Could a Foreign Corrupt Practices Investigation Become a Serious Problem for Uber?

Uber has faced a series of legal problems, some of them contributing to management instability, such as its illegal procurement of the medical records of a rape victim in India. That led to the firing of one senior Uber executive, and probably played a role in the departure of former CEO Travis Kalanick’s #2 shortly thereafter as well as Kalanick’s defenestration.

If, and at this point it is a very big if, the Department of Justice’s investigation into Uber’s alleged Foreign Corrupt Practices Act violations turns into a real case, this could be the mother of all legal woes for Uber.

The FCPA Makes It Illegal to Bribe Foreign Officials

The FCPA has two major thrusts, one of which is to make it illegal for US citizens, natives, and residents, along with corporations organized in the US to make payments, aka bribes, to foreign officials to secure and retain business. Bribes are defined broadly and can include anything of value.

The FCPA stipulates that individuals involved in corrupt practices can go to jail.

The law is favorable to the government because it sets a low bar for what amounts to illegal conduct. That means it’s not hard to win a case if the government has good evidence.

Now one might ask why there aren’t more FCPA cases, since in many countries handing out bribes is virtually required to get anything done, particularly if you are a foreigner. The short answer is lax enforcement plus one has to assume that big multinationals and even smaller fry are careful about having third parties doing the dirty work and having well-papered up pretexts as to how funds from the US company got to them.

However, curiously, FCPA enforcement has been on the rise in recent years, even though the punishments meted out still look light relative to the underlying conduct.

Successful FCPA Cases Cost the Guilty Party in a Big Way

The SEC and Department of Justice settled a case with hedge fund manager Och Ziff, meaning the company, for over $400,000 in total fines for bribery in Africa. Its CEO also paid a $2.2 million fine, the first time a CEO had been found liable for violations by his company. Withdrawals from Och Ziff continued at an “elevated” level even after the September 2016 settlement. Investors pulled out $3.6 billion December 2016 alone, resulting in full year redemptions of $9.4 billion, within hailing distance of the $9.9 billion in investors withdrawals the funds saw during the crisis. Bloomberg reported that total withdrawals resulting from the scandal hit $13 billion, a body blow for an operation that had managed over $33 billion.

Investors were right to wonder if all the shoes had dropped. In January 2017, the SEC charged two former Och Ziff executives over the African bribery scheme.

One top reporter who dogged the story told me privately that he thought the Och Ziff CEO, Daniel Och, got off very lightly and the fact that he is extremely well connected, and not just very rich, was the reason why.

Why Uber Would Be a Very Attractive Target for the Department of Justice

On the one hand, Donald Trump has said the FCPA is a terrible law and Jay Clayton at the SEC, which has lead authority for FCPA enforcement for public companies, doesn’t seem too keen about it either. But Trump changes his views more often than most men change their ties.

The Wall Street Journal broke the story that Department of Justice was investigating Uber on Tuesday and Uber confirmed that it was cooperating. That means the DoJ leaked the story either Monday or early Tuesday. That means right on the heels Dana Krosrowshahi being named as CEO.

The timing may be purely coincidental, but the barrage of media stories on Krosrowshahi included several with headlines emphasizing that the new CEO is opposed to Trump (see here, here, and here).

Even taking personal politics out of the picture, there are reasons why an FCPA case against Uber would be attractive to the DoJ.

It is a virtual certainty that Uber has been handing out bribes abroad. Once you get outside the Nordic countries and Germany, payoffs are a widely used way to solve problems with government authorities. This would be a logical step in a negotiation process: Uber launches a ride service that violates local laws. Officials threaten or initiate legal action to shut them down. Uber pursues multiple strategies, including inducements to well-placed individuals, to keep its operations going and expand them.

Prosecutors like winning and settling high profile cases. The FCPA is a particularly attractive statue, since not only is the bar a prosecutor has to meet relatively low, but the threat of prison for serious violations is a potential source of significant leverage.

Uber is a hugely visible company, so check that box. Law on your side, so check that box. Uber bribes are likely to add up to big bucks, either by virtue of large payoffs in big markets (think China) and/or lots of bribes in many cities and countries. So check the big numbers box.


Silicon Valley save Peter Thiel hates Trump, so unusually, there are no political impediments to going after Uber. In fact, the DoJ and Trump Administration could even think there would be political benefit to having a successful case against Uber take a lot of air out of the unicorn bubble.

Tech titans have been extremely sloppy about minimizing legal risk. Uber’s sexual harassment scandals and its illegal obtaining of the Indian rape victim’s medical records are far from unusual. Recall how brazen Steve Jobs, Eric Schmidt, George Lucas and other big name tech CEOs were in engaging in wage fixing, doing so openly via e-mails they sent personally. If Uber was indeed handing out cash (or worse, women) to get foreign government officials on its side, it’s highly unlikely that they covered up the electronic or money trail.

The wild card is that the initial tipoff almost certainly came from an insider. The quality of information they provided will have a lot to do with whether this investigation goes anywhere. The more the source(s) gave, the more the DoJ is likely to keep digging. The Wall Street Journal story gave no clue as to how extensive the DoJ’s interest is, even whether it is limited to only one country.

Again, keep in mind how much damage the FCPA case did to Och Ziff. If the DoJ gets the goods on Uber, or engages in a drip-drip-drip of leaks as its investigation proceeds, it could shake up an already listing company. For instance, what if some of Uber’s already thin number of remaining executives become targets of the investigation? What if the DoJ threatens criminal charges? While the odds now seem remote, the downside of an FCPA case could be very large, particularly if the DoJ moves its probe forward in a meaningful way before Uber files for a public offering. Stay tuned.

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