The U.S. Goes After Bribery, on a Budget

In 2007 the Justice Dept. issued a subpoena to Panalpina, a Swiss freight company with offices in 38 U.S. states. Investigators suspected the company’s employees had paid bribes to African customs officials on behalf of its oil customers—a violation of the U.S. Foreign Corrupt Practices Act, the Watergate-era law prohibiting companies that operate in the U.S. from bribing foreign governments. If found guilty, the company could have faced crippling fines or even a ban on receiving U.S. government contracts.

But proving bribery would have taken prosecutors years of work and plenty of money to untangle the details. The 15 Justice lawyers who work full-time on foreign corruption can’t devote that manpower to every case. So the government did something that has become increasingly common: It got Panalpina to investigate itself—and to pick up the tab.

Panalpina enlisted law firm Baker & McKenzie and accounting giant Ernst & Young to conduct a three-year, multimillion-dollar investigation that revealed a decade of corruption and bribes totaling $27 million, including payoffs in Nigeria on behalf of clients who wanted to transport explosives. The company turned over a trove of information to the Justice Dept., which made some of the details available to the public on its website. In exchange, the Justice Dept. agreed not to prosecute. The company, which admitted to a “culture of corruption,” got off with a fine of $70.6 million, far less than it could have been forced to pay. Spokesperson Sandro Hofer wrote in an e-mail that Justice praised its cooperation as “exemplary.” Panalpina has since made “dramatic changes in its management culture.”

Panalpina is one of more than 20 companies that have agreed to rat on themselves in exchange for “deferred prosecution agreements” from the government. The U.S. made one such agreement with French telecommunications giant Alcatel-Lucent in 2010 in exchange for paying fines of $92 million, cooperating with investigators, and beefing up compliance. The company admitted it believed contractors for some of its subsidiaries paid millions of dollars in bribes to government officials in Honduras, Costa Rica, Malaysia, and Taiwan, according to the deferred prosecution agreement available on the DOJ’s website. That same year, Daimler, which admitted certain subsidiaries were responsible for bribes in 22 countries, also reached agreement with the U.S. after conducting an internal investigation and paying $185 million to settle with the U.S. “It absolutely helps us get additional evidence that would otherwise be more challenging for us to get,” says Denis J. McInerney, the Justice Dept.’s Fraud Section Chief, who adds it “incentivizes” companies to come forward.

Of course the government must trust corporations to pony up all the unflattering details, which is why companies often turn to former Justice lawyers who once prosecuted foreign bribery cases before joining big-name Washington firms. “These investigations help fill a void where the government doesn’t have the authority or resources,” says Kirk Ogrosky, a partner at Arnold & Porter and a former prosecutor in the Justice Dept.’s Fraud Division.

Corporations comply in part out of fear. Since 2005, the government has won more than $4 billion from companies for bribery violations. In 2008, Siemens and three of its subsidiaries pleaded guilty to FCPA violations. The investigation uncovered a massive worldwide bribery scheme, Justice records show. The company paid $800 million to resolve the U.S. investigation.

Even companies that plead guilty can end up with more lenient treatment for cooperating. Siemens spent nearly $1 billion investigating itself. Ultimately, the U.S. accepted a guilty plea to “books and records offenses,” instead of bribery. The company also won a much more valuable concession: Permission to continue doing business with the U.S. government.


    The bottom line: The U.S. government is increasingly relying on agreements that allow companies to investigate themselves for bribery in return for leniency.

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