[Some US companies doing business in China are walking on the line—-the Foreign Corrupt Practices Act of 1977 (FCPA 1977) may nail them down once they are put under strict scrutiny. Think about this–how often do their managers hesitate to pay for a dinner to celebrate a deal, or to present a gift to honor the Chinese New Year? These payments, often being considered as business routine, are criminal under FCPA 1977. Great legal risks surround these US companies as they follow the local business routine.
These risks are not just for the US companies–they are probably more immediate for the Chinese companies listed in the US. ]
Federal act exposed bribery in corporations
By Rick Stouffer
TRIBUNE-REVIEW
Sunday, February 24, 2008
Claude C. Wild Jr., once Gulf Oil Corp.’s lone Washington lobbyist, was known in the 1960s and early 1970s, his attorney, Pittsburgher William Hundley has said, for distributing envelopes stuffed with cash to politicians.
After the Watergate scandal, his actions helped Congress realize a number of American corporations were using off-the-financial-books “slush funds” to dole out thousands of dollars in this country and abroad to curry favor and win contracts.
The Foreign Corrupt Practices Act of 1977 was written to stop bribery, “greased” palms and kickbacks by U.S. companies dealing with public and private officials overseas. The act is designed to punish guilty parties, through fines, give-back of related profits, even jail time for individuals.
The costs for violations can be astronomical. Siemens AG, which for two years has been under the microscope in the United States and a number of other countries for alleged improprieties, may be asked to cough up nearly $5 billion because it broke the rules, according to unnamed members of Siemen’s board, quoted last month in the German business magazine WirtshaftsWoche.
The impact of the Foreign Corrupt Practices Act was felt again locally last week when Wabtec Corp., the Wilmerding-based railroad equipment maker, disclosed agreements with the Department of Justice and Securities and Exchange Commission. The company will pay $677,000 in penalties, interest and give-back of profits related to bribes in India.
More than 30 years after the law went into effect, its primary investigators/prosecutors, the Justice Department and the SEC, are stepping up their efforts. Large and small companies in Pittsburgh and elsewhere have on staff people whose job is to make sure rules are followed.
The act has been amended since 1977, and allows foreign issuers of securities and even individuals to be investigated and prosecuted.
Between 1977 and 2000, about 40 violations of the Foreign Corrupt Practices Act were successfully prosecuted. Between 2001 and in October, that figure jumped to 43 prosecutions, plus 32 SEC actions, which included probation, fines and disgorgement, or give-back, of profits related to the violation. And that doesn’t include possible tax ramifications linked to violations.
“One of the big successes that both Justice and the SEC have enjoyed is that they’ve gotten companies to self-report, to self-disclose problems following an internal investigation before the agencies must investigate,” said Matthew J. Fader, a partner in the Pittsburgh office of law firm Kirkpatrick & Lockhart Preston Gates Ellis LLP. “The government has tried to show that if a company does an internal investigation, taken steps to clean up the problem, that it’s in the company’s best interest.”
Wabtec started such an internal investigation in January 2006. It looked at efforts of Wabtec subsidiary Pioneer Friction Ltd. to obtain and retain business from India’s national railway system.
Between 2001 and 2005, Pioneer made $137,467 in improper payments to officials in India, according to an SEC lawsuit. On Friday, Wabtec said that it, the Justice Department and SEC reached an agreement in which Wabtec will pay the $677,000 in fines, interest, penalties and give-back of profits. The company agreed to put in place controls so that such problems don’t recur.
Some experts say the agencies are pushing usage of what Reed Smith attorney Jason Matechak called their “business bludgeon” — to a point where companies must think long and hard to determine if a dinner to celebrate a deal, or presenting a gift to honor the Chinese New Year, is criminal.
“It’s a tough area of law; there are a lot of smoke and mirrors,” said Alexandra Wrage, president of Trace International Inc. of Annapolis, Md. Trace is a nonprofit association that specializes in anti-bribery reviews and compliance training for sales agents, representatives, consultants, distributors and suppliers. Companies join Trace to insure the people they deal with overseas are ethical and honest, and to keep them from crossing the corrupt practice act line.
“I would argue that the act after a while can be anti-business,” Wrage said. “There’s talk of companies fretting about things like legitimately bringing customers over here, after they’ve been sold equipment, to learn how to use it. Or even ordering in deli meals because they don’t want to take a chance of spending too much money on a restaurant meal.”
Gulf Oil isn’t the only Pittsburgh link to dirty dealing. Once an international conglomerate, the former Westinghouse Electric Corp. in 1988 was sued by the Philippines, accused of bribing former President Ferdinand E. Marcos to win a contract to build a nuclear power plant near Manilla.
The federal suit contended that Westinghouse paid Marcos’ friend Herminio T. Disini $17.3 million that he shared with Marcos either directly or indirectly since Marcos owned stakes in Disini’s companies. Five years later, the two sides agreed to an out-of-court settlement.
Experts said few cases actually go to trial, most end in an out-of-court resolution, primarily because no company wants to see its name dragged through mud for handing out bribes, kickbacks or greasing a few foreign palms with dollars.
“We have an ethics and compliance hotline that anyone can call if they have a question about what is and isn’t allowed,” said John Kraus, vice president of corporate governance, compliance and ethics at the H.J. Heinz Co. in Pittsburgh. Kraus’s unit maintains constant communication with Heinz executives, publishes a newsletter, and he himself meets with top Heinz people around the world to make sure policies and procedures are kept. About 60 percent of Heinz’s sales come from business overseas.
Possible criminal intent?
A handful of companies with Western Pennsylvania connections are involved with the Foreign Corrupt Practices Act:
• ABB Ltd., during the years 1998 to 2003, allegedly paid officials in Angola and Nigeria $1.1 million and was penalized $26.9 million, according to data collected by the law firm Shearman & Sterling LLP, New York.
• BAE Systems Plc, beginning in the 1980s, allegedly ran afoul of the Foreign Corrupt Practices Act but no payment to foreign officials or penalty has been determined, as the federal investigation continues.
• Siemens AG, beginning in the late 1990s allegedly was handing out bribes in China, Germany, Greece, Hungary, Indonesia, Switzerland, Liechenstein, Israel, Italy, Norway, Nigeria and Russia. It’s estimated some $1.9 billion in bribes were distributed.
Rick Stouffer can be reached at rstouffer@tribweb.com or 412-320-7853.