There have been many references to the US Foreign Corrupt Practices Act in relation to the recent legal complications facing Las Vegas Sands Corp in Macau. Another statute that hasn’t been mentioned is the Racketeer Influenced and Corrupt Organizations Act, otherwise known as the RICO Act or simply ‘RICO’ to those readers familiar with the HBO hit series ‘The Sopranos’.
Although RICO is often associated with Mafia-type investigations, there are precedents for it being applied to a number of other situations. The especially interesting thing about RICO is that it can work for companies under investigation (as well as those doing the investigations, such as US federal agencies or US states).
Individuals identified as ‘whistle blowers’ or litigants in US or foreign lawsuits against US companies, have in some cases faced a retaliatory civil lawsuit filed under RICO by the US company or entity under scrutiny.
The test is that the plaintiff (say Company ‘A’) must be able to prove there was a “criminal enterprise” against it by those who reported Company ‘A’ to US Federal authorities or who made claims against it in another lawsuit. This can qualify as an act of “racketeering” under the RICO Act.
An example of the use of this approach is Chevron Corporation, a global energy resources company based in the US. In February, Chevron brought a RICO case in the US District Court of the Southern District of New York versus some trial lawyers and consultants for their part in a civil lawsuit against the firm in Ecuador. Chevron said the purpose of the Ecuador lawsuit was “to extort a multi-billion dollar payment from Chevron through fabricated evidence and a campaign to incite public outrage”. That case is awaiting final adjudication.
Another example is Sodexo Inc, a major Maryland-based provider of on-site services to a range of sectors including health care, education and government in the US, Canada and Mexico. In March, Sodexo USA filed a civil lawsuit against the Service Employees International Union (SEIU) and other defendants under the RICO Act. The company accused SEIU of blackmail, vandalism, trespass, harassment, and lobbying law violations designed to steer business away from Sodexo USA and harm the company. That case is also pending.
The Sarbanes-Oxley Act 2002 theoretically offers some protection against those making criminal or civil allegations against corporations so that the RICO Act can’t be used simply as a gagging mechanism by companies under scrutiny. Sarbanes-Oxley was introduced to improve accounting and ethical standards in US corporate governance after a number of high profile accounting frauds and company collapses, including at Enron and Tyco.
The test under Sarbanes-Oxley is that the person or organisation making claims against a corporation or individual has provided “truthful information” about a federal offence or possible offence having been committed.
The Act states: “Whoever knowingly, with the intent to retaliate, takes any action harmful to any person, including interference with the lawful employment or livelihood of any person, for providing to a law enforcement officer any truthful information relating to the commission or possible commission of any federal offense, shall be fined under this title, imprisoned not more than 10 years, or both.”
There is a problem with Sarbanes-Oxley, however, in that what counts as ‘truthful’ in a foreign jurisdiction or court (say Macau or Ecuador) may not be considered ‘truthful’ in a US court.
And say if a theoretical ex-CEO of a theoretical public company did a deal with US federal authorities giving him or her immunity from prosecution in return for his or her testimony against the former employer, could the ex-CEO still be hit with a RICO action by the company?
Questions, questions. It all adds up to the fact that when a business is involved in a major court case or potential court case, it can be very difficult for investors to predict the length of the proceedings, the outcome and the effect on their investment. It’s arguably even more difficult for investors to evaluate the impact of such proceedings when they occur in US courts. That’s because of the tendency of US jurisprudence to assume the parties have the right under the law to slug it out for as long as their pocket books or legal aid (if not their common sense) will allow.
