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80s

The 1980’s saw Foreign Corrupt Practices Act enforcement activity (see here for a summary of actions) as well as legislative developments as the FCPA – after several years of consideration – was finally amended in 1988.

Beyond these developments, there was also much FCPA media coverage on a range of topics and this post excerpts certain articles found in the Wall Street Journal during the 1980s.

Among other things, this media coverage demonstrates that there was angst regarding the ambiguous FCPA and that several companies were the subject of FCPA scrutiny without ultimately resolving an enforcement action. In the modern era, some have wrongly used the term “declination” to refer to such an event, but such events have occurred throughout FCPA history as the government routinely did not bring “flimsy,” “implausible” or “unproven” (terms used in the media coverage) enforcement actions.

Corrupt Practices Law Bolsters Internal-Auditing Compliance (Jan. 15, 1980)

Many U.S. companies, worried about the Foreign Corrupt Practices Act, which also make it a crime not to have “reasonable” internal control system have jumped to increase the staff, budget and influence of their internal audit departments. Smaller companies, without internal audit departments, are hastily setting them up. The Act’s ambiguities and provisions, which specifically assign management responsibility for compliance, seems to have scared away many companies into action. “If rigourously enforced, this law will do more to keep businessmen honest than all the codes in the world, including the ten commandments,” suggests Donald R. Cressey, a criminologist at the University of California, at Santa Barbara.

[…]

As one internal auditor puts it, “basically, the act makes it illegal to keep a sloppy set of books.” But what worries many top manager and the accounting profession is that the law – unlike previous federal securities laws – applies no matter what the amount of money or assets involved. Price Waterhouse & Co. complains that the “FCPA isn’t on its face, limited to material items,” referring to the term used in other federal securities regulations to describe the types of events that must be disclosed. “Material” has no precise definition, although some corporations define it as narrowly as 5% of annual net income, while others use up to 10% of revenue.

[…]

Uncertainty about the SEC’s enforcement has pushed management to try to give the appearance of complying – even if the company isn’t sure what complying means. One tactic has been to “document” more extensively those internal controls that are already in place. In any case, this all adds up to more work for auditors. “I don’t know of a single company that hasn’t increase it audit staff, says William Thompson, Head of Internal Audit for Alabama Bancorp. Not surprisingly, costs are increasing, too. A survey by the Financial Executives Institute, a professional organization, indicates that complying with the SEC proposed rules will increase companies’ auditing by 20% in 1980.”

Aeronca Probed for Possible Corrupt Practices Act Breaches (July 24, 1981)

In a filing with the SEC, the Pineville N.C. maker of aerospace and environmental controls products said the SEC and the Federal Bureau of Investigation are looking into “employee misconduct” which led to substantial write-downs of inventory and assets in the third quarter. The company said it discovered evidence that the employees’ actions “may have constituted violations of the Foreign Corrupt Practices Act of 1977 and other federal and state statutes with criminal and civil sanctions.” […] The company said it is cooperating with the SEC and FBI and has fired the employees involved in the write-downs though it declines to name them. Aeronca said its internal investigation of the misconduct is continuing.”

ITT Report Shows Problems in Ending Dubious Payments Abroad (June 3, 1982)

“The big multinational’s latest report on its own problems, issued last month, describes a stern effort to curb the practice and discloses millions of dollars of previously unrevealed payments, some made after the passage of the Foreign Corrupt Practices Act of 1977.

Harry Wellington, Dean of the Yale University Law School, says: “You can promulgate strict rules, get contractual commitments that it won’t happen, but there’s no sure way of knowing if there is a questionable payment. It may just be built into the normal process of doing business in a foreign country.” Wellington acted as an independent “review person” for the report prepared by a special committee of the ITT Board of Directors. In an interview, he identifies the key problem for U.S. firms abroad as the necessity of dealing with independent agents abroad whose records aren’t always available for scrutiny.

ITT, with its far-flung foreign subsidiaries, was a prominently mentioned U.S. firm in the foreign payments furor of the mid 1970’s. As previously reported, the new report supplemented one made in 1978 under a consent decree with the SEC, sets a total of $13.9 million in payments for the years 1971 to 1975 – up from the previously known total of $8.7 million for those years.

In addition, the report (a copy of which is filed with the District Court in Washington, D.C.) tells of $5.7 million in newly discovered payments made after 1975, some of them as recent as last year. ITT issued policies forbidding such payments in 1976.

Without naming names, the report sets the blame on former ITT management, which, it says, made insufficient efforts to stop the practice of questionable payments. Harold S. Geneen, ITT Chairman during the years in question, stepped down in 1980.

According to the Special Committee’s report, “the highest levels of the company were aware of the reluctance of foreign managers to accept what many of them viewed as exported American morality.” However, it adds, “management efforts were insufficient to impress upon foreign managers the importance of complying,” and ITT’s lawyers and comptrollers “failed carefully and thoroughly to follow up leads to possibly questionable payments.”

Justice Department Cuts Back on Foreign Bribery Cases (Feb. 22, 1983)

Top officials have quietly eliminated the multinational fraud branch, which once was reviewing hundreds of cases for possible prosecution. Now, only three prosecutors work full time on foreign payoff cases; five others are assigned part time. The department has only 14 cases open, and no more than nine are considered to have any prospect of resulting in criminal charges.

Robert Ogren, head of the Fraud Section that oversees the cases, says there “is no de-emphasis” on enforcement of the five-year old Foreign Corrupt Practices Act, which forbids overseas bribery. By closing flimsy cases, he says he can concentrate on investigations that might result in convictions.

While the Department under the Reagan administration is clearly changing its focus, nobody is suggesting there’s a political motive. Ogren is a career prosecutors who previously served as the Principal Assistant U.S. Attorney for the District of Columbia. The administration’s official position is that it will enforce the bribery law, although it wants it changed to remove what some businesses call unintended ambiguities that inhibit trade.

Indeed, since Ogren took over the effort last March, the Justice Department has secured its first criminal conviction of an individual under the Act. Two men were convicted and 10 others indicted for allegedly paying nearly $10 million in bribes to top officials of Mexico’s state-owned monopoly.

Ogren increased the emphasis on fraud involving military supplies, food stamps and drug money. And without announcing it, he abolished the multinational branch and put many of its lawyers to work on other matters. The previous attention to bribery cases, he says,” really drained our capacity to go after this other stuff” in the international arena, such as offshore banking scams and drug-related money laundering schemes. Another reason for redirecting efforts, Ogren says, is that the Justice Department receives few complaints or tips each year about foreign payoffs.

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Justice Department Document Gives Data on Bribery Probes (Aug. 8, 1983)

“Justice Department document provides a rare glimpse of allegations the agency has received of bribes by American corporations overseas. [See here for the prior post detailing this development].

The document, released by the Department at a lawyers’ seminar, contains summaries of foreign bribery investigations made by the agency since September 1981. Though couched by general terms, the summaries include accounts of reported bribe attempts that the Department found implausible or wasn’t able to confirm or that didn’t seem to fit the scope of activities barred by the 1977 Foreign Corrupt Practices Act.

The summaries report unproven allegations of American companies making – or planning to make – bribes to three Prime Minister, two foreign Presidents and several government ministry heads. The alleged bribes, mostly in Africa, the Middle East and Latin America, took the form of cash, guns, an automobile and, in one case, “sexual favors.”

The documents lists a variety of reasons that investigations were dropped. But it raises questions about whether the Department was ineffective or too selective in its investigating.

The report was written for a House Commerce Subcommittee headed by Rep. Timothy Wirth (D-Colo) that is considering proposals to amend the anti-bribery law. It was released by the Department at last week’s American Bar Association Convention. It describes 20 bribery allegations the Department is pursuing and about 50 cases it has investigated and dropped since September 1981.

Only the closed cases are described in individual detail. In one, a major U.S. corporation was alleged to have “made arrangement” to make a payment to the son of a President of “a far Eastern Country” to get a $150 million contract there. The company, which the department didn’t name, “became aware of the Department’s investigation and decided to forgo its bid on the contract,” the report said, and the case was dropped.

But in many instances, the summary indicates, allegations had some substance but investigations were dropped. In some cases, the Department didn’t believe the alleged transactions would be illegal under the 1977 law. In others, prosecution was carried out under other statutes, or the agency decided the alleged acts weren’t significant or lacked sufficient evidence to prosecute.”

Bechtel Said to Be Linked to Bid-Rigging, Bribes in Getting Contracts in South Korea (April 23, 1984)

“Bechtel Group Inc. is alleged to have been linked to bid-rigging and illegal payments in South Korea, but there is little evidence so far of high-level company involvement or knowledge. The question of any high-level knowledge is important because Secretary of State George Shultz and Defense Secretary Caspar Weinberger were senior Bechtel executives between 1978 and 1980, when the activities are alleged to have occurred.

The Justice Department is conducting an investigation that focuses on a chauffeur’s allegation that he delivered payments to a South Korean official on behalf of a Bechtel consultant, Yoon Sik Cho. An informant in the case also says that Korean partners of Bechtel claimed to have rigged bidding on a contract Bechtel won to build two nuclear power plants in Korea. Bechtel is a closely held construction concern.

The federal investigation into the alleged payments was disclosed by investigative magazines Mother Jones and Multinational Monitor. The magazines reported that a Korean chauffeur told the U.S. Internal Revenue Service that he delivered cash several times on behalf of Mr. Cho to a vice president of Korean Nuclear Engineering Co., a subsidiary of the government-controlled electric utility that was awarding contracts for nuclear plant construction. The driver reportedly recalled delivering one envelope containing $4,000 in Korean currency.

Daniel Charboneau, a former assistant to Bechtel’s regional representative in Seoul, Korea, has talked to the Federal Bureau of Investigation about the alleged payments. In a telephone interview, he said he suspects some high-level company officials would know of such matters. But he said he has no direct evidence that company officials knew of any illegal activity in Korea.

In San Francisco, Bechtel said it hadn’t been contacted by the Justice Department concerning any investigation and declined to answer specific questions. But in a prepared statement, the company acknowledged that Mr. Cho’s conduct had been investigated by Korean authorities. Bechtel said Mr. Cho has confirmed that his activities “complied with all laws.” It also said its policies against illegal payments are strongly enforced.

The State Department and the Pentagon released statements on behalf of Mr. Weinberger and Mr. Shultz saying that detailed comments on the alleged payments should come from Bechtel. Pentagon spokesman Michael Burch also characterized the initial magazine story containing the allegation as “nonsense.”

Resorts International Focus of Allegations It Channeled Funds to Bahamian Minister (Sept. 27, 1984)

“When a Bahamas commission set out this year to investigate rumors that Prime Minister Lynden Pindling and others had received payoffs from drug traffickers, it hired a Mountie for the job. The investigator, Royal Canadian Mounted Police Inspector Frank Richter, found no evidence of drug payoffs. But he did find payments that could endanger the New Jersey casino license of Resorts International Inc., the big gaming company.

Resorts Chairman James M. Crosby headed a group of investors who owned a toll bridge in the Bahamas that they sold for $10 million in April 1980. They gave a $700,000 finder’s fee to a Nassau law firm. Of that money, $333,979 wound up in accounts for the benefit of Prime Minister Pindling. In another transaction, Paradise Island Ltd., a subsidiary of Resorts, paid a $120,000 legal fee to a second Nassau law firm in February 1981. Of that money, $91,000 went to a Nassau contractor in partial payment for a house he was building for the prime minister and Lady Pindling.

These findings, reported publicly last month by Investigator Richter, prompted an investigation in the U.S. of whether Resorts and Mr. Crosby channeled payments to Prime Minister Pindling through a business associate, Everette Bannister, a Bahamian. Both Mr. Pindling and Mr. Bannister told investigators that the payments represented money that Mr. Bannister owed to Mr. Pindling.

And Mr. Crosby says the money at issue went to lawyers for a finder’s fee and legal work. He says he had no idea that Mr. Pindling got any of the money until the Commission of Inquiry found out. “It’s embarrassing,” Mr. Crosby says. His attorney adds, “All of us were as upset and as outraged as anybody.”

The findings could spell trouble for Resorts, which has been heavily immersed in Bahamian business and politics since the mid-1960s. The U.S. Foreign Corrupt Practices Act forbids bribes by U.S. corporations or their executives to foreign government officials.

[…]

Resorts also hired Everette Bannister, a friend and business associate of Prime Minister Pindling, as a consultant at a recent salary of $50,000 a year. Mr. Bannister became the intermediary who received the payments from the law firms and deposited funds in accounts benefiting the prime minister, Inspector Richter’s report says.”

Hughes Aircraft Says U.S. Probing Bribes Allegation (March 14, 1985)

“Hughes Aircraft Co. confirmed that the federal government is investigating alleged bribes by company employees in connection with an unsuccessful attempt to sell a $1.8 billion radar system to Saudi Arabia. In a prepared statement, the company said yesterday that it had “found no evidence” to support the allegations, which it said were made by “a disgruntled former employee.” Hughes added that it was “cooperating fully” with federal agents, who were investigating whether the company had violated the Foreign Corrupt Practices Act. A Federal Bureau of Investigation spokesman declined to comment on a report published yesterday in California’s Orange County Register that the bureau’s agents had served federal grand jury subpoenas on several Hughes Aircraft executives. A Hughes Aircraft spokesman characterized the Register’s article as “substantially accurate.”

SEC Is Said to Be Probing General Dynamics Corp. (April 18, 1985)

“The Securities and Exchange Commission is looking into the possibility that General Dynamics Corp. made improper payments to overseas consultants and agents to obtain foreign military contracts, congressional sources said. The SEC’s enforcement division has asked the House Energy and Commerce subcommittee on oversight and investigations for documents on overseas payments that the panel obtained from the St. Louis-based defense contractor and from P. Takis Veliotis, a former General Dynamics vice president, the sources said yesterday. The subcommittee has been investigating allegations of foreign bribes for several months. Mr. Veliotis has been indicted on charges of taking kickbacks from a General Dynamics subcontractor and is a fugitive living in Greece.”

Seoul Brother: Northrop Signed On Secret Lobbyist to Try To Sell F-20 to Korea — Its Man, a Nightclub Owner With Important Friends, Stood to Earn $55 Million — Several Inquiries Under Way (June 8, 1988)

“Park Chong Kyu, a former South Korean presidential aide and national assemblyman, was a well-known Mr. Fixit with many powerful friends. Businessmen from around the globe cut deals and met ladies of the evening at his Seoul night spot, the Safari Club. He was right-hand man to one Korean president. And the next president, Chun Doo Hwan, chose him to serve as second-in-command of the prestigious Seoul Olympic Organizing Committee.

The late Mr. Park also had a secret. He was a Northrop Corp. lobbyist who stood to earn as much as a stunning $55 million for helping sell Northrop’s F-20 fighter planes to his friends in the Korean government. Desperate to recoup more than $1 billion invested in developing the fighter, Northrop quietly hired Mr. Park five years ago in a highly unusual arrangement that has only recently come to light. Mr. Park died two years later at age 55, without selling a single plane. But Northrop’s dealings with him, including $7.75 million in questionable payments it made to firms he controlled, have touched off a series of inquiries that could lead to broader investigations of foreign transactions in the U.S. and Korea:

— In Washington, the House Energy and Commerce Committee is looking into a $6.25 million Northrop deposit in a Hong Kong bank in 1984 that may have violated the Foreign Corrupt Practices Act. Northrop says the money was supposed to help build a Korean hotel; Park associates claim it was spent in an effort to promote the F-20.

— In Los Angeles, the executive committee of Northrop’s board, without public notice, has conducted a two-year investigation of the company’s Korean dealings. Three executives who were involved in the Park affair, including Northrop’s chief financial officer, have taken early retirement in recent weeks.

— In Seoul, the Korean prosecutor’s office has been looking into the Northrop matter as part of a wider investigation into alleged abuses by the Chun administration. The larger probe already has resulted in the arrests of a brother of the former president and a former mayor of Seoul on charges unrelated to Northrop. A special committee of the national assembly will soon begin its own investigation.

[…]

The Northrop-Park affair is beginning to echo the giant foreign payoff scandals of the mid-1970s, when dozens of U.S. companies, including Northrop, admitted making improper foreign payments and the actions of officials and power brokers in a score of countries were called into question. It was an era when Northrop maintained a hunting lodge and corporate yacht to entertain visiting military officials and Mr. Jones pleaded guilty to a felony count for creating a secret political slush fund.

Mr. Jones was called before congressional committees to answer allegations of illegal foreign payoffs. A 1977 investigation by the company’s board identified $2 million in such payments, including a $450,000 bribe to two Saudi Arabian generals made through arms dealer Adnan Khashoggi. There were millions more in questionable payments, many of them in countries that bought Northrop’s F-5 airplane, precursor to the F-20.

The Securities and Exchange Commission sued Northrop for failing to disclose its political slush fund and failing to keep track of about $30 million in payments to consultants. Without admitting or denying guilt, Northrop signed a consent decree promising not to violate securities law.

[…]

At Northrop, red flags were raised when the lobbying contract was drafted. A former Northrop attorney, who attended a meeting of the company’s aircraft-division executives before the document was signed, says he expressed alarm at the contract’s free-wheeling language that promised as much as $55 million in sales commissions.

“I told them they shouldn’t sign the deal, and I had everybody mad at me,” says the attorney. “But you can’t tell me you couldn’t get a reputable person to do that work for considerably less. Once you’re promising someone a sum that he can’t possibly justify in terms of legitimate costs and a profit, there’s a presumption he’s going to make illegal payments.”

[…]

“The whole thing just smells to high heaven,” says John Bennett, a former U.S. government economics counselor in Korea who now represents Korean companies in Washington. “But when you’re selling military hardware, what do you do? Payments were an ancient and honorable tradition in the aircraft industry, and they were desperate to sell that plane.”

[…]

The disclosures about Northrop’s Korean connection have prompted the House Energy and Commerce Committee to reopen its inconclusive 1985 investigation into the activities of Yoon Eung Yul, a retired Korean general whose consulting firm collected at least $6.5 million in fees from General Dynamics and four subcontracting firms. Gen. Yoon worked on behalf of the team’s F-16 at the same time that the late Mr. Park was promoting the competing Northrop plane.

Aides to the committee’s chairman, Rep. John Dingell of Michigan, say he is also considering a new investigation of U.S. defense companies’ foreign payments. After all, says one staff member, it has been 10 years since Congress last took a thorough look at the issue.”

U.S. Launches Criminal Probe Into Northrop — Inquiries Will Focus on Cash Sent to Korea, Allegedly Used to Press F-20 Sales (June 16, 1988)

“The Justice Department began a criminal investigation into $7,750,000 in foreign payments and other financial dealings by Northrop Corp. in connection with attempts to sell F-20 jet fighters to the government of South Korea. Individuals familiar with the investigation said it will focus on the Los Angeles-based defense contractor’s secret arrangement to funnel as much as $55 million to Park Chong Kyu, a now-deceased official of the Seoul Olympics committee who had connections at the highest echelons of the Korean government. Mr. Park’s relationship to Northrop was the subject of a recent front-page story in this newspaper. Investigators will attempt to determine whether Northrop’s foreign payments violated the Foreign Corrupt Practices Act, a federal law that prohibits payments by American companies directly or indirectly to foreign government officials. If Northrop were to be found in violation of the law, the company and its chairman, Thomas V. Jones, might also be found in contempt of a consent decree signed by both with the Securities and Exchange Commission, individuals familiar with the investigation said. Mr. Jones and the company signed the 1975 consent decree, agreeing to refrain from securities-law violations, in connection with about $30 million in questionable foreign payments made to governments and consultants around the world. Five years later, a federal district judge expanded the scope of the decree, specifically barring Northrop from violating the corrupt-practices act, which became law in 1977.”

Coca-Cola Is Taken On by Robert Barr, A U.S. Attorney in Its Own Backyard (July 15, 1988)

“U.S. Attorney Robert Barr, who doesn’t mind ruffling feathers, is committing what is considered heresy in some corporate circles — he is taking on Coca-Cola Co. Last month, he launched a grand jury investigation of Coke’s business in the Soviet Union and whether it used bribes to get more of it. The grand jury has subpoenaed contracts and letters from Coke and its intermediary in selling to the Soviets: the London-based Satra Group. Such a move is typical of an investigation in its early stages. In an unusual twist, the grand jury is employing the Foreign Corruption Practices Act, an anti-bribery law that has been played down as anti-business in the Reagan years.

[…]

Coca-Cola has reacted to the investigation defensively. When news of the inquiry first broke in the Atlanta Journal and Constitution last month, Coke termed allegations of wrongdoing so “ridiculous” that they didn’t even warrant a denial. Then, when company President Donald R. Keough ended up in the embarrassing situation of having to address a seminar on East-West trade earlier this month with the investigation still hanging, he strongly denied any wrongdoing. Coke “does not and will not pay bribes to Soviet officials or to anyone else,” he said. When an internal company investigation turned up no wrongdoing, Chairman Roberto C. Goizueta fired off a memo to all employees world-wide proclaiming Coca-Cola’s innocence. The company has pressed Mr. Barr to conduct his own internal investigation of how the supposedly secret inquiry leaked out.”

Coca-Cola Jury Finds No Evidence of Bribes To Soviets, U.S. Says (Jan. 9, 1989)

“A federal grand jury has found no evidence that Coca-Cola Co. paid bribes to people in the Soviet Union to expand in the Soviet market, according to a government official. U.S. Attorney Robert L. Barr said the grand jury’s seven-month investigation didn’t turn up any evidence of wrongdoing on Coca-Cola’s part. He said the soft-drink giant cooperated fully in the inquiry. A Coca-Cola spokesman said the investigation confirms that “Coca-Cola Co. maintains the highest ethical standards in its business dealings.” While the inquiry hasn’t been concluded, “our interpretation is that we will not be implicated in any wrongdoing,” the spokesman said. The grand jury had been investigating Coca-Cola’s 1986 agreement — valued at about $30 million over six years — to expand its business in the Soviet Union. Until 1986, Coke was sold only in Moscow shops for tourists, and the company’s Fanta orange soda was available in a few other Soviet cities. Contracts and letters were subpoenaed from Coke and its intermediary in selling to the Soviets, the London-based Satra Group. Despite being high-profile, neither Coca-Cola officials, nor Mr. Barr would ever comment on specifics of the inquiry. Although the grand jury apparently employed the Foreign Corrupt Practices Act, an anti-bribery law, Mr. Barr never said just what government officials were trying to find. While Coca-Cola officials early on termed any allegations of wrongdoing as so “ridiculous” that they didn’t even warrant a denial, they soon found themselves publicly on the defensive to head off rumors of any such allegations.”

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