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ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
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June 18, 2007 12:01 AM ET
With federal agencies ramping up enforcement efforts related to anti-bribery cases, the Foreign Corrupt Practices Act is starting to give Sarbanes-Oxley a run for its money as a source of corporate consternation. That’s because loopholes in the law allow certain offenders to get off without even a slap on the wrist, while other provisions lead to excessive prosecution, sources say. The FCPA prohibits U.S. companies and foreign companies listed on U.S. exchanges from bribing foreign officials to win or retain business. The law has been used in current cases against Halliburton and DaimlerChrysler, and played a part in the recent indictment of Rep. William Jefferson (D-La.), who was found last year with $90,000 in his freezer, allegedly to help a U.S. technology company gain entry into African markets. There’s still “work out there to be done,” said John Roth, director of the Justice Department’s fraud and public corruption section for the U.S. Attorney’s Office in Washington, who spoke at a recent conference. “This is an area where it is easy for companies to skirt the law, profitable for them to skirt the law,” he said. It’s also an area of developing law, Mr. Roth said, which makes it impossible for the DOJ to issue guidelines on how to properly comply with the statute. The increasingly global market has led to multiple cooks—the DOJ, the Federal Bureau of Investigation, which recently established a section of agents to focus on FCPA cases, the Securities and Exchange Commission, as well as international and foreign authorities—crowding the enforcement kitchen. The result is a confusing mix of regulation, case law and best practices. One area of confusion surrounds an exemption allowing corporate gifts or payments for routine business, such as obtaining permits or police protection. Dubbed “grease payments,” some experts say they are ingrained in some countries’ cultures, China being an example. Others consider grease payments a loophole that lets companies get away with what amounts to nominal bribery. Some DOJ officials have claimed that grease payments are not allowed in all cases, but more and more companies are disclosing them, according to critics. Companies like Halliburton are brazenly disclosing grease payments in many cases because they don’t fear enforcement action, said Charlie Cray, director of the Center for Corporate Policy. The center, a self-described non-partisan corporate watchdog group, has called for the grease payments exemption to be removed and has specifically targeted Halliburton for its involvement in Nigeria. When the FCPA was passed, Congress specifically mandated that certain routine payments be allowed. A DOJ official, who asked not to be named, said grease payments are typically smaller than bribes and that the loophole exists because “investigators need to live in the real world.” However, the payments are a noted “corrosive factor” in business, and investigators are now focusing on them, the official said. Joshua Hochberg, a partner with McKenna Long & Aldridge and former chief of the DOJ’s fraud section, said grease payments are “bribery with a little b,” but noted that they are usually analogous to tipping in some countries. It’s when grease payments reach into the thousands of dollars that authorities start to pay attention, said Sharie Brown, a partner at Foley & Lardner. The DOJ has prosecuted cases in which only $5,000 was involved, and many companies now require employees to report such payments, she said in an interview from South Africa, where she was conducting an FCPA investigation of a company she declined to name. While some companies may escape FCPA enforcement, others might get roped into cases through minor record-keeping errors, which can often lead to more settlements with prosecutors. The SEC handles the accounting provisions, and it has had some high-profile cases, such as the settlement in April with Baker Hughes. Companies often self-report books and records and bribery issues to lessen penalties, according to Walter Ricciardi, deputy director of SEC enforcement. However, he said that FCPA cases involve not just record-keeping provisions, but evidence of improper payments as well. The bookkeeping violations alone can warrant 20 years in prison, though, a penalty that serves as an incentive for companies to self-report. As a result, almost no FCPA cases ever get tried, and instead are settled, said Homer Moyer, a partner with Miller & Chevalier who has served as a compliance consultant in FCPA cases. “It’s easier to prove books and records [violations] than bribery, absolutely.” Because of that ease, regulators sometimes drop bribery allegations altogether to focus on minor books and records issues, especially when it involves payments to third-party brokers. For example, the Baker Hughes case involved allegations of bribery in Kazakhstan, but it also included books and records charges in other countries where bribery was not alleged, Mr. Moyer said. Some countries require companies to use local brokers to conduct business, but those companies still need to perform due diligence on the middlemen to ensure they are competent and necessary, Mr. Hochberg said. Companies are often asked to self-report broker certifications to prove that due diligence occurred. Self-reporting isn’t the only source of cases for the government. Experts say the World Bank is now one of the leading sources of FCPA cases for the U.S. government, as it encourages contractors to provide information about allegations of bribery from competitors. “They are the DOJ’s best friend now,” Ms. Brown said, referring to the World Bank. FW
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