Over the past several months, I’ve been asked the same general question several times: why are so many foreign companies found in the top ten list of FCPA enforcement actions?
This post explains why and the answers are fairly straight-forward when one understands the factors under the advisory Sentencing Guidelines that impact fine amounts.
Below is the current top ten list of corporate FCPA enforcement actions in terms of settlement amount.
|1. Siemens||$800 million(DOJ – $450 million)(SEC – $350 million)||2008|
|2. KBR / Halliburton||$579 million(DOJ – $402 million)(SEC – $177 million)||2009|
|3. Total||$398 million(DOJ – $245 million)(SEC – $153 million)||2013|
|4. Alcoa||$384 million(DOJ – $209 million)(SEC – $175 million)||2014|
|5. Snamprogetti / ENI||$365 million(DOJ – $240 million)(SEC – $125 million)||2010|
|6. Technnip||$338 million(DOJ – $240 million)(SEC – $ 98 million)||2010|
|7. JGC||$219 million(DOJ – $219 million)||2011|
|8. Daimler||$185 million(DOJ – $94 million)(SEC – $91 million)||2010|
|9. Weatherford Int’l||$153 million(DOJ – $87 million)(SEC – $66 million)||2013|
|10. Alcatel-Lucent||$137 million(DOJ – $92 million)(SEC – $45 million)||2010|
All but KBR/Halliburton and Alcoa are enforcement actions against foreign companies.
In analyzing the top ten enforcement actions, it is important to first recognize the following salient fact: 4 of the enforcement actions (KBR/Halliburton, Snamprogetti/ENI, Technip and JGC) are the same core enforcement action as the companies were all consortium partners pursuing through the same agents the same $6 billion Bonny Island, Nigeria liquified natural gas project.
The most important factor in determining fine amounts in FCPA enforcement actions under the advisory Sentencing Guidelines is net final benefit allegedly received from the improper payments. Same is true when it comes to SEC disgorgement amounts. Not surprisingly, given the Bonny Island project at issue, the net final benefits alleged in the enforcement actions were large. As detailed here , in KBR/Halliburton the figure was alleged to be approximately $236 million; in Technip approximately $199 million; in Snamprogetti/ENI approximately $214 million; and in JGC approximately $195 million.
Thus, net final benefit allegedly received from the improper payments (and disgorgement amounts related thereto) easily explains 4 of the enforcement actions (the same core enforcement action) in the top 10.
It also explains large settlement amounts in other actions involving foreign companies as well.
Siemens of course was in a league by itself as the enforcement agencies stated  that “for much of its operations across the globe, bribery was nothing less than standard operating procedure for Siemens.” According to the enforcement agencies, the “pattern of bribery by Siemens was unprecedented in scale and geographic scope” and the “corruption involved more than $1.4 billion in bribes to government officials in Asia, Africa, Europe, the Middle East and the Americas.” The DOJ’s sentencing memorandum  states that calculating a traditional loss figure under the Sentencing Guidelines “would be overly burdensome, if not impossible” given the “literally thousands of contracts over many years.”
Like the Bonny Island enforcement actions, the Total enforcement action also involved alleged improper payments in connection with large oil and gas projects in Iran. According to the DOJ , the alleged value of the benefit received from the improper payments was approximately $147 million.
Large financial benefits received from alleged improper payments in connection with large projects or contracts are a major reason why so many foreign companies are found in the FCPA’s top 10 list of settlements.
However, it is not the only reason as other factors under the advisory Sentencing Guidelines can also increase fine amounts in FCPA enforcement actions.
Three such factors are the involvement of high-level personnel in the alleged improper conduct, the failure to voluntary disclose, and lack of cooperation. Application of these factors (which result in a company’s so-called “culpability score” under the Guidelines) to foreign companies has also contributed to large settlement amounts.
For instance, as noted in this  prior post, the Daimler action, like Siemens, involved allegations regarding a “corporate culture that tolerated and/or encouraged bribery,” the involvement of various high-level executives, and allegations of improper conduct at the highest levels of the company including the boardroom. Not surprisingly, as noted in the DOJ’s sentencing memorandum , Daimler’s culpability score was increased based on these allegations which then increased the fine range.
Moreover, few, if any, of the enforcement actions involving foreign companies were the result of voluntary disclosures – a practice that is “foreign” to most legal regimes outside of the U.S.
As to cooperation, as noted in this  prior post, JGC Corp. was dinged by the DOJ for “initially declining to cooperate” with the DOJ. This factor, among others, increased the company’s “culpability score” under the Guidelines.
Each FCPA enforcement action is of course unique, involving specific projects or contracts, specific actors, and specific responses to alleged wrongdoing. Yet common factors in all of the enforcement actions involving foreign companies in the top 10 list are some combination of very large projects or contracts, involvement of high level executives or board members in the alleged improper payments, lack of voluntary disclosure and lack of, or delayed, cooperation in the enforcement agencies’ investigation.
Few enforcement actions against U.S. companies have involved a combination of more than one of these factors – hence the few U.S. companies in the FCPA’s top ten list.
So there you have it – an answer to the often asked question – why do most of the top FCPA settlements involve foreign companies?
So is the conclusion to be drawn that foreign companies in the FCPA’s top 10 list are less ethical and less committed to corporate governance best practices? Perhaps, but it is important to note that the majority of foreign company enforcement actions in the top 10 involved conduct that allegedly took place in the 1990’s or early 2000’s.