Too big to be nailed

Did the fines fit the crimes?

    The fines exacted by Justice and the SEC in these cases were all reached by settlement rather than potentially embarrassing trials, and were all far higher than anything seen in the past - $185 million from Daimler, $400 million from BAE and $800 million from Siemens. Yet they were also significantly below minimum sentencing guidelines, and far less than the hundreds of millions in revenue the firms earned during the time their criminal activity took place -- typically over many years.

    That means all the firms charged emerged with a net bottom-line gain. That hardly seems to fulfill the Justice Department's aim of instilling maximum deterrence, and could, cynically and expensively, be seen by big firms as just another cost of doing business.

    All that troubles some observers, probably none more than Michael Koehler, who after ten years at a law firm working on such cases, now teaches at Butler University, and blogs with brio on the subject.

    "There are individuals sitting in jail this morning eating their breakfast for violating the FCPA anti-bribery provisions," says Koehler. "What do you say to those people who are in jail for conduct that those other companies [e.g., BAE, Siemens, Daimler] and those companies' employees were essentially immune from? It just rubs me the wrong way."

    One answer is that legal principles may have hit real world constraints: these behemoth companies have benefited from being "too big" to be hit by the full punch of the statute. They did deservedly get credit for cooperation -- thus lowering their culpability score, in the sentencing guideline formula. On the other hand, that cooperation came after -- not before -- the firms were busted.

    If the book were thrown at them, the firms could possibly suffer fatal wounds. Indeed, the specter of the Arthur Anderson, which imploded in 2002 after a criminal conviction, may give prosecutors pause. Essentially driven out of business due to its connection to Enron, the Supreme Court vacated the convictions against it in 2005, long after the damage was done.

    These are early days in the new FCPA arena, but the Department of Justice already has some 140 cases under investigation, and defense lawyers and compliance consultants are ramping up to match them. Justice and SEC will now work up their own investigations into HP, and exact a pound of flesh, if they can. Shareholders too, might follow with a lawsuit of their own.

    Under the stepped-up FCPA enforcement, which began under Bush but has been ramped-up by the Obama Administration, executives are also being targeted for personal criminally liability.

    If prosecutions start reaching into boardrooms, as U.K. authorities already have in a case involving ALSTOM, the French power company, anti-corruption enforcement could finally turn serious.