Chiquita Brands’ Troubles With The Foreign Corrupt Practices Act (FCPA) In Colombia — Part Two – Colombian FCPA Cases

What does the Chiquita case mean for investors with present or prospective activities in Colombia? Are reports of perceptions of corruption an indication of the Justice Department aggressively challenging companies doing business in Colombia?  Is the FCPA a trap for investors in Colombia?

Only the unwary. As I wrote in Part One, best practices of international business require careful monitoring and training of managers and others to prevent corrupt payments, and to keep accurate records. But Colombia does not seem to be a disproportionate focus for FCPA prosecutions and investigations, and although there have been noted Alien Tort Statute claims by union leaders’ heirs, alleging wrongful death, they have not been successful. Will the newest Chiquita Brands’ cases, following after its $25M plea agreement with the DOJ, end differently?

The first prosecution I could locate involving Colombia involved the Harris Corp. (The Harris case is reported on the Shearman & Sterling FCPA Cases site.)  In the summer of 1990, Harris won an acquittal on FCPA charges.

Currently, the FCPA Blog reports that the Department of Justice is investigating military contractors generally, in connection with what is called the “Shot-Show” cases involving the Republic of Georgia. The FCPA Blog reports about the implications for Colombia:

There are indications of more foreign bribery involving the military-equipment industry; the allegations in the first 16 indictments (available here) and the superseding information may be the tip of the iceberg. 

The Justice Department is seeking to build bigger cases against some current defendants. It may also indict other individuals.

Investigators could also be looking at involvement by some well-known industry leaders — an Indian military-equipment supplier, three U.S. public companies, and two large private security contractors among them.

Countries and governments involved may include not just Georgia (mentioned in the superseding information) but also Peru, Mexico, Saudi Arabia, Guatemala, the Philippines, Colombia, and others. Representatives from some of the countries could be targeted by the Justice Department.

But what about those other cases involving alleged corruption in Colombia, and unionist killings?  One such case that drew a lot of attention involved Alabama coal company The Drummond Coal Company, operator of the largest open coal mine on the planet, called El Cerrejon in the Northeastern Colombian peninsula called La Guajira. This, however, was not a case involving the FCPA. Instead, it was brought under the Alien Tort Statute, as is former hostage Keith Stansell’s case against Chiquita, but the underlying “tort” or wrong alleged in Estate of Rodriquez v. Drummond Co., 256 F. Supp. 2d 1250 (N.D. Ala. 2003), was wrongful death and engaging in war crimes. Survivors of Drummond unionists alleged that Drummond conspired with paramilitaries to exterminate the union members. The United Steelworkers sent a letter to Congress describing the allegations. After the Alabama court ruled that the union had standing to sue in the United States, however, a jury found that Drummond was not liable in the deaths. The case has been appealed to the Eleventh Circuit U.S. Court of Appeals, No. 09-16216-II. Briefing appears to have been completed this month, and a decision forthcoming in a few months.

The Coca-Cola Company too has been implicated in Alien Tort Statute litigation for violence against union leaders and members in Colombia. The United Steel Workers union also was involved in litigation against Coca-Cola for allegations of crimes against union officials, Sinaltrainal v. Coca-Cola.. A campaign being waged against Coca-Cola for human rights violations around the world is called “Killer Coke” and contains a number of citations to press articles discussing various allegations. Another website details the Colombia allegations against Coca-Cola. The public affairs TV show “Frontline” covered the Coca-Cola Colombian controversy.

Coca-Cola denied these allegations, of course. Coca-Cola Company stated in its 2004 proxy:

Two different independent inquiries in Colombia —a judicial inquiry by a Colombian Court, and an inquiry by the Colombian Attorney General’s office— examined the specific issue of whether managers at a bottling plant were complicit in the murder of a trade unionist. They found no evidence to support the allegation. Further, based on internal investigations conducted by our Company and by our bottling partners, we are confident that allegations the bottlers engaged paramilitaries to intimidate trade unionists are false.

The allegations made against us in Colombia are not merely false; they are repugnant to all of us at The Coca-Cola Company. We agree with the proponents that our Company must clearly demonstrate that we and our bottling partners support human and labor rights and oppose all forms of violence. Our desire is for Coca-Cola to be seen as part of the solution to some of the business issues in Colombia today. We are convinced our current approach will allow for that outcome.

On September 4, 2006, the United States District Court dismissed all remaining claims against the two bottlers.

Here again, however, Coca-Cola was not charged with FCPA violations – payment of bribes to foreign government officials. Rather, Coca-Cola is alleged to be liable, like Drummond, for wrongful death for assisting the paramilitaries in killing unionists.

Levels of Corruption In Colombia Decreasing

The annual report of Transparency International in 2009 on corruption levels generally in Colombia show that the situation is improving, but has a long way to go. Similarly, as discussed in my articles on arbitration, there are perceptions of corruption that are discouraging to some investors that weigh down its otherwise impressive worldwide rankings for doing business.

So charges such as those lodged against Chiquita under the FCPA are relatively rare. As I will discuss in Part Three, Chiquita operated over 200 farms and controlled significant amounts of land area in two very challenging parts of Colombia: the Uraba region adjacent to the Panama border, and the Santa Marta region in Northeast Colombia, adjacent to Venezuela. Both were dominated first by FARC and ELN communist guerillas, then they were displaced by the paramilitary Autodefensas Unidas de Colombia. The paramilitaries became, over time, very closely connected to weak Government forces and the military, and there were decrees and other laws specifically coordinating with the paramilitaries during the very late 90’s and into the early 2000’s.  Like the guerillas before them, the paramilitaries exacted security payments from landowners like Chiquita – i.e., extortion.

But how far did Chiquita go in making these payments and cooperating with the guerillas and then the paramilitaries? The new cases allege that the Chiquita payments were to de facto governments in those areas, and therefore were not just actions complicit in numerous deaths, but corrupt payments to foreign government officials. In Part Three I will delve into these allegations and this theory more deeply.