‘Carbon copy’ cases in other countries emerging as new risk for companies violating US FCPA

Not long ago, executives of companies accused of violating the US Foreign Corrupt Practices Act could breathe a sigh of relief if they reached a settlement with US regulators and enforcement agencies. In all likelihood, that meant their problems linked to their corrupt activities overseas were over.

A company’s main worry in an FCPA case was whether the US Department of Justice and the Securities and Exchange Commission would impose penalties. In recent years, however, the list of regulatory and enforcement agencies that pursue companies accused of making foreign corrupt payments has grown, primarily beyond US borders.
Increasingly, companies now face the threat of several countries bringing criminal, civil or regulatory actions concerning the same corrupt payments.

‘Copycat’ cases growing where corruption occurred

This trend has been labeled “copycat” or “carbon copy” enforcement. As more countries begin or expand their anti-corruption efforts, carbon copy enforcements will add new concerns to the work agendas of legal, compliance, risk management and international departments of corporations.

“These types of prosecutions are definitely growing,” says Michael Koehler, the author of the FCPA Professor blog and a professor at Southern Illinois School of Law.

“For most of the FCPA’s history, it used to be the case that once [a company] settled with the Justice Department and SEC, it could sleep comfortably,” Kohler continued. “That’s changed. The US is still taking the lead in most of these cases, but it’s no longer the only one involved.”

Nigerian scandal started the trend

Carbon copy cases first exploded into public view in 2010 with the so-called Bonny Island scandal in Nigeria. Five companies—Technip SA, Snamprogetti, JCG Corporation and the former Halliburton subsidiary, KBR—paid $180 million in bribes from 1994 to 2004to officials of a state-owned Nigerian oil company. The payments were made to secure a $6 billion contract to build a natural gas plant on Bonny Island, which lies off Nigeria’s coast.

After a two-year investigation by the US Justice Department and SEC, the companies settled various FCPA enforcement actions for a combined $1.5 billion. The penalties did not end there. In the wake of these settlements, Nigerian prosecutors followed with criminal charges against the companies and Halliburton executives in late 2010. They alleged that by conspiring to bribe public officials they violated Nigerian law, as well.

The cases were built largely on the same evidence that had been uncovered in the US actions. In 2011, Nigerian prosecutors settled the cases, imposing fines of $35 million on Halliburton, $32.5 million on Snamprogetti, and $28 million on JCG Corporation.

While the total fines of $95.5 million were dwarfed by the US penalties, the case opened a new dimension of exposure to prosecution in the nations where the corruption occurs.

UK is a likely venue for carbon copy cases

Since then, other nations have joined the carbon copy hunt. In late 2010, Alcatel-Lucent agreed to pay $137 million to the US Justice Department and SEC to settle FCPA criminal charges tied to its bribery of officials in Costa Rica, Honduras, Malaysia and Taiwan. Piggybacking on the US case, Costa Rica brought its own corruption charges against the Paris-based telecommunications giant. It secured a modest $10 million settlement with the company.

The United Kingdom has also emerged as a major FCPA carbon copy case venue. In March 2010, US chemical manufacturer, Innospec, paid a $27.5 million fine in a case brought by the US Justice Department and SEC. Simultaneously, it reached a $12.7 million settlement with the UK Serious Fraud Office (SFO).

The SFO case was triggered by a referral from the US Justice Department in 2007 and was built in part on evidence used in the US investigations, according to Justice Department statements.

Notably, the SFO was able to secure its settlement even though Innospec’s bribery took place in Indonesia and Iraq, and not in Great Britain. At the time, the SFO called it the “first ‘global settlement’ reached” in conjunction with US agencies.

Corruption cases mirror international antitrust cooperation

Some commentators say the rise in carbon copy cases signals a shift in anti-corruption enforcement toward greater international cooperation, similar to what has taken place in other areas of financial crime.

“This is exactly what we’ve seen in other areas, especially antitrust,” says Milos Barutciski, a partner at Bennet Jones, in Toronto, and co-head of the firm’s international trade practice. “Twenty years ago, every country pursued its own antitrust cases, and that was it.”

“From the early ‘90s onward, we started to see much more international cooperation,” he continued. “Now, when one jurisdiction brings a case, everyone else picks up on it.”

Barutciski says that like antitrust cases, corruption cases often involve multinational companies, making cross-border cooperation advantageous or even necessary in enforcement actions.

“In antitrust, it’s no longer just copycat cases, but enforcement agencies in multiple jurisdictions working together in parallel investigations,” he says. “That’s the direction this is likely to go in.”

Developing nations, which are victims of bribery, seek payouts

Another motivator, particularly for cash-strapped developing nations, is the size of the penalties that frequently arise in corruption cases.

“Other countries have learned there’s a lot of money to be made in prosecuting for bribery,” law professor Koehler says. He says the growing media coverage of FCPA cases has stimulated this. The coverage has brought major US FCPA fines and settlements to the attention of other nations and prodded them into action.

“This is an area of law that’s widely covered,” says Koehler. “The FCPA seems to attract a disproportionate amount of media attention.”

“If Company A is making worldwide news that it bribed Nigerian officials, Nigeria’s got to do something,” he continues. “It’s embarrassing, and it brings tremendous political pressure to act on these cases in the countries where the bribes took place.”

Copycat cases raise question of self-disclosure

For corporations that uncover evidence of bribery in their own internal investigations, the trend toward carbon copy enforcement may make disclosure of FCPA violations more painful and expensive. Yet, now facing enforcement pressure and actions from other nations, companies have few options.

“In my experience, it’s always better to deal with [corruption issues] proactively, rather than wait for jurisdictions A, B, and C to pile on and bring separate cases,” says Barutciski.

Whether carbon copy cases discourage or deter corruption is impossible to tell.

“It’s certainly generating a huge amount of enforcement activity, but it’s too early to tell if it’s driving out the problem,” Barutciski says. “Corporate executives are starting to see the potential exposure and liability. But I don’t think the proof is in yet.”