Bribery War in USA

By DIONNE SEARCEY

The Justice Department is increasing its prosecutions of alleged acts of foreign bribery by U.S. corporations, forcing them to take costly steps to defend against scrutiny.

The crackdown under the Foreign Corrupt Practices Act, or FCPA -- a post-Watergate law largely dormant for decades -- now extends across five continents and penetrates entire industries, including energy and medical devices. Among the companies currently under Justice Department review: Sun Microsystems Inc. and Royal Dutch Shell PLC, according to the companies' disclosures.

At least 120 companies are under investigation, according to Mark Mendelsohn, a deputy chief in theJustice Department division overseeing the prosecutions, up from 100 at the end of last year.

The effort began in the wake of a series of business scandals earlier this decade, including the collapse of Enron, that stirred up a new corporate-reform movement.

Today, companies across the U.S. are working to figure out if they are at risk. In some instances, companies have called the Justice Department to come clean, in hopes of obtaining leniency.

"If we call them before they call us, it's not where they want to be," Mr. Mendelsohn said.

The law prohibits U.S. companies from paying, or offering to pay, foreign-government officials or employees of state-owned companies to gain a business advantage. It covers nonmonetary gifts or offers in addition to cash payments, and is worded broadly enough that it's spawning an army of consultants, some of whom once prosecuted bribery cases for the Justice Department, who offer to interpret the gray areas.

"When you have a law that can result in criminal sanctions and jail time and that you can violate without actually realizing you're violating it, that's terrifying," said Alexandra Wrage, president of Trace International Inc., a Washington-based nonprofit specializing in antibribery compliance.

The gray areas of the law sometimes apply to actions -- for example, the giving of seasonal gifts -- that can be common in some countries. This has left corporations concerned about other practices, such as picking up the cost of trips or meals for foreign officials.

In 2007, the Justice Department settled charges against telecommunications company Lucent Technologies Inc. for failing to properly record millions of dollars in travel to Disney World, Las Vegas and other sightseeing destinations for about 1,000 Chinese foreign officials who worked for state-controlled telecom companies. The company, which had characterized the trips as factory tours, admitted to the conduct and paid $2.5 million in fines.

The FCPA became law in 1977 amid investigations into alleged contributions to Richard Nixon's re-election fund. At that time, a Securities and Exchange Commission inquiry revealed that some companies had been maintaining offshore slush funds used to sway business decisions abroad. After the passage of the 2002 Sarbanes-Oxley Act, which is intended to hold executives more accountable for their companies' actions, the Justice Department dusted off the FCPA law as part of the overall crackdown on corporate shenanigans.

The FCPA began its recent rise in prominence when, in 2004, a Justice Department overseas-bribery probe of defense-services company Titan Corp. sent its stock on a slide and eventually scuttled a $1.6 billion merger with aerospace giant Lockheed Martin Corp.

Titan pleaded guilty and eventually paid $28.5 million to settle SEC charges that it allegedly bribed government officials in Benin to develop a telecommunications project.

Mr. Mendelsohn currently has a team of eight Federal Bureau of Investigation agents working on overseas bribery cases, up from five last year.

For years, taking business associates to lavish dinners and giving them expensive holiday gifts, and even outright cash, was expected and done in many countries. Among them, according to legal experts and corporations: Nigeria, South Korea and China, to name a few.

As a result of stepped-up enforcement of bribery laws, corporations are re-evaluating their practices and hiring costly consultants to help them. If companies sniff out problems in-house, many have felt compelled to come clean to the Justice Department, which has given a break to some that do so.

Control Components Inc. of Rancho Santa Margarita, Calif., said in 2007 it began an internal investigation after finding "irregular payments" in trading contracts. Its parent company, British-based IMI PLC, said in a statement in the U.K. that it last year set aside £26.3 million, or about $42 million, for legal costs as well as expected fines in the matter.

In April the Justice Department indicted six former employees of the company, which makes valves for energy equipment, accusing them of having made at least 236 payments to win contracts in more than 30 countries. The indictment accuses one former employee of flushing incriminating documents down a ladies' room toilet.

Control Components hasn't itself been indicted. The company declined to comment, other than to note that no current employees are being prosecuted.

Several major multinational companies have been targets. German industrial conglomerate Siemens AGagreed in December to pay $800 million in U.S. fines to settle bribery investigations involving alleged payments to government officials around the world to win infrastructure contracts.

Justice Department officials alleged the corruption at Siemens reached the highest levels of management. In its indictment in federal court in the District of Columbia, it accused Siemens of spending more than $1 billion bribing government officials around the globe to win infrastructure contracts in recent years. Munich-based Siemens, which didn't admit to the bribery allegations as part of the settlement, said it had inadequate controls and kept improper accounts. U.S. law applies to the German company because its stock trades in the U.S.

In February, energy companies Kellogg Brown & Root LLC and its former parent, Halliburton Co., agreed to pay a total of $579 million for U.S. charges involving bribery of officials in Nigeria. KBR pleaded guilty to charges involved in the case. As part of the settlement, the federal government agreed not to prosecute Halliburton.

The Justice Department probes can be particularly extensive during merger-and-acquisition activity. As a result, companies are becoming increasingly careful to scrutinize their own practices when a deal is brewing to ensure they don't inherit a bribery problem. Just two weeks ago, Sun Microsystems-- which is in the midst of a potential $7.4 billion purchase by Oracle Corp. -- said in a regulatory filing that it might have violated bribery laws in an unnamed country.

The two companies declined to elaborate on whether the potential violations would affect the deal. Oracle has said in an SEC filing that Sun informed it of the matter.

Hiring a consultant to ferret out trouble internally can be costly. One global investigative firm, Nardello & Co., says it starts its billing at about $7,500 for each employee a company wants to scrutinize. The bill can rise quickly if the employee works in multiple countries.

After Weatherford International Ltd., an oil and gas company, reported in an SEC filing in 2007 that it might have a bribery problem with a European subsidiary, it started sending compliance officers to some of the 100 countries where it operates, to train many of its 45,000 employees, according to a person familiar with the company.

A spokesman at Siemens, which paid the largest foreign-bribery fine to date, said the cost of addressing its own corruption allegations was nearly as much as its total fine of €1.22 billion ($1.7 billion), including fines to the German government. The company is spending more money now on compliance programs and a government-mandated monitor.

A Siemens spokesman said in an email that it's wise for a company "to have an adequate compliance system in place and a corporate culture that stands for clean business."

Write to Dionne Searcey at dionne.searcey@wsj.com

Printed in The Wall Street Journal, page A1