U.S. Prosecutors Targeting Senior Executives in Foreign Bribery Cases

March 23, 2010

A top U.S. Justice Department official said that prosecutors will increasingly pursue individual prosecutions — senior executives included — under the U.S. anti-bribery statute.

Mark Mendelsohn, the department official who oversees enforcement of the Foreign Corrupt Practices Act (FCPA), said that recent cases against individuals under the act were intended to send a strong deterrent message.

“If you look at who we’re prosecuting, we’re prosecuting mid-level to senior level corporate officers and employees, CEOs, CFOs, heads of international sales. My point is these are people with significant positions in companies,” he said.

In January, an FBI undercover operation netted 22 employees of companies in the military and law-enforcement products sector. The biggest prosecution to date of individuals under the FCPA, the case recently yielded a guilty plea and promises to ensnare other executives.

Other corporate executives nailed in recent years under the FCPA include Frederic Bourke, founder of handbag maker Dooney & Bourke, who was prosecuted for conspiring to pay bribes to government officials in Azerbaijan; and Albert “Jack” Stanley, the former CEO of KBR Inc , who pleaded guilty to charges stemming from the payment of bribes to Nigerian government officials.

Mendelsohn said the focus on individuals was not meant to supplant the fraud section’s historic pursuit of corporations under the FCPA.

“We think both efforts are really essential to our overall FCPA enforcement strategy,” he said.

On Thursday, the Justice Department charged specialty chemicals company Innospec Inc with bribing Iraqi officials under the Oil for Food program. Innospec entered a guilty plea and will pay $40.2 million to resolve the allegations.

Indeed, in the last five years, FCPA lawyers have prosecuted more FCPA cases than they did between 1977, when the FCPA was enacted, and 2005. The law imposes criminal and civil penalties for paying bribes to foreign government officials to secure or retain business abroad.

In the last couple of months alone, the department has reached a $400 million settlement with British defense contractor BAE Systems Plc and a $125.5 million settlement with Franco-American telecoms equipment maker Alcatel-Lucent .

It also has tentative settlements in the works with Daimler AG for $200 million; and French engineering firm Technip, which has set aside $335 million for a settlement.

The list is notable because the companies are all based overseas, reflecting stepped-up cooperation abroad as other countries have enacted laws similar to the FCPA.

“We’ve seen dramatic progress over time, principally through the OECD (Organization for Economic Cooperation and Development), which came into force in 1999 and required signatories to have laws like the FCPA,” Mendelsohn said.

The treaty’s 38 signatories have pledged to enact laws making foreign bribes illegal and imposing liability on corporate entities. Before that, it was not only legal in many countries to pay foreign bribes; the bribes were often tax deductible.

Mendelsohn said that until such laws were enacted, criminal, regulatory or administrative actions could not be pursued in such countries.

“That’s so fundamental in our fight against foreign bribery,” he said. “You have to have that in order to be effective.”

By focusing on particular industries, FCPA prosecutors have been able to get more bang for the buck, Mendelsohn added. Besides the military and law enforcement sector, targeted industries have included the pharmaceutical sector and the United Nations’ Oil for Food program.

Mendelsohn, 42, whose title is deputy chief of the fraud section, a unit of the Justice Department’s criminal division, is leaving for the private sector. He said his departure would take place “soon” but he was still weighing offers.

Denis McInerney, who left the Davis Polk & Wardwell law firm to become chief of the fraud section on Jan. 25, said no replacement had been named yet but plans were in the works to beef up the section.

The FCPA, he said, “obviously is one of the top priorities of the section.”

(Reporting by Dan Margolies, editing by Gerald E. McCormick)

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