The economy is tanking at a pace not seen since the Great Depression. Wall Street financiers have turned to panhandling. And if you listen carefully, the ghosts of Enron, WorldCom and their brethren are clanking loudly in the attic.
The lack of financial and market regulation has been the big topic during the presidential debates. But in some respects, corporations find themselves under more government scrutiny than ever — especially if they do business overseas. In a global market that's just about everybody.
Lawyers at Squire Sanders & Dempsey, Holland & Knight and K&L Gates are busy trying to bulletproof their clients from prosecutors and investigators. While it's no secret that terrorism is the Justice Department's top priority, prosecution under the Foreign Corrupt Practices Act has blossomed to target a pay-to-play culture in a deal-driven world. The 1977 law banned bribery of foreign officials.
The buzz phrase now is due diligence because U.S. companies are responsible for the bad acts of their foreign subsidiaries and the companies they buy.
Rebekah J. Poston, a partner in Squire Sanders' Miami office, said her office has done at least eight FCPA reviews in the last year at companies targeted for possible purchase by corporate clients.
"We are doing FCPA work more than anything," she said. "Companies are buying other companies knowing they have to be able to show that they did an FCPA due diligence because they could have successor liability."
She said the Justice Department is particularly focused on deals in Asia and Eastern Europe.
It's not easy work. The law firm needs to parachute in a forensic accounting team at a foreign business to quickly interview executives and peruse records. The attorneys need to speak the language whether it be in Bratislava, Singapore or Port-au-Prince.
Many times the takeover target is uncooperative.
They think, "You may not even buy us, and we are going to sit here and tell you all this stuff?" Poston said.
But for American businesses, such investigations are a must.
"Conducting due diligence can also be a defense if the government later comes down on the new company saying there has been an FCPA violation, said colleague Jason B. Savitz, who works with Poston on FCPA cases. "We can come in and say, 'Look, there was an investigation, we vetted it out.'"
Miami attorney Peter Prieto, chairman of Holland & Knight's litigation practice, said South Florida's proximity to Latin America makes it a petri dish for FCPA cultivation.
"Any time you have that mix, you are going to have the FCPA," he said. "Both American actions and those of foreign companies are facing FCPA scrutiny."
He noted the sentencing last month of a top executive of the French telecommunications company Alcatel, now Alcatel-Lucent. Christian Sapsizian was sentenced to 30 months in prison by U.S. District Court Judge Patricia Seitz in Miami after admitting $2.5 million in bribes went from the company to the director of a Costa Rican agency responsible for awarding contracts. In 2001, Costa Rica awarded a $149 million mobile network contract to Alcatel.
Even though Sapsizian is a French citizen, prosecutors said he fell under the jurisdiction of the FCPA because the company's U.S. depository receipts were traded on the New York Stock Exchange.
The U.S. Supreme Court last week also decided not to hear the appeal of two former executives of American Rice, who were found guilty in 2005 of bribing Haitian officials to reduce company taxes. Executives David Kay and Douglas Murphy, sentenced to 37 and 63 months in prison, respectively, argued the FCPA didn't apply to tax-related bribes.
The decision left in place a 5th U.S. Circuit Court of Appeals finding that the FCPA can be applied more broadly to operating costs.
"The FCPA Blog" run by the Singapore-based law firm Cassin Law offered a warning, saying the Supreme Court's refusal to get involved "is terrible news for Kay and Murphy and a personal tragedy for them. For the rest of us, it means the Justice Department's so-called 'expansive enforcement' of the FCPA will continue."
Prieto said the white-collar prison sentences serve as an object lesson on foreign business practices.
"It's a world economy and what you are seeing is more enforcement and more prosecution in the U.S. and prosecutions in other countries," he said. "The risk is going to outweigh the benefit. The penalties for FCPA violations to companies are very high and people and executives can face significant prison time."
Prieto said companies have to be very careful as to what might constitute a bribe: an expensive dinner, a gift, a trip to Disney World?
"Unfortunately for business, there is no bright-line rule," Prieto said.
Back at Squire Sanders, attorney Greg Bates keeps track of developments in the FCPA. He said for a long time, the act was rarely prosecuted. But enforcement action heated up in the last seven years after U.S. companies continued to lose contracts to competitors who could bribe officials with impunity.
U.S. authorities started working with foreign governments in Western Europe, Asia and Africa. The United States and about three dozen countries signed an anti-bribery treaty through the Organization for Economic Cooperation and Development, a Marshall Planera body formed to promote the principles of a free market economy.
The countries represent 70 percent of the world's exports.
Sarbanes-Oxley, the legislation Congress passed in the wake of the Enron collapse holding companies more accountable, has also led to more FCPA prosecutions, Bates said. As has referrals from the Labor and Commerce departments to prosecutors, voluntary disclosures, increased cooperation from foreign governments, and simply reading foreign press.
"Not only have prosecutions heated up but also the penalties," Bates said. "Companies are facing astronomical fines. We are talking about $40 million, $30 million fines. The DOJ and the SEC have certainly caused companies to wake up."
In addition to increased corporate penalties, individuals are being severely punished and some are going to prison.
Glenn Gordon, associate regional director in the Securities and Exchange Commission's Miami office, said there has been a definite uptick on FCPA from his perspective. He said there has been increased self-reporting by companies as well as tips from whistle-blowers.
"European countries in the past few years have started passing their own laws to prohibit bribes," he said. "This has been a law that has applied to U.S. businesses for a number of years, but similar conduct in similar situations was not illegal in Europe."
A February report by the Shearman & Sterling law firm said 29 companies were targets of FCPA investigations launched last year compared with nine in 2003. The number of open investigations is approaching 100.
"In addition to FCPA enforcement in the United States, companies are increasingly facing parallel investigations in foreign jurisdictions under other nations' anti-corruption laws," the report states.
The U.S. attorney's office in Miami declined to comment on the uptick in FCPA prosecutions, but Justice's fraud chief said at a conference last week that he expects enforcement to stiffen in the wake of the economic crisis as banks seek cash infusions.
"We've seen the high water mark for FCPA cases," Assistant U.S. Attorney Steven Tyrell, the fraud section chief in Washington, told a meeting of the Securities Industry and Financial Markets Association. "I believe we have yet to reach the crest of the wave."
Jeffrey Maletta, a partner with K&L Gates in Washington, said he wouldn't be surprised in the current environment if the government has to make a choice between continued enforcement of the FCPA or refocusing on culprits who caused the current financial crisis.
"Right now it's certainly a high priority," Maletta said. "Whether that priority will change in light of what is happening remains to be seen. I think there might be a lot of pressure to move in this environment to examining participants in the financial system."
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