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FBI Awards BAE $40 Million Contract

By on September 28, 2010 in BAE, Debarment, HR 5366

Yesterday’s post (here) discussed the shortcomings of HR 5366 (the Overseas Contractor Reform Act). As highlighted in that post, HR 5366 represents impotent legislation because it exhibits little understanding of how conduct violating the FCPA is typically resolved.

One matter discussed in the post was the February 2010 enforcement action against BAE in which the DOJ alleged, among other things, that the company “provided substantial benefits,” including through U.S. payment mechanisms, to a Saudi public official “who was in a position of influence regarding” a lucrative fighter jet contract. (See here). The bribery was so extensive per the DOJ’s allegations, that just one BAE employee submitted $5 million in invoices for benefits to the official during a one year period.

Yet, these bribery, but no bribery allegations (see here) did not result in any FCPA anti-bribery charges against BAE – the largest defense contractor in Europe and the fifth largest in the U.S. as measured by sales.

Thus, even if HR 5366 was enacted prior to February 2010, it would not have prevented BAE from securing federal government contracts because the DOJ did not charge BAE with any FCPA anti-bribery offenses.

How many federal government contracts has BAE secured since the DOJ alleged that the company “provided substantial benefits” to a Saudi public official “who was in a position of influence regarding” a lucrative fighter jet contract?

Judging just by BAE’s press releases (see here) many – so many that separate links would be distracting.

None stand out more than the $40 million contract BAE was recently awarded by the FBI “to provide critical information security safeguards, including certification and accreditation, to ensure the confidentiality and privacy of FBI computer networks in the United States and around the world.” (see here).

BAE’s conduct giving rise to the February 2010 enforcement action, in which BAE agreed to pay a $400 million criminal fine, “was investigated by FBI special agents who are part of the Washington Field Office’s dedicated FCPA squad.” (See here).

In connection with the BAE resolution, the FBI issued its own press release (see here).

In the release, Shawn Henry, Assistant Director in Charge of the FBI’s Washington Field Office stated: “competition is one of the foundations of our economic system,” and “corporations and individuals who conspire to defeat this basic economic principle not only cause harm but ultimately shake the public’s confidence in the entire system.”

I agree.

The public’s confidence in the entire system is shaken, but not for the reason Henry articulated.

House Passes Impotent Debarment Bill

By on September 27, 2010 in Congressional Activity, Debarment, Deferred Prosecution Agreements, HR 5366, Non-Prosecution Agreement

The façade of Foreign Corrupt Practices Act (FCPA) enforcement is so deep that the House of Representatives recently passed legislation that will fail to accomplish its stated purpose – to debar corporations committing FCPA violations from federal government contracts.

On September 15th, the House, by a unanimous 409-0 vote, passed H.R. 5366 (“Overseas Contractor Reform Act”) (see here). The Act generally provides that a corporation “found to be in violation of the [FCPA’s anti-bribery provisions] shall be proposed for debarment from any contract or grant awarded by the Federal Government within 30 days after a final judgment of such a violation.”

The Act’s key trigger term for debarment – “found to be in violation” of the FCPA’s anti-bribery provisions – is a trigger that is not reached in nearly every FCPA enforcement action because of the façade of FCPA enforcement. Thus, the Act represents impotent legislation.

Nearly every FCPA enforcement action against a corporation is resolved through a non-prosecution agreement (“NPA”) or a deferred prosecution agreement (“DPA”). In an NPA, such as the recent NPAs against UTStarcom, Inc. (here) and Helmerich & Payne, Inc. (here), criminal charges are not filed in court. Rather, the “charges” are resolved via a private letter agreement that is subject to no judicial scrutiny. In a DPA, such as the recent DPAs against Technip S.A. (here) and Snamprogretti Netherlands BV (here), criminal charges are technically filed in court, but those charges are never prosecuted if the company adheres to compliance undertakings set forth in the DPA. Because of the prevalence of NPAs or DPAs in the FCPA context, a corporation entering into such an agreement with the Department of Justice (“DOJ”) is never “found to be in violation” of the FCPA’s anti-bribery provisions.

The Act will be even more impotent given the frequency by which the DOJ resolves clear instances of corporate bribery without charging FCPA anti-bribery violations. Three recent examples highlight this troubling feature of the façade of FCPA enforcement. In March 2010, the DOJ alleged that Daimler AG (“Daimler”) “engaged in a long-standing practice of paying bribes” to foreign officials in at least 22 countries. Despite these allegations, the DOJ resolved the matter against Daimler without charging FCPA anti-bribery violations (see here). In February 2010, the DOJ alleged that BAE Systems Plc (“BAE”) “provided substantial benefits,” including through U.S. payment mechanisms, to a Saudi public official “who was in a position of influence regarding” a lucrative fighter jet contract. Despite these allegations, the DOJ resolved the matter against BAE without charging FCPA anti-bribery violations (see here). In December 2008, the DOJ alleged that Siemens AG engaged in pattern of bribery “unprecedented in scale and geographic reach” and that the “corruption involved more than $1.4 billion in bribes to government officials in Asia, Africa, Europe, the Middle East and the Americas.” Despite these allegations, the DOJ resolved the matter against Siemens without charging FCPA anti-bribery violations (see here).

Numerous other examples could also be cited and because of how FCPA violations are typically resolved by the DOJ, the Act’s debarment provisions will only be triggered in the rarest of instances.

Yet this salient fact was presumably not understood by Representatives who unanimously voted for the Act and championed it as common sense, effective legislation. Who can blame the Representatives for not understanding the full effects of the façade of FCPA enforcement? Most Representatives probably assumed that the DOJ prosecutes companies that commit FCPA anti-bribery violations with FCPA anti-bribery charges in a transparent manner subject to judicial oversight and scrutiny. Yet in this current façade of FCPA enforcement era nothing can be taken for granted.

Perhaps those who championed the Act were aware of its impotence yet voted for it because the costs of voting against it were too great a few months before an election. Representative Peter Welch (D-VT) sponsored the Act in response to an occurrence that is merely tangential to the FCPA – the conduct of Xe Services (formerly known as Blackwater Worldwide) following the 2007 shooting in Nissour Square Iraq that left 17 dead. (See here, here and here). It is clear from the floor statements of various Representatives (see here) that Blackwater’s conduct, and a desire to rein in military contractors, motivated passage of the Act.

Whatever the motivations for unanimous House passage of the Act, because of the façade of FCPA enforcement, the Act is impotent in addressing the conduct it seeks to address. The Act now moves to the Senate Committee on Homeland Security and Governmental Affairs. If the Senate is serious about imposing a debarment penalty on those who commit FCPA anti-bribery violations, a penalty deserving of serious consideration to best effectuate deterrence, the Senate first needs to understand the façade of FCPA enforcement and draft a bill that can actually accomplish its stated purpose.

FCPA Debarment Bill Takes Step Forward … Related Bill Also Introduced

By on August 2, 2010 in Blackwater, Congressional Activity, Debarment, HR 5366, HR 5837

Last week, the House Committee on Oversight and Government Reform “favorably forwarded several pieces of good government legislation” to the House of Representatives. (see here).

One bill taking the next step is H.R. 5366 – the “Overseas Contractor Reform Act.”

As I discussed in this May post when H.R. 5366 was introduced, the bill states that “any person found to be in violation of the Foreign Corrupt Practices Act of 1977 shall be proposed for debarment from any contract or grant awarded by the Federal Government within 30 days after a final judgment of such violation.”

In the prior post (here) I noted that the bill is a step in the right direction, but pointed out several shortcomings and said that the bill, if enacted, could become a “toothless tiger” because it assumes all FCPA enforcement actions are resolved through judicial proceedings and it assumes all FCPA enforcement actions are resolved with charges that actually fit the facts.

As noted in this release from the bill’s sponsor, Representative Peter Welch (D-VT), the bill was drafted “in response to an ongoing investigation into whether Xe Services – formerly known as Blackwater Worldwide – bribed Iraqi officials following a 2007 Baghdad shooting that left 17 Iraqis dead.” (See here for more).

Yet if enacted the bill could, if drafted with an understanding of how FCPA actions are resolved, have far-reaching implications as several major government suppliers have recently resolved FCPA enforcement actions (whether anti-bribery or books or records and internal controls) or are currently under investigation for potential FCPA violations.

For video footage of H.R. 5366’s passage by the House Committee (see here – the first video).

*****

H.R. 5366 is not the only FCPA-related bill to keep on your radar screen.

On July 22nd, Representative Raymond Green (D-TX) (here) introduced H.R. 5837 (see here).

The bill states that an “Executive Agency” “may not enter into a contract for the procurement of goods or services with any person or entity unless that person or entity has certified that the person or entity, and each of its officers, employees, and agents, have not violated [the FCPA’s anti-bribery provisions] or any comparable law of any other country.” Further, under the bill, an “Executive Agency” “may not allow any contractor awarded a contract by the agency to enter into a subcontract (at any tier) under the contract with any person or entity that has not made the certification …”

My critique of this well-intentioned bill is the same as H.R. 5366.

Most FCPA enforcement actions are settled through non-prosecution or deferred prosecution agreements. Thus, if a company settles an FCPA enforcement through such a vehicle, the company likely will not be found to have “violated” the FCPA making H.R. 5837 a “toothless tiger.”

Further, the bill assumes that facts implicating the FCPA’s anti-bribery provisions are actually resolved with FCPA anti-bribery charges. As demonstrated by the all too frequent “bribery, yet no bribery” FCPA enforcement actions, that is simply not the case as companies are frequently allowed to settle egregious instances of bribery without being charged with anti-bribery violations.

So great is the facade of FCPA enforcement in many cases that H.R. 5366 and H.R. 5837, if enacted as currently drafted, are unlikely to have any effect.

FCPA Debarment Bill Introduced

By on May 25, 2010 in Congressional Activity, Debarment, Deferred Prosecution Agreements, Enforcement Agency Policy, HR 5366, Non-Prosecution Agreement

Last week, Representative Peter Welch (D-VT) introduced H.R. 5366 (see here).

Titled the “Overseas Contractor Reform Act,” the bill states that “it is the policy of the United States Government that no Government contracts or grants should be awarded to individuals or companies who violate the Foreign Corrupt Practices Act of 1977.”

The bill states, “any person found to be in violation of the Foreign Corrupt Practices Act of 1977 shall be proposed for debarment from any contract or grant awarded by the Federal Government within 30 days after a final judgment of such violation.”

However, there is a big “unless” qualifier.

The qualifier is “unless waived by the head of a Federal Agency.” The bill states: “The head of a Federal agency may waive this section for a Federal contract or grant. Any such waiver shall be reported to Congress by the head of the agency concerned within 30 days from the date of the waiver, along with an accompanying justification.”

Because most FCPA enforcement actions are settled through a non-prosecution agreement (NPA) or deferred prosecution agreements (DPA) (see here), the bill may need some tweaking if it is to be effective.

Among other issues will be: is a company that agrees to an NPA or DPA to resolve an FCPA case “found to be in violation of the FCPA.” Likely not.

Also, the bill defines “final judgment” as when “all appeals of the judgment have been finally determined, or all time for filing such appeals has expired.” Again, this assumes that all FCPA enforcement actions are resolved through actual judicial proceedings – which is not how FCPA enforcement works in many cases.

Other issues with the bill is that “persons” merely includes: an individual, a partnership and a corporation. Other business entities are equally capable of violating the FCPA and the bill, to be most effective, should adopt the definition of “domestic concern” in the FCPA. (see 78dd-2(h)(1) here).

Other potential shortcomings with the bill is that it only applies to violations of the FCPA’s antibribery provisions. Thus, the bill would not be triggered by the recent “bribery, yet no bribery” cases (Daimler, BAE, and Siemens) – see here, here and here. In these cases, despite DOJ allegations that would seem to establish that the company violated the FCPA’s antibribery provisions, none of these companies were charged with violating the FCPA’s antibribery provisions. Instead, non-FCPA charges or FCPA books and records and internal controls violations were charged in an attempt to avoid application of the European Union debarment provisions. (This fact is apparent from the DOJ’s sentencing memos in the cases – see here).

The big picture flaw with H.R. 5366 (as currently drafted) is it assumes all FCPA enforcement actions are resolved through judicial proceedings and it assumes all FCPA enforcement actions are resolved with charges that actually fit the facts.

Neither of these assumptions are accurate – that why I call FCPA enforcement, in many cases, a facade.

Nevertheless, despite the shortcomings of H.R. 5366 as drafted, the bill is a step in the right direction.

The bill has been referred to the House Oversight and Government Reform Committee. Yesterday’s post (see here) profiled a letter from the Chairman of that committee, Edolphus Towns (D-NY), to Attorney General Holder regarding debarment issues.

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