WASHINGTON (Reuters) - When 17 employees of a dozen or so small and mid-size companies gathered for a cocktail reception last year at Clyde’s restaurant in Washington, D.C., they toasted what they thought was the imminent completion of a $15 million arms deal to outfit the presidential guard of an African country.

A featured specialty cocktail, the Patron Gold Cosmopolitan, is displayed at a preview of the Governors Ball food and decor for the upcoming 81st annual Academy Awards in Los Angeles January 26, 2009. REUTERS/Phil McCarten

Unbeknownst to them, FBI agents were secretly videotaping the meeting. To nail down the deal, the employees had allegedly agreed to pay 20 percent “commissions” to a sales agent they thought represented the African country’s defense minister. The sales agent turned out to be an undercover FBI agent.

The mid- and senior-level managers were among 21 individuals arrested on January 17 at a shooting and hunting trade show in Las Vegas, where they had gathered to meet the mythical defense minister. Simultaneously, 150 FBI agents fanned out across the country to execute search warrants at the employees’ companies.

The case underscored the increasing prominence of a law that was rarely enforced in the first 30 years of its existence but now, with attention-grabbing headlines, is front and center in corporate governance considerations.

The 1977 law, the Foreign Corrupt Practices Act, or FCPA, makes it a crime to bribe foreign officials to obtain or keep business abroad.

The Las Vegas sting represents the single biggest prosecution of individuals in the history of the FCPA. And it marks the first use of undercover techniques in an FCPA investigation.

Heralding a more daring and aggressive approach to rooting out corruption, the arrests were intended as a strong signal by the U.S. Justice Department that no one is immune from the increasingly long reach of the statute.

“It’s important that we hold individuals responsible,” Mark Mendelsohn, the Justice Department official who oversees enforcement of FCPA, told Reuters in a recent interview. “If not, we wouldn’t have the deterrent effect we seek.”

The statute had long lain dormant, but in the last three years the Justice Department and the U.S. Securities and Exchange Commission - the criminal and civil enforcers, respectively, of FCPA - have brought more cases under the law than in all previous years combined.

INTERNATIONAL CROSSHAIRS

The stepped-up pace is testament to heightened international cooperation - the City of London Police executed seven search warrants in the undercover case - and to U.S. authorities’ willingness to use unconventional tactics to bring bribers to heel.

Foreign companies, once virtually immune from prosecution under FCPA, are now settling cases in droves. And at least 130 additional FCPA cases are in the pipeline, according to Mendelsohn.

In the last two months alone, no fewer than five foreign companies have entered into or announced FCPA-related settlements with U.S. authorities. For a factbox on the settlements, please see

On Thursday, a federal judge approved a $185 million settlement by German luxury Daimler AG to resolve allegations it lavished money and gifts on officials in at least 22 countries in exchange for contracts.

COST OF DOING BUSINESS

Some observers have questioned whether the penalties are sufficient to deter corruption, or are simply a manageable cost to achieve a competitive advantage.

The Daimler penalty, for example, represented a fraction of a percent of the carmaker’s overall sales.

“Any time someone settles a case for $400 million or $180 million, you’re like ‘Wow - they really got hammered!’” said Mike Koehler, a business law professor at Butler University in Indianapolis and a critic of the way FCPA cases are handled.

“But when you go through the DOJ’s own allegations and add up the amount of the bribe payments and the amount those bribes caused the companies to get in business, you’re still in a situation where they come out net positive.”

Other experts say the penalties represent just a portion of the costs involved in defending and resolving an FCPA case.

Philip Urofsky, a lawyer at Shearman & Sterling and co-author of an exhaustive survey of recent FCPA developments, said he knew of no company “that approaches FCPA issues as a cost of doing business.”

The penalties, he said, come atop the costs of internal investigations, developing and implementing compliance programs, legal and accounting fees, disruption of the business, reputational harm, and hiring an independent monitor, a requirement of most FCPA settlements.

“Further, the government deliberately seeks to reward companies that self-disclose, cooperate, and self-remediate. The costs of the latter element are often very significant,” Urofsky said.

In fact, few companies take the law lightly anymore.

Wendy Wysong, an FCPA attorney with the Clifford Chance law firm, said that at virtually every conference she attends, three or four compliance officers from Siemens AG invariably show up.

There’s a reason for that.

In late 2008, Siemens agreed to pay a groundbreaking $1.6 billion in U.S. and German penalties and to retain a compliance monitor for violating the FCPA provision requiring companies to keep accurate books and records and to maintain adequate systems of internal controls.

Although it was not charged with bribery as such, the case stemmed from payments Siemens had made to officials in Argentina, Bangladesh, Greece, Iraq, Italy, Nigeria and Venezuela.

“It takes a lot of money to repair your reputation,” Wysong said.