financial

WASHINGTON — More than three decades after the United States Congress passed the Foreign Corrupt Practices Act — striking a major blow against international corruption by criminalizing bribes to foreign officials — the U.S. Chamber of Commerce is trying to carve out some major exceptions in the law to prevent prosecutors from enforcing it too aggressively. The move by the increasingly activist Chamber has led critics to fear there may be no checks left on the corporate lobby’s ambition — or its influence. Not only is the Chamber taking on something as seemingly unassailable as an anti-bribery law, but it’s doing so just as the movement the FCPA launched is finally taking hold across the globe, corruption fighters say. And without much organized opposition — at least so far — the Chamber’s army of lobbyists is making serious headway in Congress, even among Democrats. The Chamber is not overtly taking a pro-bribery position. Rather, its lobbying blitz couches the proposed changes as tune-ups, a few safeguards needed to protect against overzealous prosecutors. “Our proposals are aimed at preserving existing law enforcement tools so that the government can pursue the bad actors while ensuring that the good actors have clarity and more certainty under the law, which is clearly lacking today,” said Harold Kim, a senior vice president at the Chamber’s Institute for Legal Reform, in a statement to The Huffington Post. But the Chamber’s list of demands boils down to this: It wants four loopholes that companies could use to escape criminal liability — and it wants the government to make a clearer demarcation between foreign officials they are not allowed to bribe and those they are. The interactive chart below lists the business lobby’s five chief grievances and its proposed changes — along with rebuttals from supporters of the law, and a simple potential overall solution. Graphic by Chris Spurlock “The proposals by the Chamber are quite dramatic,” said Harvard Law School professor David Kennedy, who specializes in international law. “Although presented as modest legislative clarifications, the Chamber’s proposals would seriously undermine the enforcement efforts and scale back criminal liability under the FCPA.” “I have a hard time figuring out how they justify a push on this law that essentially amounts to, ‘We want to make it easier to bribe,’” said Per Olstad, the executive director of Chamberwatch, a labor-backed group. “It’s shocking that an organization purporting to represent a mainstream business view would take that position.” The Chamber’s arguments and proposals were summed up in a 28-page paper released in October by its legal arm, entitled ” Restoring Balance .” Some observers have pointed out that the proposed amendments to the FCPA also target basic concepts key to establishing other forms of corporate liability, including environmental liability, tax liability, product liability and liability for racketeering, discrimination and so on. “I think what they’re really trying to do is push reform that will make it harder for anyone to hold business accountable, period,” Olstad said. “It could be that the FCPA just seems an easy first target,” said Kennedy. The Chamber, for its part, insists that it respects the spirit of the anti-bribery law. “Allegations that the Chamber is trying to gut the Foreign Corrupt Practices Act are completely false,” Kim said. “The FCPA is a valuable law that helps reduce corruption in markets and advances the cause of free enterprise.” GROWING ENFORCEMENT, HERE AND ABROAD When the Chamber talks about restoring balance, it is referring to what it describes as an asymmetrical relationship that has recently developed between gung-ho, unaccountable prosecutors on the one hand and beleaguered corporations on the other. Its principal evidence is the dramatic rise in recent years in the number of criminal prosecutions under the FCPA. That increase in prosecutions has indeed been dramatic. Although enacted in 1977, the FCPA was virtually unenforced for decades. The pace of enforcement only picked up in 2007, as part of the George W. Bush administration’s anti-kleptocracy initiative , at which point the number of criminal enforcement actions each year rose into double digits for the first time. It then shot up again, to 48, in 2010. Graphic by Chris Spurlock But officials say even 48 enforcement actions per year is hardly a large number relative to the size of the problem. “Foreign corruption remains a problem of significant magnitude,” Greg Andres, deputy assistant attorney general in the Justice Department’s criminal division, told a congressional committee in June. He cited a World Bank estimate based on data from 2001 and 2002 that more than $1 trillion is paid in bribes each year. At the time, those bribes constituted roughly 3 percent of the world economy. Treating foreign bribes as criminal was a radical move in the 1970s — up until then, “you could still deduct them as business expenses,” said Sarah Pray, a policy analyst at the George Soros-funded Open Society Foundations. But it’s now common practice across the globe. “For three decades, the United States has been a leader in the fight against corruption and the FCPA was in many ways the opening play,” said Kennedy, the Harvard law professor. “It has led to a quite remarkable network of measures across the world.” In 1999, the Paris-based Organization for Economic Co-Operation and Development established legally binding standards that criminalize bribery of foreign officials. Those standards have been formally adopted by all 34 OECD member countries as well as Argentina, Brazil, Bulgaria and South Africa. Just last month, the United Kingdom began enforcing its new Bribery Act , commonly referred to as ” the FCPA on steroids .” For instance, the U.K. act — which applies to any company that has a U.K. office, employs U.K. citizens or does business with the U.K. — prohibits the use of “facilitation payments,” small outlays to speed such activities as obtaining a permit, unloading cargo or scheduling an inspection. Those are actually legal under the FCPA. China and Russia also both criminalized foreign bribery for the first time earlier this year. Among the multitude of anti-corruption cases now flooding the courts in China: A judge in June sentenced a China Mobile executive to death for his minor role on the receiving end of the massive Siemens bribery scandal . By contrast, U.S. and European officials in 2008 settled all their criminal charges against the German-based engineering giant, which had paid out some $1.4 billion in bribes to officials in 10 countries, for a record-setting $1.6 billion . Nobody even went to jail. Kennedy said he thinks it is precisely because the rest of the world has made such dramatic steps forward in criminalizing bribery that the U.S. government started prosecuting more cases. “The Department of Justice — after many years, I think, of waiting for there to be a level playing field — has begun the kind of compliance-focused enforcement activity that has been effective in many other contexts,” he said. “My sense is that it’s appropriate.” THE EVIDENCE One of the oddest parts of the Chamber’s position is that even the cases it cites as evidence don’t necessarily support its argument, including the two referenced in its report as examples of prosecutorial overreach. There’s the case of Fredric Bourke, who was convicted in 2009 of conspiring to violate the FCPA and lying to the FBI. Prosecutors argued that Bourke “was a knowing participant in a scheme to bribe senior government officials in Azerbaijan with several hundred million dollars in shares of stock, cash, and other gifts” — what the Chamber report describes as “certain investments he made with a business partner” — to gain exclusive control of the state’s oil company. Though Bourke insisted he didn’t know his partner was paying bribes, the jury unanimously agreed with the prosecution that there was no way he could not have known and found him guilty. The Chamber cites the case as an example of DOJ’s “expansive reading” of the FCPA. Then there’s the example of what the Chamber calls DOJ’s “aggressive pursuit of BAE Systems,” the giant defense contractor. The Chamber acknowledges that BAE “fail[ed] to disclose hundreds of millions of dollars in commission payments related to arms sales.” In fact, the investigation determined that BAE, using American banks , made up to $2 billion in secret payments to the former Saudi Arabian ambassador to the United States, Prince Bandar bin Sultan, for years after securing an enormous arms deal. The Chamber cites this as an example of overzealous prosecution because “the questionable payments underlying the FCPA allegations appear to have been made almost entirely outside the United States.” The Chamber also takes issue with the Justice Department’s judgment that a company acquiring a firm that has violated the FCPA can be criminally liable for the acquired company’s conduct if it didn’t undertake rigorous due diligence. The Chamber report cites two cases in making the argument against “successor liability.” One case involves Alliance One, an American tobacco company formed in 2005 by the merger of Dimon Incorporated and Standard Commercial Corporation. Employees and subsidiaries of both original companies had paid bribes to foreign officials. After the merger, the Justice Department brought criminal charges against Alliance One. It ultimately accepted guilty pleas from two foreign subsidiaries and agreed not to prosecute the parent company — but the Chamber argues that Alliance One shouldn’t have been charged in the first place. The other involves Snamprogetti, a Dutch subsidiary of a company called Eni, which engaged in a massive, decade-long scheme to bribe Nigerian officials for construction contracts worth $6 billion. In 2006, while the investigation was underway, Eni sold Snamprogetti to a company called Saipem. The Justice Department last summer agreed to a settlement in which Eni and Saipem together paid a $240 million fine. The Chamber report says Saipem shouldn’t have been held liable at all, even though it knew the company it was buying was hip-deep in bribery allegations. And then there are the Chamber’s poster children for its campaign against an overly broad definition of a foreign official: Control Components, Inc., which pleaded guilty to paying almost $5 million in bribes to officials of various foreign state-owned companies, including China Petroleum Materials and Equipment Corp., PetroChina, China National Offshore Oil Corporation, Korea Hydro and Nuclear Power and the National Petroleum Construction Company of the United Arab Emirates. Baker Hughes, which pleaded guilty to paying some $4.1 million in bribes to an official of Kazakhoil, Kazakhstan’s state-owned oil company, to win a major oil field services contract. Lucent Technologies, which admitted to spending more than $1.3 million on pre-sale trips, including sightseeing trips, for the heads of Chinese state-owned telecommunications companies and provincial telecommunications subsidiaries. Other, post-sale “factory inspection” trips “consisted primarily or entirely of sightseeing to locations such as Disneyland, Universal Studios, the Grand Canyon, and in cities such as Los Angeles, San Francisco, Las Vegas, Washington, D.C., and New York City, and typically lasted 14 days each and cost between $25,000 and $55,000 per trip.” And KBR (then a subsidiary of Halliburton), which participated with Snamprogetti in the decade-long Nigerian bribery scheme mentioned above. According to the Department of Justice, the companies paid out about $182 million in bribes, and a KBR vice president “met with successive holders of a top-level office in the executive branch of the Nigerian government to ask the office holders to designate a representative with whom the joint venture should negotiate the bribes to Nigerian government officials.” These are evidently the best cases the Chamber could find to illustrate the outrageous overreach of the Justice Department. (A full list of the department’s enforcement actions from 1998 to 2010 can be found here .) EIGHT VERSUS THE MAINSTREAM “There’s no clear business rationale for why the Chamber would be trying to weaken the FCPA,” said Chamberwatch’s Olstad. His group, however, has compiled information on eight Chamber-associated companies that collectively have paid nearly a billion dollars in fines or to settle FCPA allegations. “And you start to think, there’s your motivation,” he said. (See list, below.) Graphic by Jake Bialer. Styling from Smashing Magazine . That doesn’t include many more Chamber members that are under investigation. In just the last few weeks, the Wall Street Journal reported, Deere & Co. (whose vice president sits on the Chamber’s board of directors ) and major Chamber donor Goldman Sachs are being investigated for possible FCPA violations. Despite the visions of homespun small business typically associated with the name “Chamber of Commerce”, the U.S. Chamber is dominated by large multinationals. According to the group’s public tax filings for 2009 , 83 percent of its funding came from contributions of $100,000 or more. The Chamber, which can accept unlimited secret contributions from corporate interests, has taken a leading role in fighting a wide range of federal regulations in the past decade, which Olstad and others have attributed to current CEO Tom Donohue . “It was never exactly a voice of progressive reform,” Olstad said. But now, he said, the Chamber is fundamentally a weapon against the government, aimed and fired by some of its biggest funders who have seen the FCPA from the wrong end. Chamber spokesman Michael LePage denied there was a relationship between the Chamber’s advocacy and those eight companies. “We advocate for the broader business community, not individual companies,” LePage said in an email. He added, “As a general policy, we don’t comment on our membership.” But the Chamber’s attitude toward the FCPA does not appear to be a broadly-held view in the business community — it’s not even a mainstream view among executives at major corporations. The Wall Street Journal reported in June that a KPMG poll of 214 corporate executives with anti-corruption responsibilities showed that “only 39% believed anti-corruption laws had hurt them competitively, and fewer than 20% thought enforcement of such laws was ‘excessive.’” Indeed, some companies praise the FCPA. Ask Bill O’Rourke, a vice president at Alcoa, the giant, Pittsburgh-based multinational producer of aluminum, to explain the Chamber’s motivation in changing the law, and he’s dumbfounded. “I can’t help you with that. I just don’t understand,” he said. “I support the general provision and I think it’s in line with the values of the company,” he said of the FCPA. “It’s the right thing to do. I’m a firm believer that the companies that do things right are successful in the long run.” O’Rourke has had personal experience resisting corruption. He was the president of Alcoa Russia from 2005 to 2008. “I saw bureaucracy and corruption at levels that were outstanding,” he said. He initially found it impossible to spend his capital budget, because he wasn’t willing to make payoffs. “The supply chain doesn’t move whenever that doesn’t happen,” he said. But he wouldn’t cave. “In the long run, things finally started moving and people understood that Alcoa doesn’t do business that way,” O’Rourke said. “And I think we helped other companies in that process, as well, be able to stand up against it.” There’s another reason why the Chamber and some of its member companies may be so motivated to amend the FCPA. The Securities and Exchange Commission in May approved final rules for a provision in last year’s Dodd-Frank financial reform legislation that will make it very lucrative for insiders to alert regulators about wrongdoing within their companies. Whistleblowers will be entitled to receive up to 30 percent of the money the government recovers. The whistleblower provision goes into effect Friday. The lawyers have been lining up for weeks . “You worry about [FCPA prosecution] now more than ever, because of Dodd-Frank, which has included the financial reward for whistleblowing,” said Stephen G. Huggard, a partner at the law firm of Edwards Angell Palmer & Dodge in Boston who does criminal defense work for American multinational companies. Even an investigation into possible violations of the FCPA can be tremendously onerous to companies, Huggard said. “It’s absolutely part of the concern” over the FCPA, Huggard said. “Now you have to worry about someone who’s going to drop a dime on you, because they think they’re going to get rich off it.” At the very least, it’s a good bet that the SEC and the Justice Department could soon be hearing about a lot of misconduct they haven’t before. SETTLING FOR WHAT? One of the Chamber’s major beefs with the FCPA is that prosecutors are able to overreach due to the lack of judicial oversight — specifically, the lack of judicial precedent establishing how the law should be interpreted. That lack of precedent is a function of two major factors: There have been relatively few cases prosecuted, and defendants routinely choose to settle or plead guilty before trial. At a House Judiciary subcommittee hearing in June, Michael Mukasey — a former George W. Bush administration attorney general — made the second factor sound sinister. “By negotiating resolutions in many cases before an indictment or enforcement action is filed, the agencies effectively control the disposition of the FCPA cases they initiate and impose their own extremely broad interpretation of the FCPA’s key provisions,” said Mukasey, now a partner in the law firm of Debevoise & Plimpton. But the preponderance of settlements is not necessarily a danger sign, said Kennedy, the Harvard law professor. “As in every other area, DOJ enforcement here operates in the shadow of judicial review,” he said. “It’s always open to defendants to take any administrative overreaching that they see in a case to court.” Kennedy added: “This is not an environment in which corporations are generally loath to litigate when their interests are at stake.” Kennedy said he would interpret the relative lack of case law as evidence that the defendants recognize that the department is interpreting the FCPA in a way consistent with other, similar laws. And that lack of case law may soon be a thing of the past. According to a midyear update from the law firm Gibson Dunn, which meticulously tracks FCPA enforcement activity, some corporate defendants are, for the first time, going to trial. As Reuters blogger Alison Frankel put it, ” FCPA trials are the new black .” (The courtroom action has also, at least temporarily, slowed the unprecedented pace of prosecutions.) In each of the first two trials, judges upheld DOJ’s interpretations of the FCPA. The first trial led to the first criminal corporate conviction under the FCPA, but the second one — the result of a multi-year sting operation — raised serious questions of entrapment and was ended in a mistrial in July. Mukasey says many defendants have settled rather than gone to trial because “companies are rarely positioned to litigate an FCPA enforcement action to its conclusion or even risk indictment with consequent debarment in some industries.” “The possibility of substantial prison time for individual defendants has led most to negotiate pleas of guilty,” he added. Another view holds that settling the cases allows corporate executives to pay fines rather than serve jail time, effectively buying their way out of jail with shareholder money. Former Sen. Arlen Specter (D-Pa.) made a similar argument at a Nov. 30 Senate hearing . “Fines are added to the cost of doing business, [and] end up being paid by the shareholders,” Specter said. “Criminal conduct is individual. Nobody likes to pay fines but [the money paid] doesn’t amount to a whole lot in the context of what is going on here.” For example, executives at Tyson International who were thoroughly implicated in a Mexican bribery scandal were able to get off scot-free in return for paying a little over $5 million in fines . And while Mukasey says corporate executives fear debarment — the excluding of a company from contracting with the federal government — that penalty has not once been imposed for an FCPA conviction, settlement or indictment. Given the amounts of money involved, such a threat could be hugely motivating. But as good-government groups have long complained , the government only rarely employs it. THE PROSPECTS IN CONGRESS The U.S. Chamber pretty much has the Republican congressional vote locked up, partly because of their shared worldview, and partly because the GOP is increasingly dependent on the group’s ability to use its funds to hammer Democratic opponents with negative TV ads in swing states. So when it comes to passing a few amendments to the FCPA, all the Chamber really needs is a few key Democratic votes in the Senate. And so far, the business lobby — and its high-priced talent — have been completely dominating the debate among both parties. The headliner for the Chamber at the Nov. 30 Senate hearing was Andrew Weissmann , a partner at the law firm of Jenner & Block in New York who, in a previous life as a prosecutor, led the Department of Justice’s Enron Task Force. He was also the co-author of the Chamber’s Restoring Balance report. Weissmann decried the “recent dramatic increase in FCPA enforcement” which, he said, “coupled with the lack of judicial oversight, has created significant uncertainty among the American business community about the scope of the statute.” He charged that some enforcement actions were “not commensurate with the original goals of the FCPA.” And he said the changes proposed by the Chamber would “help the statute become more equitable.” At another Senate hearing a few months later, Sen. Amy Klobuchar (D-Minn.) announced that she and Sen. Chris Coons (D-Del.) were “working on some potential legislative changes to update that statute.” Klobuchar even echoed the Chamber’s talking points about FCPA investigations “wreaking havoc” on businesses, and she gravely hypothesized a scenario in which giving a Chinese nurse cab fare back from a medical seminar would spark “a major investigation.” At the House Judiciary subcommittee hearing in June, even the expert called by the ranking Democrat on the committee testified in favor of amending the FCPA. It was left to one Democrat on the panel, Rep. John Conyers (D-Mich.) to cross-examine his party’s own witness. Conyers demanded that the witness — representing the National Association of Criminal Defense Lawyers — provide him with a single example to support her contention that FCPA prosecutions were treating minor infractions as crimes. She couldn’t. “There have been 140 cases in 10 years,” Conyers said. “Is 14 cases a year over-prosecution to you?” Nevertheless, even Conyers indicated he might back two of the Chamber’s five major proposals: one that would clarify who qualifies as a foreign official, and another to exempt companies with strong compliance programs from criminal liability. Rep. James Sensenbrenner, the Wisconsin Republican who chaired the panel, announced at that hearing that he would introduce a bill that would “bring this law up to date” and prevent it from being enforced in a “vague and impenetrable manner.” His proposed bill is expected to emerge sometime in the fall and to closely follow the Chamber’s proposal. NOT OVER YET Despite the overwhelming advantage the Chamber seems to hold in Congress, however, ChamberWatch’s Olstad hasn’t given up. “People haven’t pushed back too much yet because it just isn’t out there enough. There’s no actual introduced bill,” he said. “I do think that once people do start to take a look at what the Chamber is actually outlining, it isn’t going to answer,” Olstad added. “It’s just too clear that this is about making it easier to bribe.” Supporters of the current FCPA say there are several reasons why the Chamber’s arguments have been carrying the day in Congress so far. “They’ve really only heard one side of the argument,” said Heather A. Lowe, lobbyist for Global Financial Integrity, a group funded by Scandinavian governments and U.S. philanthropies that works against illicit capital flight from developing countries. The Chamber has two huge advantages going into any fight. It has a massive war chest — its $132 million lobbying budget for 2010, even without accounting for the tens of millions it spent on campaign-related advertising, still dwarfs any other. And it has incredible name recognition. “I think that there are plenty of congressional offices on both sides of the aisle who, because it’s the Chamber, will just assume that it’s kind of a mainstream business perspective. So they won’t look too hard at what the actual ramifications of the Chamber’s suggestion actually are,” said Olstad. “They use the two buzzwords that, without substantiation, still work on members of Congress,” said Pray: “Jobs and China.” But both of those lines of argument are specious, she said. “How does this actually hurt U.S. jobs?” she asked. There’s no hard evidence to support that view, she said. And she noted that of the 10 biggest fines levied under the FCPA, eight were actually assessed on foreign companies. The argument that the Chinese might end up with some advantage because of a strict U.S. anti-bribery position has some basis. Just as recently as 2009, for instance, a Chinese mining firm allegedly paid $30 million in bribes to an Afghan minister to pave the way for a gigantic copper mining operation the Chinese are building in a Taliban stronghold in the mountains south of Kabul. But it doesn’t logically follow that the U.S. should be more competitive in that arena. Meanwhile, the Chamber’s talking points are replete with stories about companies losing business because they’re afraid to do simple, obviously non-criminal things — like buy a Chinese nurse cab fare — for fear of running afoul of U.S. prosecutors. “They’re shopping absurd scenarios,” Pray said. “They’re talking about a cup of coffee or a taxi ride, when it’s really suitcases of cash and jumbo jets.” “The Department of Justice is not going after the small stuff,” Lowe said. “They’re going after systemic bribery.” There were stirrings of pushback at that House hearing in June. Conyers took on the notion that corporations need better guidance about just how much bribery it takes to break the law: “Corporations have more lawyers than anybody else,” he said. “What do they need to know, how low the crime’s got to be before it’s prosecutable? … Nobody’s prosecuting people for how many drinks or a meal that you bought them or gave them a ride.” And Andres, the Justice Department official, tried to explain why prosecutors oppose establishing a clear lower limit. “The Department of Justice has never prosecuted somebody for giving a cup of coffee to a foreign official, a martini, two martinis, a lunch, a taxi ride or anything like that,” he said. But at the same time, he noted, “I think that both the Department of Justice and the government need to be clear that all bribery, just as in domestic bribery, is inappropriate. So I don’t think it’s appropriate to have an exception for a smaller bribe.” Andres raised the possibility that certain changes to the statute could “send a message that we were sanctioning some type of bribery” — or could create exploitable loopholes. “If companies aren’t paying bribes,” he said, “they have nothing to fear with respect to enforcement.” ************************* Dan Froomkin is senior Washington correspondent for The Huffington Post. You can send him an email , bookmark his page ; subscribe to his RSS feed , follow him on Twitter , friend him on Facebook , and/or become a fan and get email alerts when he writes.