And that bribery gap has been costly for American companies. During the 12 months ending last April 30, according to a U.S. Commerce Department report, competition for 47 contracts worth $18 billion may have been affected by bribes that foreign firms paid to foreign officials. Because U.S. companies wouldn’t participate in the tainted deals, the department estimates, at least 8 of those contracts, worth $3 billion, were lost to them.
Since 1977, the FCPA has barred all issuers of U.S.-traded equities from bribing foreign government officials to acquire or retain business. But while the act makes it illegal for U.S.-listed companies and employees to take part in bribes or to create slush funds for payoffs, some authorities suggest that until a few years ago companies weren’t in the habit of informing regulators when they unearthed corruption in their overseas units.
“Traditionally, under general U.S. criminal law,” says Kathryn Atkinson, a partner in the Washington, D.C., law firm Miller & Chevalier, “the concept was that you don’t have to turn yourself in on a potential crime.” Thus, companies finding evidence of potential bribes paid investigated them and imposed disciplinary and remedial measures, but didn’t disclose incidents to authorities or shareholders. SEC policy and Sarbanes-Oxley rules, however, now call for disclosure of both the incidents and the steps a company takes to address them.
Accounting for Bribes
Corporate views about reporting abuses began to change in October 2001, though, when the SEC settled an enforcement action involving a subsidiary of Shawnee Mission, Kansas-based Seaboard Corp. — an action that had nothing to do with bribery.
The commission alleged that Gisela de Leon-Meredith, while controller of Seaboard’s Chestnut Hill Farms unit, caused inaccuracies in the books and covered up her actions. The SEC merely slapped the ex-controller (who neither admitted nor denied guilt) with a cease-and-desist order, and took no action against the company. In a statement at the time, though, the commission said that Seaboard’s cooperation — specifically in sharing details of its internal investigation, not invoking attorney-client privilege, and promptly notifying the commission of restatement plans — had won it lenient treatment.
More broadly, the SEC spelled out criteria to credit companies for any self-policing, self-reporting, cooperation, or remediation. Among other things, the commission said it would consider how a company uncovered the information, whether its audit committee had been informed of it, and how committed the company was to digging out the truth (see “Defining Compliance,” at the end of this article).
As a result of the Seaboard case, more companies began to self-report bribery and other abuses, maintains Paul Berger, the SEC’s associate director of enforcement. Also, he notes, investigative programs at the SEC and the Justice Department “really got fired up.” And soon “Sarbanes-Oxley created more pressure to comply with federal securities laws,” such as the FCPA.
Sarbox’s whistle-blower protections now encourage employees to report bribes upward within the organization. But Berger also credits the act with supplying a “design to change the tone at the top.”