FCPA Inc.: The Business of Bribery

Corruption Probes Become Profit Center for Big Law Firms

By JOE PALAZZOLO, The Wall Street Journal, October 2, 2012

Allegations of bribing overseas officials have already cost Avon Products Inc., Weatherford International Ltd.  and Wal-Mart Stores Inc. nearly half a billion dollars. And they haven’t been charged.

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Mike Wirth

Under widespread practice, companies often spend millions of dollars investigating themselves for potential violations of the 1977 Foreign Corrupt Practices Act, then turn over the results to the government in the hope of getting lighter penalties or none at all. The combined $456 million spent by those three companies largely went to law firms and other professionals hired to conduct the probes and fortify the companies’ internal antibribery controls.

The post-Watergate law has become big business for the lawyers who delve into the operations of companies in response to an investigation by the Justice Department and the Securities and Exchange Commission—or to avoid one. The result is a mini-industry of investigators and white-collar criminal-law practices.

“It’s one of the few sort of crown-jewel practices right now,” said Dan Binstock, a Washington-based legal recruiter at Garrison & Sisson Inc. Some FCPA lawyers draw more than $1 million a year in compensation, while a select group commands more than $2 million. “Firms want to get the best attorneys and they’re willing to pay,” he said.

The FCPA makes it illegal to offer money or a gift to foreign-government officials or employees to gain a business advantage. The law applies to any company listed on a U.S. stock exchange or based in the U.S.

FCPA probes have resulted in government settlements with several companies, Siemens AG having racked up the biggest so far—$800 million—for paying millions of dollars to foreign officials to win government contracts.

More than a hundred other companies are under investigation, including News Corp., which publishes The Wall Street Journal. The Justice Department has requested information from the company about possible payments made by its U.K. tabloid newspapers to British policemen, people familiar with the matter have said. A News Corp. spokesman declined to comment.

The Justice Department is preparing to issue as early as this week new guidelines on how to comply with the FCPA, after more than a year of lobbying by American corporations.

The U.S. is one of dozens of nations, including Russia and China, banning overseas bribery. But the U.S. has brought far more cases than anyone else. The Justice Department and the SEC have investigated companies in the developing as well the developed world. The U.S. government has also forged alliances with anticorruption authorities overseas, such as those in the U.K., to help speed investigations.

Advocates for the FCPA say the process has led companies to tighten their controls over foreign subsidiaries, which has long-term benefits for their operations and the integrity of world commerce.

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Associated PressAssistant Attorney General Lanny Breuer.

“Even the most innocent gesture of kindness, like taking someone to lunch or cocktails, has to be looked at under the microscope of federal law,” said Kevin O’Connor, a consultant in New York who works with companies on anticorruption.

The case of Siemens, a German conglomerate with more than 400,000 employees and operations in 191 countries, offers one of the best illustrations of how quickly costs pile up. The company in 2008 admitted to paying millions of dollars to foreign officials in Argentina, Bangladesh and elsewhere.

Siemens hired more than 300 lawyers, forensic accountants and support staff from law firm Debevoise & Plimpton LLP and accounting firm Deloitte LLP for a two-year internal probe, settlement documents said.

The company estimated that the firms racked up 1.5 million billable hours. The investigation spanned 34 countries and included 1,750 interviews. Of the roughly 100 million documents collected in the investigation, Siemens produced about 24,000 documents for the Justice Department. The document review alone cost the company $100 million.

Law-enforcement officials said internal probes are necessary to police a big marketplace.

“We absolutely need companies through their firms to provide us with their investigations,” said Lanny Breuer, the head of the Justice Department’s Criminal Division. Prosecutors test the information they receive from the companies and conduct parallel investigations. “We’re not simply relying on what the companies give us,” he said.

Mr. Breuer said the Justice Department has paid special attention to operations in countries considered to be high risks for corruption. “We don’t just arbitrarily say, ‘Jump,’ ” he said.

Nevertheless, companies have made the calculation that spending huge sums on an internal FCPA probe is better than being indicted or taking a case to trial.

“When you get these situations and you have a young enforcement attorney…telling you to look under every rock, you do it,” said Amar D. Sarwal, chief legal strategist of the Association of Corporate Counsel, a trade group for in-house lawyers. That means law firms have built FCPA practices around former prosecutors and SEC lawyers.

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By The Numbers

$2 million: Annual compensation for top lawyers specializing in Foreign Corrupt Practices Act

$1.5 million: Billable hours by lawyers and other investigators hired by Siemens in FCPA case

Avon, the door-to-door supplier of beauty products, is in the fifth year of an internal investigation into whether employees paid bribes overseas and has spent about $280 million on legal expenses, according to regulatory filings.

The probe began in China in 2008 after a whistleblower told the chief executive that Avon employees were plying Chinese officials with meals, gifts and trips, according to regulatory filings.

The company hired lawyer Claudius Sokenu, now at Arnold & Porter LLP, who quickly moved to preserve electronic and paper documents.

Auditors in China picked through company accounting systems for evidence of bribes, while another contractor copied hard drives and created a searchable database, a person involved with the investigation said.Lawyers interviewed employees. Translators pored through documents.

The company, which voluntarily disclosed its investigation to the Justice Department and the SEC in 2008, repeated the process in more than a dozen countries over the next four years, the person said.

The company in August said it had begun settlement talks with the government. An Avon spokeswoman declined comment.

Steven Tyrrell, former chief of the Justice Department’s criminal-fraud section, estimated that a multinational company spends, on average, about $2 million to investigate its operations in one country and that most investigations span several countries.

“If you get two of these a year as a partner, you’re pretty much set,” said Mr. Tyrrell, a partner at Weil, Gotshal & Manges LLP who represents companies in FCPA matters. “You’re not going to break any records, but you’re doing well.”

Smaller investigations for a “specific, discrete issue,” can cost around $100,000 to $200,000, said Paul McNulty, a partner at Baker & McKenzie LLP. But companies have to be prepared to assure the government that a problem in one country doesn’t exist in others.

Oil-services company Weatherford International has spent more than $125 million on a six-year probe into alleged export violations and bribes in Europe, Iraq and West Africa, according to regulatory filings. The Geneva-based company and the U.S. government have been negotiating a penalty for months but are tens of millions of dollars apart, a lawyer briefed on talks said.

And in less than a year, Wal-Mart has put $51 million into a bribery probe of operations in Mexico and elsewhere, according to company filings. Wal-Mart declined to comment further.

Drug maker Pfizer Inc. agreed this year to pay $60 million to settle bribery allegations, admitting to having bribed doctors, hospital administrators and regulators in several countries to prescribe medicines.

Lawyers who conduct FCPA investigations say the company likely paid more than double the settlement amount in its seven-year investigation to build internal systems to prevent bribery. Pfizer declined to comment.

—Christopher M. Matthews, Emily Glazer, Ashby Jones and Shelly Banjo contributed to this article.

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About Alexander Gordin
An international merchant banking professional with over twenty years of business operating and advisory experience in the areas of export finance, international project finance, risk mitigation and cross-border business development. Clients include foreign governments, municipalities and state enterprises as well as Fortune 500 and small/medium enterprises. Strong entrepreneurial instincts, combined with leadership and strategic skills. Transactional and negotiations experience in over thirty five countries. Author of the highly acclaimed "Fluent in Foreign Business" book and creator of the "Fluent in OPIC", "Fluent in EXIM","Fluent In Foreign Franchising", "Fluent in FCPA",and "Fluent in USTDA" seminar/webinar series. Currently developing "Fluent In ......" seminars and publications. Co-author of the Fi3 Country Business Appeal Indices. Extensive international business development and project finance transaction experience in healthcare, aerospace, ICT, conventional and alternative energy infrastructure, distribution and hospitality industries. Experience managing international public and private corporations. Co-Founded three companies abroad. Strong Emerging and Frontier Market expertise. Published and featured in numerous publications including: The Wall Street Journal, Knowledge@Wharton, NBC.com, The Chicago Tribune, Industry Week, Industry Today, Business Finance, Wharton Magazine Blog, NY Enterprise Report, Success magazine, Kyiv Post and on a number of radio and television programs including: Voice of America, CNBC, CNNfn, and Bloomberg. Frequent speaker on strategy, cross-border finance and international business development. Executive MBA from the Wharton School at the University of Pennsylvania. B.S. in Management of Information Systems from the Polytechnic Institute of NYU. Specialties Strategic Management Advisory, Export Finance, International Project Finance & Risk Management, Cross-border Negotiations, Structured Finance transactions, Senior Government and Corporate officials liason

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