Federal Act Exposed Bribery in Corporations

By Stouffer, Rick | Tribune-Review/Pittsburgh Tribune-Review, February 24, 2008 | Go to article overview

Federal Act Exposed Bribery in Corporations


Stouffer, Rick, Tribune-Review/Pittsburgh Tribune-Review


Claude C. Wild Jr., once Gulf Oil Corp.'s lone Washington lobbyist, was known in the 1960s and early 1970s, his attorney, Pittsburgher William Hundley has said, for distributing envelopes stuffed with cash to politicians.

After the Watergate scandal, his actions helped Congress realize a number of American corporations were using off-the-financial- books "slush funds" to dole out thousands of dollars in this country and abroad to curry favor and win contracts.

The Foreign Corrupt Practices Act of 1977 was written to stop bribery, "greased" palms and kickbacks by U.S. companies dealing with public and private officials overseas. The act is designed to punish guilty parties, through fines, give-back of related profits, even jail time for individuals.

The costs for violations can be astronomical. Siemens AG, which for two years has been under the microscope in the United States and a number of other countries for alleged improprieties, may be asked to cough up nearly $5 billion because it broke the rules, according to unnamed members of Siemen's board, quoted last month in the German business magazine WirtshaftsWoche.

The impact of the Foreign Corrupt Practices Act was felt again locally last week when Wabtec Corp., the Wilmerding-based railroad equipment maker, disclosed agreements with the Department of Justice and Securities and Exchange Commission. The company will pay $677,000 in penalties, interest and give-back of profits related to bribes in India.

More than 30 years after the law went into effect, its primary investigators/prosecutors, the Justice Department and the SEC, are stepping up their efforts. Large and small companies in Pittsburgh and elsewhere have on staff people whose job is to make sure rules are followed.

The act has been amended since 1977, and allows foreign issuers of securities and even individuals to be investigated and prosecuted.

Between 1977 and 2000, about 40 violations of the Foreign Corrupt Practices Act were successfully prosecuted. Between 2001 and in October, that figure jumped to 43 prosecutions, plus 32 SEC actions, which included probation, fines and disgorgement, or give-back, of profits related to the violation. And that doesn't include possible tax ramifications linked to violations.

"One of the big successes that both Justice and the SEC have enjoyed is that they've gotten companies to self-report, to self- disclose problems following an internal investigation before the agencies must investigate," said Matthew J. Fader, a partner in the Pittsburgh office of law firm Kirkpatrick & Lockhart Preston Gates Ellis LLP. "The government has tried to show that if a company does an internal investigation, taken steps to clean up the problem, that it's in the company's best interest."

Wabtec started such an internal investigation in January 2006. It looked at efforts of Wabtec subsidiary Pioneer Friction Ltd. to obtain and retain business from India's national railway system.

Between 2001 and 2005, Pioneer made $137,467 in improper payments to officials in India, according to an SEC lawsuit. On Friday, Wabtec said that it, the Justice Department and SEC reached an agreement in which Wabtec will pay the $677,000 in fines, interest, penalties and give-back of profits. The company agreed to put in place controls so that such problems don't recur. …

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