Targeting Bribery Abroad
California Lawyer

Judge Deals a Blow to FCPA

January 02, 2012

U.S. District Judge A. Howard Matz last November tossed bribery convictions against a Southern California company and its two top executives, potentially undermining the U.S. justice department's effort to ramp up prosecutions under the Foreign Corrupt Practices Act (FCPA), the Daily Journal reported.

In a case seen as a litmus test for other FCPA, cases Matz found pervasive prosecutorial misconduct, dismissed the indictments, and vacated the convictions against Lindsay Manufacturing Co., its CEO Keith Lindsay and CFO Steve K. Lee. The case marked the first trial of a corporation under the statute and one of a few that reached a judge and a jury.

The court stated that, among other misconduct, the government team allowed a key FBI agent to testify untruthfully before the grand jury, improperly reviewed e-mail communications between one defendant and her lawyer, and inserted material falsehoods into affidavits in support of applications for search warrants and seizure warrants.


Targeting Bribery Abroad

May 2011

Marc Rosenthal

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With its newly launched San Francisco-based unit focusing on enforcement of the Foreign Corrupt Practices Act (FCPA), the U.S. Securities and Exchange Commission has turned a microscope on Silicon Valley tech companies.

The FCPA (15 U.S.C. §§ 78dd-1-78ff) explicitly outlaws business-related bribery, and in 2009 the government prosecuted 40 companies for violations of the anticorruption act. Those numbers were beaten in a record-setting year in 2010, resulting in more than $1.7 billion in penalties, also a record.

"One reason [for the increased enforcement] is very practical," notes Mike Koehler, an FCPA exert at Butler University in Indianapolis. "More and more businesses are doing business in oversees markets than anytime in U.S. history."

The whistleblower-bounty program devised as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. 111-203) is also expected to increase the number of FCPA cases pursued by the government, although Koehler predicts that this uptick will be negligible.

But tech companies' foreign expansion in recent years--especially into China and other Asian countries known as hotbeds of FCPA violations--could also explain the increased scrutiny on Silicon Valley. "I don't think [the SEC has] come flat out and said we are going to Silicon Valley because Silicon Valley is now in China, but it is close to that," says Leo Cunningham, a partner at Wilson Sonsini Goodrich & Rosati.

Some companies in the Valley have augmented manufacturing capabilities in Asia with local partners, for example, while others are battling for market share there. These conditions create a Petri dish for bribery because corruption concerns oftentimes arise from third-party contractors abroad, such as distributors or wholesalers. Companies "trying hard to scramble for contracts [and] who do not yet have a clear sense of this terrain," are also at risk, says Richard Buxbaum a professor at the UC Berkeley School of Law.

In addition, the line between bribery and facilitation payments is much fuzzier in parts of Asia than in the United States because gifts are a common business practice there and corruption is endemic. Tech firms doing deals abroad are also at greater risk for FCPA violations because Asian companies often need government approvals or licenses to operate, and they may be selling their products directly to state-owned enterprises. "All of this increases the potential for FCPA violations," says Cheryl J. Scarboro, the SEC's FCPA unit chief.

American regulatory agencies have also gotten smarter about how bribes play out with tech firms. For example, a tech company could report a lower profit margin and then subsequently add the difference to what the foreign distributor is being paid so that it has a slush fund for greasing palms abroad. "In technology, [corruption] is more insidious and harder to detect," says Kristin D. Rivera, a partner at PricewaterhouseCoopers and a forensic accounting specialist.

The San Francisco SEC unit, which was officially formed last year, has not yet taken enforcement actions against any Silicon Valley company, but investigations from other units have already hit close to home. Last June the SEC announced a $300,000 settlement with Veraz Networks, a San Jose-based telecommunications company, regarding charges that it had allegedly bribed government officials in China and Vietnam to win business.

Raymond C. Marshall, cochair of Bingham McCutchen's White Collar Investigations and Enforcement Group in San Francisco, reports that his tech clients in Silicon Valley are feeling anxious about the specter of increased SEC scrutiny. But Butler University's Koehler notes that there are other reasons corporations are paying such close attention to the issue. "You have this entire FCPA compliance industry out there trying to market its services," Koehler observes, "and when you are on the receiving end of this, you almost get the sense that the sky is falling."


Reader Comments

Comment by Carole Adell - June 8, 2011
Most companies only want to do what is right and responsible, but the FCPA regulations at this time are many times unclear and outdated. In a world where more and more businesses are operating globally, it's crucial that the FCPA be updated. We are working to help make this happen. Please join us by contacting Carole Adell at responsiblelitigation.ca@gmail.com

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