We don’t know how many of the 50 or so disclosed and pending Foreign Corrupt Practices Act investigations will be resolved this year. But here are some we’re watching:
Alcoa. In February 2008, government-owned Aluminum Bahrain BSC (Alba) accused its long-time U.S. supplier of overcharging for raw materials during a 15-year period, and using some of the money to bribe Alba’s executives for more contracts. Alcoa’s conspiracy, Alba said in a federal civil complaint filed in Pittsburgh, “succeeded in exacting hundreds of millions of dollars in over payments, which continue to accumulate to this day. Among other things, Plaintiff seeks damages in excess of $1 billion, including punitive damages, for this massive, outrageous fraud.”
The Justice Department quickly intervened, asking the court to stay all discovery. It said the facts of Alba’s allegations, if true, might violate the FCPA and mail and wire fraud statutes. Therefore, the DOJ said, it wanted to conduct a criminal investigation into Alcoa and its executives. That investigation is pending and the civil suit is still on hold.
Aon. The giant Chicago-based insurance broker disclosed in November 2007 an internal investigation into possible violations of the FCPA and non-U.S. anti-corruption laws. It said it had self-reported the investigation to the Justice Department, the Securities and Exchange Commission and others, and that it had already agreed with U.S. prosecutors to toll any applicable statute of limitations. Meanwhile, in January this year, the U.K.’s Financial Services Authority (FSA) fined Aon’s U.K. subsidiary £5.25 million for failing to recognize and control the risks of overseas payments being used as bribes. The fine was the largest the FSA had ever levied for financial crimes.
Avon. It said in October 2008 that it had launched an internal investigation into possible FCPA violations in China. The global beauty-products retailer didn’t release details. The investigation may be linked to the payment to regulators of improper promotional expenses. China imposed restrictions on direct selling in the late 1990s that forced Avon to market its products through shops and boutiques. Two years ago, the company convinced China’s regulators to allow its traditional door-to-door sales model. Avon’s FCPA disclosure referred to “certain travel, entertainment and other expenses.”
BAE. The case is about alleged secret payments of £1 billion to the former Saudi ambassador to the United States, Prince Bandar bin-Sultan. The payments were allegedly made when U.K.-based BAE was trying to sell jet fighters to the Saudi government. Britain’s Serious Fraud Office opened, then closed, an examination into the allegations. But the DOJ is conducting its own investigation of possible violations of the FCPA and anti-money laundering laws. In May 2008, BAE’s chief executive Mike Turner and director Nigel Rudd were detained at U.S. airports. Authorities apparently copied information from their laptop computers, cell phones, and papers before letting them leave.
The DOJ has also reportedly served subpoenas on other BAE employees in the U.S. And in November 2007, according to the U.K.’s Guardian, the DOJ obtained Swiss banking records and evidence from a U.K. businessman who was part of the deal. The paper reported that Peter Gardiner had boxes of invoices allegedly detailing payments made by BAE to members of the Saudi royal family. Gardiner was flown by FBI agents to Washington in August 2007 to give testimony there, the paper said.
BAE apparently stonewalled the U.S. investigation at first but has since begun cooperating.
Medical Device Makers. Their overseas sales practices probably came under scrutiny in early 2007. That’s when Johnson & Johnson (which owns device-maker Depuy) said it voluntarily disclosed to the DOJ and SEC that “subsidiaries outside the United States are believed to have made improper payments in connection with the sale of medical devices in two small-market countries. ” In September 2007, Depuy and four other device makers paid $310 million to settle charges they paid kickbacks to induce U.S. doctors to buy their products. Now the SEC and DOJ want to know whether the companies bribed overseas doctors employed by government-owned hospitals to use their products. Biomet Inc., Stryker Corp., Zimmer Holdings Inc., Smith & Nephew plc and Medtronic Inc. disclosed FCPA investigations during 2007 and Wright Medical reported a similar investigation in June 2008.
Panalpina. In February 2007, the Justice Department said in connection with the resolution of Vetco’s FCPA case that bribes in Nigeria “were paid through a major international freight forwarding and customs clearance company to employees of the Nigerian Customs Service . . .” Since then about a dozen leading oil and gas-related companies received letters from the DOJ and SEC asking them to “detail their relationship with Panalpina . . .” Among those involved are Schlumberger, Shell, Tidewater, Nabors Industries, Transocean, GlobalSantaFe Corp., ENSCO, Cameron, Noble Corp., Pride International, Global Industries and Parker Drilling.
Swiss-based Panalpina said in its 2008 half-yearly report that it would divest its domestic operations in Nigeria to a local investment group and retain no ownership or operating interest. It completed the transaction in November. It also said it was cooperating with an investigation by the DOJ and SEC and that its U.S. subsidiary in Houston had been instructed to produce documents and other information about services to certain customers in Nigeria, Kazakhstan and Saudi Arabia.
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And a long-standing prosecution that isn’t mentioned much these days but should be watched is US v. Giffen. It’s in the U.S. District Court for the Southern District of New York (Foley Square). American businessman James H. Giffen was arrested in New York in March 2003 for allegedly paying or offering $78 million in bribes to an advisor of Kazakhstan’s president and its former oil and gas minister. He was charged with violating the FCPA, mail and wire fraud, false statements and money laundering.
When arrested, Giffen was carrying a Kazakhstan diplomatic passport. His lawyers have said he was acting in Kazakhstan with the full knowledge and approval of the U.S. government. Most of the court record is sealed, apparently because it contains classified documents. After nearly six years of little activity (raising speedy-trial issues, no doubt), there’s more going on in the case now. A pre-trial conference was held this month and the next one is scheduled for June. Giffen is free on $10,000,000 bail.