FCPA Compliance and Ethics Blog

October 4, 2011

Is the FCPA working? Three dispatches from Latin America

Ed. Note-today we have a guest post from Matt Ellis, Principle and Founder of the law firm of Matteson Ellis Law, PLLC. He blogs at the  FCPAméricas Blog, a blog that explores corruption issues throughout Latin America and speaks to the companies and business-people in the region seeking to comply with international anti-corruption norms. 

In his August 12, 2011 article entitled “Recent Disclosures Raise Many FCPA Questions,” the FCPA Professor Mike Koehler asks whether increased FCPA enforcement has done anything to deter future violations. This question is timely, especially given that the FCPA is under fire by major organizations (such as the U.S. Chamber of Commerce) for the burdens it places on U.S. businesses.

The Professor’s query also raises a broader question—how can levels of corruption even be measured? In an attempt to measure corruption, Transparency International gathers expert assessments and opinion surveys for its Corruption Perceptions Index. The World Bank’s Worldwide Governance Indicators project measures corruption in a similar manner by combining the views of numerous enterprise, citizen, and expert survey respondents in industrial and developing countries. Ultimately, these methods rely on subjective criteria and are limited by the inherent difficulties of applying consistent measures across countries. Assessing levels of corruption is not easy to do.

As a practitioner who has lived, worked, and conducted corruption investigations throughout Latin America for several years, I have developed my own perspective on the question. Following are three examples of how I believe the FCPA is making an impact in the region.

Compliance Programs at Work (Mexico). While conducting an internal investigation in a coastal town in Mexico for a major U.S.-based energy company, I observed an interesting phenomenon. Many oil and oil services companies were conducting their Gulf of Mexico operations from this particular town. Yet it appeared that local officials in the town had largely stopped demanding bribes. Why? The foreign energy companies operating there were some of the first to be hit by a wave of FCPA enforcement. As a result, they had developed and implemented advanced compliance programs to prevent their employees from paying bribes. I was there to assist with one of these programs—FCPA attorneys regularly conduct internal investigations to identify and assess the facts when an allegation of a corrupt payment arises. I learned from the foreign workers that, because of their strict internal prohibition against entertaining bribe requests from local officials, the officials had simply stopped asking. At routine traffic stops, the local police did not even bother to demand money because, if they did, the employee would ask to be taken to the police station where he or she would request a receipt for the payment. Workers were aware of the rules regarding foreign bribery because they had been subjected to FCPA training repeatedly. They also knew the consequences of paying a bribe because they had seen colleagues lose their jobs after doing so. The companies’ compliance programs were working together to send a message to local officials, which resulted in diminished requests for bribes.

Foreign Proceedings Inspired by U.S. Proceedings (Honduras).  In 2009, four executives from the Miami-based telecommunications company Latin Node Inc. pleaded guilty to FCPA violations in the U.S. District Court for the Southern District of Florida. The executives paid more than $500,000 in bribes to Honduran telecommunications officials to retain a valuable telecommunications contract. These U.S. prosecutions appear to have inspired the pursuit of justice in Honduras. According to the Honduran newspaper, La Prensa, investigators in Honduras have built their own “strong” case against the Hondurans involved in the scheme, encouraged by the U.S. proceedings. They have even requested that U.S. officials provide them with evidentiary assistance pursuant to the Article XIV mutual assistance provisions of the Inter-American Convention Against Corruption. Though Honduran courts have yet to begin official proceedings, action appears imminent. Perhaps as U.S. officials increase enforcement pressure, government officials in other parts of the region will be empowered to take action as well.

The FCPA as a Shield (Argentina). To a friend in Argentina—a U.S. citizen working as President of a major multinational corporation there—the FCPA serves as a shield. On several occasions, high-level Argentine officials have propositioned him for improper payments. When this happens, he stands behind the FCPA. He explains that making the payment would be illegal, would expose his company to significant liability, and would subject him to possible jail time. Given the history of high-level corruption cases in the country, my friend’s encounters are probably not unique. For example, the Siemens AG settlement dealt with multi-million dollar payments to high-level Argentine officials.  The payments were made to win a state contract for the development of national identity cards valued at around $1 billion. In the “maletinazo” case, Argentine airport customs officials found $790,000 in the suitcase of a Venezuelan businessman with ties to the Venezuelan government purportedly headed to assist President Cristina Fernández’s presidential campaign. I remember when the IBM case broke because I was living in Argentina at the time. In that case, U.S. officials brought an FCPA action against IBM when its subsidiary paid $4.5 million through an agent to Banco de la Nación Argentina officials. The payment was made to obtain a $250 million systems integration contract. As Tom Fox noted in his article “How to do Business in a Pure Pay to Play Country,” one of the FCPA’s three policy goals as set out in the preamble to the original 1977 legislation was to place U.S. companies in a better position to resist demands to pay bribes in countries where such activity is common. The Argentina example supports the assertion that this policy goal is being achieved, as the FCPA continues to provide executives with the shield they need to resist corruption.

While it is certainly true that progress in the battle against corruption is difficult to measure, perspectives like these are helpful in understanding the impact of enforcement efforts, even those that are difficult to quantify.

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Matt Ellis is a new and welcome addition to the world of FCPA compliance and blogging. His focus is on the Americas and as you might guess from the title of his blog, he has extensive experience in South America. Subscribe to his blog at  http://mattesonellislaw.com/fcpamericas/ and check his website out at http://mattesonellislaw.com/.

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They’re back for episode 18 of This Week in FCPA. Howard Sklar and I discuss the 1st year anniversary of Corruption Currents, the Wolfberg Report, the DOJ concession in CCI, KPMG and Dow Jones/ACAMS AML reports, News Corp (of course) and more. Check us out at http://thisweekinfcpa.wordpress.com/2011/10/03/episode-18/

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It’s not too late to register for the upcoming World Check FCPA event in NYC on Thursday morning at the Sheraton Hotel and Towers. Come eat some breakfast and hear the wit of myself and the wisdom of Mike Volkov and Jim Feltman on the FCPA and Private Equity: the Gathering Storm. It’s all free. Register at https://ethisphere.site-ym.com/events/attendees.asp?id=179863

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