By Alexandra Schieferer

On October 16, 2024, defense giant Raytheon Company agreed to pay over $950 million to settle allegations of Foreign Corrupt Practices Act (FCPA) violations, defective pricing, and export control breaches, marking one of the largest joint settlements in recent years. This enforcement action illustrates how corruption investigations can spiral into cascading contractual disputes, offering vital lessons for multinational enterprises (MNEs) seeking to strengthen their arbitration strategies.

The Raytheon FCPA Enforcement Case

Raytheon’s October 2024 FCPA settlement arose from misconduct related to operations in Qatar and the United States between 2011 and 2017. In its criminal proceeding against Raytheon, the U.S. Department of Justice (DOJ) asserted that Raytheon bribed Qatari military officials to win Gulf Cooperation Council (GCC) defense contracts while defrauding the U.S. Department of Defense (DOD). According to the U.S. Securities and Exchange Commission (SEC), Raytheon funneled nearly $2 million in bribes through sham subcontracts to secure lucrative Qatari defense deals. In addition to these bribes, Raytheon also paid more than $30 million to a Qatari agent who is a relative of the Qatari Emir and who, despite being retained as Raytheon’s representative in Qatar, had no prior background in military defense contracting. Despite repeated internal warnings from employees about corruption risks, Raytheon’s management ignored red flags and failed to document the agent’s services properly. These bribery offenses coincided with defective pricing schemes, for which Raytheon agreed to pay $111 million in victim compensation as part of a deferred prosecution agreement with the DOJ.

Beyond its immense financial impact, the enforcement action also inflicted considerable reputational damage on Raytheon. The settlement – which received extensive coverage in both industry and mainstream media – publicly branded Raytheon as a compliance failure and required the company to operate under the oversight of a three-year independent compliance monitor. Further, a DOJ official commented that Raytheon’s misconduct undermined confidence in government contracting and severely damaged public trust. Therefore, Raytheon’s case now serves as a cautionary tale for MNEs about how systemic compliance failures can escalate into nearly $1 billion in penalties, regulatory oversight, and lasting reputational scars.

Arbitration Implications of FCPA Violations: Compliance is Key

FCPA enforcement creates immediate arbitration risks that extend far beyond government-imposed penalties. When bribery investigations emerge, companies are often required by domestic law to terminate contracts with potentially corrupt counterparties or face criminal exposure themselves. However, contract termination based on corruption allegations frequently leads to subsequent arbitration, as counterparties challenge the termination’s legitimacy or seek compensation for work already performed. This dynamic creates a tension between criminal law obligations and contractual commitments, forcing companies to manage both regulatory and commercial risks simultaneously. Furthermore, defense contractors face heightened corruption risks because of high-value contracts, national security sensitivities, and close government interaction, making proactive risk assessment and compliance design essential. Thus, when corruption allegations arise in arbitration, a well-documented compliance program can serve as crucial evidentiary protection. Codes of ethics, audit reports, and internal review mechanisms can demonstrate good faith and mitigate liability. Further, arbitrators increasingly view these programs as evidence of due diligence, distinguishing companies acting responsibly from those engaged in willful misconduct.

Raytheon’s case, by contrast, illustrates the cost of delayed cooperation with the DOJ and failure to self-report FCPA violations prior to government investigation. The Company’s hesitation to promptly disclose these violations and fully cooperate with government investigators deprived it of potential credit for proactive disclosure – credit that might have reduced penalties and strengthened its position in follow-up disputes. The key takeaway for MNEs – particularly large defense contractors operating in high-risk jurisdictions – is straightforward: integrated compliance diligence is non-negotiable. MNEs should implement comprehensive vetting of agents and intermediaries, deploy data analytics for third-party monitoring, and require management-level approval for all intermediary contracts worldwide.

“Ultimately, Raytheon’s story serves as a reminder that the intersection of FCPA compliance and international arbitration demands proactive, preventative planning.”

Alexandra Schieferer

Contract Drafting for MNEs and Arbitration Clause Innovation

The Raytheon enforcement action also highlights the importance of proactive contract design in mitigating corruption-related risks before disputes arise. MNEs can strengthen their legal resilience by incorporating anti-corruption warranties directly into their contracts, with explicit provisions detailing the consequences of FCPA violations. In addition, contracts should employ broad dispute resolution language in their arbitration clauses, such as “arising in connection with,” rather than the narrower “arising under,” to keep corruption disputes within arbitral jurisdiction. This phrasing can provide corruption-linked termination disputes extra protection from public court proceedings. Furthermore, parties should draft clauses establishing investigatory protocols for situations where corruption allegations surface – such as procedures for forensic audits, document production, and temporary suspensions pending investigation. One practical model is the International Chamber of Commerce’s (ICC) anti-corruption clause, which provides a voluntary framework adaptable to different industries and risk profiles.

Takeaways for Global Corporations

The Raytheon settlement delivers three powerful lessons for MNEs managing the current regulatory and dispute resolution landscape. First, compliance is far more than regulatory housekeeping. Rather, it is a form of strategic risk management that directly shapes arbitration outcomes. Therefore, MNEs operating in high-risk industries should go beyond surface-level compliance by implementing comprehensive vetting of agents and intermediaries, deploying data analytics for continuous third-party monitoring, and maintaining forensic-ready documentation that can withstand scrutiny in both government investigations and arbitration proceedings.

Second, arbitration clauses should be forward-looking, anticipating corruption-related disputes before they arise. Effective clauses define a broad jurisdictional scope, include clear procedures for resolving disputes tied to compliance failures, and outline mechanisms for interim relief when contracts are terminated or suspended amid corruption allegations.

Third, companies must recognize that FCPA exposure extends well beyond government fines – it reaches into the commercial arbitration arena, where compliance failures can become litigation vulnerabilities. Integrating compliance into a company’s overall dispute resolution strategy can therefore yield substantial advantages: reduced litigation risk, stronger arbitral positioning, and greater enforceability of favorable awards.

Ultimately, Raytheon’s story serves as a reminder that the intersection of FCPA compliance and international arbitration demands proactive, preventative planning. It shows that without such planning, MNE’s arbitration vulnerabilities can crystallize by the time enforcement actions are underway. Early, strategic compliance is the most effective defense against these vulnerabilities.