The FCPA Files: W.S. Kirkpatrick & Co., Inc. (1985)
It took almost a decade for the dust to settle from three and a half years of Nigerian civil war (also known as the Biafran War), but by 1979 Nigeria had managed to pull together a new constitution and civilian government. Led by President Shehu Shagari and his National Party of Nigeria, the country was eager to deploy its oil money in an aggressive development campaign. Securing power in that initial political free-for-all hadn’t come cheap, though, so a certain amount of on-the-side recoupment was to be expected.
Among the flurry of new projects was an aeromedical facility for the country’s young Air Force Base in the northern state of Kaduna. A $10.8 million contract for training equipment was awarded to a New Jersey‒based corporation, W.S. Kirkpatrick & Co., Inc. (“Kirkpatrick”) in exchange for bribes, with full disclosure from the intermediary of how the demanded 20% kickback on the contract price would be allocated: a quarter to the National Party of Nigeria, a quarter to Nigerian Air Force officers, and the rest to various government defense personnel and the intermediary, himself.
At least one competitor took notice. Environmental Tectonics Corporation, International (“ETC”), having seen its lower bid rejected, did some digging and carried the dirt to U.S. government authorities, leading to guilty pleas from and minor fines against Kirkpatrick and its chairman-CEO. ETC also filed a civil suit, claiming damages under federal and state racketeering and anti-competition laws. One problem: the “act of state” doctrine, which prohibits federal courts from ruling on the validity of foreign sovereign acts, seemed to shield the actions of the Nigerian government from judicial scrutiny. The Supreme Court would use this case in 1990 to clarify the doctrine: a federal court could not rule on the legality of the Nigerian contract, since it was the act of a foreign sovereign, but it was permitted to rule on the motivations underlying the Nigerian government’s decision to award the contract.
By the time of the Supreme Court’s decision, the sovereign at issue in this case was long gone: the Second Nigerian Republic was overthrown on the last day of 1983, with the new military leadership denouncing the former regime’s “squandermania, corruption and indiscipline”. And while the new regime’s ethics were not much better, it made a show of vigorously prosecuting its predecessors, including by placing former President Shagari under house arrest. The case raised politically sensitive concerns for the new regime. The U.S. prosecutor noted at Kirkpatrick’s sentencing that he had been “resisting attempts by the Nigerian government to find out” who precisely had received payments through Kirkpatrick’s bribery scheme.
This post is part of "The FCPA Files" series, examining key enforcement cases under the Foreign Corrupt Practices Act and the lessons they offer for modern compliance. |