Conventional wisdom has it that the Justice Department will have a difficult time bringing a Foreign Corrupt Practices Act (FCPA) case against a major corporation unless the corporation cooperates with the investigation.
“Several years ago, that would have been the case,” Nathaniel Edmonds, the former assistant chief at the Department’s FCPA unit. “Obviously, the cooperation of a major company assists greatly in gathering evidence and building a case.”
“But I would give as an example a case I brought — which is the BAE Systems case. That resulted in the third largest criminal fine in U.S. history. And there was no substantive cooperation. It was a $400 million fine. And it included a guilty plea by the corporation.”
Behold the downside of not cooperating.
Edmonds left the Department earlier this year.
He’s now a partner at Paul Hastings in Washington, D.C.
The BAE case involved allegations of bribery in Saudi Arabia.
The UK’s Serious Fraud Office opened an investigation, but was forced to close it in 2006 after threats to the UK government by Saudi Arabia.
In response, the Justice Department opened its own investigation. And in March 2010, both the Justice Department and the UK’s Serious Fraud Office secured guilty pleas and fines from BAE.
We asked Edmonds about this.
“The BAE Systems case is obviously fact-specific, and I can’t comment beyond what is in the public papers,” Edmonds said.
“However, the prosecution of BAE could be considered an example of how the U.S. Department of Justice has effectively brought criminal cases by applying traditional law enforcement methods to an FCPA investigation and leveraging international relationships even against a company that provided no substantive cooperation.”
“In the years to come, as the Department of Justice continues to work closely with law enforcement from around the world, I would expect that more countries will be bringing foreign bribery cases against companies in their jurisdiction using the strategies and insight gained by working with the United States.”
“And, in those situations when a foreign country fails to bring a foreign corruption case against its own companies, I would expect that the United States, as part of the global effort to fight corruption, will be prepared to thoroughly and aggressively investigate the most important of these cases.”
We asked Edmonds — what percentage of FCPA cases are self reported?
“It’s a difficult question to answer,” Edmonds said.
“There are self reports based on pure internal investigations where the government has no other indication that misconduct was occurring.”
“Then there are self reports that come in after the press starts asking questions.”
“There are a significant number of cases that are like that. But an increasing number of cases brought have been self-generated by law enforcement. That’s where the government has identified wrongdoing without any actual voluntary disclosure by the company.”
The FCPA unit at the Justice Department has about 20 full time attorneys. It has upwards of 150 cases currently open.
What percentage of FCPA cases are declined — no action taken?
“The Department’s policy prohibits a specific mentioning of those,” Edmonds said. “But you can look at the press reports on companies that have identified declinations. And there is a sizeable percentage which are declined each year.”
“That said, these investigations are lengthy — they can go on for more than one year. A significant percentage are declined. And there are some that the company identifies as declined. But there are some where the company chooses not to identify them.”
If FCPA unit doubled its resources, you it double the number of cases it brings every year?
“The World Bank says there is $1 trillion of corruption every year — that’s three percent of the world’s economy,” Edmonds says.
“A doubling of the FCPA unit’s resources would dramatically increase the number of cases that could be brought.”
“Obviously, the prosecutors at the FCPA unit are only one part of the picture. There are obviously the FBI agents, IRS agents, Department of Homeland Security agents that work on these cases. But an increase in the resources can significantly impact the number of cases that can effectively be brought.”
Is the implication that the Department and SEC are leaving significant cases on the table due to lack of resources?
“I don’t want to go that far,” he says “In law enforcement, there will always be the opportunity to bring more cases if there are more resources.”
“The resources that the FCPA has received in recent years has contributed to the increase in FCPA enforcement. Other cases could be made if the FCPA unit and other law enforcement agencies had greater resources.”
While at the Justice Department, Edmonds was intimately involved with efforts to foster cooperation between international anti-corruption prosecutors.
“There was a conference that I helped organize right before I left the Department,” Edmonds said.
“It had 130 prosecutors from 30 different countries come together for three days to discuss best practices and to discuss how to effectively coordinate investigations going forward. When you have prosecutors from Sweden, Norway, South Africa, Indonesia, Russia and Saudi Arabia all coming together — there is a great opportunity for best practices to be shared and for cooperation to occur going forward.”
“That’s one of the unknown stories going on right now — the significant effort the Department has made to encourage other countries to begin enforcing its foreign bribery laws.”
“You might have a Swedish company involved in corruption somewhere overseas. It might not have a U.S. connection — or it might.”
“But what ends up happening is Sweden brings that corruption case. Instead of just having U.S. companies being subject to these laws, all countries around the world will be subject to these foreign bribery laws.”
“This fits well into the efforts by the U.S. State Department and U.S. Commerce Department to level the playing field.”
What about cases where a company will engage in foreign bribery and a number of countries want to bring a case?
“There have been a couple of examples where there have been coordinated resolutions between the U.S. and the foreign authorities.One of the first ones was the Siemens prosecution.”
“Siemens is a German company that resolved matters with the Department of Justice, the SEC and the Munich public prosecutor’s office.”
“That was a global resolution. There have been several with the UK Serious Fraud Office. There was the BAE Systems case. And also there was Johnson & Johnson. And there was Innospec case. Those were resolved between the US and the UK. They were each resolved slightly differently.”
“In some cases, there was a division along conduct lines. In the Innospec matter, the U.S. prosecuted the conduct involving bribes to Iraq. The UK prosecuted bribes paid to Indonesia.”
“In other cases, there was a division along the type of penalties associated with it. The violation of U.S. laws was different than the violation of German laws.”
“That’s one aspect. The second aspect which is probably not as visible to the outside world is when the U.S. defers prosecution — gives the prosecution to another country to bring the case. The U.S. decides that another country has primacy over that prosecution and should bring that case.”
[For the complete transcript of the Interview with Nathaniel Edmonds, see 27 Corporate Crime Reporter 13(11), April 1, 2013, print edition only.]