Ocnus.Net
The New Business Watergate
By Philip Mattera, Corporate Research 18/12/.
Dec 27, 2007 - 11:03:13 AM
Chevron has recently been spending heavily on a public
relations campaign titled “the Power of Human Energy” to depict itself as a
leader in environmental and social responsibility. This image-burnishing effort
faced a setback last month when the company was forced to pay $30 million to
settle federal charges that it made illegal kickback payments to prewar Iraq in
connection with crude oil purchases under the United Nations Oil-for-Food
Program.
Chevron is just one of dozens of corporations that have been caught up in a
move by the Securities and Exchange Commission and the Department of Justice to
step up enforcement of a law prohibiting overseas bribery by U.S.-based
corporations. The law—the Foreign Corrupt Practices Act or FCPA—can also be
applied to foreign companies with a substantial presence in the United States.
There have been reports that electronic and engineering giant Siemens, which
recently paid a fine of around $300 million in a global bribery investigation
by a German court, may soon be hit with FCPA charges as well.
The rise in FCPA enforcement emerged just as the prosecution of the wave of
accounting scandals starting with Enron was winding down. In fact, the limited
reforms enacted in response to those scandals—especially the Sarbanes-Oxley
Act—have helped bring to light much of the information on which the recent FCPA
cases are based. Business apologists who hoped that the public was forgetting
about corporate crime now have to deal with new reminders of the sleazy aspects
of commerce.
THE “BUSINESS WATERGATE”
It is often forgotten that the Watergate scandal of the 1970s was not only
about the misdeeds of the Nixon Administration. Investigations by the Senate
and the Watergate Special Prosecutor forced companies such as 3M, American
Airlines and Goodyear Tire & Rubber to admit that they or their executives had
made illegal contributions to the infamous Committee to Re-Elect the President.
Subsequent inquiries into illegal payments of all kinds led to revelations that
companies such as Lockheed, Northrop and Gulf Oil had engaged in widespread
foreign bribery. Under pressure from the SEC, more than 150 publicly traded
companies admitted that they had been involved in questionable overseas
payments or outright bribes to obtain contracts from foreign governments. A
1976 tally by the Council on Economic Priorities found that more than $300
million in such payments had been disclosed in what some were calling “the
Business Watergate.”
While some observers insisted that a certain amount of baksheesh was necessary
to making deals in many parts of the world, Congress responded to the
revelations by enacting the FCPA in late 1977. For the first time, bribery of
foreign government officials was a criminal offense under U.S. law, with fines
up to $1 million and prison sentences of up to five years.
The ink was barely dry on the FCPA when U.S. corporations began to complain
that it was putting them at a competitive disadvantage. The Carter
Administration’s Justice Department responded by signaling that it would not be
enforcing the FCPA too vigorously. That was one Carter policy that the Reagan
Administration was willing to adopt. In fact, Reagan’s trade representative
Bill Brock led an effort to get Congress to weaken the law, but the initiative
failed.
The Clinton Administration took a different approach—trying to get other
countries to adopt rules similar to the FCPA. In 1997 the industrial countries
belonging to the Organization for Economic Cooperation and Development reached
agreement on an anti-bribery convention. In subsequent years, the number of
FCPA cases remained at a miniscule level—only a handful a year. Optimists were
claiming this was because the law was having a remarkable deterrent effect.
Skeptics said that companies were being more careful to conceal their bribes,
and prosecutors were focused elsewhere.
Any illusion that commercial bribery was a rarity was dispelled in 2005, when
former Federal Reserve Chairman Paul Volcker released the final results of the
investigation he had been asked to conduct of the Oil-for-Food Program.
Volcker’s group found that more than half of the 4,500 companies participating
in the program—which was supposed to ease the impact of Western sanctions on
Iraq—had paid illegal surcharges and kickbacks to the government of Saddam
Hussein. Among those companies were Siemens, DaimlerChrysler and the French
bank BNP Paribas.
THE REBIRTH OF FCPA PROSECUTIONS
The Volcker investigation, the OECD convention, the Sarbanes-Oxley law and
other factors together breathed new life into FCPA enforcement. Stricter
internal controls mandated by Sarbanes-Oxley have made it more difficult for
improper payments to be concealed, prompting numerous companies to self-report
FCPA violations in the hope of receiving more lenient treatment.
In 2005 the number of FCPA prosecutions started to pick up and reached double
digits the following year. This year the number of investigations has
reportedly been in the dozens, and the resolved cases have gained higher
visibility. Among these have been the following:
* Three subsidiaries of British oil services company Vetco
International pleaded guilty to FCPA violations in Nigeria and agreed to
pay a total of $26 million in criminal fines. This was the largest criminal
penalty the Justice Department had ever obtained in an FCPA case.
* Oil & gas distributor El Paso Corporation settled FCPA
charges in connection with the Oil-for-Food Program and agreed to disgorge $5.5
million in profits and pay a civil penalty of $2.2 million.
* Dow Chemical paid a $325,000 civil penalty to settle FCPA
charges relating to improper payments made by an Indian subsidiary in the late
1990s.
* A subsidiary of oil services company Baker Hughes pleaded
guilty to FCPA charges involving bribery in Kazakhstan and paid a criminal fine
of $11 million. In related SEC charges, Baker Hughes agreed to pay more than
$44 million in criminal fines, civil penalties and disgorgement of profits.
This became the new record for FCPA-related penalties.
* Textron Inc. paid more than $3.5 million to settle FCPA
charges relating to kickback payments made by a subsidiary to obtain contracts
for the sale of humanitarian goods to Iraq under the Oil-for-Food Program.
* Industrial equipment company Ingersoll-Rand agreed to pay
more than $4.2 million to settle FCPA charges that four of its subsidiaries
made kickback payments in connection with the Oil-for-Food Program sale of
humanitarian goods.
FOREIGN COMPANIES IN THE FCPA NET
While the recent rash of FCPA cases has drawn little attention in the United
States, the Siemens case has generated a major scandal in Europe. Last year,
more than 200 police officers participated in a raid of company offices and
homes of managers. Prosecutors in Italy and Switzerland joined in the
investigation, which focused on suspicious transactions at the company’s
telecommunications equipment unit reportedly totaling more than $2 billion.
The outcry over the bribery charges (and separate controversies over matters
such as price-fixing) forced both the chief executive of Siemens and the
chairman of its supervisory board to announce their resignation. In October the
company agreed to a $300 million fine, hoping that the controversy would die
down. But in November the Wall Street Journal gained access to the unpublished
court ruling in the case, which provided embarrassing details about the payment
of bribes in Nigeria, Libya and Russia. Subsequently, Business Week Online
reported that FCPA charges in the United States could generate penalties for
Siemens much harsher than what it experienced at home.
Siemens is not the only European company whose bribery problems are becoming an
issue in the United States. Earlier this year there were reports that U.S.
prosecutors have been investigating improper payments by major military
contractor BAE Systems (formerly British Aerospace), including some reportedly
involving Prince Bandar bin Sultan, former Saudi ambassador to the United
States and a close ally of the Bush Administration, as well as other members of
the Saudi royal family.
A quarter century after the Watergate investigation revealed a culture of
corruption in the foreign dealings of major corporations, the new wave of FCPA
prosecutions suggests that little has changed. There is one difference,
however. Whereas the bribery revelations of the 1970s elicited a public outcry,
the recent cases have generated little comment in the United States. Companies
like Chevron pay their fine and go right on using their ad campaigns to present
themselves as paragons of virtue. It took years for the reputation of Richard
Nixon to recover from the taint of Watergate in the eyes of mainstream
observers. Corporate America seems to be able to purchase instantaneous
redemption.
Source: Ocnus.net 2007