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Not just Wal-Mart: Dozens of U.S. companies face bribery suspicions

April 26, 2012: 6:00 AM ET

In bad company

UPDATE (3/26, 12:45)

Deere, Hewlett-Packard, Las Vegas Sands, Qualcom and many others are also under investigation for violations of the U.S. Foreign Corrupt Practices Act.

FORTUNE -- Perhaps Wal-Mart (WMT) should try the "everyone does it" defense.

The giant retailer, which is accused of regularly bribing Mexican officials in order to quickly obtain permits to open stores, is far from the only U.S. company that has been caught greasing the wheels of commerce in the past few years. Two more examples of that came on Wednesday. The Securities and Exchange Commission charged a former Morgan Stanley executive Garth Peterson with bribing an official of a state-owned Chinese company in order to win business for the investment firm. Also on Wednesday, media conglomerate News Corp. confirmed that it too was the subject of a U.S. bribery investigation, more fall-out from its phone hacking scandal.

There are at least 81 public companies under investigation by the Securities and Exchange Commission or the Department of Justice for running afoul of the Foreign Corrupt Practices Act, which makes bribery in foreign countries punishable in the U.S. In addition, a growing number of companies have started placing disclosures in their financial documents that say their employees may at times violate the U.S.'s overseas bribery law, despite the company's best efforts to prevent it.

Other companies seem to be all for bribes were it not for U.S. laws prohibiting them. For example, Lakeland Industries (LAKE), a Long Island, New York, manufacturer of industrial safety garments, recently said its inability to pay bribes, due to the fact that it, unlike its competitors, follows U.S. laws, has lowered the company's sales. Undoubtedly, accounting laws are also forcing the company to report lower profits than it would like as well.

MORE: Memo to Corporate America: Bribery doesn't pay

Among the companies already in the cross-hairs of the U.S. government for committing bribery are Hewlett-Packard (HPQ), telecommunications company Qualcomm (QCOM), farm equipment maker Deere & Co. (DE), cosmetic company Avon (AVP), casino company Las Vegas Sands (LVS) and Koch Industries, the Texas conglomerate run by prominent Republican donors Charles and David Koch. On top of that, the SEC has also recently launched an inquiry into whether U.S. movies studios have been using bribes to break into the Chinese entertainment market. News Corp's 20th Century Fox, Disney and DreamWorks Animation have all reportedly been contacted by the SEC. For its part, the Department of Justice last year said that it had 150 open investigations under the Foreign Corrupt Practices Act. Some of those might be against individuals as well as companies.

A number of companies have already handed over large fines. Last April, Johnson & Johnson paid $78 million to settle claims that it violated the UN's Oil for Food program. In 2009, Haliburton paid over $550 million to settle claims that officials at a former division, including its head, had bribed officials in Nigeria while building a gas plant there. Bribes at German conglomerate Siemens, which is publicly traded in the U.S., were so pervasive around the world that it was forced to pay $800 million dollars to settle charges - the largest FCPA fine yet. In all, the U.S. government brought 20 cases against companies in 2010 under the bribery law, up from 2 in 2002. The number dipped to 16 last year, but lawyers say there is no sign that the government is letting up.

"Definitely, anti-corruption has been high up on the enforcement agenda recently," says Richard Cassin, a FCPA expert whose blog produced the list of companies that have disclosed investigations. "This area of law used to be an obscure specialty. Now every big law firm has a practice."

Many of the investigations are a number of years old, and some many never lead to actual charges. But a number of investigations have been launched in the past year. Last month, Qualcomm disclosed that it learned in January that the Department of Justice was investigating the company for a FCPA violation. And there may be some evidence that telecom giant tried to hide the allegations. The company said a whistle-blower approached the company's board of directors back in late 2009. The company said it investigated the matter, and found no wrong doing. A year later the company disclosed that it was under investigation by the SEC. Last month was the first time it told investors those allegations had to do with bribery. Qualcomm could not be reached for comment.

MORE: Wal-Mart's board: Can they handle the Mexican heat?

"Whistle blowers are more relentless than they used to be," says James Mintz, who heads an investigative services firm that tracks FCPA cases. "These days it has become more common for companies to report. We haven't seen a good old fashion cover up like what appears to have happened at Wal-Mart in a while."

At Hewlett-Packard, the government is looking into whether former employees engaged in bribery, embezzlement and tax evasion in order to help a former German subsidiary of the company land an IT contract in Russia. The bribes were paid to the General Prosecutor's Office of the Russian Federation and may have gone on for 5 years from 2001 to 2006. The company said U.S. investigators are also looking at deals the company struck in 5 other European countries dating back to 2000.

Last summer, the SEC began investigating Deere for allegations of bribery in Russia. Avon, which recently pushed out its long-time chief executive, is being investigated for its dealings in China. Casino giant Las Vegas Sands says it has been under investigation since February by the SEC and the DOJ for possible FCPA violations.

A European subsidiary of Koch Industries reportedly bribed government officials and others to secure contracts in India, Africa and the Middle East. Koch fired several employees, including the ethics manager who was initially in charge of the company's investigation into the bribes. The company eventually cleared all of the senior level executives of the division of wrong doing. U.S. regulators are investigating.

According to the recently filed suit by the SEC, Morgan Stanley gave its executive Peterson, a managing director in the company's real estate division, 35 different notifications reminding him of U.S. bribery laws, including specific instructions that payments to an official of a Chinese state-owned company in Shanghai would be against the law. Nonetheless, Peterson arranged to split $1.8 million in secret payments with the Chinese official. He also negotiated a sweetheart deal for himself and the Chinese official to purchase a $3.4 million property from a Morgan Stanley.

"Peterson crossed the line not once, but twice. He secretly bribed a government official to illegally win business for his employer and enriched himself in violation of his fiduciary duty to Morgan Stanley's clients," said Robert Khuzami, Director of the SEC's Division of Enforcement. "This case illustrates the SEC's commitment to holding individuals accountable for FCPA violations, particularly employees who intentionally circumvent their company's internal controls."

Update: An earlier version of this story said Disney and other movie studios were under investigation by the SEC for bribery. The SEC has issued letters of inquiry to Disney and others. It's not clear whether the SEC has opened a formal investigation. The SEC declined to comment.

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About This Author
Stephen Gandel
Stephen Gandel

Stephen Gandel has covered Wall Street and investing for over 15 years. He joins Fortune from sister publication TIME, where he was a senior business writer and lead blogger for The Curious Capitalist. He has also held positions at Money and Crain's New York Business. Stephen is a four-time winner of the Henry R. Luce Award. His work has also been recognized by the National Association of Real Estate Editors, the New York State Society of CPA and the Association of Area Business Publications. He is a graduate of Washington University, and lives in Brooklyn with his wife and two children.

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