Was BAE Too Big To Debar?

By Nick Wagoner

Last March the FCPA Blog posted an article that asked: Debarment for BAE? It has been a little over a year now, and the answer of course, is no. Although BAE Systems was sanctioned with a $400 million criminal fine for its foreign corrupt practices last year, in the 365 days that followed, BAE was awarded roughly $58 billion in government contracts.

I recently co-authored an article exploring this troubling discovery, entitled “FCPA Sanctions: Too Big to Debar?”

Here’s a summary:

Despite the dramatic escalation in corporate fines and imprisonment imposed under the FCPA in recent years, a particularly lethal sanction for combating foreign corruption remains unused—suspension or debarment of prosecuted entities from future contracts with the U.S. Many of the firms caught bribing foreign officials have extensive contracts with a number of domestic federal agencies; meaning debarment may be a particularly devastating penalty both for the government contractor and the agency it transacts business with.

This begs the question: are certain private contractors too big to debar? As the article demonstrates, it appears so. Certain federal agencies have become highly dependent on a handful of private firms responsible for satisfying the vast majority of government contracts. Because of the potential “collateral consequences” that may result from the collapse of a debarred contractor, these firms have enjoyed bailouts from agency officials who refuse to sanction corrupt practices through suspension or debarment.

If ridding foreign markets of corruption truly is a top priority of the U.S., it seems both unfair and imprudent for federal agencies to continue awarding lucrative, multibillion-dollar contracts to firms recently prosecuted for fraudulently obtaining such contracts overseas.

This situation leads to the jaded viewpoint that paying fines when caught bribing foreign officials has “simply become a cost of doing business.” To help illuminate these concerns and lend support to the thesis, in the article we examine the third largest FCPA-related enforcement actions to date: the BAE Systems case. The U.S.’s refusal to debar BAE because of the risk of “collateral consequences” provides a case study of the benefits and drawbacks to deterring foreign corruption through suspension and debarment. We conclude that the U.S. must begin to diversify its portfolio of federal contractors so that prosecutors may leverage the legitimate threat of suspension and debarment to more effectively deter foreign corruption.

The full article is available on SSRN here.

It was recently submitted for publication. In the meantime, we welcome any comments or suggestions. I can be emailed here.

Nick Wagoner is a 3L at the South Texas College of Law and Managing Editor of the South Texas Law Review.  Nick’s scholarship on white-collar crime and legislation is available at www.nicholaswagoner.com.