Public company foreign bribery cases rarely go to trial

You're the CEO of a global, publicly traded corporation. You've just learned that some employees may have bribed foreign government officials to help your business get contracts.

Now federal prosecutors and regulators want to see company records as part of an investigation under a law called the Foreign Corrupt Practices Act.

What do you do? In many cases, negotiate a settlement, pay a fine, and get back to business.

The scenario is a hot topic in corporate boardrooms in the wake of allegations by a former Wal-Mart official that company executives in Mexico paid millions of dollars to government officials there in a successful effort to speed the opening of new stores. The allegations, now under review by the company and federal investigators, were disclosed last month by The New York Times.

It's not yet clear what, if anything, will come of the review. But records of Foreign Corrupt Practices Act cases show publicly traded companies are leery about going to trial against the government.

"The companies that actually fight the Justice Department or the Securities and Exchange Commission are pretty few and far between," said Amy Conway-Hatcher, a former federal prosecutor who heads the Internal Investigation practice for the Kaye Scholer law firm in Washington, D.C. "You usually see corporate settlements arise out of this."

Enacted in 1977, the anti-corruption statute makes it illegal for companies and their employees to make payments to foreign government officials with the goal of obtaining or retaining business. Companies with U.S.-listed securities must also keep records that accurately reflect payments and have internal accounting controls.

From 1991 to 2010, each of the dozens of publicly traded companies criminally accused under the law has reached a settlement that enabled it to pay a fine and avoid trial, said Richard Cassin, an attorney who's the creator and principal author of the FCPA blog.

Federal case data collected by the Transactional Records Access Clearinghouse, a research organization at Syracuse University, confirm the trend.

By settling, companies sidestep negative publicity and avoid the long odds of prevailing at trial because of a legal doctrine that makes them responsible for the actions of their employees. Moreover, Cassin said deferred prosecution or non-prosecution agreements with the government often enable companies to have the case record closed, provided they cooperate with federal prosecutors.

"With that mechanism in place, companies find it attractive to resolve the cases," he said.

Criminal and civil fines imposed on corporations totaled more than $3.8 billion from 2007 to 2011, a boom era in enforcement of the anti-corruption law, according to a widely followed digest issued by the Shearman & Sterling law firm. Income from the settlements represents "a nice cottage industry" for the government, Conway-Hatcher said.

But the government has suffered bruising setbacks amid its successes. Unlike corporations, several individuals charged under the anti-corruption law have gone to trial in the last few years, and won.

Federal prosecutors grabbed headlines in 2010 when they announced an undercover sting had produced indictments of 22 executives and employees of military and law enforcement contracting firms for allegedly scheming to bribe African government officials in exchange for contracts.

But in the succeeding months, the alleged conspiracy prosecution collapsed in a mistrial, acquittals and the government's decision to drop the case.

David Krakoff, a BuckleySandler attorney who represented one of the defendants, theorized that prosecutors thought they would obtain quick guilty pleas "because they had videotapes and they had audiotapes and they had invoices going back and forth, and they had substantial e-mail contact."

That was a miscalculation, Krakoff said, because the defendants didn't know each other, which undermined the conspiracy allegation, and they dealt with an undercover agent, not a foreign government official.

"Did the money really go to a foreign official? Did it actually induce a foreign official to do something or take some action that was improper? Did the company executive actually know a bribe was going to be paid?" asked Krakoff, referring generally to potential problem issues for prosecutors. "These are real live questions, and it's not always easy to prove."

The U.S. Chamber of Commerce and other groups have called for revisions that, among other things, would enable firms with strong anti-bribery compliance systems to mount a good-faith defense if an errant employee or vendor violates anti-bribery policies without knowledge of corporate leadership. In a 2010 report titled "Restoring Balance," the Chamber of Commerce said it was unfair to hold a business criminally liable for behavior the business neither knew about nor sanctioned.

The question for companies is "how far do you have to go" to detect and correct potential violations of the anti-corruption law, Conway-Hatcher said. "What's enough, in the government's eyes? And that's not always clear. To a certain extent ... companies sometimes feel a little bit like sitting ducks."

The business group and others also contend the government has imposed exorbitant fines on companies that have run afoul of the law.

But the Shearman & Sterling digest reported in January that the average penalties over the past few years have ranged from $3 million to $33 million, "not inconsequential, but certainly not as severe and extreme as the annual total penalties might suggest."

Pointing to what he termed an expected mixture of wins and losses for both sides in Foreign Corrupt Practices Act cases, Cassin argued the government "is just doing its job."