Settlements feed US prosecutor overreach

NEW YORK: From Google last month to tire-maker Bridgestone this week, companies have paid big money to avoid nasty fights with the government in US courts.

Bridgestone's bribery settlement on Thursday came despite prosecutors stretching the technicalities, and Google's $500 million payment last month over drug advertisements cost more than the money involved. Trouble is, these deals encourage prosecutors to pursue what they can punish, not what the law prohibits.

Former New York Attorney General Eliot Spitzer helped set the template a decade ago.

Among other things, he extracted big settlements for conflicts of interest in investment banks' research. His legal theories were rarely tested in court, because firms cut deals to minimize costs. As a result, the alleged but unproven offences became benchmarks for other settlements.

Prosecutors used similarly aggressive tactics in the Enron and Arthur Andersen cases. They persuaded several executives to plead guilty to financial shenanigans that, years later, the US Supreme Court ruled weren't even illegal.

More recently, Goldman Sachs could have plausibly challenged government charges that led to its $550 million settlement last year over dealings in collateralized debt obligations.

The Google settlement rested on the idea that the firm's Internet search pages violated drug laws by helping Canadian pharmacies sell "misbranded" prescriptions in the United States.

Google didn't deliver the drugs, but prosecutors say it was an accomplice. Legally, that seems a stretch, but because of the settlement, that won't be tested. And prosecutors won another expansive, if unofficial, precedent.

Many bribery cases under the Foreign Corrupt Practices Act follow a similar path. Bridgestone agreed to pay $28 million for bid-rigging and bribing Latin American officials.

But it's hard to see how the Japanese company's sending of emails into the United States tripped the law's requirement that illegal conduct occur there. Again, this settlement allows prosecutors to go after other companies armed with a newly broad interpretation of the law.

Of course, many prosecutions that settle are justified. And some defendants fight back. In at least three cases this year, companies asked courts to narrow how the government defines a foreign official under the FCPA. But there's a risk that companies are left with yet another unpredictable cost of doing business.

The US Justice Department said on Sept. 15 that tire and rubber company Bridgestone had agreed to pay a $28 million fine for violating the Foreign Corrupt Practices act by bribing Latin American officials and fixing prices in the marine hose business. The FCPA only covers conduct "in the territory of the US," and the DOJ said Bridgestone's bribery scheme qualified because the company sent mails or faxes from Japan to the United States.

On Aug. 24, the DOJ announced that Google had agreed to pay $500 million for accepting drug advertisements from online Canadian pharmacies aiming at the US market.

Prosecutors claimed the ads made the company complicit in illegally importing prescription drugs.

Google entered into a non-prosecution agreement, meaning it will not face formal charges if it pays the money and complies with the agreement's other terms. The payment equals the amount Google earned from the ads plus the revenue the Canadian pharmacies received from drug sales in the United States.

Google said in February 2010 it would no longer allow Canadian pharmacies to advertise to US customers.

Copyright Reuters, 2011