The Library

U.S. Government’s Aggressive Tactics Against Corruption

The U.S. government has recently expanded its reach in the fight against extraterritorial corruption using innovative theories to investigate and charge companies and individuals. In a press release by the Department of Justice on January 19, 2010 the U.S. government announced the indictment of 22 executives and employees of companies in the military and law enforcement products industry engaged in foreign corruption. In this investigation, the U.S. employed a common tactic used to prosecute narco-traffickers – undercover agents. The indictments allege that the defendants agreed to pay a bribe to an African country’s government official, through an undercover FBI agent posing as a sales representative, in order to win a $15 million sales contract of law enforcement supplies. This undercover sting operation is “the first large-scale use of undercover law enforcement techniques to uncover FCPA violators and the largest action ever undertaken by the Justice Department against individuals for FCPA violations,” stated Assistant Attorney General Lanny A. Breuer.

The Foreign Corrupt Practices Act (“FCPA”) is the statute typically used to prosecute foreign bribery. The 40 year old federal statute prohibiting the corruption of foreign officials is apparently not enough for the U.S. government to ensure that it will succeed in its bribery prosecutions. The prosecution of corruption falls within the jurisdiction of both the Department of Justice (“DOJ”), which handles criminal matters, and the Securities and Exchange Commission (“SEC”), which regulates public companies. Recently, the government has charged companies and individuals under a number of different statutes, effectively expanding the scope of prohibited acts and thereby fulfilling its promise to increase its prosecution of foreign corruption.

The DOJ has announced that it will be focusing on prosecuting health care fraud, mortgage-related fraud and public corruption – corruption being the number one priority. It has hired additional prosecutors and investigative agents to work on FCPA cases. Likewise, the SEC also announced its five areas of priority in prosecution which includes public corruption. In taking steps to increase its corruption enforcement, on January 13, 2010 the SEC announced the creation of a new unit focused on FCPA prosecution and appointing Cheryl Scarboro as its head. Ms. Scarboro has worked at the SEC for the past 14 years and is the primary SEC spokesperson on FCPA issues.

Bribery of foreign government officials is an illicit act which the DOJ and the SEC have vowed to pursue vigorously. The FCPA was drafted in the 1970’s to penalize both private and public companies which bribed foreign government officials with the corrupt intent to gain an economic advantage. It also punishes public companies who fail to accurately keep their books and records. In the past four years, the DOJ and the SEC have been extremely aggressive in their fight against foreign public corruption with the result of record-setting convictions and fines.

The aggressive prosecutions of foreign bribery has not been evidenced solely by the number of prosecutions or jail terms imposed, but also by the tools the DOJ and SEC have used in their prosecutions. In addition to an FCPA charge, other statutes with elements of proof which are easier to establish are being invoked. For example, the federal government is advancing theories of conspiracy, aiding and abetting, mail and wire fraud, and money laundering.

The DOJ has introduced a new tool in its arsenal against foreign bribery in charging U.S. citizens, both persons and corporations, with violations under the Travel Act, (18 U.S.C. SS 1952(a), (b)). The Travel Act prohibits the traveling in interstate or foreign commerce, or the use of facilities found in interstate commerce, such as wires or mail, to promote, facilitate, or carry on unlawful activities including gambling, prostitution, narcotics and liquor offenses, bribery, extortion, arson and illegal monetary transactions. DOJ typically uses this statute to prosecute private commercial bribery in the U.S. – actions which traditionally have been the domain of state district attorneys. This statute expands the federal government’s jurisdiction to private commercial bribery and public bribery in foreign countries. Under the Travel Act, DOJ has the additional advantage that it no longer has to prove that the alleged bribery was offered to a foreign official. Many business arrangements involve private companies that are intertwined with foreign governments. The “state-owned enterprise” in China and the former Soviet Block countries is a perfect example. It is often difficult in such commercial environments to determine whether the entity with which a company is doing business is government-controlled or a private venture. Thus, by charging an offense under the Travel Act, the government avoids the often difficult task of proving that a bribe was offered to a “foreign government official.”

Additionally, if the U.S. government continues its current trend, it will be eliminating the requirement of proving that a defendant had a “corrupt intent” when offering a bribe. A few months ago, in the SEC’s prosecution against Nature’s Sunshine Products, Inc., the SEC charged two executives of a U.S. parent company with an FCPA violation committed by its foreign subsidiary in a foreign country employing the novel concept under the FCPA of strict liability. The SEC maintained that because the defendant-executives were in a position of control they were strictly liable for the acts committed by their employees or agents in a foreign land. Neither executive had knowledge of the bribery nor even a reasonable suspicion of the acts committed. The mere fact that they were executives exposed them to individual civil liability.

The concept of “strict liability” is often used in cases involving hazardous or inherently dangerous activities like explosives or the distribution of food or medicine. In those circumstances, a company’s negligent act may result in extensive harm to the public. No one is in a better position to take the necessary precaution to avoid a disaster than the executives of the company involved in the dangerous activity. By using the strict liability concept in the context of foreign corruption, the SEC has begun to charge executives of public companies in the same manner as if the companies were engaged in a hazardous activity.

Companies doing international business through agents, third party representatives, or through related foreign affiliates are at risk of exposure to harsh penalties under the FCPA, the Travel Act and other statutes. Thus, it is imperative for companies to implement an effective FCPA Compliance Program that is continuously monitored and frequently audited. The only method to avoid or mitigate civil and criminal liability is by proving to the government that a company‘s corporate culture and internal controls do not tolerate corruption.

For questions or comments, please contact Lourdes Sanchez Ridge at 412.394.2462 or lridge@thorpreed.com.

This Thorp Reed & Armstrong, LLP Communiqué is prepared in summary form and is not to be construed as legal advice or opinion on any specific fact or circumstance.^[1] We do not assume any responsibility to revise the Communiqué if there are subsequent changes in the law.

January 2010

[1] Editorial assistance provided by the following Thorp Reed & Armstrong attorneys: John P. Donohue, Esq., Partner and Alice B. Mitinger, Esq., Senior Counsel.