Plea Deals Are Easy, Juries Are Hard
Under the Obama administration, the Department of Justice has turned the Foreign Corrupt Practices Act into a potent weapon against international corporate bribery. The statute forbids companies with U.S. ties from bribing foreign officials to gain a business advantage. Since 2009 the department has settled 58 corporate FCPA cases for a total of $4.4 billion. Last year prosecutors reached a record: They used the FCPA to extract guilty pleas and $1.6 billion in penalties from such companies as Alcoa, Avon Products, and the French power giant Alstom in just 10 settlements.
Most FCPA cases lead to settlements. Companies don’t want to risk the reputational damage of a public trial, and individuals don’t want to risk prison. Yet on the rare occasions in recent years when executives named as defendants have decided to fight the government, the Justice Department has been losing. Since September 2011, federal prosecutors have taken only four FCPA cases to trial. All of them ended in “debacles for the government,” says Mike Koehler, an assistant professor at Southern Illinois University School of Law who writes a well-trafficked blog called FCPA Professor.
The most recent was a case against Miami businessman Joseph Sigelman, co-founder and former co-chief executive of PetroTiger, a Colombian oilfield-services provider. His trial ended abruptly on June 15 after the main prosecution witness fell apart under cross-examination and admitted he’d made misstatements in earlier testimony. Justice lawyers gave up and allowed Sigelman to plead guilty to one count of conspiring to bribe an official of Colombia’s national oil company.
Sigelman was sentenced to three months of probation and no prison time—a striking victory, given that he’d originally faced 20 years behind bars. “The proof that he committed all of the far more serious crimes he was charged with, and that were dropped midtrial by the government, was weak and grounded in the testimony of a bad cooperating witness who committed perjury,” says Sigelman’s attorney, William Burck, a partner with Quinn Emanuel Urquhart & Sullivan.
The government’s trial record is no better when it comes to corporate prosecutions. In the entire 35-year history of the law, passed in the wake of the Watergate scandal, corporate defendants have dared to go to trial only twice. Both cases ended in government defeats. “That should raise questions about whether the Justice Department has provable evidence in all those cases that settle,” says Koehler, who serves as a paid corporate consultant on FCPA issues.
Peter Carr, a Justice spokesman, says it’s not surprising that prosecutors struggle with these cases in court. “FCPA cases, by their very nature, often require proof of criminal acts carried out in foreign countries,” he says. “While obtaining foreign evidence—documents and witnesses—poses particular challenges in FCPA cases, the department remains committed to working with its domestic and foreign law enforcement partners to continue to bring successful prosecutions against the individuals who bribe foreign officials and the companies they work for.” There typically aren’t identifiable victims in FCPA cases, making it even harder for prosecutors to generate juror enthusiasm for a conviction.
The Obama administration won several courtroom victories in FCPA cases from 2009 to 2011, including in the trial of Frederic Bourke, the co-founder of luxury handbag maker Dooney & Bourke. A jury found him guilty in 2009 of investing in a corrupt deal to seize control of the state oil company in Azerbaijan; he was sentenced to a year in prison. He was among 57 individual defendants convicted on FCPA charges since 2009, most by plea, Carr says.
The Justice Department’s recent setbacks don’t mean the FCPA lacks punch. “Most people and companies remain too intimidated by the heavy penalties and legal costs to fight,” says Burck, Sigelman’s lawyer. Two other former PetroTiger executives, including the witness who crumbled on the stand, took plea deals and await sentencing. The next FCPA test may come in November, when Lawrence Hoskins, a former senior vice president of Alstom, is scheduled to face trial in Connecticut. In December, Alstom agreed to plead guilty and pay a record $772 million in penalties in connection with a campaign to secure billions of dollars in contracts by means of bribery. Three other Alstom executives have entered guilty pleas, but Hoskins is determined to have his day in court.
The bottom line: Record fines for corporate corruption have overshadowed the government’s poor record in the courtroom.