First published in Ethisphere, January 2012
On December 13, 2011, the U.S. Department of Justice ("DOJ") sent shockwaves through the business community when it indicted eight former senior executive and agents of Siemens AG for conspiracy to violate the U.S. Foreign Corrupt Practices Act of 1977 ("FCPA")1 and other charges.2 The indictment charges the defendants with bribing Argentine government officials over a period of decades in return for $1 billion dollar contract for production of national identification cards. The indictment alleges that the conspirators agreed to pay nearly $100 million in bribes during the bidding and implementation stages of the project and then paid more bribes later to try to avoid the project's termination.3 The indictment also alleges the conspirators' use of a complicated series of bank transfers, smuggled cash, and offshore shell companies to conceal the payments.4 The individuals charged included a former Siemens board member and other high-level executives, such as the CEO and CFO of Siemens Argentina.
The individual Siemens executives and agents may have thought that they were in the clear, as Siemens AG and its Argentinean subsidiary settled charges in 2008 that included bribery of the Argentinean government officials.5 The $800 million paid by Siemens in 2008 represents the largest FCPA settlement in history. Siemens also paid €596 million in fines to the Office of the Prosecutor General in Munich, Germany.6
When viewed as part of a larger trend, the indictment of the Siemens executives should not come as a surprise. Regarding the Siemens indictment, Assistant Attorney General Lanny A. Breuer said: "This indictment reflects our commitment to holding individuals, as well as companies, accountable for violations of the FCPA."7 Indeed, over the last several years, the United States and foreign governments have increased their efforts towards enforcing anti-corruption laws such as the FCPA and the United Kingdom Bribery Act 2010 ("UKBA").8 Most of that enforcement activity has historically been focused on companies and, as a result, the U.S. government and others have collected enormous fines. Corporate fines, however, may not have the deterrent effect regulators and enforcement agencies desire as these large fines are sometimes seen as the cost of doing business. Further, corporate fines punish innocent shareholders and not the individuals who committed the bad acts. Perhaps for this reason, the U.S. government appears to be making good on its promise to increase its enforcement activities against individuals and send the bad actors to prison.
In 2008, Mark Mendelsohn, then the deputy chief of the DOJ's Fraud Section, stated:
"The number of individual prosecutions [under the FCPA] has risen – and that's not an accident. That is quite intentional on the part of the Department. It is our view that to have a credible deterrent effect, people have to go to jail."9
The Department has not backed off from that view under the Obama administration. In November 2010, Assistant Attorney General Breuer announced that the U.S. government was moving into a "new era of FCPA enforcement."10 Breuer noted that the previous year had seen "the most criminal penalties in FCPA-related cases in any single 12-month period ever," in terms of the amount of fines paid.11 In addition to financial penalties, Breuer noted that the DOJ was expanding its prosecution efforts against individuals, as opposed to focusing on enforcement actions against entities. Breuer stated: "I continue to believe that prosecuting individuals – and levying substantial criminal fines against corporations – are the best ways to capture the attention of the business community."12 This culminated in the indictment of the eight Siemens executives, which, according to Breuer, represents the first time that the DOJ has indicted a Board member of a Fortune 50 company.
The results of this increased focus on prosecuting individuals are becoming apparent in cases other than Siemens. One source estimates that between 2005 and September 2011, the DOJ brought FCPA criminal charges against 79 individuals.13 The DOJ has adopted new tactics designed to snare individual defendants and increase the number of individual prosecutions. For example, in January 2010, the FBI arrested 22 weapons industry executives in a sting operation as part of an investigation into improper payments made to officials in Gabon for weapons contracts.14 The "officials" involved were actually undercover FBI agents. The trial of four of those individuals ended in a mistrial in July, but the DOJ has announced its intent to retry the defendants, demonstrating its commitment to these new, aggressive methods of individual enforcement.15
While this was the first time the government used a sting operation in FCPA enforcement, it was not the first time the DOJ prosecuted multiple defendants from one scheme. For example, in 2009, the government charged Control Components, Inc. ("CCI") and eight of its employees of with conspiracy and substantive violations of the FCPA and the Travel Act for what it alleged was a decade-long scheme involving paying bribes to state-owned and privately-owned companies in 36 different countries.16 Two of the individuals pled guilty. Trial for the other six is scheduled for 2012.
Federal Sentencing Guidelines
In addition to bringing more enforcement actions against individuals, federal prosecutors have asked courts to impose long prison terms for individuals who are convicted of violations of the FCPA. The tools allowing the DOJ to push for longer prison sentences for FCPA offenses have been in place since 2002, when the United States Sentencing Commission amended its Federal Sentencing Guidelines to increase the recommended sentence for FCPA violations. Prior to 2002, FCPA violations were classified as commercial bribery offenses (Section 2B4.1).17 The recommended sentence for commercial bribery offenses ranges from no prison time at all to six months' imprisonment (before the addition of any applicable sentencing enhancements). Under the 2002 amendment, violations of the FCPA were classified as public corruption offenses (section 2C1.1), which, under the Sentencing Guidelines, carry a longer sentence than commercial bribery offenses.18 Other public corruption offenses classified as 2C1.1 are extortion under color of right and honest services fraud. The Sentencing Commission Commentary notes that FCPA violations :
involve public corruption of foreign officials and are, therefore, more akin to public corruption cases than commercial bribery cases. Violations of the 15 U.S.C. §§ 78dd-1 through 78dd-3 typically involve payments to foreign officials for the purposes of influencing their official acts or decisions, inducing them to do or omit an act in violation of their lawful duty, inducing them to influence a foreign government, or securing any improper advantage. . . . Most cases prosecuted under 15 U.S.C. §§ 78dd-1 through 78dd-3 involve an intent to influence governmental action.19
The current Sentencing Guidelines give a range of ten months to five years per violation, before the application of any sentencing enhancements.20 Because every unlawful payment is considered a separate violation, sentences can become very long very quickly. Individuals may also face up to twenty years in prison for willful violations of the FCPA books and records provisions. Prosecutors often also add charges of conspiracy, making false statements, money laundering, and violations of the Travel Act to the FCPA counts. Of course, these additional charges can carry additional penalties, which may include even longer prison sentences.
Courts Are Imposing Longer Prison Sentences
The DOJ's push for longer sentences has met with varying degrees of success. On April 19, 2010, Charles Paul Edward Jumet was sentenced in the U.S. District Court for the Eastern District of Virginia to 87 months in prison for a scheme to make corrupt payments made to Panamanian government officials in order to secure a contract to maintain lighthouses and buoys along the Panama Canal.21 At the time, Jumet's sentence was the longest ever for an FCPA-related offense and was imposed following his guilty plea for conspiracy to violate the FCPA as well as a charge of making false statements to federal agents. The DOJ sought and received the 87 month prison term which represented the low end of the Sentencing Guidelines range. Assistant Attorney General Breuer called the seven-year sentence "an important milestone in our effort to deter foreign bribery," noting that "foreign corruption carries with it very serious penalties, which can include substantial prison time for individuals who violate the law."22
The record set in Jumet's case would not last long as the DOJ has continued to make good on its promise to focus on individual prosecutions. Recently, the DOJ obtained the longest sentence imposed for FCPA violations to date, when a federal judge in the Southern District of Florida sentenced Joel Esquenazi to fifteen years in prison for FCPA and money laundering violations.23 The charges stemmed from bribes paid by Esquenazi and others to officials of Telecommunications d'Haiti ("Haiti Teleco") in order to obtain business for Esquenazi's company, Miami-based Terra Telecommunications Corporation. Following a jury trial, Esquenazi and former Terra Executive Vice President Carlos Rodriguez were sentenced to fifteen and seven years, respectively. Juan Diaz, who funneled the bribes through his company, J.D. Locator Services, pled guilty to FCPA and money laundering violations for his role in the scheme and was sentenced to nearly five years in prison in July 2010.24 Assistant Attorney General Breuer emphasized that the DOJ intends to continue seeking stiff sentences against individuals, stating: "This sentence is a stark reminder to executives that bribing government officials to secure business advantages is a serious crime with serious consequences. As today's sentence shows, we will continue to hold accountable individuals and companies who engage in such corruption."25
Another headline-grabbing sentence was imposed on former United States Representative William Jefferson, who was found to have accepted bribes himself and to have paid bribes and made gifts to foreign officials in association with "telecommunications deals in Nigeria, Ghana and elsewhere; oil concessions in Equatorial Guinea; satellite transmission contracts in Botswana, Equatorial Guinea and the Republic of Congo; and development of different plants and facilities in Nigeria."26 Jefferson was sentenced to 13 years in prison following a jury conviction for conspiracy to commit bribery, honest services wire fraud and to violate the FCPA; substantive convictions of bribery and honest services by wire fraud; and a violation of the Racketeer Influenced Corrupt Organization Act.27
Courts do not always grant prosecutors' requests for long sentences for FCPA-related violations. For example, in September 2010, the DOJ asked for a sentence of 168-210 months (14-17 years) for Nam Nguyen of Lexus Technologies, who pled guilty to conspiracy to bribe Vietnamese government officials for contracts for equipment and technology.28 The range requested by the government was within the recommended range of their Sentencing Guidelines calculation.29 However, the judge sentenced Nguyen to only 16 months.30 Another example is the case of Gerald and Patricia Green, who were convicted in 2009 of FCPA and money-laundering violations. The government asked for a prison sentence of ten years for each defendant,31 but the court imposed sentences of six months for each of the Greens.32 The government filed a notice of appeal of the short sentences in October 2010, but dropped the appeal ten months later.33
Similarly, Ousama Naaman was sentenced to two and half years for his part in the U.N. Oil for Food Program scandal. The government had asked for a sentence of seven and a half years. Naaman pleaded guilty to conspiracy to commit fraud and violate the FCPA and to one substantive FCPA charge in June 2010 for his actions as an agent for Innospec, Inc.34 Naaman already agreed to pay the SEC $810,076 in disgorgement plus prejudgment interest of $67,030, and a civil penalty of $438,038.35
The SEC is Also Increasing its Focus on Individuals
Of course, the DOJ is not the only agency that enforces the FCPA. The Securities & Exchange Commission ("SEC") enforces the statute through civil actions. Not wanting to be left out, the SEC has also brought an increasing number of enforcement actions against individuals, resulting in fines that, under the statute, cannot be reimbursed by their companies. While the SEC often joins DOJ investigations and imposes civil fines in parallel with the penalties sought by the DOJ, the SEC can also bring its own actions against companies and individuals. For example, in addition to the criminal charges filed by the DOJ against eight former Siemens executives and agents, the SEC brought a parallel civil action against seven former Siemens executives.36
Another example occurred in July 2009, when the SEC brought an enforcement action for violations of the books and records and internal controls provisions of the FCPA arising out of improper payments to Brazilian customs authorities against Nature's Sunshine Products, Inc. a Utah-based vitamin maker, and its CEO, Douglas Faggioli; and former CFO, Craig Huff.37 The company consented to the entry of a civil injunction and the payment of a $600,000, which is not remarkable.
What is remarkable, however, is the SEC's targeting of Faggioli and Huff. Neither executive was directly involved in or had any knowledge of the conduct at issue. The SEC did not let that stop them: the Complaint alleged that Huff and Faggioli failed to adequately supervise personnel in Brazil and failed to maintain accurate books and records in their capacities as control persons.38 Faggioli and Huff, without admitting or denying the conduct, each agreed to pay civil penalties of $25,000 to settle the charges.39
This is the first time that the SEC pursued control person liability for FCPA violations. A control person is generally an individual within an organization that holds significant decision-making authority. As noted above, neither Huff nor Faggioli were aware of or involved with the payments at issue, making this enforcement theory of liability as close to a strict liability offense as possible under the FCPA. In other contexts, the SEC has extended control person liability to non-officer directors as well. This new theory of enforcement coupled with the creation of an FCPA focused enforcement unit within the Commission makes clear that the SEC has heard the DOJ's call for individual accountability and raised the bar.
All Signs Point to a Similar Focus Under the U.K. Bribery Act
There are signs of a similar focus on individuals in the United Kingdom, where violations of the U.K. Bribery Act carry a prison sentence of up to ten years (as well as unlimited fines).40 The UKBA went into effect on July 1, 2011. To date, there has been only one conviction under the UKBA. In November 2011, Munir Patel, an administrative clerk in a London traffic court, was sentenced to six years in prison for accepting bribes in exchange for helping payors avoid penalties for traffic violations.41 In addition to his conviction under the UKBA, Patel was also convicted of misconduct in public office.42 In his Sentencing Remarks, the judge acknowledged that Patel had pled guilty to the offense charged and that the court was therefore required to reduce the sentence by one-third.43 The judge also acknowledged the seriousness of the offense, calling it a "grave breach of trust" and stating: "It is important that those who are tempted to behave in this way understand that there will be serious consequences. Sentences for this sort of offence must act to deter offending of this kind."44 If Patel is any indication, U.K. judges are likely to sentence individuals to prison time for violations of the new anti-corruption statute in order to deter future violations.
Things to Come: More Sentences and More Aggressive Tactics
Several more individual defendants are expected to be sentenced for FCPA violations in the coming months. Albert "Jack" Stanley pleaded guilty in May 2008 to conspiracy to violate the FCPA and commit mail and wire fraud for his role in the TSKJ joint venture, which paid bribes to officials in Nigeria in exchange for contracts on Bonny Island, Nigeria. His sentencing is currently scheduled for February 3, 2012. His preliminary sentence under the plea deal would have him serve 84 months and pay $10.8 million in restitution, though the plea agreement allows for the sentenced to be reduced if Stanley cooperated with the government.45 His co-defendant, Jeffrey Tesler, also pleaded guilty to conspiracy and a substantive FCPA charge and is currently scheduled to be sentenced on February 2, 2012. Tesler faces up to ten years, though the government agreed to seek a downward departure if he cooperated.46 Tesler is also facing charges in France for related conduct. Another co-defendant, Wojciech Chodan, pleaded guilty to a conspiracy charge and is scheduled to be sentenced on February 2, 2012. Chodan faces up to five years.47
But there have also been signs that courts will not tolerate overly aggressive tactics by government lawyers in FCPA cases. Judge Howard Matz recently delivered a stern rebuke to the government when he dismissed the indictments against Keith Lindsey, Steve Lee, and their company, Lindsey Manufacturing, all of whom had been convicted by a jury in May 2011 of one count of conspiracy to violate the FCPA and six substantive FCPA violations for payments made to an official at a state-owned utility in Mexico.48 Under the Sentencing Guidelines, the individual defendants faced up to thirty years in prison. In dismissing the indictments, the court found "that the Government team allowed a key FBI agent to testify untruthfully before the grand jury, inserted material falsehoods into affidavits submitted to magistrate judges in support of applications for search warrants and seizure warrants, improperly reviewed e-mail communications between one Defendant and her lawyer, recklessly failed to comply with its discovery obligations, posed questions to certain witnesses in violation of the Court's rulings, engaged in questionable behavior during closing argument and even made misrepresentations to the Court."49 Additionally, on January 17, 2012, Judge Lynn N. Hughes ordered the acquittal of John J. O'Shea before the jury had a chance to deliberate on the FCPA charges for which he was being tried.50
How Can Companies and Individuals Can Protect Themselves?
Protecting the company, and protecting yourself, ultimately starts with a robust compliance environment. A strong anti-corruption policy, with effective internal controls, and a strong commitment by senior management to ethical business practices will go a long way to avoid violations altogether. And should something go wrong, enforcement authorities will consider an effective compliance policy to be a mitigating factor. U.S. enforcement authorities have often stressed that they will look favorably upon companies that identify violations internally as a result of a compliance program and report these violations to the government.51 The Department of Justice's corporate charging guidelines require the prosecutor to consider "the existence and effectiveness of the corporation's pre-existing compliance program" in deciding whether to bring a prosecution and in negotiating plea agreements.52 Under the U.K. Bribery Act, the existence of an effective compliance program (or "adequate procedures") is an affirmative defense.53
The benefits of a strong compliance policy don't just inure to the company, however. Compliance policies may also protect individuals from prosecution for violation of anti-corruption laws. A robust compliance program should give individuals the tools to know how to react if they are approached for a bribe or gift. This is particularly true for individuals who operate in high-risk countries or industries. Individuals should encourage their companies to provide them with adequate training and oversight and ask questions when a grey-area presents itself. To protect themselves, individuals should look to the compliance policy as a tool, not a restriction.
Footnotes
1. 15 U.S.C. 78dd-1 et seq.
2. Eight Former Senior Executives and Agents of Siemens Charged in Alleged $100 Million Foreign Bribe Scheme, Department of Justice Press Release (Dec. 13, 2011), available at http://www.justice.gov/opa/pr/2011/December/11-atj-1626.html.
3. Id.
4. Id.
5. Siemens AG and Three Subsidiaries Plead Guilty to Foreign Corrupt Practices Act Violations and Agree to Pay $450 Million in Combined Criminal Fines, Department of Justice Press Release (Dec. 15, 2008), available at http://www.justice.gov/opa/pr/2008/December/08-crm-1105.html .
6. Siemens AG and Three Subsidiaries Plead Guilty to Foreign Corrupt Practices Act Violations and Agree to Pay $450 Million in Combined Criminal Fines, Department of Justice Press Release (Dec. 15, 2008), available at http://www.justice.gov/opa/pr/2008/December/08-crm-1105.html .
7. Eight Former Senior Executives and Agents of Siemens Charged in Alleged $100 Million Foreign Bribe Scheme, Department of Justice Press Release (Dec. 13, 2011), available at http://www.justice.gov/opa/pr/2011/December/11-atj-1626.html.
8. Bribery Act 2010 (c.23).
9. Mendelsohn Says Criminal Bribery Prosecutions Doubled in 2007, 22 Corp. Crime Reporter 36(1) (Sept. 16, 2008), available at http://www.corporatecrimereporter.com/mendelsohn091608.htm .
10. Lanny A. Breuer, Remarks at the 24th National Conference on the Foreign Corrupt Practices Act (Nov. 16, 2010), available at http://www.justice.gov/criminal/pr/speeches/2010/crm-speech-101116.html .
11. Id.
12. Id.
13. See Mike Koehler, Individual DOJ Prosecutions by the Numbers, Corporate Compliance Insights (Sept. 22, 2011), available at http://www.corporatecomplianceinsights.com/2011/individual-doj-prosecutions-by-the-numbers /.
14. Twenty-Two Executives and Employees of Military and Law Enforcement Products Companies Charged in Foreign Bribery Scheme, Department of Justice Press Release (Jan. 19, 2010), available at http://www.justice.gov/opa/pr/2010/January/10-crm-048.html .
15. See Zoe Tillman, Mistrial Declared in FCPA Sting Case, Legal Times, (July 7, 2011), available at http://legaltimes.typepad.com/blt/2011/07/judge-declares-mistrial-in-fcpa-sting-case.html .
16. Control Components Inc. Pleads Guilty to Foreign Bribery Charges and Agrees to Pay $18.2 Million Criminal Fine, Department of Justice Press Release (July 31, 2009), available at http://www.justice.gov/opa/pr/2009/July/09-crm-754.html .
17. Id.
18. See 2002 Amendments to the Sentencing Guidelines, Policy Statements, and Official Commentary 31-32, available at http://www.ussc.gov/Legal/Amendments/Official_Text/20020501_Amendments.pdf .
19. Id.
20. See Sentencing Guidelines.
21. United States v. Jumet, No. 09-CR-397 (E.D. Va. Nov. 13, 2009).
22. Virginia Resident Sentenced to 87 Months in Prison for Bribing Foreign Government Officials, Department of Justice Press Release (April 19, 2010), available at http://www.justice.gov/opa/pr/2010/April/10-crm-442.html .
23. See Executive Sentenced to 15 Years in Prison for Scheme to Bribe Officials at State-Owned Telecommunications Company in Haiti, Department of Justice Press Release (Oct. 25, 2011), available at http://www.justice.gov/opa/pr/2011/October/11-crm-1407.html .
24. Florida Businessman Sentenced to 57 Months in Prison for Role in Foreign Bribery Scheme, Department of Justice Press Release (July 30, 2010), available at http://www.justice.gov/opa/pr/2010/July/10-crm-883.html .
25. Executive Sentenced to 15 Years in Prison for Scheme to Bribe Officials at State-Owned Telecommunications Company in Haiti, Department of Justice Press Release (Oct. 25, 2011), available at http://www.justice.gov/opa/pr/2011/October/11-crm-1407.html .
26. Former Congressman William J. Jefferson Sentenced to 13 Years in Prison for Bribery and Other Charges, Department of Justice Press Release (Nov. 13, 2009), available at http://www.justice.gov/opa/pr/2009/November/09-crm-1231.html .
27. Id.
28. United States v. Nguyen, Sentencing Memorandum, No. 2:08-cr-00522 (E.D. Pa. Sept. 8, 2010) (Docket No. 196).
29. Id.
31 United States v. Nguyen, Judgment, No. 2:08-cr-00522 (E.D. Pa. Sept. 16, 2010) (Docket No. 208).
31. See United States v. Green, Government's Memorandum in Response to Defendants' Supplemental Sentencing Information, No. 2:08-cr-00059 (C.D. Cal. Aug. 11, 2010) [Dkt. 380].
32. Judgment, United States v. Green, No. 2:08-cr-00059 (C.D. Cal. Sept. 10, 2010) [Dkt. 385, 387].
33. United States v. Green, Motion for Voluntary Dismissal of Appeal, No. 10-50494 (9th Cir. Aug. 23, 2011) [Dkt. 20].
34. Innospec Agent Pleads Guilty to Bribing Iraqi Officials and Paying Kickbacks Under the Oil for Food Program, Department of Justice Press Release (June 25, 2010), available at http://www.justice.gov/opa/pr/2010/June/10-crm-747.html .
35. SEC Files Settled Charges against David P. Turner and Ousama M. Naaman for Engaging in Bribery, SEC Litigation Release (Aug. 5, 2010), available at http://www.sec.gov/litigation/litreleases/2010/lr21615.htm .
36. SEC Charges Seven Former Siemens Executives with Bribing Leaders in Argentina, SEC Litigation Release (Dec. 13, 2011), available at http://www.sec.gov/news/press/2011/2011-263.htm .
37. SEC v. Nature's Sunshine Prods., Inc., Complaint, No. 2:09-cv-00672 (D. Utah July 31, 2009) [Dkt. 2].
38. Id.
39. SEC Charges Nature's Sunshine Products, Inc. with Making Illegal Foreign Payments, SEC Press Release (July 31, 2009).
40. Bribery Act 2010 (c. 23) § 11.
41. See Sentencing Remarks of H.H.J. Alistair McCreath, Southwark Crown Court (Nov. 18, 2011), available at http://www.judiciary.gov.uk/Resources/JCO/Documents/Judgments/munir-patel-sentencing-remarks.pdf .
42. Id.
43. Id.
44. Id.
45. Plea Agreement, United States v. Stanley, No. 4:08-cr-00597 (S.D. Tex. Sept. 3, 2008) [Dkt. 9].
46. Plea Agreement, United States v. Tesler, No. 4:09-cr-00098 (S.D. Tex. March 11, 2011) [Dkt. 34].
47. Plea Agreement, United States v. Chodan, No. 4:09-cr-00098 (S.D. Tex. Dec. 6, 2010) [Dkt. 23].
48. California Company, Its Two Executives and Intermediary Convicted by Federal Jury in Los Angeles on All Counts for Their Involvement in Scheme to Bribe Officials at State-Owned Electrical Utility in Mexico, Department of Justice Press Release (May 10, 2011), available at http://www.justice.gov/opa/pr/2011/May/11-crm-596.html .
49. Order Granting Motion to Dismiss, United States v. Noriega, No. 2:10-cr-01031 (C.D. Cal. Dec. 1, 2011) [Dkt. 665].
50. Order on Acquittal as to John Joseph O'Shea, United States v. Shea, No. 4:09-cr-00629 (S.D. Tex. Jan. 17, 2012) [Dkt. 179].
51. Breuer, Nov. 16, 2010 remarks.
52. Department of Justice, Principles of Federal Prosecution of Business Organizations, Title 9, Chapter 9-28.300(A)(5).
53. Bribery Act 2010 (c.23) § 7(2).
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