After Decades, U.S. Bares Teeth of Bribery Law ; Anti-Corruption Act Gets New Attention with Case of Wal-Mart in Mexico

Article excerpt

Allegations that Wal-Mart Stores suppressed an internal inquiry into bribery in Mexico in 2005 have put renewed attention on how enforcement of the U.S. Foreign Corrupt Practices Act has changed.

A decade ago, the U.S. Foreign Corrupt Practices Act, which bars companies in the United States from bribing officials overseas, was rarely enforced or discussed. Today, it strikes fear in the executive offices of companies with overseas operations, generating huge fees for law firms and large fines for the U.S. government.

The transformation of the once-obscure law has been thrown into sharp relief by the allegations that one of the world's largest companies, Wal-Mart Stores, had suppressed an internal inquiry into bribery in Mexico in 2005. After details of the case were reported by The New York Times on Sunday, Wal-Mart's stock tumbled.

The prominent case is likely to lead to more disclosures, said Paul Pelletier, a former Justice Department prosecutor who worked on Foreign Corrupt Practices Act investigations.

"The impact could be huge," Mr. Pelletier said. "Wal-Mart's having lost billions in market capitalization over these last few days is going to make companies in close cases more likely to err on the side of promptly self-reporting" when they uncover evidence of possible overseas bribery.

Enacted in 1977 as part of a series of overhauls after the Watergate scandal, the law bars companies that operate in the United States from bribing officials overseas to obtain or retain business - - though it makes an exception for low-level payments necessary to achieve a ministerial action that confers no unfair advantage. For its first few decades, the law was enforced only rarely.

"It always had teeth," said Rachel Brewster, who teaches international trade law at Harvard. "The United States government just was never interested in biting."

That started to change in more recent years as the business world became increasingly globalized and as other countries gradually adopted similar laws, undermining complaints by American corporations that enforcing the law vigorously would give an edge to foreign rivals.

The collapse of Enron, the energy company, a decade ago also led to tougher financial laws -- including requirements that top executives at publicly traded companies certify that their companies' books were accurate, forcing them to keep track of overseas money flows -- and to greater energy in enforcing them.

Another factor was that U.S. Justice Department prosecutors developed more expansive theories of the act's jurisdiction and the types of graft it covers. At the same time, they drove up fines by requiring companies to disgorge profits as a condition of settling cases without indictment through so-called deferred or nonprosecution agreements.

Criminal enforcement under the act has soared, to 48 enforcement actions in 2010 from just two in 2004. The dollar amount of fines imposed by the Justice Department and the U.S. Securities and Exchange Commission has increased even more, including a record- setting $800 million paid by Siemens, the engineering company, in 2008. There are at least 100 open investigations, specialists estimate.

"It used to be three or four cases a year, and so the F. …


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