He is the U.S. Justice Department's chief prosecutor for international bribery under the Foreign Corrupt Practices Act (FCPA). This is an edited transcript of an interview conducted on Feb. 24, 2009.
- International bribery's impact on ordinary people
- The global reach of FCPA
- The KBR investigation is "ongoing"
- No matter how sophisticated, bribery can be discovered
Most people don't know there is a Foreign Corrupt Practices Act [FCPA], or that the U.S. government prosecutes bribery and corruption overseas. Why is this important? Why should people care about this?
People should care about the Foreign Corrupt Practices Act because it really has to do with the way American companies, American citizens conduct themselves overseas, and [is] about the business practices that they employ in going about their work. It ought to be the case that American companies and American citizens conduct themselves abroad in exactly the same way that they conduct themselves here in the U.S.
It's about not permitting companies and U.S. citizens to undermine the work that we do to try to promote democracy, promote stability, promote the rule of law around the world. That's really what's behind this.
But isn't it the way business is done and has been done for as long as we can remember?
It's certainly the way some business is done. It's not the way business ought to be done. No doubt there will be people who will bribe for contracts, bribe for business purposes, no matter what we do. But I think there's less of it than there once was because the U.S. and others are really now beginning to take this topic seriously. ...
... Why is bribery bad? I mean, doesn't it get a company or a country more business?
Bribery may well get a company more business in the short run, but what it also does is it moves money off the company's official records and into places where it can't easily be tracked. And a company may not know what is happening with its funds. Company employees may be pocketing the money; they may be paying bribes with some of the money and doing other illegal things with the remainder of the money.
One of the most interesting things that I've learned in the course of my work ... is that there's always this great fear about what will happen to business when the bribery has to stop. There is a grave concern, obviously, that without the ability to pay bribes, the contracts will just dry up, but experience has been exactly the opposite.
When companies that have been caught up in a foreign bribery problem have actually had to put controls in place and stop it, to their surprise they've often found that business has improved; that they are more profitable, not less profitable when they have appropriate controls in place, when they have this sort of transparent and legitimate relationship with their customers. And I think that has been eye-opening, and I think it's not widely understood or even accepted that that's the case. But that's what I've seen.
That bribery is bad for business.
Bribery is bad for business. Bribery is inefficient; it's wasteful. It often doesn't accomplish what its original purpose was. You may be competing with another company that may ultimately out-bribe you. And then at the end of the day, of course, there is a huge risk that the bribery is uncovered, that you are the subject of a protracted investigation. And the costs can be quite, quite high at the end of the day. ...
... What's your estimate on how pervasive bribery is in international commerce, worldwide?
It's very difficult to come up with accurate information about the size of the bribery problem. It is pervasive. It is real. It happens all the time. But to actually come up with numbers is very, very difficult.
Because it's underground, basically?
It's underground; it's concealed; it's camouflaged. We see probably only the tip of the iceberg through the work that we do. And then there's a whole world of conduct that rarely sees the light of day. ...
The impact is real. There are residents of some very poor and in some cases desperate countries. In some instances, those countries have real natural resources, real wealth, and their own leaders are depriving them of a better standard of living, a better way of life because they're diverting public resources for personal gain, which is really the definition of corruption. And so the cost is very real and tangible to the people who live in some of these countries.
The cost is also seen in the corrosive effect that corruption has on the rule of law, the administration of government. Civil servants who are underpaid and in difficult circumstances may be tempted by a bribe for some benefit. And the citizens who are counting on those public servants pay a price for that, a very real price.
... Isn't there a kind of difficulty you have dealing with governments that have a reputation for being less than honest, and at the same time you might have to ask for their cooperation in one of these cases?
... It's often the case that there are impediments to our investigations because we have a difficult time, for example, gathering evidence in some of these foreign jurisdictions. If the officials who are being corrupted by the subjects of our investigation are themselves in power in these jurisdictions, that can make our work difficult.
If the local law enforcement, local investigators, are underresourced, if they are disempowered or themselves corrupt, that can make our work much more difficult to achieve. Sometimes we are successful in finding ways around those kinds of problems, but sometimes we're not. ...
... The U.S. comes along and passes the Foreign Corrupt Practices Act in 1977. ... What powers does it actually give you?
Basically what the act does is really two things. One is it actually criminalizes the payment, or the offer or the promise or the authorization of a payment of a bribe. That's what I call the anti-bribery provisions of the FCPA. It makes that a federal crime, and people can go to jail; companies can be sanctioned for engaging in that conduct.
Equally important, although less commonly understood, are what I call the accounting provisions of the FCPA. ... What it did for public companies, now, is it required them as a matter of law to have accurate and transparent recordkeeping ... so that, for example, you can't make an illegal campaign contribution and then characterize it as a consulting fee to a third party. Similarly, you can't pay a bribe and call it a professional fee or an expediting fee or anything like that. You've got to accurately and honestly characterize your payments.
There also are, within the accounting provisions, requirements that public companies have internal controls, ... basically to control it so that employees on behalf of the company can't easily make corrupt payments.
It's not that it's worse to be the giver than the receiver, but you're right in observing that the FCPA criminalizes the payment or supply side of the foreign bribery problem. It doesn't criminalize the demand side. In other words, the foreign officials who are receiving or soliciting the bribes cannot themselves be charged under the FCPA.
There are, however, other federal criminal laws here in the U.S. that can reach the conduct of foreign public officials. They can, under certain circumstances, be prosecuted for violating our money-laundering laws, the wire-fraud statute; there are a number of other theories. But strictly speaking, the FCPA itself does not reach their conduct.
And the giver doesn't necessarily have to be a U.S. company? Maybe you could explain that.
... The law reaches publicly traded companies that are called issuers in the language of the statute, but those can be either U.S. companies or what are called foreign issuers. Just to give you an example, the department recently prosecuted Siemens AG, a major German multinational firm. It is a German company, but its shares trade on the New York Stock Exchange, which makes it a foreign issuer and therefore subject to the FCPA.
There's another category of foreign companies that can also be prosecuted under the statute, which is simply foreign companies that take a step in furtherance of a bribery conspiracy in the territory of the United States. ... If a company conducts business in the U.S., accesses U.S. capital markets by trading on the U.S. stock exchange, or takes some step in furtherance of a bribery scheme within the U.S., that is the business of the United States. And those are cases that we're going to investigate and prosecute. ...
So if I'm a foreign company and I'm not traded here in the United States but I use a U.S. financial institution, you have jurisdiction?
The short answer is yes. I can give you a concrete example. A few years ago, the department prosecuted [Statoil], which is a Norwegian company but also an issuer. It was charged with paying bribes that were routed through a New York bank account of the company en route to an Iranian government official. And the payment of those bribes through a New York financial institution was one of the territorial bases for that prosecution. ...
Editor's Note: On Oct. 13, 2006, Statoil settled a civil complaint with the Securities and Exchange Commission and plead guilty to criminal charges brought by the Department of Justice. The company paid a total of $21 million.
... So if I'm a foreign company and I transfer money to the United States as part of a bribe scheme or use it to pay for the lifestyle of some foreign public official while they're visiting the United States, you have jurisdiction?
If the other elements of the statute are satisfied; that is, if the payment was made corruptly to a foreign official for purpose of assisting and obtaining or retaining business. If you're simply looking at whether the jurisdictional nexus to the U.S. is there, then you're right that ... [the] giving of a thing of value in the territory of the United States could be sufficient to support a prosecution. ...
... What happens when the government says, "We knew about that $100 million payment; we approved it"? Do you still have a case?
Under U.S. law, it's absolutely irrelevant whether a foreign government acknowledges awareness that one of its officials was being corrupted, or even endorses or approves of the corruption. So long as the bribe payment is for a corrupt purpose and goes to personally benefit the foreign official and the other elements of the statute are satisfied, we can and will bring a prosecution. ...
In fact, we have prosecuted cases involving ministers and heads of state who were corrupted by U.S. citizens or U.S. companies, or companies otherwise under our jurisdiction.
... How many cases do you have under investigation, and approximately how much has the U.S. government collected as a result of cases over the last two years?
The Department of Justice currently has well over 100 cases under investigation, and over the past two years or so has collected almost a billion and a half dollars in fines and penalties. ...
... Let me take you to Siemens Corp., which apparently had a culture of bribery, if that's a fair way of describing it. ... You would agree?
I would agree. In fact, the culture of bribery is described quite extensively in the public documents related to that prosecution. ...
... Did it surprise you when you saw that laid out by investigators?
I don't think that it surprised us that Siemens was heavily engaged in bribery for a long period of time; that was known to the Department of Justice. Perhaps the details of it, the sophistication of it, the breadth of it, the sheer magnitude of it -- that was a bit surprising.
Billions of dollars in bribes.
Literally billions of dollars. On the face of the public charging documents, Siemens admitted paying more than $805 million in bribes through a wide variety of payment mechanisms, and not everything was examined in the course of this investigation. ...
... Reinhardt Siekaczek, who worked for Siemens and was prosecuted in Germany, ... doesn't believe anybody is going to jail in the higher reaches of the company. ...
I can't comment on the ongoing investigation here in the United States because it is ongoing, including the ongoing investigation of individual Siemens officers and executives who may have been involved. There is also an ongoing investigation in Germany, and ... my understanding is they were looking at a large number of individuals who may have been involved in the corruption over many, many years. So I don't think the last chapter of the story has been written yet.
Executives may eventually go to jail in the Siemens case?
Executives may go to jail in the Siemens case.
And in Halliburton, ... the seven-year prison sentence for Jack Stanley, was that unique, sending an executive of that high a level, threatening him with jail?
It is the longest jail sentence that an individual executive has agreed to serve in connection with a plea to a Foreign Corrupt Practices Act prosecution. There are a relatively modest number of senior company executives who have been prosecuted over the years.
But it is certainly something that the department is looking closely at, and I think you should expect to see more prosecutions like that in the future because of the deterrent value of sending responsible company executives to jail when they're involved in foreign bribery. ...
Sure. KBR [formerly Kellogg Brown & Root] was involved in a four-way joint venture with three other companies -- one from France, one from Italy, one from Japan -- to build a liquefied natural gas facility on Bonny Island, Nigeria. ... But fundamentally what happened was that within this four-way joint venture, there was an agreement to retain an intermediary in the U.K., as well as a Japanese company intermediary, to serve as conduits to make corrupt payments to a series of Nigerian officials who were essential to the award[ing] of the contract.
And over a period of years, more than $184 million was passed to the intermediaries with the understanding on the part of the joint venture and KBR specifically that those intermediaries would be passing the money on to the officials who were the decision makers there. ...
Jack Stanley, as the head of KBR, was personally involved in negotiating the bribe arrangements with key decision makers in Nigeria within the executive branch as the leader among equals within the joint venture. ... It's his leadership role and participation in that bribery scheme that Jack Stanley pled guilty to.
And that resulted in the largest fine yet paid by a U.S. company?
Kellogg Brown & Root LLC paid a $402 million criminal fine to the Department of Justice. There was a separate SEC [Securities and Exchange Commission] resolution of the case with KBR and Halliburton in which $177 million in fines and penalties was imposed. And that collective set of sanctions is the largest sanctions imposed to date against a U.S. company. ...
... And can we expect more indictments or more charges as a result of Mr. Stanley's cooperation?
The only thing I can say with respect to that is that the investigation is ongoing.
It's not over yet.
It is not over yet.
What accounts for the great expansion in the number of cases over the last three to four years, and the resulting reactions in corporate America to all of this?
There are a number of important reasons behind the upsurge in prosecutions. ... The legislation coming out of the Enron era, those scandals, has certainly motivated companies to pay even more attention to illicit-payments issues, and in some cases to disclose those matters to the SEC and the Department of Justice. That's one reason.
The media, I will tell you quite candidly, has paid a lot of attention to corruption issues in the past several years, and that has had a number of effects. ... It's been a source of cases. It has also, I think, forced companies to be more attentive to foreign bribery issues because of the reputational harm that can come to a company from failing to adequately deal with a problem. ...
There are also reasons internal to the department and the SEC for the enhanced enforcement efforts. ... For the first time, the FBI has set up committed, dedicated resources that do nothing but FCPA enforcement. And this is a fundamental change in the way the bureau has approached the foreign bribery statute. ...
The entry of the FBI, as it's described to us by FBI officials, means they want to put people in jail. They say they're using their tool kit, if you will. ... What's the impact of putting people in jail and these new methods that are now being applied to this area?
The impact of putting people in jail is incredibly important to the deterrent effect of bringing cases. ... As you've commented, they've brought their FBI law enforcement tool kit to the table. What does that mean? That means traditional law enforcement approaches to investigating crime, whether it's white-collar crime or any other crime. That includes conducting searches; that includes the use of wiretaps; that includes the use of cooperators and informants. It includes all of those techniques that the FBI is very good at, and that has been critical to our enforcement program. ...
... And you say there are covert operations going on as part of these investigations of bribery today?
Absolutely. By covert operations I am talking about an investigation that's being conducted in a traditional law enforcement manner, without the company or the subject of the investigation being aware that it or he is under investigation.
And that might be going on here or anywhere around the world?
... The approach that the Department of Justice has taken to dealing with companies is also a part of the story. ... There was a time when, in dealing with a company that had engaged in foreign bribery, the department was faced with the binary choice to either bring a criminal prosecution or not. Those were really our only options.
What the department has done -- in my view, successfully -- has been to come up with other ways of resolving cases, typically short of actual criminal prosecution or indictment. ... It requires, typically, an admission of wrongdoing by the company. It usually requires compliance enhancements and reforms, and often comes with a corporate compliance monitor to ensure the department that the company is conducting its business in a responsible way going forward. ...
That partially explains our success in bringing more cases. I think it partially explains our success in driving compliance reform within companies across industries and across the across the marketplace. ...
... If you see a company moving accounts offshore -- Switzerland or other places, setting up companies in places like the British Virgin Islands -- is that a kind of tip-off that there's something going on here that's not normal business behavior?
In the foreign bribery world, there's this concept of red flags. And the things that you're talking about, companies setting up offshore accounts, those are what we view as foreign bribery red flags. ... What we do is we look to see whether there's a plausible, legitimate, commercial explanation for structuring a transaction or a financial relationship the way it's structured, or whether there's some other illicit purpose.
What happens when the company or the country won't cooperate?
... What we do is going to depend on the circumstances. It's going to depend on what resources we have at our disposal, what pressure we can bring to bear, what ability we have to reach the company. Do they transact business here in the U.S.? Are they within our subpoena power? Can the SEC serve them with a civil subpoena? Those are all the types of things that we have to look at in figuring out how to proceed.
You get more aggressive.
We get more resourceful. Often we get quite good cooperation in these matters from companies. Typically, major U.S. companies that are issuers are not going to refuse to cooperate with us. We often will receive, on a voluntary basis even, records from outside the U.S. that a company may produce to us. ...
What's happened over the last three or four years, how would you describe it? As a crackdown? A lesson being sent to the world of corporate commerce? ...
I think what we're seeing is a paradigm shift in the way U.S. law enforcement for sure but also law enforcement in other countries are dealing with the problem of foreign bribery. I think we're still in the early stages of that change.
But if you look back, the OECD Convention, which was really initiated by the U.S. in an effort to level the global playing field, it only came into force in 1998. It took a couple of years, until 2000, 2001, for many countries which had previously allowed tax deductions to be taken for bribes to now adopt legislation criminalizing the conduct. ...
So we're moving into a stage where there are now laws on the books in pretty much all of the OECD countries. Some of the laws have some flaws and need to be perfected, but fundamentally we have laws. And we're now in a phase where ... we are beginning to see enforcement activity in some of those countries, and that is making an incredible difference.
Germany, France, Italy, just to name a few examples -- there are others -- are now beginning to prosecute companies and individuals for this conduct. Other countries -- for example, Japan -- have come under some heavy criticism for not doing enough, and as a result of that criticism we're now beginning to see some efforts taken, some cases being prosecuted.
So the record is spotty, I would say, around the world. But it is a lot further along than it was, say, five or 10 years ago. ...
... It seems that there was a critical moment starting about 10 years after the Foreign Corrupt Practices Act was passed where Congress authorized the Justice Department and the State Department to go out and try and get an international treaty. ... Why was [there] this sudden movement to internationalize the law?
... As I understand the history, around 1987, 1988, what happened was there was a sense in the business community here in the U.S. that the U.S. was alone in prosecuting foreign bribery and that U.S. companies were being put at a competitive disadvantage vis-à-vis their foreign competitors, and that segment of the business community was looking for relief from Congress.
They actually went to Congress initially looking to scale back the restrictions imposed by the FCPA. And instead, the reaction that they got from Congress was that rather than addressing their concerns by scaling back the statute and lowering the standards, let us try instead to internationalize the standard. ...
And so that led to a decade-long effort, led by the State Department, Justice Department, Commerce Department, at the OECD to draft such an instrument. And that instrument ultimately came to life as the OECD Convention.
Any observation as to why all these countries [that] had been bribing as a way to do business, ... what changed their minds?
I think it's hard to defend corrupt business practices. ... I think that those countries who ultimately joined the convention realized that this was the way that they had to go. This was the only path forward. I think it was untenable for some of these countries to say simply: "No, thank you. We'd rather permit our companies to bribe."
It's hard to be publicly in favor of bribery.
Indeed. It may be acceptable to silently tolerate it, but it's very difficult to be publicly in favor of corruption.
[But did some countries simply say,] "So we'll sign the treaty, but it doesn't mean we'll do anything with it"?
There may have been some countries that had that attitude, but one of the great strengths of the OECD Convention has been the power of the member countries of that convention to police each others' efforts to implement the convention. And the group has actually been pretty tough with each other, and that has resulted in some significant public pressure on some of the countries that have lagged behind to do more. ...
... Our closest ally, Great Britain, hasn't really enforced the law. They signed the treaty, right?
The U.K. did sign the treaty, and in many respects they are our closest law enforcement partner. So it is certainly disappointing that there have not been more prosecutions in the U.K. There are many cases under investigation in the U.K. Many of them are cases that we are working on as well, in cooperation with the Serious Fraud Office [SFO] and the Metropolitan Police.
So I am cautiously hopeful that we will see more enforcement activity, but there are some real challenges that our friends in the U.K. have to deal with, including problems with their law that have not been remedied since they signed the OECD Convention.
Editor's Note: Read about proposed changes to Britain's anti-bribery laws.
Is it a problem with the law or a problem with the culture that, simply, this is the way they've done business basically forever and that they have a different attitude toward white-collar crime? ...
The U.K. is no different than many continental European countries where this conduct was perfectly legal prior to 1998. I think sometimes it takes a major scandal to really focus public attention and government attention on the seriousness of this problem. Siemens, for example, really is a watershed prosecution in Germany, and the work that the Munich public prosecutor's office has done on that case has gone a long way to raising public awareness about foreign bribery within German companies, just to give one example.
So I don't think the U.K. is necessarily different, but there has been, in the view of the [OECD] Working Group on Bribery, a lack of political will there that needs to be addressed.
Eva Joly, [the Norwegian-born prosecutor known for exposing high-level French corruption,] in an interview said to us that we're pretty good at catching little bribery; we're less good at midsize bribery; and that, generally speaking, big bribery, which is what you're really talking about, we're not very good at that, because there isn't the political will internationally to really deal with this problem.
I think there's some truth to her observations. Grand corruption really requires a coordinated, multijurisdictional effort to tackle the problem. One of the really important features of the Siemens prosecution was the fact that U.S. authorities and German authorities, as well as some other authorities that contributed to that effort collaborated, worked together and were able to bring what really is a case of grand corruption across many different jurisdictions in a relatively efficient manner. ...
... So aren't you just really tilting at windmills? I mean, we talked to a number of people who said all this does is they'll just get smarter; they'll figure out another way to get around the law or get around the treaty or another way to get their gratuities to get the business. You're just making a new sort of industry, if you will, of how to get around the American law.
... I don't think so. I mean, we're prosecuting a relatively small number of cases, some people are going to jail, some significant fines are being imposed, but corporate behavior is changing. And that, I think, is the real measure of the work that we've done. ...
... You really do believe that there's a change in corporate behavior?
I certainly believe that there's been a change in behavior within American companies. ... I think that small- and medium-sized companies are not where the major companies are yet in terms of compliance, but I think major companies are much further along and much more sophisticated in their compliance efforts than they were 10 or even five years ago. ...
... We interviewed Mark Pieth, and he said that bribery basically takes you to the center of legitimate power, that it involves heads of state usually, in many of these bigger cases, and some of the world's largest corporations. ... Isn't it the case, then, that naturally there would be politics involved in any of these cases? ...
You're right that there is often a political dimension to these prosecutions. Not every case that we prosecute is what I would call a case of grand corruption involving ministers or heads of state. Some are. Some involve much lower-level officials, procurement officials at state-owned enterprises and the like.
But in most of these cases, there is a political dimension to the case. That, quite frankly, is one of the reasons why the department has a centralized responsibility for prosecution of foreign bribery cases. There is a certain amount of coordination that's necessary to handle these cases, a certain amount of sensitivity. Ultimately, the politics does not prohibit or preclude us from bringing our criminal prosecutions, but it's something that we have to be certainly sensitive to and deal with in a responsible way. ...
... Has anybody ever tried to squash one of your cases because they said it was going to damage U.S. national security or national economic security?
During my time in this position, it has never happened that another part of the U.S. government has tried to kill an FCPA investigation based on national security or national economic security considerations. If someone were to try to do that, the department would not cave to that type of pressure. ...
... So, all very nice. You have this treaty, and you have U.S. law, and you have your jurisdiction. [But there's] Russia; there's China; there's India. And it's pretty well known they all pay for business, and there's no restrictions.
One of the major challenges that we face is exactly what you are pointing to, which is that increasingly, U.S. companies and OECD nations, companies are competing with Russian companies, with Chinese companies, with the companies of other countries that are not signatories to the OECD Convention, ... who may bribe for business.
The challenge is that we need to bring those countries in the tent, and there are efforts that are under way to do exactly that. I think that is one of the steps that needs to be pursued aggressively in our continued effort to level the playing field for U.S. companies.
We have an unprecedented economic downturn in which companies are desperate for business, business overseas, contracts. Isn't that going to, in a sense, push back the progress that's been made?
I do think that the global economic crisis that we're in presents a grave challenge in the fight against foreign bribery. I think it is very tempting for companies to divert resources which are scarce away from compliance. It is tempting for salespeople in the field who are trying to generate business, generate revenue, save their jobs, to cross the line and pay bribes.
I think that companies need to be especially vigilant in this economic climate to not cut back. Our law enforcement efforts are not going to be scaled back, and so it would be, I think, a grave mistake for a company to take that path.
You don't think that the pressures of national economic interest on the U.S. to create more jobs here isn't going to result in, let's say, cutting your wings, cutting you down in size?
In my view, the way to grow business is not through corruption, no matter what the economic environment is like. The businesses that we want to develop, the businesses that are going to be most competitive are going to be the businesses that are well-run, that are well-organized, and that operate with integrity. And I don't see anything inconsistent about that economic objective and our law enforcement efforts to fight foreign bribery.
One of the companies you prosecuted because of their business bribery in Nigeria ... announced, "We're pulling out of Nigeria; we can't do business in Nigeria." Aren't there places in the world where you just simply can't do business without bribing?
Those are determinations that companies have to make. My experience has taught me that, by and large, a company can find a way to operate even in the most difficult climate in a clean fashion, without paying bribes. It may be difficult, it requires vigilance and a lot of effort, but it can be done.
So if someone said: "You're just naive. You don't understand. You don't know the way business really works"?
That person would be misinformed. I see, from where I sit, hundreds of these matters, and I see how corruption is carried out all around the world in all of its different permutations. We are well aware of how difficult many of these markets can be, but that is not an excuse for engaging in exactly the type of bribery that's prohibited by the statute. ...
A former official of a major oil company said to me that they've figured out how to deal with you and the Foreign Corrupt Practices Act; that they still do business overseas in places where it's very difficult to operate without bribing. You just can't find it anymore; they're more sophisticated. ...
I think the bribery schemes that we have been investigating and prosecuting are, in many instances, extremely sophisticated: complex financial structures, offshore accounts, odd contractual relationships, the use of outside professionals. We've seen it all.
What hasn't fundamentally changed is human behavior. And my view is, no matter how sophisticated the bribery schemes become, there are still people involved. They still have to use financial institutions; they still have to confide in co-conspirators. And ultimately, we can bring cases involving even the most sophisticated bribery schemes. ...
... We'll never eradicate foreign bribery, just like we will never eradicate child pornography, accounting fraud or any other crime. But that does not mean that we're going to stop trying.