Justice Department and SEC Announce Historic Anti Foreign Bribery Settlement Against Panalpina, Shell, Transocean and Others
More arrests and tough prison sentences for were the topic at the Senate Subcommittee on Drugs and Crime last week in Washington D.C. Committee chair Sen. Arlen Specter grilled Justice Department officials on November 30th asking why so few individuals are prosecuted under the Foreign Corrupt Practices Act (FCPA). His questions arose after the government announced record fines against Panalpina World Transport and other companies.
Specter said he took interest last month when Justice Department officials and the SEC announced settlement of foreign bribery charges against a freight forwarding company, Panalpina World Transport. That case resulted in fines of $236 million. “Fines come out of the corporation…but that doesn’t deal with the individual conduct violating the law,” said Specter. He went on to ask a senior deputy assistant attorney general why no individuals were charged in that case. Justice Department officials refused to comment saying only that the investigation was “ongoing”.
Public records show that the government has been charging more individuals, although apparently not enough for some members of Congress. In 2004, just two individuals were charged with FCPA violations. In 2005 that number increased to five. Since 2009, the number of individuals charged has skyrocketed to over 50 in the last two years.
Fines have also increased to over $1 billion in criminal penalties and more than $600 million in civil fines during the last year.
What has some senators upset is the lack of criminal prosecutions against individuals. What is the difference between a corporate and individual prosecution? A judge can’t put a corporation in jail. The only sanction in a criminal case brought against a company is a fine.
The Justice Department was able to point to one recent case where a corporate official was sentenced to 87 months in jail.
The battle lines appear drawn. Specter and other ranking Congressional leaders are calling for more prosecutions of corporate executives and stiff prison sentences. President Obama has echoed the call for tougher enforcement.
Business leaders have criticized enforcement efforts and called for an amnesty program.Specter leaves the U.S. Senate this year. The World Bank estimates that $1 trillion is paid in bribes to foreign officials each year.
Prosecution of Panalpina World Transport for Foreign Bribery
The case that angered Sen Specter involved Panalpina World Transport, a freight forwarding company. Also implicated were five oil and gas companies. The bribing of foreign government officials in the energy and natural resources sectors has long been a problem. In this case, prosecutors alleged that the six companies paid bribes in order to circumvent rules regarding the importation of machinery and equipment.
The government officials accused of accepting the bribes were located in Angola, Azerbaijan, Brazil, Kazakhstan, Nigeria, Russia and Turkmenistan.
The case sets a record for the most companies simultaneously charged for violations of the Foreign Corrupt Practices Act. The other companies involved were affiliates of global giants Shell, Transocean, Pride International, Tidewater and GlobalSantaFe. (GlobalSantaFe is today part of Tidewater.)
According to the indictment filed against lead defendant Panalpina, the company is a New York based freight forwarding company doing business in 160 different jurisdictions. Prosecutors say the company had a “culture of corruption.”
“Prior to 2007, dozens of employees throughout the Panalpina organization were involved in paying bribes to foreign officials. Panalpina generally made payments on behalf of customers in order to circumvent the customs process for imports and exports of goods and items. Panalpina paid these bribes for various reasons, such as to cause officials to overlook insufficient, incorrect, or false documentation and/or to circumvent the local laws and inspections so as to allow the shipment of contraband (mainly unauthorized food and clothing). Panalpina also on occasion paid bribes to secure foreign government contracts for itself or to obtain favorable tax treatment by foreign governments.”
The corruption went to the highest levels of the company. The indictment claims that when an outside auditor found evidence of bribes, one of the company’s board members shot down a code of ethics that contained anti-bribery provisions.
Prosecutors say that in five years, the company “paid bribes to foreign officials valued at approximately $49 million. Payments paid on behalf of Panalpina’s u.s. customers and their foreign subsidiaries accounted for approximately $27 million of these bribe payments.”
In many of these cases, prosecutors resort to the false books and records provisions of the FCPA. Most companies are smart enough to not record “Illegal Bribes” on their financial statements. Panalpina was no exception.
Prosecutors say the company used many different terms to falsely describe the bribes it paid in Nigeria relating to the customs process.
“These terms, which were designed to help Panalpina’s customers conceal the true and improper nature of the payments in their books and records, included “CPC Processing,” “Customs Intervention,” “Evacuations,” “Export Formalities,” “Local Handling,” “Manifest,” “Operational Expenses,” “Pre-releases,” “Special Handling,” “TI Bond Assessment,” and “TI Bond Cancellation.” All of the terms were used internally at Panalpina to discuss improper payments. The terms were also used externally to invoice customers for the improper payments that were paid on behalf of the customers.”
Bribery and corruption hurts the people of the countries where the bribes are being paid. The citizens there are being deprived of honest government services and tax revenues. (In 2010, the average salary in Nigeria is just $3000. Remember, however, that many people have no study job and actually getting paid is also an issue. The real “pay” for most Nigerians is considerably less.
Bribery and government corruption also hurts legitimate businesses seeking to compete honestly and in full compliance with the law. Why should good companies be punished simply because they refuse to pay bribes?
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Brian Mahany is a lawyer that helps insiders with information about fraud against government programs, bank fraud, phony books and records and corrupt dealings with foreign officials to collect whistleblower rewards.
Brian can be reached directly through this website, online at or by phone at (414) 704-6731. All inquiries are protected by the attorney – client privilege and kept confidential. We only charge for our services if we are successful in getting you a reward.