A startling decision handed down recently 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 custom’s duties in that country.
We knew it was a big victory for Corporate America because 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
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 April argument before U.S. District Court Judge David Hittner
in Houston, lawyers for Kay and Murphy argued that even if you assume,
for purposes of argument, that a bribe was paid to reduce custom’s
duties and taxes, such a bribe is not covered by the Foreign Corrupt
"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
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 and Robert Weissman are co-authors of "Corporate
Predators: The Hunt for MegaProfits and the Attack on Democracy" and are
based in Washington. Their Web site is www.corporatepredators.org).