The Project On Government Oversight (POGO) Blog

Battling Bribery: DOJ Pledges New Guidance on the Foreign Corrupt Practices Act

By BEN FREEMAN

The campaign to defend the Foreign Corrupt Practices Act (FCPA), from the Chamber of Commerce's proposals to weaken it, has received an invaluable boost from the Department of Justice (DOJ).

Last fall, the Chamber released proposals to weaken the FCPA, with the principal justification being that, "The FCPA should be modified to make clear what is and what is not a violation.” Yesterday, Assistant Attorney General, Lanny Breuer, answered that plea. While speaking at the 26th national conference on the FCPA, he said, “In 2012, in what I hope will be a useful and transparent aid, we expect to release detailed new guidance on the Act’s criminal and civil enforcement provisions.”

This announcement was welcome news to a host of anti-corruption groups, including POGO, which have been fighting to defend the FCPA from the Chamber’s efforts to weaken it. And, even the Chamber seemed pleased with the announcement. According to their press release:

We are encouraged by the Justice Department’s announcement of their intent to issue detailed new guidance on the Foreign Corrupt Practices Act’s criminal and civil enforcement provisions…We believe that strong guidance from the DOJ could be the foundation for lasting legislative improvements to the statute.

The appeal to “legislative improvements” is likely a reference to the Chamber’s proposals, which legal scholars argue will only exacerbate bribery. And, as Breuer noted, “This is precisely the wrong moment in history to weaken the FCPA. To the contrary, whether or not certain clarifications to the Act are appropriate, now is the time to ensure that the FCPA remains a strong tool for fighting the ill effects of transnational bribery.”

We, at POGO, completely agree with Breuer. With people in the U.S., and all over the world, taking to the streets in protest of corruption, fighting bribery is as important now as it has ever been. The DOJ has answered the Chamber’s calls for clarification. Thus, any further attempt by the Chamber or legislators to modify the FCPA before the guidance is issued would be extremely premature and likely would severely undermine the enforcement of the law.

Ben Freeman is the POGO National Security Fellow

Follow @BenFreemanDC

Prosecutions for Corruption in Iraq and Afghanistan Reconstruction Skyrocket

By DANA LIEBELSON

The Special Inspectors General for Iraq and Afghanistan are leaving no stone unturned as the U.S. undertakes its reconstruction efforts—and they’re stamping out more than a few cockroaches. As the U.S. pulls its troops out of these warzones, the number of people prosecuted for fraud and bribery continues to rise, according to two new IG reports released on Sunday.

The Special Inspector General for Afghanistan Reconstruction’s (SIGAR) quarterly report provides an update on the status of reconstruction programs since the last report in July, 2011. Of SIGAR’s 111 total ongoing investigations, about 61 percent involve contract fraud and 27 percent involve corruption and bribery. According to the new report, SIGAR’s investigations during this quarter led to two guilty pleas and five indictments of individuals charged with bribery in reconstruction contracts. In addressing contractor accountability, SIGAR made 18 suspension and debarment referrals.

Also during this quarter, a SIGAR investigation revealed the single largest bribery case since the decade-long war in Afghanistan began. In September, Sidharth Handa, a U.S. military reserve officer, was sentenced for soliciting more than $1.3 billion in bribes and conspiring to distribute heroin. Handa’s job was to assist in awarding U.S. funded reconstruction projects to local contractors, but he solicited bribes that amounted to about 10 percent of the contract cost.

The Special Inspector General for Iraq Reconstruction’s (SIGIR) quarterly report looks at action over the past year. In that period, SIGIR investigations resulted in the indictment of 21 people for aid-related offenses and recovered $83.4 million. In the last quarter alone, SIGIR made 4 suspensions and 11 proposals for debarment.  

The report outlines many lurid examples of corruption in Iraq during the last quarter. A U.S. Marine Corps gunnery sergeant pled guilty to stealing $124,000 worth of equipment; a former U.S. Army lieutenant colonel was sentenced to prison for accepting illegal gratuities from contractors (and hiding them in his mail); and an associate of a U.S. Marine Corps contracting officer conspired to launder about $150,000 in bribes.

Defend America. Defend the Foreign Corrupt Practices Act.

By BEN FREEMAN

Last Friday several anti-corruption and oversight watchdog groups pushed back on the U.S. Chamber of Commerce's campaign to undermine the Foreign Corrupt Practices Act (FCPA), which for more than three decades has served as a deterrent to bribery.

We at POGO wrote a letter to lawmakers opposing the Chamber’s proposals to weaken the FCPA, which include:

• removing liability for subsidiaries that bribe;
• allowing mergers to provide immunity for past bribery;
• creating exceptions for companies that have a “compliance program;”
• requiring not only intention to bribe, but that it also be a “willful” act; and
• narrowing the definition of a “foreign official.”

 

At a briefing in the Capitol building on Friday sponsored by the Open Society Policy Center, Transparency International, Citizens for Responsibility and Ethics in Washington (CREW) and other groups, a panel of experts discussed the fallacy of these proposed amendments, with the overall conclusion being that they would make it easier to get away with bribery. Harvard professor of law David Kennedy and Northeastern international law professor Dan Danielson, authors of Busting Bribery, a lengthy report on the U.S. Chamber of Commerce’s attempts to weaken the FCPA, argued that all of the Chamber’s proposed amendments would simply serve to limit corporate liability for bribery.

Perhaps the most egregious example of this is the Chamber’s proposal to add a “willfulness” requirement to the FCPA, wherein it would have to be shown not only that a company was guilty of bribery, but that they also knew they were violating the FCPA. Ignorance of the law is no excuse for violating it even for the most innocuous offenses (as anyone given a parking ticket can attest)—so why should it be an excuse for bribery? The law professors' report notes that this proposal “looks much more like a license to commit pervasive and intentional bribery than a modest attempt to eliminate the risk of prosecutorial over-reach.”

POGO Urges More Sunshine With Regard to Contractor Misconduct Reporting Rule

By NEIL GORDON

Last week, POGO submitted a public comment to the General Services Administration (GSA) in response to a proposed extension of a Federal Acquisition Regulation (FAR) provision requiring contractors to disclosure certain contract-related misconduct. Since December 2008, the FAR has required contractors to timely disclose to the government credible evidence of criminal violations related to a federal contract or subcontract, violations of the civil False Claims Act, or significant contract overpayments or else be subject to suspension or debarment.

Despite a few misgivings, POGO has publicly supported the mandatory reporting requirement ever since it was first proposed back in November 2007. Based on what we’ve seen and heard since then, it seems to be working as intended. POGO blogged in September 2009 about reports that contractors were taking the new requirement very seriously.

Unfortunately, the government has never provided a comprehensive accounting of the mandatory disclosure program’s successes, failures, strengths, and/or weaknesses. This is in marked contrast to its willingness to share with the public an array of information about the implementation and enforcement of other federal laws and regulations, such as the False Claims Act and the Foreign Corrupt Practices Act. POGO’s public comment proposed a reasonable solution. Every agency’s Inspector General should be required to periodically report such statistics as the number and types of disclosures the office receives, the actions taken in response to those disclosures, whether any contractors were suspended or debarred for violating the requirement, and, most importantly, how much money is being recovered.

The mandatory disclosure requirement is a win-win for contractors and taxpayers. It forces contractors to strengthen their ethics practices and fosters a good working relationship with the government. It benefits the government and taxpayers by encouraging the early detection and reporting of contract-related problems before they worsen and lead to costly enforcement actions, poor contract performance, contract terminations, and the loss of taxpayer money to fraud, waste, and abuse. We believe that compiling and sharing statistics about the implementation and enforcement of the mandatory disclosure requirement would increase government transparency and accountability and enable the government to determine if the requirement is achieving its intended objectives.

Neil Gordon is a POGO Investigator.

Follow @pogoblog

The Foreign Corrupt Practices Act: the Chamber of Commerce's Campaign to Weaken the Act and a Potential Investigation into News Corp.

By BRYAN RAHIJA

I'd wager that until this week, most Americans (except, of course, for the dutiful readers of this humble blog) probably hadn't heard of the Foreign Corrupt Practices Act (FCPA). Now, as the ugly scandal involving News of the World unfolds, the 1977 statute has been thrust into the limelight.

The FCPA makes it illegal for U.S. companies to bribe foreign officials, and this week, several lawmakers have called on the Justice Department and Securities and Exchange Commission (SEC) to investigate whether News Corp., Rupert Murdoch's media heavyweight and parent company of the now-shuttered News of the World, violated the Act.

Yesterday, CNN reported that Attorney General Eric Holder is looking these requests to investigate and other allegations:

Landmark FCPA Sting Prosecution Stung by Mistrial

By NEIL GORDON

Last week, a federal judge declared a mistrial in a case involving four arms salesmen caught in a foreign bribery sting operation. After a six-week trial, jurors were unable to reach a unanimous verdict.

POGO blogged about this case 18 months ago, when 22 employees and executives of defense and law enforcement supply companies were arrested and charged with violating the Foreign Corrupt Practices Act (FCPA). The Department of Justice called it “the largest single investigation and prosecution against individuals in the history of DOJ’s enforcement” of the FCPA. The government says it will retry all four defendants—Pankesh Patel, John Benson Wier III, Andrew Bigelow, and Lee Tolleson. Three other people nabbed in the sting have pleaded guilty. The rest of the defendants are scheduled for later trials.

POGO’s original motivation for blogging about this case was to determine whether any companies in our Federal Contractor Misconduct Database were implicated. None of the defendants were working for FCMD companies, although it turns out that one of the “plants” in the sting and one of the defendants had formerly worked together at Armor Holdings, which was acquired by BAE Systems in 2007.

Although FCPA enforcement has increased in recent years (there are now 23 FCPA instances in our FCMD), there are concerns that the government is fighting with one hand tied behind its back. A few months ago, we blogged about South Texas College of Law professor Drury Stevenson and student Nicholas Wagoner, who wrote an article about the government’s reluctance to impose companywide suspensions and debarments in FCPA cases. The problem, as they discussed in this podcast, isn’t merely that the government is not sufficiently punishing foreign corruption, but that it has grown too dependent on contractors. Meanwhile, big business has declared war on the FCPA, engaging in a misinformation campaign in hopes of weakening the law.

Neil Gordon is a POGO Investigator.

New Podcast: Too Big to Debar? Contractors and the Government's Enforcement of Anti-Bribery Laws

By BRYAN RAHIJA

Is the government too reluctant to crack down on contractors that bribe foreign officials? A recent law review article by Professor Drury Stevenson and Nicholas Wagoner, both of the South Texas College of Law, suggests that when it comes to enforcement of the Foreign Corrupt Practices Act (FCPA), the biggest government contractors might just be too big to debar.

As we noted in our April coverage of the law review article, government enforcement agencies "have yet to impose a company-wide suspension or debarment on a contractor that violates the FCPA. Instead, the government continues to award them (or reward them?) billions of dollars in contracts, thus nullifying the deterrent effect of the FCPA."

For this POGO podcast, POGO staffers got on the horn with the article's authors to find out how this light approach to enforcement ultimately harms taxpayer interests.

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Bryan Rahija edits POGO's blog.

See also:

• Suspension and Debarment: The Government Goes After B(ad) A(pple) E(mployees), Not BAE Systems
• Corrupt Arguments in Opposition to the Foreign Corrupt Practices Act

Corrupt Arguments in Opposition to the Foreign Corrupt Practices Act

By BEN FREEMAN

The Chamber of Commerce is using misleading rhetoric to promote legislation that would shield businesses from punishment for bribery. Rep. Jim Sensenbrenner (R-WI) pledged to introduce a bill "reforming" the decades-old Foreign Corrupt Practices Act (FCPA) following a Judiciary Subcommittee hearing on the FCPA. The push for reform is fueled by the Chamber of Commerce's arguments that FCPA enforcement by both the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) is unprecedented and arbitrary. The Chamber claims that FCPA enforcement has been costly to business, which is in line with the Chamber's trite strategy of labeling just about every business regulation as a "jobs-killer."

Before this debate goes any further, and before Sensenbrenner introduces this bill, it's important to set the record straight about FCPA enforcement.

First, although FCPA enforcement has been on the rise in recent years, the bar for having a record year was set pretty low. Just five years ago, in 2006, the SEC and the DOJ handled just seven FCPA enforcement matters combined. Saying that FCPA enforcement is extraordinarily aggressive is like saying that a baseball player with a .150 batting average who gets three hits in one game is an all-star.

Suspension and Debarment: The Government Goes After B(ad) A(pple) E(mployees), Not BAE Systems

By Neil Gordon

A new law review article poses a question that POGO and others have been asking: Have the top federal contractors become “too big to debar”? The article, written by South Texas College of Law professor Drury Stevenson and third-year student Nicholas Wagoner, looks at the Foreign Corrupt Practices Act (FCPA) and how it is being enforced against federal contractors caught bribing foreign government officials.

Even though the Department of Justice and the Securities and Exchange Commission have stepped up FCPA enforcement in recent years, the authors discovered that they are limiting their sanctions to fines, civil penalties, and the occasional imprisonment of employees. They have yet to impose a company-wide suspension or debarment on a contractor that violates the FCPA. Instead, the government continues to award them (or reward them?) billions of dollars in contracts, thus nullifying the deterrent effect of the FCPA.

New Bill Cracks Down on Foreign Bribery

This week, the House overwhelmingly passed the Overseas Contractor Reform Act (H.R. 5366). The bill, sponsored by Vermont Congressman Peter Welch, would propose debarment for companies and individuals who violate the Foreign Corrupt Practices Act (FCPA), which prohibits the payment of bribes to foreign officials.

If this legislation becomes law, it would make the FCPA, which is already highly despised by some in the business community, even more terrifying to federal contractors, as POGO learned yesterday at a legal conference on the FCPA sponsored by the International Peace Operations Association, a private security company trade association.

According to Welch’s legislation, the proposal for debarment would be issued within 30 days after a “final judgment” of a violation, which means when all appeals have been exhausted or the deadline to file an appeal has passed. In theory, this means that a contractor found guilty of violating the FCPA could continue receiving new contracts for many years while its case slowly makes its way through the lengthy appeals process. Furthermore, even when a final judgment is issued, the OCRA allows the head of a federal agency to waive the proposed debarment.

The Sting Part II: Foreign Bribery Investigation Claims Another Contractor Scalp

This is an update to last week’s post about the massive FBI sting operation that led to the arrest of 22 defense contractor employees on charges of violating the Foreign Corrupt Practices Act (FCPA). We noted that the investigation was ongoing, which might explain why the Department of Justice didn’t name the companies for which those individuals worked. Fortunately, with Google and the help of our readers, we were able to identify most of the companies, none of which are among the top federal contractors featured in our Federal Contractor Misconduct Database.

This week, however, we discovered at least one connection to a contractor our database. It turns out that one of the main “actors” who took part in the sting operation and helped the FBI nab the 22 individuals is a former executive at Armor Holdings who is facing FCPA charges in a different matter. Richard Bistrong, a former vice president for international sales at Armor Holdings (acquired by BAE Systems in 2007), is accused of paying bribes from 2001 to 2006 to get contracts to supply law enforcement equipment to United Nations peacekeeping forces and government agencies in the Netherlands and Nigeria. Bistrong’s assistance in the sting operation probably guarantees him a lenient sentence.

Remarkably, one of the 22 individuals arrested in the sting operation, Jonathan Spiller, was Bistrong’s former boss at Armor Holdings. In fact, Spiller’s indictment identifies “Individual 1” (aka Bistrong) as a “business associate” of Spiller.

Bistrong’s case also has an interesting political angle. According to the New York Times, Bistrong was married to Nancy Soderberg from 2004 to 2008. Soderberg was the third-ranking official on the National Security Council under President Clinton from 1993 to 1997 and served as U.S. Ambassador to the United Nations from 1997 until January 2001. Bistrong’s alleged illegal conduct began in June 2001.

The Bistrong case shows that the DOJ is casting a wide net in this investigation, going after any and all FCPA violators with a vengeance. There have been several other headline-grabbing FCPA enforcement actions in recent years, such as the punishment of Chevron and Textron over the Iraq Oil-For-Food scandal and last year’s major takedown of  KBR and Halliburton for bribing Nigerian officials.

So keep watching the news. And keep trolling the Internet, too, because you never know what fascinating tidbits will pop up as the DOJ investigation surges onward, such as this first-hand account  from Andrew Bigelow, another of the 22 individuals arrested last week.

-- Neil Gordon

POGO (Mostly) Identifies Companies Stung in Foreign Corruption Investigation

This week brought big news in the world of contractor misconduct: a federal sting operation nabbed a total of 22 defense contractor executives and employees for violations of the Foreign Corrupt Practices Act (FCPA). The 22 individuals were arrested this week and charged with paying bribes to an undercover FBI agent posing as an African defense ministry official looking to award a $15 million military and law enforcement equipment supply contract. The Department of Justice (DOJ) is calling it the single largest prosecution in the history of its enforcement of the FCPA, which prohibits individual and companies from bribing foreign government officials for the purpose of obtaining or retaining business.

POGO keeps track of FCPA cases in our Federal Contractor Misconduct Database, which at last count contains 16 such instances, so our first reaction upon hearing the news was to find out if any of the arrested contractor employees worked for companies featured in our database. Unfortunately, the DOJ can be just as tight-lipped and unhelpful as the Government Accountability Office when it comes to informing the public. Neither the DOJ’s press release nor the actual indictments name any companies. (The DOJ’s reticence might be due to the fact that, as mentioned in the press release, the investigation is ongoing, but providing the companies’ place of business and a description of what they do without identifying who they are just seems silly, as if the DOJ thinks its public disclosures are LSAT logic games.)

Luckily, our trusty pal Google helped us track down most of the names as well as a few other interesting tidbits. Listed below, in bold, is the information the DOJ provided about the 22 individuals in its press release followed by whatever supplemental information we were able to dig up on Google: