FCPA Corporate Settlements by the Numbers: TRACE Looks Back at 2013

FCPA Corporate Settlements by the Numbers: TRACE Looks Back at 2013

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December 20, 2013

It’s been a year of extremes in the world of the Foreign Corrupt Practices Act.  After getting off to a slow start, with no official corporate FCPA settlements announced in the first quarter, 2013 witnessed two of the top ten biggest settlements of all time.  And while the total number of settlements reached this year actually went down from 2012, the total amount of penalties nearly tripled.  What conclusions, then, can we reach about enforcement in 2013?  Trend-wise, is FCPA enforcement increasing or decreasing?

It’s worth pointing out that even seemingly objective numerical statistics, like how many settlements were concluded in 2013, are subject to honest debate.  Should we, for example, count the IBM settlement approved by a Federal Judge this past July, even though it was initially agreed to by the parties way back in 2011?   What about the SEC’s March settlement with Keyuan Petrochemicals Inc., which dealt only partially with FCPA violations but otherwise dealt with criminal fraud?  Even the SEC has been inconsistent here, publishing in its year-end review that it concluded only 5 FCPA settlements this year, and elsewhere, on its website, listing two more FCPA settlements for 2013.

Without any generally accepted method for calculating these enforcement statistics, reasonable minds are likely to disagree as to what should or shouldn’t count towards end-of the year tabulations.  Some will use enforcement numbers this year to argue that this was one of the weakest years in FCPA enforcement.  Others will say the exact opposite.  Both will be right.   What’s certainly true is that 2013 was a year of variation, with plenty of interesting lessons to be drawn.

Here at TRACEBlog, we counted 10 different FCPA-related corporate settlements in 2013: Weatherford International, Total S.A., Stryker Corporation, Ralph Lauren Corporation, Parker Drilling Corporation, Koninklijke Philips Electronics, Keyuan Petrochemicals, IBM, Diebold and Bilfinger SE.   The biggest combined penalty was against Total, for $398 million, while the smallest came against Keyuan, for $1 million.  (See chart entitled “FCPA 2013 Settlements by Penalty Size”).

[caption id="attachment_5403" align="alignnone" width="805"]2013 FCPA settlements by penalty size 2013 FCPA settlements by penalty size[/caption]


As Henry Clay once remarked though, “statistics are no substitute for judgment.”  The same set of data is often manipulated to write drastically varying storylines.  For Total, the US government charged the French oil and gas company with paying $80 million in bribes to intermediaries of an Iranian government official, who then exercised his influence to help the company obtain valuable contracts to develop oil and gas fields.  Although the $398 million penalty was high, $153 million represented disgorgement of profits from the Iranian deal, and the remainder, $245 million, was on the low end of the recommended U.S. Sentencing Guidelines scale, which ranged from $235 million to $470 million.  All in all, the company faced paying a penalty that could have been as high as $623 million, or more than 150% of what it actually paid.

What’s more, compare the percentage of Total’s FCPA penalties versus the benefits it actually gained from those bribes, (see chart entitled “2013 FCPA Penalties Proportionate to Alleged Pecuniary Gain and Payments Made”).  Although Total paid the highest fine this year, it only paid roughly 2.5 times what it earned on the deal, as compared to Parker Drilling Company, which paid a relatively modest $15.85 million, except when you factor in that it paid more than five times its pecuniary gain.

[caption id="attachment_5404" align="alignnone" width="805"]2013 FCPA Penalties Proportionate to Alleged Pecuniary gain and Payments Made 2013 FCPA Penalties Proportionate to Alleged Pecuniary gain and Payments Made[/caption]

Of course, FCPA penalties are not calculated based solely on pecuniary gain, and the DOJ and SEC, for good reason, consider a wide range of factors when negotiating a settlement agreement with a corporation.   If there has been one common theme in FCPA enforcement this year, perhaps it is the effect of cooperation on settlements, both positive and negative.  The Ralph Lauren case marked the first time ever that the SEC entered into a non-prosecution agreement with a company, and the agency cited the company’s extensive cooperation as the reason why.  The SEC also recognized cooperation as a direct cause of a lesser settlement amount in the Koninklijke Philips settlement.  Contrast those cases with the fact that the US government assessed an additional $1.875 million penalty -- on top of the $63.7 million in civil penalties, $87 million in criminal fines and $100 million for sanctions violations -- against Weatherford for lack of cooperation early in the investigation.  According to the SEC Complaint, Weatherford failed to provide the SEC with complete and accurate information, resulting in significant delay, and in one instance, informed SEC staff that the Iraq Country Manager who signed letters agreeing to pay bribes was missing or dead when, in fact, he remained employed by Weatherford.  In short, it appears that the SEC is openly wielding cooperation as a carrot and a stick in settlement determinations, which should give corporations hope that they can control their fate to some degree.

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