The prestigious National Geographic magazine has just celebrated 125 years of pioneering writing on science and nature. So it came as a shock to many to read press reports that the US Department of Justice may have been conducting a bribery investigation into a former Egyptian  official’s relationship with the non-profit organisation.

The allegations reportedly concern whether a salary of $80,000 per annum paid to an Egyptian archaeologist, Dr Zahi Hawass, to be ‘explorer-in-residence’ and an expert on National Geographic’s TV channel, was to all intents and purposes a bribe under US law. This is because Mr Hawass also had an official role with Egypt's government as guardian of Egyptian antiquities, and so there is a question mark over whether National Geographic was, in effect, paying an official for unrivalled access to those antiquities. 

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A spokesperson for the National Geographic Society has stated that it has complied with all applicable laws and acted appropriately with respect to its relationship with Dr Hawass and the government of Egypt.

Meanwhile, Mr Hawass has been reported as saying: “It was a contract. It was not a bribe. I gave no single favour to National Geographic.” Despite the media reports, the DoJ has declined to confirm or deny the existence of any such investigation.

More investigations

Since the stringent enforcement of bribery laws began in the late 2000s in the US, the trend in far-reaching corruption investigations appears set to continue. The Enforcement Index for 2013, compiled by the US’s Foreign Corrupt Practices Act blog, recorded $731m being paid out globally by companies in corruption proceedings or in settlements. Two of the cases from 2013, both involving oil companies, Total in France (fined $398m) and Weatherford International in Switzerland (fined $152.6m), are in the top 10 highest such payouts ever recorded.

In the UK, corruption-related prosecutions continue at a slower pace, with global services provider Ernst & Young (EY) reporting only 30 cases since 2008 (when enforcement action began in earnest). The Bribery Act, which came into effect in 2011, has still not delivered a single corporate prosecution. However, a few high-profile names were added to the UK Serious Fraud Office’s in-tray recently. This includes investigating luxury carmaker Rolls Royce over allegations it used bribery to win business in Asia. 

As reports on the National Geographic case suggest, enforcers may be spreading their reach far and wide in who they are prepared to investigate, and, if need be, prosecute for alleged corrupt practices. It goes beyond the traditionally vulnerable sectors such as oil (such as Halliburton, the US oil company which paid out more than $500m in fines and 'disgorgement' in relation to bribery offences by one of its subsidiaries a few years ago) to reach a range of sectors from pharmaceuticals to waste management, and from broadcasting to digital services.

As Jonathan Middup, a partner in EY’s fraud investigations and dispute services in the UK, says: “Though enforcement often focused on sectors which were operating in areas where corruption levels were high and where, perhaps, the level of regulatory oversight was low, now it can be in a range of sectors. There is a lot of focus right now on the relationship between drugs companies and health professionals, for instance.”

Third party problems

Recent prosecutions show that it is often the use of an intermediary – a third-party agent – in a particular location that leads to cases of corruption. Companies that rely on a third party may either genuinely not know what is happening at a local level or are turning a blind eye to what that third party might be doing to secure contracts.

As an example, in the US, Ralph Lauren Corp recently paid $1.6m to the Department of Justice and the Securities and Exchanges Commission to settle charges that it handed over money to a customs broker, the intermediary, who then paid bribes to the Argentine government and customs officials. Similarly, in the second half of 2013, Chinese authorities began investigating GlaxoSmithKline (GSK), alleging that it had used travel agencies as a third party ‘gateway’ to influencing doctors and hospitals to order its products. Indeed, it has been reported that one travel agency has been closed down.

This is a particular problem when investing across borders where local agents are often a critical component in the success of realising a foreign investment proposition. Foreign investors are advised by lawyers to ensure they carry out thorough due diligence on third parties. But, says George Dallas, director of corporate governance at global asset management company F&C Investments, this is often just not practicable. “The further away a supply chain is from a parent company, it is much more difficult to manage. However, we can try and raise awareness, and focus our policing efforts on areas which are likely to be the most problematic,” he says.

(The problem of lackadaisical local agents is also exacerbated by the fact that it is not only the US authorities who are interested these days, but the authorities of the country in which an agent is located – in the GSK case it was the Chinese authorities that started the ball rolling on investigating the company, not the US ones.)

Individual cases

Another notable development in corruption-related cases is that of prosecutions of individuals as well as companies. The EY report shows that in the UK, about half of the 30 total cases since 2008 were brought against individuals. For the US in 2013, 64% of cases were related to individuals. The Enforcement Index for 2013 shows that there were eight guilty pleas and four sentencings in the US for last year. John Smart, EY's head of fraud investigations and dispute services in the UK, says: “There is a strong desire to name and shame. We all remember the shot of Kenneth Lay, the former head of Enron, in handcuffs, after he was found guilty of securities fraud.”

The actual process of investigation and prosecution of corruption cases is also undergoing change in the UK and the US. In the UK, the government has just introduced controversial deferred prosecution agreements (DPAs), which are agreements between the company being investigated and the prosecutor to defer prosecution in return for which the company co-operates with the investigation and also agrees to certain financial penalties and to making improvements to their compliance programmes and so on. The arrival of DPAs in the UK may make enforcements more common as they reduce the risk of punitive action on both the prosecutor’s and defendant’s sides.

What these new legal mechanisms demonstrate is that corruption enforcement is here to stay, and prevention remains a high priority for crossborder investors.