties in investigating foreign bribery; however, the OECD’s requirements are more concrete than those of the broader-based UN treaty.2

In the past year, China and Russia have both passed laws to implement the UN Convention — their own versions of the FCPA. While it remains unclear to what extent those laws will be enforced, the U.S. government and international organizations are pressuring the two developing behemoths to prosecute foreign bribery and to do so cooperatively.

Russia Agreeing to Play by the Rules
In May of 2011, after passing its foreign bribery law to comply with one of its UN Convention obligations, Russia signed the OECD Convention and was welcomed into the OECD’s anticorruption working group. The move was part of Russia’s ongoing attempt to join the OECD. Many are skeptical of Russia’s intentions because bribery of government officials is commonplace in Russia itself. However, even if Russian authorities do not initiate foreign bribery prosecutions of their own, Russian compliance with the mutual legal assistance and other coordination provisions of the OECD Convention could make other countries’ foreign bribery prosecutions more numerous and more effective.3
An FCPA for China
Earlier in 2011, China amended its existing prohibition on bribery of its own government officials and commercial bribery to include officials of foreign governments and public international organizations. This addition to China’s criminal code will enable FCPA-like prosecution of Chinese individuals, people present in China, and Chinese entities, including those that are wholly foreign-owned. Penalties would include jail time for individuals and fines for both companies and their employees who were responsible for the bribery.

If China actually enforces its foreign bribery law, it will go a long way toward accomplishing the goal of multilateral anti-bribery regimes because Chinese companies are likely the weakest link among those that compete for government contracts in the parts of the world with endemic corruption. Their principal competitors are generally subject to American, British, German, or other actively enforced prohibitions.

While the Chinese government has not yet released enforcement guidelines, which are profoundly important in Chinese law, the new foreign bribery law was the principal subject of a meeting of the China-U.S. Anticorruption Working Group that began on July 26, 2011, in Beijing.4 American officials maintained that the summit would be an exercise in information gathering for them, but David M. Luna of the State Department, the American co-chair of the working group, offered China “help to stand up enforcement and compliance programs” and in preparing for review by the UN treaty body that administers the Convention against Corruption.5

Beginning of Australian Foreign Bribery Law Enforcement
The Australian government began its enforcement of its own foreign bribery law on July 1, 2011, charging Note Printing Australia and Securency, a company of which the Reserve Bank of Australia owns 50 percent and a wholly owned subsidiary of Australia's central bank. Australian authorities have also arrested and charged seven individuals from the companies. The two firms, which peddle Australia’s sophisticated banknote materials and printing technology, are accused of having bribed officials in Malaysia, Vietnam, and Indonesia for currency printing contracts. The outcomes of these prosecutions will provide some insight into the future of Australian anti-corruption enforcement; potential penalties, especially for the individual defendants are stiff, but the Australian law requires proof beyond a reasonable doubt.6

It is telling that the Australian Federal Police have 20 investigators working full-time on the banknote case. This development of specialization in foreign bribery may lead to a dedicated enforcement team of the sort that the FBI, Department of Justice, and SEC in the U.S. and Serious Fraud Office (SFO) in the UK have.

Malaysia and Vietnam have undertaken corresponding investigations of the alleged bribe recipients, consistent with their obligations under the UN Convention, which directs states parties to investigate and prosecute bribe recipients in their own countries, as well as those who bribe foreign officials. The UK’s SFO, which enforces the UK Bribery Act of 2010, Britain’s anti-corruption treaty implementing legislation, has assisted with the Australian investigation, even arresting alleged bribe-paying agents in the UK and engaging in coordinated raids of the offices of alleged wrongdoers.

Japanese Prosecution Attempt
While Japan is one of the least active prosecutors of corruption in the OECD, Japanese prosecutors have undertaken one foreign bribery investigation of executives of Pacific Consultants International, a large Japanese consulting firm that operates in Southeast Asia, in 2011. Prosecutors suspected the executives of bribing Vietnamese government officials in order to win contracts.7

While Japanese prosecutors ended up abandoning the charges under the foreign bribery law because of a lack of access to bribe recipients, the investigation revealed tax evasion and “breach of trust,” which prosecutors are pursuing. If this flexible prosecution strategy, akin to those used in the U.S., is an indicator of what is to come, Japanese companies will have strong incentives to conform to international anti-bribery norms.

Bribery of U.S. Government Officials Prosecuted in Korea
South Korea also passed a law similar in substance to the FCPA that took effect in 1999 to implement the OECD’s anti-bribery convention. The Korean law establishes due effort to comply with the law as a defense available to corporate defendants. It provides for individual sentences of up to five years' imprisonment or fines of up to twice the profit from corrupt acts. Corporate fines can also be as high as the twice the profit resulting from the bribes.8

As of the middle of 2010, South Korea had used its foreign bribery law to prosecute at least 13 individuals. South Korea is also one of the world's most active prosecutors of companies that bribe its own government officials.

From 2001 to 2006, Gi-Hwan Jeong, the CEO of Samsung Rental Company, bribed two officials of the U.S. Government stationed in Korea to obtain and retain contracts to provide Internet service to American military forces on the peninsula. The bribes worth almost $200,000 took the forms of cash, services of prostitutes, travel, and stock options. After one of Jeong’s former employees reported the bribery to U.S. Air Force investigators, the American and Korean governments investigated. A Korean court convicted Jeong under the foreign bribery law, fined him about $10,500, and sentenced him to time served, which was 58 days.

After submitting a request under the mutual legal assistance treaty between South Korea and the U.S. for evidence from Jeong’s prosecution, ostensibly to be used against the American bribe recipients, the U.S. induced Jeong to travel to Texas to discuss money that he claimed the U.S. government still owed his company. American authorities arrested Jeong and charged him with bribing government officials and related offenses. He entered a conditional guilty plea, and the court sentenced him to five years' imprisonment and a $50,000 fine. The Fifth Circuit upheld the conviction in October of 2010, noting, essentially, that there is no prohibition on international double jeopardy.9

A Multinational Investigation with the U.S. in the Lead
The highly publicized investigation of engineering companies KBR (American), JGC (Japanese), Technip (French), and Snamprogetti (then Dutch) that ended in all four companies entering into deferred prosecution agreements with the Department of Justice or pleading guilty, in additiona to settling with the SEC, is a good example of international coordination and potential for confusion in foreign bribery law enforcement.10 The four companies controlled a joint venture called TSKJ that bribed various Nigerian government officials using bank accounts controlled by a British lawyer and a Japanese trading company in order to secure approximately $6 billion in contracts to build a liquefied natural gas facility. Bidding on and bribing for that contract began in the early 1990s.

While it was American authorities to whom the consortium members collectively paid more than $1.3 billion in fines, disgorgement, and other penalties between 2009 and 2011, TSKJ’s conduct was discovered by French prosecutors years earlier. In an investigation of a separate oil and gas foreign bribery scheme, a former executive of Technip, Georges Krammer, defended his conduct on behalf of another company, Elf-Aquataine, telling an investigating judge what he knew about Technip’s bribery practices in several parts of the world, including Nigeria.

The French investigation sparked not only the American investigation of all four companies for FCPA violations, but also the prosecutions in Texas and plea agreements of former KBR CEO Albert “Jack” Stanley and the British lawyer who actually made many of TSKJ’s corrupt payments, Jeffrey Tesler. Tesler was extradited to the U.S. by the UK for the trial, and the U.S. court ordered him to pay more than $150 million in disgorgement of profits.11 Stanley, also prosecuted in U.S. District Court in Houston, was sentenced to 84 months in prison and ordered to pay $10.8 million in restitution; however, the government agreed to recommend reductions in Stanley’s sentence in exchange for cooperation.12

Additionally, an investigation by the UK’s SFO was resolved when a British KBR subsidiary, M.W. Kellogg, agreed to pay a fine of

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