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Hits, and Misses, in a War on Bribery

PRISON is the last place Albert J. Stanley seemed destined for. But on Feb. 23, Mr. Stanley, a legendary figure in the high-octane world of Big Oil, was sentenced to two and a half years for his role in one of the biggest bribery cases in American history.

Robert Clare | Photographer's Choice | Getty Images

It was a stunning downfall for a man who had spent his career clinching deals in far-flung corners of the world. But it turns out that Mr. Stanley, known as Jack, also played dirty: he pleaded guilty to conspiring to bribe officials in Nigeria in return for $6 billion in business contracts.

“I am truly sorry,” Mr. Stanley, the former chief executive of the engineering giant KBR, told a court in Houston last month. “I lost touch.”

The particulars of his case aside — Mr. Stanley said alcoholism played a role — perhaps the most surprising aspect of this story is that it might have unfolded at any number of big corporations. Graft is alarmingly commonplace in global business today, so much so that the Justice Department is waging an aggressive — and controversial — campaign against it.

At least 78 corporations are under investigation for possible violations of the Foreign Corrupt Practices Act, a 35-year-old law that bans American companies from paying bribes to government officials abroad. Among those companies are such well-known names as Alcoa , Avon , Goldman Sachs , Hewlett-Packard , Pfizer and Wal-Mart Stores , although none of these companies have been charged.

And, last week, it emerged that News Corporation , which is controlled by Rupert Murdoch and has been trying to contain the damage from a long-running phone-hacking scandal in Britain, is the subject of an F.B.I. inquiry into possible bribery there and in Russia. A spokesman for the News Corporation, Jack Horner, declined to comment.

Until recently, federal prosecutors had won settlements in nearly every battle involving charges of foreign bribery by multinational corporations and their executives. But in late February — indeed, the very week that Mr. Stanley was sentenced — the Justice Department had an embarrassing setback: it abruptly withdrew the biggest case ever brought against individuals under the Foreign Corrupt Practices Act.

It was an extraordinary turn of events. The F.B.I. had recorded 800 hours of video and audio as part of a sting operation involving supposed arms contracts in Africa. Twenty-two executives had been arrested.

Then the whole case fell apart. In a withering appraisal, the federal judge in the case, Richard J. Leon, called the government’s effort “a long and sad chapter in the annals of white-collar criminal enforcement.” Its approach to the law, Judge Leon said, had been “very, very aggressive.”

THE development opened the door for critics who assert that federal authorities have overstepped in trying to fight corruption overseas. They say that the crackdown, which began in earnest three years ago, has made it harder for companies to win legitimate business and that it has needlessly instilled fear among executives. Many companies would rather make any charges brought under the act go away with a quick settlement than try to fight them in court.

“We are seeing companies getting scooped up in aggressive enforcement actions and investigations,” said Lisa A. Rickard, president of the United States Chamber of Commerce’s Institute for Legal Reform, which is pushing to modify the law. “A culture of overzealousness has grabbed the Justice Department.”

“The last time I checked,” Ms. Rickard added, “we were not living in a police state.”

Such heated criticism aside, federal authorities say they are unbowed.

Lanny A. Breuer, the assistant United States attorney general who has stepped up enforcement actions under the act, said he saw no reason to change course. In fact, he is expanding his staff — and his range of potential targets.

“We have to be willing to take cases that we would be willing to lose,” Mr. Breuer said in an interview. “We can’t just pick the easy cases.”

Even more, he sees himself on the right side of history, especially given the outcry against government corruption in the Arab world and elsewhere.

“This is not the time for the United States to be condoning corruption,” Mr. Breuer said. “We are a world leader and we want to do everything to make sure that business is less corrupt, not more.”

Enacted in 1977, the Foreign Corrupt Practices Act prohibits American companies and foreign companies whose securities are traded on exchanges here from bribing foreign officials to attract or keep business. For many years, there were few prosecutions under the act. In 2003, for instance, not a single person was charged.

But in the last four years, a total of 58 companies have paid a combined $3.74 billion to settle such corruption charges. Since 2009, some 67 people have been charged, 20 are still awaiting trial or are at large, and 42 have been convicted, some from charges prior to 2009. A total of 22 have been acquitted or had charges dismissed.

One big fish the government has targeted is the son of the president of Equatorial Guinea, a tiny West African nation. The authorities say the man, Teodoro Nguema Obiang Mangue, amassed over $100 million in the United States through corruption and money laundering while earning an annual government salary of under $100,000. The United States government filed a civil forfeiture complaint last October and is seeking to recover a $38.5 million Gulfstream V, a $30 million oceanfront home in Malibu, Calif., $1.8 million worth of Michael Jackson memorabilia and a 2011 Ferrari valued at more than $530,000. Calls to Mr. Obiang’s lawyer were not returned last week.

AS they pursue their overall campaign, federal authorities have their work cut out for them. As business has gone global, so has graft, particularly as companies in rich nations push into poorer regions. The World Bank estimates that $1 trillion in bribes is paid annually to government officials. In Africa alone, $148 billion is siphoned off annually, according to Transparency International, a global nonprofit group that tracks corruption.

Jeffrey M. Kaplan, a lawyer in Princeton, N.J., who specializes in cases brought under the corruption act, said: “You are talking about millions of dollars going to dictators who are selling their national patrimony in countries where you cannot even get clean water. Bribery is endemic to the human condition. If it cannot be rooted out, then you need to do something, and the F.C.P.A. is that.”

The law does not stop at American shores. Of the 10 largest corporate settlements, nine have involved companies outside the United States. One of the biggest cases involved Siemens, the German engineering company, which was accused in 2008 of bribing officials in a number of countries where it did business. Siemens paid $800 million to federal regulators here and another $800 million to German regulators to settle the case.

But a criminal case continues against eight former Siemens executives and contractors, who were charged last December. The eight, none of whom are American, have been accused of paying $100 million in bribes to Argentine officials, including the former President Carlos Menem, to get business for Siemens, whose securities are traded in the United States.

According to American authorities, a scheme began in the late 1990s, when the Siemens executives sought a $1 billion contract to make national identity cards for Argentine citizens. The authorities contend that after Siemens paid $16 million to President Menem and more to other Argentine officials, the government cooled on the project. Even after President Menem left office, the American complaint said, former members of his administration demanded payment and members of the incoming administration of President Fernando de la Rúa demanded bribes, too.

Mr. Menem has denied any wrongdoing, and Mr. de la Rúa could not be reached for comment.

The complaint said Argentine officials later threatened to expose the payments and, in the words of one defendant it quoted, demanded still more money “to prevent potential physical harm” to Siemens employees in Argentina. The complaint said bribes continued to flow until 2007, when the payments were finally uncovered.

Since then, Siemens has “been compliant with every anticorruption law around the world,” said Peter Y. Solmssen, general counsel for Siemens. “Our experience shows it pays off to pay attention to these issues.”

The defendants live in Germany, Switzerland or Argentina and have not been arrested or extradited. Among them was Uriel Sharef, a former Siemens board member; attempts to reach his lawyer in Germany were unsuccessful.

Backlash

In the United States, however, the battle between the Justice Department and its critics is heating up. One big complaint is that corporations would settle allegations rather than face the bad publicity of a trial. As a result, these critics say, the big settlements held up by the Justice Department represent hollow victories.

Robert Clare | Photographer's Choice | Getty Images

What’s more, some individuals are fighting back — and winning. Citing prosecutorial misconduct, a federal judge in Los Angeles in December tossed out a conviction involving two American businessmen who were accused of paying bribes in Mexico. In January, a federal judge in Texas, citing lack of evidence, threw out a corruption case against an American businessman working for a Swiss company.

To critics, such events show weakness in some of Washington’s efforts.

“This is a facade of F.C.P.A. enforcement,” said Mike Koehler, an assistant professor of business law at Butler University in Indianapolis, who writes the FCPA Professor blog. “When you have cases in which the corporate defendant settles with neither admitting nor denying, that isn’t a success. It is just a cost-benefit analysis.”

Matthew T. Reinhard, a white-collar defense lawyer in Washington, said that most corporations would prefer to settle because the potential losses are big if they lose in court. “For corporations, if you lose, the way the law is written, the financial penalties can be catastrophic,” he said.

Mr. Breuer at the Justice Department counters that other white-collar cases often result in settlements, as well. “I don’t buy it,” he said of the criticism. “You could make the same argument for every other area of white-collar cases.”

Leading the efforts to modernize the corruption act — or weaken it, in the eyes of the government — is the Chamber of Commerce. The group, in Washington, has been in discussions with the Justice Department and the Securities and Exchange Commission about new guidelines on enforcement. That guidance, expected later this spring, would give corporations a better notion of what they need to do to stay on the right side of the law.

Corporate America clearly wants its views heard.

“You are dealing with criminal liability, and that strikes fear and terror through the heart of the corporate suite,” said Ms. Rickard at the chamber.

In a letter signed by more than 30 trade associations, the chamber asks that the guidance allow companies with strong compliance programs to use that as a defense against liability. It also asks that the definition of a “foreign official” be more limited and that companies not be held accountable for the past wrongdoing of foreign companies they may purchase, among other provisions.

Siding with the chamber is a range of business interests, including the American Gaming Association, the American Insurance Association, the Poultry Federation, TechAmerica, the Pharmaceutical Research and Manufacturers Association and the National Association of Manufacturers. The chamber has also lined up the firepower of Michael B. Mukasey, a former attorney general who has been pushing for changes to the corruption act in speeches and testimony before Congress.

Mr. Breuer and other government lawyers have spoken out against the provisions. They have been joined by 33 human rights groups, including Amnesty International, Oxfam America and Transparency International.

AND yet business interests aren’t the only ones pushing back. People with the financial means are fighting, too. One closely watched case in legal circles is that of Frederic Bourke, co-founder of Dooney & Bourke, the luxury handbag company. He is appealing a 2009 conviction a in a bribery conspiracy case and has vowed to go all the way to the Supreme Court.

As Mr. Bourke was about to enter prison last December, he got word that his appeal would be heard. He hardly seemed like a person who would end up facing jail time. His first wife was the great-granddaughter of Henry Ford, he owns homes in Aspen, Colo., Greenwich, Conn., and Maine, and he made a fortune in the handbag business.

Mr. Bourke has said he simply fell in with a bad crowd. His former business partner is Viktor Kozeny, the fugitive financier known as the Pirate of Prague over accusations involving financial dealings in his native Czech Republic. Though charged, Mr. Kozeny has avoided extradition by remaining in the Bahamas. Mr. Bourke’s conviction came over his role in a scheme to bribe officials in Azerbaijan over an oil investment.

At Mr. Bourke’s trial, tales came out of lavish trips and million-dollar shopping sprees in New York and London paid for by the investment partnership that Mr. Bourke was involved in — the Oily Rock Group — for Azerbaijan officials and their families, some of which were arranged by Mr. Bourke. There was also testimony about plane flights with millions of dollars stuffed into suitcases and dealings with the Chechen underworld.

In his defense, Mr. Bourke said he had made no money from the scheme. In fact, he said, he actually lost $8 million. His appeal will turn on whether he was duped or simply turned a blind eye to the apparent corruption around him. He has hired a defense lawyer, Michael E. Tigar, who represented Terry Nichols in the Oklahoma City bombing case.

At the Justice Department, Mr. Breuer, speaking in general terms and not about the Bourke case, sounded as if he was up for any fight. The Foreign Corrupt Practices Act, he said, often ensnares the wealthy.

“Some of the people we accuse are fabulously rich,” Mr. Breuer said. “And they are often fabulously powerful people who can get fabulous lawyers.”

Leslie Wayne is senior editor at 100Reporters, an independent nonprofit news organization.

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