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A key anti-bribery law has taken a major hit.
A startling decision handed down last week by a federal judge in Houston undermines the Foreign Corrupt Practices Act and will make it difficult for weak and demoralized prosecutors to bring to justice U.S. corporate executives who openly bribe foreign government officials.
The judge in the case ruled that under the law, it is perfectly legal for an executive from a U.S company to bribe a foreign official to reduce the company’s tax burden or customs duties in that country.
We knew it was a big victory for Corporate America because earlier this week, the criminal defense attorneys started calling us, while the federal prosecutors in charge of prosecuting foreign bribery cases, including Peter Clark and Philip Urofsky at the Justice Department’s Criminal Division, refused to return our calls.
The case involves American Rice, Inc., the nation’s largest rice miller and marketer of branded rice products in the United States, selling under names such as Comet and Blue Ribbon. The company filed for bankruptcy in 1998.
A federal indictment filed earlier this year charged David Kay, the company’s vice president for marketing, and Douglas Murphy, the company’s chief executive officer, with violations of the anti-bribery law.
The company was not indicted.
The indictment alleges that Kay and Murphy bribed Haitian customs officials for purposes of reducing customs duties and the tax burden that the company faced in Haiti.
Kay and Murphy filed motions to dismiss the indictment.
At an argument before U.S. District Court Judge David Hittner earlier this month in Houston, lawyers for Kay and Murphy argued that even if you assume, for purposes of argument, that a bribe was paid to reduce customs duties and taxes, such a bribe is not covered by the Foreign Corrupt Practices Act.
"The law prohibits corrupt payments to influence a foreign official’s acts or decisions, but only if they are made to assist — and here is the magic language — in ‘obtaining or retaining business,’" said Reid Weingarten, a partner at Steptoe & Johnson in Washington, D.C. and Kay’s lawyer. "That’s the language of the statute. So, what you are left with is this: the only acts that can be prosecuted under the law are corrupt payments made to obtain or retain business."
Judge Hittner agreed and threw out the indictment.
The law has always been weak and while its backers claim that its passage in 1977 has had remedial effects on how business conducts its affairs overseas, no one really knows what impact the law has had on foreign bribery by U.S. companies.
The Department of Justice has criminally prosecuted only 30 or so cases in the entire history of the law.
Big business substantially weakened the already tepid law in 1988, when it pushed through Congress, and President Reagan signed, what is known as the "grease payment" exception.
According to Weingarten, this exception says that "if you are paying money to get the machinery of government in a foreign country to take routine governmental action" it’s not a violation of the law.
Over the past few years, big companies have been on the offensive overseas, arguing that since U.S. corporations have to live under the threat of criminal prosecution for foreign bribery, then so should the Germans and the Japanese and the French.
They have funded groups like Transparency International to push to "level the playing field."
And as a result of that effort, many foreign countries have passed laws similar to the U.S. anti-bribery law.
But foreign companies make a persuasive argument to counter the American effort overseas — you have a weak law, you rarely prosecute, hardly any American executives go to jail for bribery.
In response, the Justice Department said it was investigating 75 possible cases of bribery in 2001.
But now, the decision by Judge Hittner threatens government actions in similar cases, including a pending case where federal officials allege that executives of the oil services company Baker Hughes paid a bribe of $75,000, through KPMG-Siddharta Siddharta & Harsono, to wipe out a $3 million tax bill for the company’s Indonesian subsidiary.
Martin Weinstein, a former federal prosecutor and now partner at Foley Gardner in Washington, D.C., represents one of the executives in the Baker Hughes case.
Weinstein says that while he agrees with Judge Hittner’s decision, the Justice Department will not let the decision stand.
"First they will appeal it, and if the decision stands, they will seek to amend the law," Weinstein told us. "They cannot live with the law as interpreted. The law will have to be changed or else the enforcement effort will suffer greatly. We go overseas and convince our allies to criminalize their laws, to prohibit foreign bribery. And they look at the Kay case and say — we just criminalized foreign bribery, and you let Kay walk on these facts? You have to be kidding me."
Russell Mokhiber is editor of the Washington, D.C.-based Corporate Crime Reporter. Robert Weissman is editor of the Washington, D.C.-based Multinational Monitor, and the co-director of Essential Action. They are co-authors of Corporate Predators: The Hunt for MegaProfits and the Attack on Democracy (Monroe, Maine: Common Courage Press, 1999).
(c) Russell Mokhiber and Robert Weissman