U.S. LEADS FIGHT AGAINST BRIBERY ABROAD

While corporate greed on Wall Street has grabbed the headlines in 2008 it has largely gone unnoticed that the United States heads a list of industrialized nations battling to stop conglomerates using bribes to win massive overseas contracts.
According to Transparency International, the United States is one of 16 counties doing all they can to enforce laws to end bribery and corruption, which they claim is a cancerous element in the body politic of too many nations. To the dismay of Washington, three G7 nations, Canada, Japan and the United Kingdom, have low levels of enforcement despite the fact they were among 34 developed nations that joined the Organization of Economic Cooperation and signed a treaty in 1997, pledging to battle the bribery of foreign officials. Not surprisingly, Russia and the two emerging superpowers, India and China have shown no desire to rein in corruption when it involves their country’s corporate energy giants or arms dealers.
According to Transparency International, which monitors global corruption, by the end of 2007 the U.S. was running 103 investigations of American businesses, with some inquiries dating back several years and involving companies like Halliburton, Lucent Technologies, Akzo Nobel, Ingersoll Rand Co., Chevron Corp., Bristow Group, Textron, Vetco International, Baker Hughes Inc and Kellogg, Brown & Root.
In February 2008, the Department of Justice imposed a $26 million fine on subsidiaries of the oil and gas company, Vetco International Inc and followed that with a penalty of $44.1 million imposed against another gas and petroleum conglomerate, Baker Hughes Inc and one of its subsidiaries.
At the center of U.S. anti-corruption efforts is the FCPA, the Foreign Corrupt Practices Act. According to Transparency International, the U.S. is fortunate to have two Federal agencies - the Securities and Exchange Commission and the DOJ - devoted to prosecuting FCPA violators. The DOJ’s role is to counteract foreign bribery, which is a criminal offense, while the SEC ensures that company books and records are not falsified. In effect, this generates a double punch capability and transgressors often find themselves subjected to two investigations. In instances in which the DOJ decides not to prosecute, the SEC often goes it alone and vice versa. Sometimes both agencies go for the jugular. To add to enforcement efforts the FBI has created a new five-person unit to investigate foreign bribery cases.
In contrast to the U.S. determination to go after big companies that break the law, there has been reluctance in some European capitals to resort to tough legal tactics. For example, the UK government used the cover of national security to stymie an SFO - Serious Fraud Squad Office - investigation of an alleged $1 billion bribe to Saudi figures in connection with a $45 billion arms deal between British Aerospace, which later became BAE Systems, one of the world’s largest arms dealers, and the Saudi government. In 2007, the SFO was reported to have been conducting other investigations into allegations that BAE Systems paid bribes in the Czech Republic, Romania, South Africa and Tanzania. Nothing has so far emerged from those investigations. It was claimed in some British newspapers that the SFO was also investigating Chevron Texaco and Royal Dutch Shell for allegedly making improper payments to a Nigerian company, M.E.R Engineering.

The investigative files of countries, which are actively pursuing allegations of bribery, show that many of their inquiries are directed at oil and gas conglomerates and major arms suppliers. Nigeria is a country that features prominently in many ongoing bribery cases because it is a nation rife with corrupt officials. Over decades, its massive oil wealth has ended up in the coffers of international companies and the bank accounts of corrupt officials. As a rule, corrupt officials maintain bank accounts in places like Gibraltar, Switzerland, Cyprus, Monaco, Lichtenstein and the Cayman Islands.
In the majority of cases bribes are paid in the millions and often tens of millions of dollars. A $500,000 bribe would be considered short change when an official has the power to negotiate a contract permitting oil or gas exploration. For international oil giants and arms companies that can make billions out of one or two contracts paying “commissions” is pocket money. In many instances, officials are merely middlemen representing government ministers who prefer not to dirty their hands by directly negotiating the size of bribes.
Halliburton, and its former subsidiary, Kellogg Brown Root, have been and remain the targets of investigators in the US, France, Portugal, Italy, the U.K and Japan. Some of the scrutiny of Halliburton centers on an allegation that between 1995 and 2002 it paid $180 million in bribes related to a liquid gas contract in Nigeria’s Niger Delta. On April 25, 2008, Halliburton presented the SEC with a detailed filing, answering points made by the SEC and DOJ. It referred to the Niger Delta case and to connections between Halliburton and companies being investigated by several European inquiry teams. Like Halliburton, BAE Systems is at the center of a raft of inquiries related to allegations that it paid money into bank accounts held by the late Chilean dictator, General Pinochet and some of his associates. The Czech and Hungarian governments are also looking into commissions BAE was accused of paying when negotiating the sale of fighter jets. In a separate case, the alleged payment of $75 million by BAE to South African government officials in 1999 prior to a major deal on military hardware is still under examination.
Sometimes, major investigations don’t make headlines across the globe. For example, an investigation of a French conglomerate that began in 2004 only hit the headlines in November 2007. The company was the energy giant, Alstom that employs 76,000 people in 70 countries worldwide. The investigation related to the payment of hundreds of millions of dollars in bribes to secure contracts in Asia and Latin America between 1998 and 2003. The scandal came to light during an audit of the company’s book in Switzerland when someone spotted the fact that over $30 million had been paid in commissions through shell companies. When investigators moved in they discovered a slush fund from which bribes were paid into banks in Bahrain, Hong Kong, Liechtenstein, Singapore, Switzerland, Thailand and Uruguay.
The way Alstrom functioned was no different from many corporate giants worldwide. It has since denied wrongdoing and has argued that paying “commissions” was part of doing business. That is not the way the 1997 treaty envisioned how business should be done, especially within corporate giants whose governments signed the treaty.
Nevertheless, it is interesting to see how the Alstrom slush fund operated. The company would often budget that 15% of the value of a contract should go to paying the right people. In one instance that amounted to $200 million, some of which was filtered through off-shore accounts. More than 150 contracts Alstrom signed in Brazil are now at the center of a major investigation of its business dealings in that part of the world.
In India, where enforcement of anti-bribery laws is not a high priority, one case has grabbed the headlines. In 2007, the country’s High Court ordered an investigation of two French companies, Thales/Aramis over the purchase of by the Indian government of submarines worth 2.4 billion Euros. It was alleged that more than $100 million in bribes ended up in the hands of middlemen, one of whom was a senior member of the ruling party.
The sheer scale of the bribery issue worldwide has meant that companies doing foreign business have had to decide whether to be honest and miss out on lucrative contracts or get into the game of bribing corrupt officials to win deals. Transparency International feels the U.S. is setting an example for the rest of the world by tackling the problem head on, using the powers of the Federal Government. But, when members of the G7 like France, Japan, the U.K. and Canada have low levels of enforcement, and when Russia and China show little appetite for combating corruption, the impact of the U.S. effort is likely to be minimized in the longer term.