New York, December 12, 2008—Anti-corruption enforcement continues to go global, with increasing prosecutions of both U.S. and foreign companies and increased enforcement actions against individuals—both officers of corporations as well as small business owners—according to Recent Trends and Patterns in FCPA Enforcement, a semiannual study by Shearman & Sterling. The study also found that although various foreign countries have previously announced investigations into Foreign Corrupt Practices Act (FCPA)-style corruption, this year a number of those investigations finally resulted in prosecution and penalties imposed on non-U.S. companies by non-U.S. enforcement authorities.

“There has been a clear shift in focus here,” said Danforth Newcomb, a New York-based partner at Shearman & Sterling and leader of the firm’s FCPA practice. “The business practices of all companies—domestic or international—are increasingly under the microscope of law enforcement authorities both here in the United States and abroad.”

“This enforcement pattern poses new and greater risks for both U.S. and non-U.S. companies and individuals, who may find themselves responding to multiple investigations in multiple jurisdictions,” added Philip Urofsky, a Shearman & Sterling partner in Washington, D.C., and a former Department of Justice FCPA prosecutor.

In its report, Shearman & Sterling estimates that there are at-present open investigations involving 91 corporations, just below the 97 reported at year-end 2007. These numbers include only those investigations that have been reported by corporations and do not include investigations against individuals.

A new pattern that began to be apparent last year and has become more pronounced this year is the DOJ’s and SEC’s willingness to charge individuals. The DOJ brought actions against 10 individuals in 2007 and against 7 individuals in 2008 to date, up from 3 in 2006 and 6 in 2005. In one recent individual investigation, Albert Jack Stanley accepted a plea deal including 7 years imprisonment—the longest jail sentence imposed under the FCPA to date—and payment of $10.8 million in restitution.

“Charging individuals is likely to have an unusual side-effect in FCPA enforcement," noted Urofsky. “Most corporations engage in advocacy in private and often reach a negotiated settlement with the authorities rather than litigate, thereby minimizing their exposure to collateral risk and achieving a certainty in sanctions and consequences. On the other hand, individuals, who face imprisonment and loss of livelihood, are more likely to take the government to trial and challenge the government’s views of the scope of the statute. This has already resulted, in cases like Kay and Kozeny, in instructive opinions that have clarified some of the open issues in this area.”

Another trend is the increase of consolidated investigations involving the activities of multiple companies in multiple jurisdictions. Most recently, a number of companies and individuals have either been indicted or reached settlements with the government in connection with these investigations in which the companies were charged with violations of the FCPA’s books and records and internal controls provisions, mail or wire fraud, or violations of U.S. securities laws. The most noteworthy was last year’s UN Iraq oil-for-food program.

A particularly interesting trend is the rise of parallel international investigations. In addition to FCPA enforcement in the U.S., the FCPA has become a greater part of a broader international agenda to combat bribery. That agenda includes efforts in Europe, Africa and by the UN and the Organization of American States, among others.

“Here is a place where real change is occurring,” Newcomb explained. “The level of cooperation among these various entities is not widely known, but we seem to be moving toward the adoption of some kind of international standard of business propriety.”

Shearman & Sterling’s updated Recent Trends and Patterns in FCPA Enforcement report 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.

Among the other key findings in the updated Trends and Patterns report:

• The size of DOJ penalties has grown in recent years, culminating with the April 2007 FCPA penalty of $44 million against Baker Hughes. The year 2008 has also seen other sizeable penalties, including $32.3 million in penalties and disgorgement paid by Willbros Group and Willbros International.
• The Department of Justice and Securities and Exchange Commission continue to impose independent compliance monitors on companies as part of settlements—whether it be a plea, deferred prosecution or civil settlement. However, earlier this year, the DOJ issued guidance on the circumstances in which a monitor is appropriate and how one should be selected. In addition, in several recent cases, the DOJ has chosen not to impose a monitor, apparently in recognition of the company’s own credible remedial steps.
• The study also cites an emerging trend toward FCPA violations disclosure during M&A due diligence. In fact, Newcomb said, this is where three of the most significant FCPA prosecutions to date—ABB, InVision and Titan Corporation—came about. In the case of Titan, information about Titan’s FCPA violations was disclosed during the course of due diligence conducted by Lockheed Martin Corporation for the purposes of a merger, which was ultimately not consummated. During the course of negotiations, Lockheed required that Titan resolve the FCPA issues as a condition to finalizing the merger.

“Taken together, all of these actions represent a concerted effort on the part of the DOJ and SEC to apply greater scrutiny and graver consequences to corporations and individuals who violate the FCPA,” Newcomb said. “It will be interesting to see whether, with all the DOJ and SEC have on their respective plates with the current financial turmoil, FCPA investigations and prosecutions will remain an important priority.”

“On the other hand,” Urofsky added, “economic turmoil presents particular anti-corruption risks. Companies that face economic stress may look to cut corners—and compliance resources. This, of course, leaves them vulnerable to undetected violations that may come to light after the dust settles and result in lingering liability for years to come.”

For additional information contact:
Ron Brandsdorfer | New York | T +1.212.848.5081 |