Forecasting the Future of FCPA Enforcement

Prosecutions under the Foreign Corrupt Practices Act have skyrocketed in the last several years as the U.S. Department of Justice has trained its sights on incarcerating individuals who make corrupt payments to foreign officials in exchange for securing a competitive business advantage. The government initially focused on corporations, obtaining huge fines via negotiated resolution against those entities that paid bribes overseas. Seeking to maximize the deterrent effect of the FCPA, the government increased prosecutions of the individuals who actually authorized and paid the bribes. This, however, generated an unintended consequence: more FCPA trials.

The past several months have produced a number of setbacks. Convictions have been vacated, indictments have been dismissed with prejudice, and orders belittling the government’s case and finding that prosecutors engaged in misconduct have been entered. A massive sting operation that produced charges against 22 individuals in early 2010 resulted in lengthy trials of two different groups of defendants, and produced not a single conviction.

Very recently, it was reported that Wal-Mart may have violated the FCPA during the mid-2000s. Given the recent losses the government has suffered in other cases, its decision on how to proceed in the Wal-Mart case will be closely scrutinized.

In any event, for those engaged in international commerce, these outcomes give rise to an important question: what do these setbacks mean for the future of FCPA enforcement?

Evolution of FCPA Enforcement

From its passage in 1977 until roughly 2000, the FCPA lived a quiet existence. The Department of Justice and the Securities & Exchange Commission together initiated, on average, three prosecutions per year. During this period, the government secured convictions in virtually every FCPA case.

In 2005, buoyed by an increased allocation of resources, the government embarked on an aggressive initiative resulting in a ten-fold increase in the number of FCPA prosecutions. The Justice Department dramatically increased the number of prosecutors assigned to handle such cases. Investigative resources also increased, evidenced most notably by the Federal Bureau of Investigation’s decision to dedicate an entire squad of agents based in its Washington, D.C. field office to the investigation of FCPA matters.

In 2008, the Justice Department began to string together a series of FCPA triumphs in cases against companies. Among those ensnared were Siemens ($450 million), KBR / Halliburton ($579 million), and BAE Systems ($400 million).

In the government’s view, these successes represented only half the battle. At an American Bar Association event in September 2008, Mark Mendelsohn, then the Justice Department’s chief FCPA prosecutor, stated, “The number of individual prosecutions has risen—and that’s not an accident. . . . It is our view that to have a credible deterrent effect, people have to go to jail.” (Mendelsohn Says Criminal Bribery Prosecutions Doubled in 2007, 22 Corporate Crime Reporter 36 [September 16, 2008]).

The government backed up Mendelsohn’s tough talk. Individual indictments climbed from six in 2006 to 48 in 2010. Twenty-two of those charged in 2010 were ensnared in a government sting operation known as the “Shot Show” case, because all but one of the defendants were arrested at the Shooting, Hunting, Outdoor Trade Show in Las Vegas.

In the Shot Show case, two FBI agents posed as foreign officials from the African country of Gabon, seeking bribes in exchange for contracts to provide tactical military products. A cooperator facing a prison term for FCPA violations recruited others from the tactical weapons industry to participate in the bribery scheme. The resulting indictments represented the largest number of individual defendants ever indicted in a single FCPA case.

Negative FCPA Enforcement Outcomes