Fighting graft: US law battles corruption overseas

Hefty fines have made it cheaper to be honest instead of paying bribes.

NEW YORK: Envelopes stuffed with cash and lavish gifts for foreign officials were once standard practice for companies chasing profits in the red-hot markets of Asia, Africa and Latin America.

But in the past few years, US authorities have cracked down on such bribery by stepping up enforcement of the Foreign Corrupt Practices Act (FCPA), a 1977 law.

The surge in FCPA enforcement has led to multimillion-dollar fines on firms that are often not even based in the US, and it has shed light on how some corporations pursue growth in emerging markets.

On Thursday, Japanese rubber giant Bridgestone agreed to plead guilty to charges that its US employees bribed officials of Mexico’s state oil firm Pemex to win deals, sometimes writing “Read and Destroy” on sensitive fax messages about the illicit payments.

And in July, US regulators charged London-based liquor company Diageo with FCPA violations that included taking South Korean officials on a junket to Prague and Budapest in return for favours.

Diageo also paid a senior Thai official to lobby for lower sales taxes on its whiskey and bribed employees of state-owned liquor stores in India to stock its brands, the US Securities and Exchange Commission (SEC) alleged.

Diageo did not admit wrongdoing but paid $16 million to settle the charges.

Bridgestone and Diageo joined a long list of foreign firms hit by the law, including Germany’s Siemens, which paid a record $800 million FCPA settlement in 2008.

Anti-corruption activists say the increase in FCPA enforcement is helping battle graft in countries where bribery is deeply entrenched.

US authorities initiated a record 82 enforcement actions for FCPA violations last year, compared to only two in 2000, according to Trace International’s data.

The surge is partly due to the growing number of US companies doing business in “high-risk countries” like China and India, said Cheryl Scarboro, a former head of the FCPA enforcement unit at the SEC.

“It has made it more expensive and riskier to pay bribes than to resist them,” she said.

But Washington has also devoted more effort and personnel to investigating the often-complex cases, said Scarboro, who led the SEC probe of Siemens.

In one case, investigators even posed as officials from the west African nation of Gabon and demanded kickbacks for a fictitious procurement deal for Gabon’s presidential guard.

That undercover operation led to the arrests of 22 executives and employees of security-equipment companies, mostly at a gun show in Las Vegas, Nevada, in January 2010; the first trial in the case is currently underway.

Critics however argue that the FCPA forces companies to add burdensome compliance programmes and makes them less competitive.

Even the FCPA’s supporters admit that the law might be strengthening the hand of companies that operate outside its reach.

Published in The Express Tribune, September 19^th,  2011.