Too big to be nailed
The news that Hewlett-Packard is the target of a German-Russian bribery investigation spotlights a seldom mentioned reason for the U.S. government's recently stepped-up enforcement of the Foreign Corrupt Practices Act: other countries are finally starting to crack down on corruption cases.
U.S. firms have their own government to thank for closing the pinchers: the Justice Department has been leaning on foreign governments for years to enact, and enforce legislation that backs up long-standing OECD anti-bribery conventions. Now that they are, Uncle Sam has also stepped-up enforcement of the FCPA law, which has been on the books since 1977. The prior laxity in enforcement could well have come about because the US government was loathe to put U.S. firms at a disadvantage to overseas competition. But with the international investigation into HP, the rules seem to have changed.
"Candidly, the level of enforcement outside the U.S. is not where we'd like it to be," Mark Mendelsohn, Justice's top FCPA enforcer, acknowledged in a recent interview. (Mendelsohn recently announced he'll be leaving for the private sector, spinning once again the revolving door between regulators and industry.) But, "there are pockets of progress."
International Corruption Enforcement: Possible Tit-for-tat
Yet even stepped up enforcement by the world's major developed economies seems dwarfed by both the crimes and the punishments that could have been doled out. Germany targeted, as its first prey, a high-profile American firm -- for allegedly paying an 8 million euro bribe to secure a 35 million euro contract with the Russian prosecutor general's office, seven years ago.
Observers believe that the move may have been a way of returning the favor to the U.S. for bagging and fining two of Germany's most prominent companies, Siemens and Daimler. The speculation is just that though -- and may be off the mark. After all, it was German officials who first raided Siemens. The Americans piled in later, splitting the $1.6 billion in fines with Germany.
However, an examination of the Justice Department's three most recent high-profile corruption cases involving foreign firms seems to give weight to the theory that geo-political and "too big too be nailed" calculations and are being weighed from the moment an FCPA investigation gets underway.
BAE, Siemens and Daimler
Take the BAE case. Although snagged in the FCPA net, the firm was merely charged with making false statements -- claiming it had enacted FCPA compliance reforms after earlier alleged violations -- not for actual bribery charges.
This softer settlement allowed the company to avoid debarment from government contracts, which would have been mandatory under EU directives, and possibly ruinous to the British firm. BAE recently added former Homeland Security czar Michael Chertoff to its board, a savvy move for the sixth largest U.S. defense contractor and burgeoning homeland security player.
Meanwhile, the settlement reached with German firm Siemens in December allows it to continue doing business with the U.S. government, enabling it to win a new contract from the Justice Department. So much for taking a damaging reputational hit; some firms, it seems, are simply too big to do without.
Daimler also dodged potentially lethal bullets by virtue of corruption investigations, in a deal blessed by a U.S. judge this month that focused criminal charges on two of its subsidiaries, rather than the German parent company, which the Justice department said "saw foreign bribery as a way of doing business."
The complaint said Daimler engaged in "a brazen scheme that lasted at least a decade and involved ten of millions of dollars of "improper payments" to "foreign officials in at least 22 countries ... to assist in securing contracts with government customers for the purchase of Daimler vehicles valued at hundreds of millions of dollars" It stretches credulity that senior executives at HQ did not know this was going on. That, or their financial controls were a shambles.
