New York Legal

For the Justice Department's Foreign Corrupt Practices prosecutors, last week was the best of times and the worst of times. A federal judge in Houston sentenced the former CEO of the Halliburton spin-off KBR Inc to 30 months in prison for his role in a 10-year scheme to pay $182 million in bribes to Nigerian officials in order to secure $6 billion in oil and gas contracts. Albert Stanley's sentencing marked the end of one of the DOJ's most successful FCPA prosecutions, in which KBR agreed to pay $579 million in criminal fines and disgorged profits -- the second-highest fine in an FCPA case at the time the guilty plea and Securities and Exchange Commission settlement was announced in 2009. The KBR case is an FCPA paradigm, a classic demonstration of the law's power to expose and punish corruption that would otherwise have stayed in the shadows.

The Stanley sentencing came a day after the end of the Justice Department's biggest FCPA blunder, the so-called Africa sting charges against more than 20 defendants accused of agreeing to pay bribes to Gabon officials who supposedly controlled military contract awards. U.S. District Judge Richard Leon in Washington granted the DOJ's motion to dismiss charges against all of the defendants who hadn't pleaded guilty, after prosecutors failed to obtain any convictions in the first two Africa sting trials. Leon took the opportunity to castigate prosecutors for a "very, very aggressive conspiracy theory" that turned out to be unsupported by "the necessary evidence to sustain it." I've written about the troubling backstory of the Africa sting prosecution, in which the government set up an operation center and deployed a highly compromised informant specifically to manufacture FCPA charges, with federal agents all the while texting one another about the attention they'd get when news of the case broke.

Leon is the second federal judge with harsh words for the government in an FCPA case. In December, U.S. District Judge Howard Matz in Los Angeles threw out the conviction of Lindsey Manufacturing and two Lindsey executives after concluding that the prosecution had "gone badly awry." In the Lindsey case, according to Matz, agents wrongfully obtained a warrant and misled the grand jury, and prosecutors compounded the errors by failing to turn over evidence to defense lawyers.

But don't assume that the Lindsey and Africa sting debacles will curb the Justice Department's enthusiasm for FCPA prosecution, particularly against corporations (as opposed to individuals). As Butler University law professor Mike Koehler told Brett Wolf of Reuters last week, the government still wields tremendous power against corporations accused of paying bribes -- none of which, except for Lindsey, have gone all the way to trial to fight FCPA charges. That's why the Chamber of Commerce and other business groups are agitating for amendments to the 1977 law, which doesn't define exactly who is a "foreign official" or whether state-owned businesses qualify as "instrumentalities" of foreign governments. In a Feb. 21 letter to Assistant Attorney General Lanny Breuer and SEC Enforcement Director Robert Khuzami, the Chamber's Institute for Legal Reform argued that "without a clear understanding of the parameters of 'instrumentality' and 'foreign official,' companies have no way of knowing whether the FCPA applies to a particular transaction or business relationship." The letter asks the Justice Department to clarify its interpretation of the law. In fact, the DOJ has made its view of foreign officials and state-owned businesses perfectly clear in cases against Lindsey Manufacturing and Controlled Components Inc.: Prosecutors will interpret the statute language broadly if that's what it takes to make a case.

FCPA litigation has been a notable success for the government in the six or so years since the Justice Department began aggressively prosecuting businesses under the theretofore obscure law. Attorney General Eric Holder felt compelled to respond last week to critics questioning the Justice Department's failure to bring criminal charges against the executives responsible for the financial crisis. By contrast, no one, as far I can tell, has accused the government of going soft on foreign corruption cases. Indeed, the most-discussed criticism of FCPA prosecution posited exactly the opposite. In a May 2010 article called The Bribery Racket, Forbes asserted that line prosecutors at the Justice Department cranked up FCPA enforcement in order to assure themselves of subsequent posh jobs in the private sector, defending corporations against bribery allegations.

At the time I thought Forbes was putting too malign a spin on FCPA prosecution. The record in the Lindsey and Africa sting cases, though, is disquieting. Defense lawyers in those cases portrayed a Justice Department so determined to win headlines that it brought unwarranted charges. And judges in both cases agreed that the DOJ bent and twisted the law.

That brings me to the Justice Department investigation of possible FCPA violations at News Corp. Earlier this month, after British authorities arrested five senior staffers at London's Sun newspaper for allegedly paying police and military defense officials for story tips, the Guardian's Ed Pilkington wrote a smart piece reporting that the new arrests strengthen the potential FCPA case against News Corp, which is based in the United States, since accusations of improper payments at the Sun make it harder for executives at the parent company to claim that phone and computer hacking at News of the World were an aberration they weren't aware of. "The Department of Justice, working through the FBI on both sides of the Atlantic," Pilkinton wrote, " likely to be exploring how much News Corporation executives in the U.K. were aware of a pattern of improper behavior and if so what, if anything, they did to stop it." (A Reuters story that ran just before the arrests at the Sun made a similar point about the FCPA investigation centering on News Corp's alleged "willful blindness.")

News Corp is known to have hired an All-Star FCPA team, led by Mark Mendelsohn of Paul, Weiss, Rifkind, Wharton & Garrison, the former Justice Department prosecutor who dusted off the foreign corruption law and began bringing FCPA cases about 6 years ago. The corporation has reportedly been cooperating with investigators' requests for information on alleged bribes paid by News Corp journalists.

As a journalist, I'm horrified that New Corp may have paid the police for tips. If I were a British taxpayer, I'd be irate that cops and Defense Ministry officials allegedly took the bribes. I'd be at the head of the line calling for a full investigation and harsh penalties for anyone who broke the law.

But as a U.S. taxpayer, I'd rather the Justice Department spent my money investigating, say, mortgage-backed securitization than whether British journalists bribed British police officials for tips on British news stories. In an age of limited resources, I'm not convinced that our government should be bending and twisting the FCPA to make a case against News Corp, however sexy and high-profile that case would be.

Remember, just about every FCPA case we've seen in the recent flurry of prosecutions has involved alleged bribes of officials in countries with inadequate anti-corruption enforcement systems. Nigeria wouldn't have undertaken an investigation of KBR's bribes. They could only have come to light through the U.S. government's use of the Foreign Corrupt Practices Act. Britain, on the other hand, seems utterly willing and able to investigate and prosecute News Corp bribes.

There's also a more fundamental question of whether bribes to police and defense officials for news tips is the sort of corruption the FCPA was intended to address. As Jim Ledbetter wrote in a great Reuters op-ed last summer, the statute is written to prohibit classic kickbacks, in which a company pays a bribe "to assist in obtaining or retaining business." Even in the recent FCPA prosecution campaign, prosecutors have interpreted the statute to require a "business nexus" for the bribes: payments are to obtain a government contract, say, or to get around government customs requirements. "As offensive and explicitly illegal as paying police for information might be, it is a huge stretch to say that it is part of the business nexus of a multinational corporation," Ledbetter wrote. "Of course, if Americans really want our laws to prohibit police bribes overseas, we can change the FCPA statute. But as a rule, you don't want to see it stretched to cover behavior outside its intended scope."

Ledbetter said he doubted that U.S. prosecutors could make an FCPA case against News Corp. I'm not so sure about that. The Sun arrests improve prosecutors' chances; as the FCPA Professor blog has explained, if the alleged bribes to police and defense ministry officials were falsely reported in the corporation's financial records, New Corp may have run afoul of the FCPA's books and records and internal control provisions. Given the cost of defending a years-long investigation, as well as the risk of senior corporate officials facing criminal indictment, News Corp may well decide it's better off reaching a deal with the Justice Department.

Just because you can prosecute, however, doesn't mean you should. If the Justice Department has learned anything from the Africa sting and Lindsey embarrassments, it should be that the FCPA is to be used, not abused. There's plenty of wrongdoing for U.S. investigators to uncover and prosecute instead of stretching the FCPA to go after News Corp.

(A previous version of this story incorrectly reported that the KBR case involved military contracts. In fact, it involved bribes for oil and gas contracts.)

(Reporting by Alison Frankel)