Tag Archives: Foreign Corrupt Practices Act

Shut-out, Cut-off and Suicidal: Aliens v. America

The United States leads the world in punishing corruption, money-laundering and sanctions violations. In the past decade it has increasingly punished foreign firms for misconduct that happens outside America. Scores of banks have paid tens of billions of dollars in fines. In the past 12 months several multinationals, including Glencore and ZTE, have been put through the legal wringer. The diplomatic row over Huawei, a Chinese telecoms-equipment firm, centres on the legitimacy of America’s extraterritorial reach.

America has taken it upon itself to become the business world’s policeman, judge and jury. It can do this because of its privileged role in the world economy. Companies that refuse to yield to its global jurisdiction can find themselves shut out of its giant domestic market, or cut off from using the dollar payments system and by extension from using mainstream banks. For most big companies that would be suicidal.

But as the full extent of extraterritorial legal activity has become clearer, so have three glaring problems.  First, the process is disturbingly improvised and opaque. Cases rarely go to court and, when they are settled instead, executives are hit with gagging orders. Facing little scrutiny, prosecutors have applied ever more expansive interpretations of what counts as the sort of link to America that makes an alleged crime punishable there; indirect contact with foreign banks with branches in America, or using Gmail, now seems to be enough. Imagine if China fined Amazon $5bn and jailed its executives for conducting business in Africa that did not break American law, but did offend Chinese rules and was discussed on WeChat.

Second, the punishments can be disproportionate. In 2014 bnp Paribas, a French bank, was hit with a sanctions-related fine of $8.9bn, enough to threaten its stability. In April ZTE, a Chinese tech firm with 80,000 employees, was banned by the Trump administration from dealing with American firms; it almost went out of business. The ban has since been reversed, underlining the impression that the rules are being applied on the hoof.

Third, America’s legal actions can often become intertwined with its commercial interests. As our investigation this week explains, a protracted bribery probe into Alstom, a French champion, helped push it into the arms of General Electric, an American industrial icon. American banks have picked up business from European rivals left punch-drunk by fines. Sometimes American firms are in the line of fire—Goldman Sachs is being investigated by the doj for its role in the 1mdb scandal in Malaysia. But many foreign executives suspect that American firms get special treatment and are wilier about navigating the rules.

America has much to be proud of as a corruption-fighter. But, for its own good as well as that of others, it needs to find an approach that is more transparent, more proportionate and more respectful of borders. If it does not, its escalating use of extraterritorial legal actions will ultimately backfire. It will discourage foreign firms from tapping American capital markets. It will encourage China and Europe to promote their currencies as rivals to the dollar and to develop global payments systems that bypass Uncle Sam…. Far from expressing geopolitical might, America’s legal overreach would then end up diminishing American power.

Excerpts from Tackling Corruption: Judge Dread, Economist, Jan. 19, 2019

Barclays and Qatar: an Unholy Alliance?

U.S. authorities are investigating Barclays  for potentially violating anti-corruption laws during its scramble to raise money from Middle Eastern investors in the early days of the financial crisis.  The probe, being conducted by the Justice Department and the Securities and Exchange Commission, is at an early stage…The U.S. investigation follows a similar probe that British regulators opened earlier this year.

According to people familiar with the probe, it is examining Barclays’ use of middlemen serving as brokers to connect the bank with powerful Middle Eastern interests at a time when the bank was seeking a cash injection from investors in the region.  Barclays disclosed the investigation at the same time it reported a GBP106 million third-quarter loss…The new investigations represent the latest blows to a once-proud British institution. This summer, Barclays paid about $450 million to settle U.S. and British charges that it sought to manipulate benchmark interest rates, sometimes at the behest of top executives. The ensuing political furor led to the abrupt resignations of Barclays’s chairman, chief executive and chief operating officer.

The Justice Department and SEC investigation involves possible violations of the Foreign Corrupt Practices Act, which among other things bars companies with U.S. operations from bribing overseas politicians or corporate executives in order to win business.  In June 2008, as the financial crisis was gaining steam, senior bankers at Barclays persuaded the Qatar Investment Authority and other investors to inject about GBP4.5 billion into the British bank, seeking to erase fears about Barclays’s health. As part of that deal, Barclays hired the Qatar fund to provide “advisory services’ in the Middle East. The bank later disclosed that it was paying about GBP238 million in fees and commissions to Qatar Investment Authority and related entities.

This summer, the U.K.’s Financial Services Authority launched a formal investigation into Barclays’s public disclosures of those arrangements. The probe focused on past and present Barclays executives, including finance chief Chris Lucas, as well as on the manner in which Barclays wooed the Qataris to invest, according to people familiar with the matter.

Excerpts, Barclays Faces U.S. Anti-Corruption Probe, MarketWatch, Oct. 31, 2012