Investigations: Record Fines for Bribery and Corruption by FCPA are setting new Standards in Compliance

Close-up Of Two Businesspeople Shaking Hands With Money


Everett Dirksen, a legendary American politician of the last century was often quoted as saying: “a billion here, a billion there, and pretty soon you’re talking about real money.”  Now, beyond quibble, the record fines in bribery and corruption cases – being almost routinely assessed or settled in a growing universe of jurisdictions – have, both individually and in the aggregate, by any measure, become “real money”.

There is no longer any ambiguity. Bribery and corruption, as a component of business expenses, has become quite costly – and this is not because bribe-takers have increased their rates.  In the last few months, civil fines and settlements of criminal investigations paid to governmental authorities by a variety of corporations across the globe have set records time after time, in amounts required to be paid as a result of their various activities, schemes and plans to engage in corruption and pay bribes.  We are, purely and simply, experiencing the organization of a new world order in anti-corruption and anti-bribery investigations and enforcement proceedings that, only now – after a 40 year gestation period of the U.S. Foreign Corrupt Practices Act (FCPA), the seminal legislation on the subject – reaches pervasively and forcefully into every deep, dark crevice of that aspect of business that, willingly or under duress, facilitates bribery and corruption of governmental officials, influence peddlers and instrumentalities, everywhere.

Last month, the end of December of 2016, recorded new, high water-mark fines and settlement charges imposed on a construction company (Odebrecht S.A., $3.5 billion fine) and a pharmaceutical producer (Teva Pharmaceuticals Industries Ltd. $519 million FCPA settlement).  But, the advent of the new year has not even hinted at a slowdown in multijurisdictional enforcement proceedings and record fines. 2017 has not missed a beat, with the UK-based aerospace firm Rolls-Royce having, just this week, been socked with an agreement to settle bribery cases with UK and US authorities in the amount of £671 million, or $825 million. The Rolls-Royce settlement is the result of an investigation, initially of bribery in China, Indonesia and other markets by Britain’s Serious Fraud Office (SFO), which started in 2012, then worked in tandem with the US Department of Justice and Brazilian regulators (the latter of whom would add an additional $26million) to the fines.

These record fines result from protracted and costly investigations of target operations that often involve the use of intermediaries – local representatives of the companies’ subject to the various external corruption investigations, who handle all aspects of sales, marketing, product and parts distribution, repair, currency conversions, maintenance and contract negotiations – including financial aspects – in countries where the controlling company does not have enough people on the ground. Moreover, as in the case of each of the record matters noted herein, from the Construction, Pharmaceutical, and Aeronautics industries, authorities from multiple, national jurisdictions have been teaming up in shared investigations and joint prosecutions, with the end game being that there will simply be no place for companies engaged in bribery and corruption to hide. As companies make the continuing mistake of trying to beat the authorities by using more and more sophisticated means of satisfying the demands of corrupt governments and officials who will “grease the skids” of market entry, so too, have anti-bribery and anti-corruption authorities become more sophisticated and more prone to work together across jurisdictional boundaries. Interestingly, Deputy Assistant Attorney General Suh, in announcing the settlement with Odebrecht and Braskem S.A. (a connected Brazilian petrochemical company) remarked that:

“Odebrecht and Braskem used a hidden, but fully functioning Odebrecht business unit – a ‘Department of Bribery’, so to speak – that systematically paid hundreds of millions of dollars to corrupt government officials in countries on three continents. Such brazen wrongdoing calls for a strong response from law enforcement, and through a strong effort with our colleagues in Brazil and Switzerland, we have seen just that. I hope that today’s action will serve as a model for future efforts.”

The Rolls-Royce settlement, a deferred prosecution agreement (which must be approved by a court) is only the third such agreement reached with the SFO since first being introduced into UK law in 2014. In a relative sense, they are just getting started. In comparison, U.S. departments and agencies (U.S. Department of Justice, U.S. Securities and Exchange Commission (SEC), the Office of Foreign Asset Control (OFAC), others) have been enormously active in corruption investigations, assessing fines, effecting settlements and driving prosecutions) for decades, and – as they have stretched jurisdictional limits to far beyond the geographic boundaries of the United States – have racked up enormous fines and settlements against a wide array of industries from many countries whose operations brush up against corruption. By way of random example, in the month before the Odebrecht settlement, a bank, JPMorgan Chase, agreed to pay $264 million to the SEC, Justice Department and Federal reserve to address charges that it “corruptly influenced governmental officials and won business in the Asia-Pacific region by giving jobs and internships to their relatives and friends”.

Branded pharmaceutical companies are caught up in investigations, prosecutions, fines and settlements as much as generic manufacturer, Teva, noted above. In September, 2016 the UK-based pharmaceutical company, GlaxoSmithKline agreed to pay a $20 million penalty to settle charges that it violated the FCPA when its China–based subsidiaries engaged in pay–to–prescribe schemes to increase sales.  AstraZeneca, the biopharmaceutical company based in the UK, agreed in August to pay more than $5 million to settle US FCPA violations resulting from improper payments made by its subsidiaries in China and Russia to foreign officials.  Indeed, the size of FCPA settlements, the number and scope of investigations, and the cost of companies’ defenses has grown dramatically every year since the first of such prosecutions in 1978. See., e.g., SEC Enforcement Actions: FCPA Cases 10.1.2017, U.S. Securities and Exchange Commission.

Not surprisingly, KNOETZL lawyers with deep, longstanding experience in the area, have seen an awakening among corporate clients with international operations and aspirations regarding corruption and bribery. Austrian companies and international companies are aware of the inexorable growth of anti-bribery and anti-corruption enforcement, and the inevitability of external investigations and prosecutions for related business practices. As there are no jurisdictions that are free of corruption, companies are coming to realize that a fuller understanding of their own internal workings and the effectiveness of their own compliance programs is essential. Activity in external investigations is clearly spiking, and protective, preventative internal investigations designed to stay ahead of the problems are following suit – often when they should lead.

Clearly, as even the late Sen. Dirksen might have acknowledged, the cost of bribery, corruption, related investigations and the development of compliance programs to avoid these problems, have become, and will continue to be, a matter of “real money”.