The Ongoing Business Watergate Scandal

June 16th, 2016 by Phil Mattera

It is often forgotten that the Watergate scandal of the 1970s was not only about the misdeeds of the Nixon Administration. Investigations by the Senate and the Watergate Special Prosecutor forced companies such as 3M, American Airlines and Goodyear Tire & Rubber to admit that they or their executives had made illegal contributions to the infamous Committee to Re-Elect the President.

Subsequent inquiries into illegal payments of all kinds led to revelations that companies such as Lockheed, Northrop and Gulf Oil had engaged in widespread foreign bribery. Under pressure from the SEC, more than 150 publicly traded companies admitted that they had been involved in questionable overseas payments or outright bribes to obtain contracts from foreign governments. A 1976 tally by the Council on Economic Priorities found that more than $300 million in such payments had been disclosed in what some were calling “the Business Watergate.”

While some observers insisted that a certain amount of baksheesh was necessary to making deals in many parts of the world, Congress responded to the revelations by enacting the Foreign Corrupt Practices Act in 1977, making bribery of foreign government officials a criminal offense under U.S. law.

That laws is still on the books, and despite all the talk of corporate social responsibility, quite a few corporations still get caught in its net.

As part of the forthcoming expansion of the Violation Tracker database I produce with my colleagues at the Corporate Research Project of Good Jobs First, I’ve been looking at recent FCPA data and have been struck by the enduring inclination of businesspeople to engage in foreign bribery.

Since the beginning of 2010 about 90 companies have been hit with either criminal charges brought by the Justice Department or civil charges filed by the SEC or both. The 53 companies charged by the DOJ had to pay nearly $4 billion to settle their cases, while the 72 firms targeted by the SEC had to pay $1.7 billion.

The companies involved in the cases include some very familiar U.S. corporate names, including: Alcoa, General Electric, Goodyear, Johnson & Johnson, Pfizer, Ralph Lauren and Smith & Wesson.

Yet some of the biggest penalties have been paid by foreign companies such as the French conglomerate Alstom ($772 million), British military contractor BAE Systems ($400 million), Italian petroleum company ENI ($125 million) and German automaker Daimler ($91 million).

That reflects the long reach of the law, which allows for cases to be brought against foreign corporations involving corrupt practices in third countries. For example, the Japanese trading company Marubeni was charged with paying bribes to high-ranking government officials in Indonesia to secure a lucrative power project. Germany’s Deutsche Telekom and its Hungarian subsidiary Magyar Telecom were charged with making illegal payments in Macedonia and Montenegro.

From the time the FCPA was enacted, corporate lobbyists have complained about the law and have sought to have it weakened or repealed. The smarter companies have realized that the bribery rules are not going away and that they simply need to clean up their act when doing business abroad.

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Note: Violation Tracker 2.0 — which will add banking offenses and cases involving price-fixing, money laundering, defrauding of consumers and export-control/sanctions violations as well as foreign bribery — will be released on June 28.

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