January 01, 2013

Another Bite at the Apple: Transnational Crimes Face Repeat Punishment

Litigation takes a look at carbon copy prosecutions, in which multiple countries punish the same transnational conduct.

Andrew S. Boutros

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Some say that “no good deed goes unpunished.” What a positively cynical—indeed, unhealthy—way to go through life. But what isn’t cynical, or for that matter hypothetical, is that in today’s international anticorruption sphere, certain transnational bad deeds (such as paying bribes to foreign officials) risk punishment over and over and over again. The concept is called “carbon copy” prosecutions. The term describes successive, duplicative prosecutions by multiple sovereigns for conduct offending the laws of each of those nations but arising out of the same common nucleus of operative facts. Stated differently, carbon copy prosecutions are situations in which prosecutors in different countries each punish transnational conduct that violates their own laws and they elect to do so after an offender has admitted to the wrongful conduct in an earlier foreign proceeding. The concept is still largely under-recognized, but its occurrence has increased in frequency, so much so that today’s criminal and civil litigators should be alert to it whenever they are called upon to handle a case involving transnational conduct.

Foreign Corrupt Practices Act

The Foreign Corrupt Practices Act (FCPA) makes it a federal crime for an “issuer,” “domestic concern,” and certain others corruptly to offer, promise, or provide anything of value to a foreign government official for the purpose of improperly obtaining or retaining business. The classic paradigm is an unlawful quid pro quo: A non-U.S. third-party agent pays a bribe to a foreign official while on foreign soil in exchange for that official awarding the company a lucrative contract or granting it an essential license. Given the international nature of the crime, the FCPA’s extraterritorial reach prohibits precisely this type of conduct, so long as it is committed by issuers, domestic concerns, or others having a statutorily defined connection to the United States.

In addition to the anti-bribery provisions, the FCPA contains two important bookkeeping-related provisions: (1) the books-and-records provision and (2) the internal controls provision. The books-and-records provision requires issuers to “make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer.” The internal controls provision requires issuers to “devise and maintain a system of internal accounting controls sufficient” to prevent improper payments and to promote accepted accounting methods. The Department of Justice and the Securities and Exchange Commission (SEC) pursue suspected FCPA violations, the former possessing the authority to bring criminal charges against wrongdoers and the latter the power to bring administrative charges.

As Tyler Hodgson demonstrates in his article on page 47 of this issue, the sort of bribery the FCPA forbids is typically illegal not only under U.S. law but also under the local laws of the foreign sovereign country where the bribe was offered, paid, or received. Thus, a person or company held to violate the FCPA—especially in the context of admitting such violations in the public record by way of a plea or pretrial diversion agreement, for example—risks successive prosecution both by the United States and another government for largely similar, if not identical, conduct.

In fact, with more and more countries including extraterritorial provisions in their national laws prohibiting international bribery, a single improper payment can trigger liability not only in the United States (under the FCPA) and the place where the bribe was made or offered but also in every nation that prohibits foreign bribery by citizens and others that carry on a business, or part of a business, within its territories or otherwise benefit from its capital markets, including, for example, countries such as the United Kingdom and China. In this regard, a multinational U.S. company with operations in China and the United Kingdom that resolves an FCPA case with U.S. authorities for overseas bribes in Jordan and Nigeria faces the potential of successive prosecution in the United States, China, Jordan, Nigeria, the United Kingdom, and any other country that has applicable extraterritorial jurisdictional provisions, absent, of course, some applicable limiting legal principle such as a country’s double jeopardy doctrine.

This phenomenon, which is gaining international traction, teaches two key lessons:

Resolutions with authorities must be carefully tailored. A corporation that enters into a negotiated resolution with a sovereign on international bribery- related charges—whether through a nonprosecution agreement, deferred prosecution agreement, guilty plea, or civil resolution—faces a bona fide risk that other countries will initiate prosecutions based on the same core facts and admissions underlying the original resolution.
Even nonparties to agreements have a strong interest in how agreements are worded. An individual corporate officer who is even tangentially involved or implicated in a negotiated resolution—even though not named at all in the resolution—faces potential prosecution by other sovereigns and therefore has a strong incentive to ensure that the resolution either does not identify him or her or that it describes the officer’s conduct positively, or at least neutrally.

Take, for example, a corporate executive who works for a U.S.-based multinational company with operations in Nigeria. The executive works in the United States and has not visited Nigeria, much less met with, bribed, or even known of bribes being paid to Nigerian officials. It turns out, though, that on the executive’s watch, third-party agents were bribing Nigerian officials to win the company highly lucrative billion dollar contacts from the Nigerian government. The conduct is discovered, a long and grueling investigation is initiated, and after years of investigating and negotiating, the U.S. parent companies and their subsidiary admit their bad deeds and pay more than half a billion dollars to settle with U.S. authorities for violating the FCPA, which prohibits these sorts of quid pro quo bribes made to foreign officials.

Things are finally over, right? The company and its executives can put this difficult chapter behind them, correct? After all, the companies have admitted guilt and been punished. But not so fast: What about Nigeria? The bribes were paid on Nigerian soil, to Nigerian officials, in exchange for billions of dollars of valuable Nigerian contracts. Maybe Nigeria has an interest in vindicating its own laws.

Nigeria Charges Dick Cheney

On December 7, 2010, Nigerian anticorruption authorities tossed their hats in the apocryphal anticorruption ring, definitively answering these questions in the affirmative when they released a 16-count criminal complaint charging Halliburton Company, several related companies, and many of their current and past executives for conduct that mirrored—and that the companies publicly admitted to less than two years earlier as part of—their resolved U.S.-based enforcement actions. A foreign government levying charges against a multinational U.S. company and its executives alone would be enough to make headlines in a newspaper’s financial section. But what garnered worldwide news was that in bringing charges, the Nigerian authorities included none other than former U.S. Vice President Richard Cheney, the one-time Halliburton chief executive officer (CEO), in the charging instrument. And upping the ante even more, news outlets reported that Nigerian authorities would seek the arrest and extradition of Cheney and others, invoking Nigeria’s 1930s extradition treaty with the United States.

The Nigerian government charged Cheney even though, according to Cheney’s lawyer, “[t]he Department of Justice and the Securities and Exchange Commission investigated [the conduct at issue] extensively and found no suggestion of any impropriety by Dick Cheney in his role of CEO of Halliburton.” Similarly, the charges against KBR’s current CEO were lodged notwithstanding KBR’s unequivocal statement that its new CEO joined KBR after the conclusion of the conduct giving rise to both the U.S. and Nigerian actions: “No one on KBR’s current executive team was involved in the FCPA violations.” KBR insisted that it would “continue to vigorously defend itself and its executives if necessary, in this matter,” and it described the actions of the Nigerian government as “wildly and wrongly asserting blame.”

But in less than two weeks, KBR’s battle ended when news surfaced that Halliburton had agreed to pay the Nigerian authorities $35 million to settle bribery allegations of “distribution of gratification to public officials.” Halliburton made the following announcement:

Pursuant to [the settlement] agreement, all lawsuits and charges against KBR and Halliburton corporate entities and associated persons have been withdrawn, [the Federal Government of Nigeria (FGN)] agreed not to bring any further criminal charges or civil claims against those entities or persons, and Halliburton agreed to pay $32.5 million to the FGN and to pay an additional $2.5 million for FGN’s attorneys’ fees and other expenses.

Halliburton further “agreed to provide reasonable assistance in the FGN’s effort to recover amounts frozen in a Swiss bank account” of a former agent associated with underlying conduct and “affirmed a continuing commitment with regard to corporate governance.”

The threatened arrest and extradition of Cheney put the carbon copy prosecution of KBR/Halliburton in a league of its own, but there are many other notable examples. In fact, in the past two years, at least five other companies have faced FCPA-based carbon copy prosecutions. Three of those actions involved successive prosecutions arising in Nigeria; and the other two, serial U.S. prosecutions:

  1. In December 2008 Siemens AG paid $800 million to U.S. authorities to resolve the largest-ever FCPA matter in U.S. history. It simultaneously payed an additional $569 million to the Public Prosecutor’s Office in Munich, Germany, for a total payment of nearly $1.4 billion, followed by an additional $46.5 million to Nigerian authorities, $336 million to the Greek government, and $100 million to World Bank Group.
  2. In a reversal of the typical order of enforcement proceedings, in January 2010 the French-based telecommunications equipment and services provider Alcatel-Lucent S.A. paid $10 million to the Costa Rican government, followed by an additional combined $137.4 million in criminal fines and disgorgement to U.S. authorities in December 2010 covering bribe payments that included those resolved previously by Alcatel-Lucent in Costa Rica; two days after the U.S. resolution, Honduran authorities announced that they would reopen their investigation against Alcatel-Lucent, more specifically, into the now-admitted conduct that gave rise to Alcatel-Lucent’s U.S.-based liability for bribe payments in Honduras.
  3. In July 2010 the Italian energy company ENI S.p.A. and its Dutch subsidiary Snamprogetti Netherlands B.V. paid $365 million in criminal fines and disgorgement to U.S. authorities, followed by an additional $32.5 million to Nigerian authorities in December 2010.
  4. In November 2010 Royal Dutch Shell PLC paid $48.15 million in criminal fines, disgorgement of profits, and interest to U.S. authorities, followed by an additional $10 million to Nigerian authorities in December 2010.
  5. In another reversal of order in the sequence of carbon copy prosecutions, in January 2011 JGC Corporation paid $28.5 million to Nigerian authorities followed by an additional $218.8 million in criminal fines to the Department of Justice in April 2011.

Increasing Pressure for Prosecutions

Indeed, a petition filed last year with the Nigerian government by the Socio-Economic Rights and Accountability Project (SERAP) points to increased pressure on foreign authorities to continue to bring duplicative, successive prosecutions in cases of transnational crimes. As SERAP openly stressed, the Nigerian government must “urgently take steps to seek adequate damages and compensation against multinational corporations who have been found guilty in the U.S. of committing foreign bribery in Nigeria. . . .” Suffice it to say, although SERAP’s petition to its local government is directed at the past, the principle it seeks to establish is forward looking, with a focused eye on increased serial international enforcement activity.

But SERAP has not stopped at petitioning the Nigerian government; SERAP also reached out to the Securities and Exchange Commission (SEC) as a means to supplement its call for Nigerian carbon copy prosecutions. In a letter filed in March 2012, SERAP asked the commission to “establish an efficient case-by-case process for the payment of some or all of [the FCPA] civil penalty and disgorgement proceeds to or for the benefit of the victimized foreign government agency or the citizens of the affected foreign country like Nigeria.” In SERAP’s view, although “local law can, in theory, provide for a remedy, litigation in the local courts is often fraught with political risk, and can be time-consuming and expensive in the best of circumstances; even if such cases are eventually successful, enforcement of judgments, locally and internationally, present formidable challenges as well.” Therefore, SERAP proposed a variant of the carbon copy prosecution concept:

[A]fter, and only after, publication of an FCPA settlement agreement, the victim foreign government entity [should be allowed to] file a request that the Enforcement Division pay some or all of the agreed payment proceeds to or for the benefit of the victim government entity or to a U.S.-based NGO. . . .

In SERAP’s own words, its “proposal would only come into play after an FCPA matter has been resolved, typically as a result of a settlement with the company.” The Securities and Exchange Commission responded to SERAP’s proposal in April 2012 and stated briefly that the “framework of [U.S.] securities laws requires a proximate connection to the harm caused by a particular violation.”

Carbon copy prosecutions may be unfamiliar today, but in the months and years to come, litigators can expect them to factor into criminal or civil settlements involving transnational conduct, whether those settlements concern individuals, companies, or other organizations. Copycat prosecutions have modified the equation for conducting and resolving international anticorruption investigations.

There is certainly room for healthy debate over whether—to borrow from this issue’s “good deeds” theme—the phenomenon is a good or bad development in international law. Whatever the normative view, it would be a bad deed, indeed, for companies and their executives and agents to ignore the international community’s more-than-mere-hypothetical enforcement powers in responding to a transnational offense. A corporation under investigation by one sovereign ought to give due consideration to the interests of other governments in vindicating their own laws and the timing of when those jurisdictions might decide to do so. Similarly, nonparties implicated in a resolution in one country would do well to be mindful of that resolution’s impact in another jurisdiction where an investigation and follow-on enforcement action might blossom at a moment’s notice. In the international anticorruption environment, increasingly, more than one government is getting a bite at the same apple.

 

*This article was written by the author in his personal capacity and represents the author’s views only. This article does not reflect any position, policy, opinion, or view of the U.S. Attorney’s Office, the U.S. Department of Justice, or any other agency or organization.

Andrew S. Boutros

The author is an assistant U.S. attorney in the Northern District of Illinois (Chicago)* and a cochair of the ABA Criminal Justice Section’s Global Anti-Corruption Task Force.