WASHINGTON, Jan 20 (Reuters) - As the U.S. Justice Department has stepped up its enforcement of an anti-foreign bribery law, it has faced the expected stiff resistance from the business community.

Now it faces the unexpected as courts are pushing back, too.

In an unusual verbal order issued earlier this week, a federal judge in Houston dismissed without sending to the jury a case against a Texas man accused of authorizing bribes to government officials in Mexico, on behalf of his former employer, a unit of ABB Group.

The government's principal witness "knows almost nothing", U.S. District Judge Lynn Hughes said in announcing his decision to acquit the defendant, John O'Shea, according to a transcript.

Prosecutors also did not produce evidence to "conclude beyond a reasonable doubt" that a middleman did nothing for Swiss power products company ABB beyond pay the bribes, he said.

The decision is the latest in a string of setbacks for the Justice Department unit that prosecutes violations of the Foreign Corrupt Practices Act, a 1970s law that bars U.S.-linked companies and individuals from paying bribes to officials of foreign governments in exchange for business.

After several years of record penalties, with companies paying $1.8 billion in 2010 alone, businesses started pushing back.

The U.S. Chamber of Commerce launched a campaign more than a year ago to lobby for changes to the FCPA, and Democrats in the House and Senate have indicated they might support amendments.

Judges, too, have begun to turn up the heat in recent months.

In November, months after a jury had convicted a California manufacturing company and its executives of paying bribes to officials in Mexico, a federal judge there dismissed the indictment and said prosecutors had engaged in misconduct to obtain it in the first place.

In December, a federal judge in Washington, D.C., dismissed a conspiracy charge in a sprawling bribery case tied to the arms industry, weakening the case against several defendants just before it went to the jury, and leaving one defendant free to go.

The government has indicated it plans to appeal the California ruling; the jury in the Washington, D.C., case has not yet returned a verdict.

The Justice Department team has had some big wins. A Florida defendant was sentenced to 15 years in prison in October after a jury convicted him of participating in a scheme to bribe officials in Haiti, for example.

But in some recent high-profile cases, judges have ruled against the government.

"Clearly, with increased enforcement of the FCPA, there will inevitably be increased litigation," said a spokeswoman for the department, Laura Sweeney.

"But there is also no question that it is important that potential violations of the FCPA be investigated and that the Department pursue cases when it believes the evidence and the law support them," she said.

Sweeney declined to comment on any pending matters.

STANDARD OF CONDUCT

Most foreign bribery cases are settled by companies and never go to court, leaving the exact boundaries of the law unclear.

FCPA lawyers are "trying to continually fashion conclusions from different contexts, and it's very hard to know what the standard of conduct is that is subject to enforcement," said Laura Flippin, a senior Justice Department official during the Bush administration who is now a partner at DLA Piper.

"Courts are wrestling with the same questions," she said.

Partly in response to similar criticisms, Assistant Attorney General Lanny Breuer, who heads the criminal division, said in November the department would soon issue guidance on how it interprets the law.

"The FCPA is an important mechanism for holding individuals and corporations accountable for fostering corruption abroad, and for motivating others to act responsibly," he said at the time. "We must ensure that it stays that way."

LIMITED ACCESS TO EVIDENCE, WITNESSES

Other defense lawyers interpreted the trial defeats more as a function of the difficulties in prosecuting foreign bribery cases, which involve troves of evidence held overseas beyond the reach of U.S. enforcement agencies.

Prosecutors also often have little leverage over witnesses living overseas.

In the ABB case, the judge this week chastised the government for not building a more thorough case.

The government's top witness gave answers that were "abstract and vague, generally relating to gossip"; prosecutors failed produce important records and people; and they didn't adequately trace the money, Hughes said.

"It's not easy for the government to prosecute these cases," said Joel Androphy, who along with Sarah Frazier defended the case.

"They rarely have the ability to obtain testimony from witnesses, and it's hard to get documents, but defense lawyers should put the government to its burden and not confess without a trial," he said in an interview.

PRIOR TROUBLES

Hughes has questioned the Justice Department's FCPA enforcement efforts in the past.

In 2010 he slashed by 40 percent a $28.5 million criminal fine ABB initially agreed to pay to resolve charges that it violated the Foreign Corrupt Practices Act, and said the fault lay not with the company but with individuals.

"It obviously has not been a good few months for the Justice Department's enforcement efforts against individuals," said Philip Urofsky, a former federal prosecutor who supervised the department's FCPA cases and is now a partner at Shearman & Sterling.

"The difficulty still is not so much with the law, as with the difficulty in proving these cases at trial," he said.

The judicial setbacks could prompt a rethinking within the department about which cases are tagged for prosecution, former DOJ lawyers said.

"It wouldn't surprise me if the leadership of the division would get involved," in more closely vetting cases to avoid future embarrassment, said one former Justice official who declined to be named.

Lisa Rickard, who heads the Institute for Legal Reform at the Chamber of Commerce, said in a statement the group was "encouraged that the courts are starting to provide more judicial oversight" of FCPA matters.

"But we still believe that the amount of interpretive guidance under the FCPA is lacking," she said.

(Reporting by Aruna Viswanatha)

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