Shearman & Sterling's FCPA Digest, Web Site Report More Than $1.7 Billion in Fines

NEW YORK, Jan. 24, 2011 /PRNewswire/ -- In a series of investigations and enforcement actions intended to keep companies on alert over bribery and corruption practices, the US Department of Justice and the US Securities and Exchange Commission in 2010 brought a record number of Foreign Corrupt Practices Act (FCPA) enforcement actions against large corporations and collected a record of over $1.7 billion in total penalties. Of particular significance, many of these actions were against non-US companies, which accounted for over 90 percent of the penalties. According to global law firm Shearman & Sterling's semiannual report, Recent Trends and Patterns in FCPA Enforcement, the US actions against non-US companies, coupled with other global developments, including the new UK Bribery Law, significantly raise the risk of multilateral prosecutions of US and non-US companies.

The Trends and Patterns report is part of Shearman & Sterling's renowned FCPA Digest, which is also available as an online, searchable database at http://fcpa.shearman.com/. Users can access the on-line database to identify enforcement actions by a number of risk-based criteria, including geography, industry sector, and types of intermediaries and then generate a personalized "mini-Digest" for their own use. In addition, users can access the original source documents relating to the enforcement actions, including indictments, deferred prosecution agreements and other relevant pleadings.

"The DOJ's and SEC's message in 2010 was loud and clear: where foreign enforcement authorities fail to take credible action, the US authorities will use all available investigative and enforcement tools to bring companies within their jurisdiction and to enforce US and global anti-corruption agreements," says Philip Urofsky, a Washington-based partner at Shearman & Sterling and head of the firm's FCPA and Global Anti-Corruption Practice. "That message was targeted at non-US companies and at particular industries (tobacco wholesalers and pharmaceuticals, for example), with the US authorities both showing the long arm of the statute to demonstrate both the risks of paying bribes but, as importantly, the risk of not implementing appropriate anti-corruption controls and compliance programs and then monitoring their effectiveness in the field."

Adds Danforth Newcomb, the New York-based founder of Shearman & Sterling's FCPA practice, "Moreover, in many cases this year, the US government seems to have deliberately sought to provide specific guidance to US and non-US companies on what it views as the necessary elements of an effective compliance program. These elements include rigorous due diligence on third parties, controls over marketing entertainment and expenses, and internal self-monitoring."

According to the "Trends and Patterns" report, the increased number of prosecutions suggests an intensified effort on the part of the Obama Administration to connect US world-leading efforts with new and renewed anti-corruption activities by other enforcement bodies.

The most significant initiative comes out of the UK, where the UK Parliament finally enacted, in the waning days of the Labour government, a modern anti-bribery statute, with expansive jurisdiction and broad scope. One of the statute's unique provisions, applicable only to companies and partnerships, is an offense of "failing to prevent bribery," punishable by up to an unlimited fine, but with an affirmative defense of having "adequate procedures."

"This is a long time coming," says Urofsky, who maintains an office in London. "The more agencies on board and connected to stifle bribery and corruption, the better it is for companies doing business the right way. We are even beginning to see cases of US enforcement agencies deferring to other countries' enforcement authorities. That's a very significant development."

Adds Richard Kelly, a Shearman & Sterling anti-corruption partner in London, "There is currently a huge amount of interest in the new Bribery Act, with many businesses struggling to understand exactly how the new far-reaching rules will affect them. This UK legislation is expected to go live in April, so there is not much preparation time left."

The US agencies' imposition of a record $1.6 billion in fines warrants closer inspection. Three non-US companies – Technip, Snamprogetti and BAE – paid over $350 million each in combined penalties, with three other non-US companies, Alcatel-Lucent, Daimler and Panalpina, paying close to $100 million each. Overall, the 11 non-US companies were responsible for over 90 percent of the penalties imposed on corporations in 2010.

"This year we see the US government further expanding FCPA jurisdiction, particularly to reach non-US companies," explains Shearman & Sterling's Newcomb.

From a numbers standpoint, FCPA prosecutions of corporate matters was consistent with 2009 – 47 corporations charged in both 2010 and 44 in 2009. But on the individual side, prosecution of individuals went from 42 in 2009 to just 16 in 2010.

"Although individual prosecutions spiked in 2009 largely as the result of two cases which accounted for almost 30 individuals, the cases brought in 2010 show a continuing trend of the authorities attempting to hold individuals responsible," Urofsky says. "It is worth noting, however, that there is an extensive backlog of FCPA trials, with almost 40 individuals still awaiting trial."

Among the key findings in this semi-annual update to the firm's FCPA Digest:

• The US enforcement agencies are increasingly launching "industry sweeps" to identify and fix unsavory industry practices. With new resources – a larger corps of FCPA prosecutors and support from a dedicated squad of FBI agents – the DOJ is more and more often applying traditional prosecution strategies. The DOJ has even used the lessons learned in each investigation to reach similarly situated companies and individuals, using evidence from one investigation to launch undercover operations, to issue subpoenas or to "invite" companies to cooperate. Most recently, the US government appears to have launched a new sweep, focusing on financial institutions doing business with sovereign wealth funds.
• In several cases, the US government provided guidance on its view of so-called "facilitation payments," a topic that has received considerable international attention recently. Although the US government failed to affirmatively identify what types of payments would constitute facilitation payments, it provided some indications of which types of payments – ones that in some way furthered the business interests of the payor – would not qualify as such, at least in the US government's eyes.
• In other areas, unfortunately, Urofsky notes, the US government seems to have muddied previously still waters. In particular, although the FCPA, by its terms, prohibits only those bribes made "to assist in obtaining or retaining business," the US authorities in several cases appeared to have blurred the lines between such payments and other payments, raising concerns in the business and legal communities.

"In the end," Urofsky says, "2010 was an interesting year, not merely because of the number of cases but because of the issues raised by the US government's approaches in these cases – some helpful and some not so much."

Shearman & Sterling's updated Recent Trends and Patterns in FCPA Enforcement report provides insightful analysis and serves as an executive summary to the firm's FCPA Digest, a compendium of cases and review releases relating to bribes of foreign officials under the FCPA. The Digest, which is updated regularly, is considered the authoritative source on all FCPA-related proceedings.

Shearman & Sterling is a global law firm with approximately 900 lawyers in 20 offices in 12 countries. The firm is a leader in antitrust, mergers and acquisitions, capital markets, project development and finance, complex business litigation and international arbitration, asset management and tax.

SOURCE Shearman & Sterling