Archive for the ‘Africa Sting’ Category

Friday Roundup

Friday, April 5th, 2013

Other items of note, add another to the list, a 6 day sentence, a notable name from the past and spot-on.  It’s all here in the Friday roundup.

Other Items of Note

Yesterday’s post highlighted comments made by former Attorney General Alberto Gonzalez at the Dow Jones / Wall Street Journal Global Compliance Symposium.  Other items of note from the event concern the Africa Sting case and the SEC’s neither admit nor deny settlement policy.

Africa Sting

The jury foreman in the second Africa Sting trial (see here for the prior post) stated that there were “enough small comments through the course of [jury] deliberations [that lead the person] to believe that [the jury's] underlying view was that the defendants had acted in good faith and the FBI/DOJ in bad faith.”

The Africa Sting cases ended (see here for the prior post) by Judge Richard Leon stating, in pertinent part, as follows.

“This appears to be the end of a long and sad chapter in the annals of white collar criminal enforcement.”

“I expressed on a number of occasions my concerns regarding the way this case had been investigated and was conducted especially vis-a-vis the handling of Mr. Bistrong.”

“I for one hope this very long, and I’m sure very expensive, ordeal will be a true learning experience for both the Department and the FBI as they regroup to investigate and prosecute FCPA cases against individuals in the future.”

Yet listening to the interview of Ronald Hosko (assistant director of the criminal investigative division of the FBI) at the Dow Jones event, one was left with the conclusion that nothing appeared to be learned.  Indeed, Hosko seemed to blame the government’s loss on Judge Leon’s evidentiary rulings and the defendants’ good lawyers.  Hosko was interviewed by Dow Jones reporter Christopher Matthews (who closely followed the Africa Sting cases) and Matthews specifically asked Hosko whether anything will change as a result of the case.  Hosko said “we will do it again – see you out there.”

Neither Admit Nor Deny

Former SEC Enforcement Director Robert Khuzami had the opportunity at the Dow Jones event to articulate a sound rationale and purpose for the SEC’s long-standing neither admit nor deny settlement policy.  (See numerous prior posts here, here, here, and here – focusing mostly on Judge Jed Rakoff’s (S.D.N.Y.) disdain of the policy. ).

Instead, Khuzami’s remarks were unconvincing.

Khuzami acknowledged that direct accountability occurs when someone is forced to admit something “on the record,” but he stated that this incremental benefit (compared to a defendant in an SEC enforcement action resolving the case by way of penalties and other relief via a neither admit nor deny settlement) presents challenges that are not worth the additional costs that come from a system that demanded such accountability.

Khuzami noted that without the settlement policy, the “SEC would get few settlements, [settlements] would happen much later in the process, [and that enforcement actions] would tie up a great deal of resources, resources that could be used for the next fraud or victim.”  Against “all those benefits,” and the defendant writing a check and reforming itself, Khuzami did not believe that “it is worth the marginal increase in accountability” to require an explicit admission.

The problem with Khuzami’s defense is the failure to recognize that such a policy insulates SEC enforcement positions from judicial scrutiny.  Indeed, the SEC explicitly acknowledged in the Bank of America enforcement action (where Judge Rakoff first expressed concerns regarding the settlement policy) that SEC settlements “do not necessarily reflect the triumph of one party’s position over the other.”

The SEC is a law enforcement agency and enforcing a law and accusing people (legal or natural) of wrongdoing should not be easy and efficiency should not be the goal.  Justice, transparency, and accountability ought to be the goals and the SEC’s neither admit nor deny settlement policy frustrates these goals.

Add Another

Add another to the list of companies subject to FCPA scrutiny.  SBM Offshore (a Netherlands-based company with ADRs traded in the U.S. and a company that provides floating production solutions to the offshore energy industry) recently issued this press release titled “Update on Internal Investigation.”  It stated, in pertinent part, as follows.

“This investigation commenced in 2012 at the request of SBM Offshore into alleged payments involving sales intermediaries in certain African countries in the period 2007 through 2011, in order to determine whether these alleged payments violated anti-corruption laws. These alleged payments came to the attention of the management board after a review of SBM Offshore’s compliance procedures in late 2011. In the course of the investigation allegations were made of improper payments in countries outside Africa but to date no conclusive proof of such allegations has been established. The investigation is being carried out by outside legal counsel and forensic accountants, with the support of the chief Governance and Compliance officer and under the oversight of the audit committee. The investigation is expected to be completed in 2013.

As the investigation is not yet concluded, SBM Offshore cannot make any definitive statements regarding the findings of the investigation. The initial feedback received to date is that there are indications that substantial payments were made, mostly through intermediaries, which appear to have been intended for government officials. Also, SBM Offshore’s new Management Board, which was appointed in the course of 2012, has found it necessary and appropriate to increase awareness of proper compliance throughout the Group up to the highest management levels.

The Company voluntarily disclosed the investigation to the Dutch Public Prosecution Service (Openbaar Ministerie) and the United States Department of Justice in 2012. The Company will update the authorities on this initial feedback from the investigation shortly. At this stage it is not possible to state anything on the outcome of the investigations, including financial or otherwise.

6-Day Sentence

Bloomberg’s David Glovin has extensively followed the Kozeny, Bourke, etc. enforcement actions.

He reports here that Clayton Lewis (a former executive at hedge fund Omega Advisors, Inc.) was sentenced to time served by U.S. District Court Judge Naomi Buchwald.  As noted in Glovin’s article, Lewis pleaded guilty in 2004 to charges that he conspired with Viktor Kozeny to pay bribes as part of a 1998 scheme to buy the state oil company in Azerbaijan. Soon after his 2003 arrest, Lewis agreed to cooperate with the DOJ and he previously served six days in jail.

A Notable Name From The Past

Roderick Hills (Chairman of the SEC in the mid-1970′s) was a notable voice in the story of the FCPA.  (See here for my article of the same name).  It is ironic (given the SEC’s current FCPA unit) that the Commission never wanted any role whatsoever in enforcing the FCPA’s anti-bribery provisions.  Indeed, Chairman Hill stated as follows during various Congressional hearings.

“The Commission does not oppose direct prohibitions against these payments, but we have previously stated that, as a matter of principle, we would prefer not to be involved even in the civil enforcement of such prohibitions. As a matter of long experience, it is our collective judgment that disclosure is a sufficient deterrent to the improper activities with which we are concerned.”

“[A]s a matter of longstanding tradition and practice, the [SEC] has been a disclosure agency. Causing questionable conduct to be revealed to the public has a deterrent effect. Consistent with our past tradition, we would rather not get into the business, however, we think get involved in prohibiting particular payments. It is a different thing entirely to try to prohibit something, to try to make a decision as to whether it is legal or illegal, or proper or improper. Under present law, if it is material, we cause its disclosure, and we need not get into the finer points of whether it is or is not legal.”

“[The SEC] would prefer not to be involved in civil enforcement of such prohibitions since they embody separate and distinct policies from those underlying the federal securities laws. The securities laws are designed primarily to insure disclosure to investors of all of the relevant facts concerning corporations which seek to raise their capital from the public at large. The [criminal payment provisions of proposed legislation], on the other hand, would impose substantive regulation on a particular aspect of corporate behavior.The Commission recognizes the congressional interest in enacting these prohibitions, but the enforcement of such provisions does not easily fit within the Commission’s mandate.”

Against this backdrop, I enjoyed reading recent comments by Hills on the FCPAmericas Blog (see here).  Hills recently stated as follows.

“My view at the time was that the problem of bribery that we had uncovered had been dealt with and I did not support the passage of the Foreign Corrupt Practice Act. I was concerned then that broad criminalization of “questionable payments” to foreign officials would adversely affect the incentives for transparency that we had created. Nonetheless, the FCPA was passed and it has been properly amended to reduce the possibility that undue criminal actions will be brought.  It is important to remember that it was the ability of the SEC to cause disclosure that brought the scope of worldwide corporate bribery to light. What began in the 1970’s with the SEC enforcement efforts is now a worldwide crusade against the use of bribes to secure business. Today I accept that the FCPA has had, on balance, a positive effect on the reduction of bribery and that similar laws in other countries can have a similar effect. However, criminalization alone is not a useful policy. By itself it is an incentive to conceal. Without effective independent auditing, fair enforcement of FCPA type legislation is unlikely. Also, I believe that in the United States and elsewhere, prosecutorial discretion is essential if we are serious about reducing the corruption. Payments that are made in response to extortion demands or payments that are made by lower level corporate officials contrary to the policies of their employer should surely be treated differently than money crassly offered to buy corrupt official action. In short, as other countries are following the United States’ lead they need to understand that the criminalization of corporate bribery is not enough. If a country does not have effective means of causing broad transparency with effective auditing and independent oversight, FCPA type laws make it too easy to use improper payments as a political weapon.”

Spot-On

In a recent Q&A on Law360, Haywood Gilliam Jr. (Covington & Burling), stated as follows.

“Q: What aspects of your practice area are in need of reform and why?

A: Foreign Corrupt Practices Act enforcement stands out as an area in need of further reform. Over the past several years, FCPA enforcement has been characterized by the U.S. Department of Justice and U.S. Securities and Exchange Commission advancing aggressive enforcement theories, but there have been limited opportunities for courts to scrutinize those theories. Most FCPA enforcement cases end in negotiated resolutions such as deferred prosecution or nonprosecution agreements. In that context, regulators often insist that the settling company or individual accept the government’s expansive theories as a condition of resolving the case.  For example, the DOJ has extracted penalties from non-U.S. based, non-U.S. traded companies not covered under the four corners of the statute by asserting broad theories such as aiding and abetting or conspiracy — even when the foreign entity has not taken any action in the U.S. As a practical matter, that could be a hard case to prove at trial — but the government almost never has to.  The result of this trend has been to enshrine the government’s aggressive enforcement positions as quasi-precedent: The law means what the DOJ and SEC say it means, and defendants (especially publicly traded companies) seldom have a realistic opportunity to push back in court, given the financial and practical costs of fighting a contested enforcement action. Relatively recently, district courts have begun to weigh in on these theories, which is a positive development, but there still is a dearth of FCPA case law as compared to other areas of criminal law.  This absence of settled law makes it challenging for companies to decide how to handle thorny FCPA compliance issues. For example, companies routinely face a difficult choice in deciding whether to self-report potential violations to the government, as opposed to thoroughly investigating and remediating the issues internally. While regulators insist that they will give “meaningful credit” to companies that self-report, the tangible benefits of doing so are far from clear. The recent FCPA resource guide issued by the DOJ and SEC says that the agencies place a “high premium” on self-reporting, but does not give concrete guidance as to how the government weighs self-reporting in deciding whether to charge a case, as opposed to offering a deferred prosecution or nonprosecution agreement, or declining the case outright. While the resource guide is a start, companies and their counsel would benefit from more specific guidance when they are weighing the potential, but uncertain, benefits of disclosure against the cost and distraction that can result from voluntarily handing the government a case that otherwise might not have come to its attention.”

Gilliam’s spot-on comments would make for good conversation with his firm’s new Vice-Chair, former Assistant Attorney General Lanny Breuer.

In a recent Q&A on Law360, Mary Spearing (Baker Botts) stated as follows.

“Q: What aspects of your practice area are in need of reform and why?

A: It would be good for the practice if there was more litigation surrounding the scope and breadth of the statutes as applied and the government were put to the test. Currently, so much is being defined in settlements reached with the government. More frequent trials would render more judicial oversight of the government’s readings of the scope of the statutes’ reach.”

*****

A good weekend to all.

Looking Back On February 21st

Thursday, February 21st, 2013

February 21, 2011

Two years ago today, for the first time in FCPA history a motion to dismiss was filed, with the benefit of a detailed and complete overview of the FCPA’s extensive legislative history on the “foreign official” element (see here for my declaration) ,challenging the DOJ’s interpretation that employees of alleged state-owned or state-controlled enterprises are “foreign officials” under the FCPA.

The Carson ”foreign official” challenge lead to other “foreign official” challenges in the Lindsey Manufacturing and John O’Shea matters, as well as the 11th Circuit appeal pending in the Joel Esquenazi and Carlos Rodriguez matter – the first time in FCPA history that “foreign official” will be directly before an appeals court.  You of course are entitled to your own opinion as to the end results in the Carson, Lindsey Manufacturing and O’Shea matters, including whether “foreign official” impacted the results.  (See prior posts here and here).

It is interesting to note that since the Carson ”foreign official” challenge two years ago, there has been no new case in which an individual has been charged with an FCPA anti-bribery violation based on the theory that SOE employees are “foreign officials.”

February 21, 2012

One year ago today, the DOJ moved to dismiss the Africa Sting cases after suffering several losses in the first two sets of trials.   (See here for the prior post).  The dismissal occurred shortly after the jury foreman in the second trial wrote this guest post published on FCPA Professor.

In granting the DOJ’s motion, Judge Richard Leon stated as follows.

“This appears to be the end of a long and sad chapter in the annals of white collar criminal enforcement.  Unlike takedown day in Las Vegas, however, there will be no front page story in the New York Times or the Post for that matter tomorrow reflecting the government’s decision today to move to dismiss the charges against the remaining defendants in this case.  Funny isn’t it what sells newspapers.

The good news, however, is that for these defendants, agents, prosecutors, defense counsel and the Court we can get on with our professional and personal lives without the constant strain and burden of three to four more eight week trials hanging over our heads.

I for one hope this very long, and I’m sure very expensive, ordeal will be a true learning experience for both the Department and the FBI as they regroup to investigate and prosecute FCPA cases against individuals in the future.

Two years ago, at the very outset of this case I expressed more than my fair share of concerns on the record regarding the way this case has been charged and was being prosecuted.  Later, during the two trials that I presided over I specifically commented again on the record regarding the government’s very, very aggressive conspiracy theory that was pushing its already generous elasticity to its outer limits.  Of course, in the second trial that elastic snapped in the absence of the necessary evidence to sustain it.

In addition, in that same trial, I expressed on a number of occasions my concerns regarding the way this case had been investigated and was conducted especially vis-a-vis the handling of Mr. Bistrong.  I even had an occasion, sadly, to chastise the government in a situation where the government’s handling of the discovery process constituted sharp practices that have no place in a federal courtroom.

Notwithstanding all of this water over the dam, and there has been a lot of water, I’m happy to see and I applaud the Department for having the wisdom and courage of its convictions to face up to the limitations of its case as revealed in the past 26 weeks of trial and the courage to do the right thing under the circumstances.

Having served at the higher levels of the Department, I know that that was not an easy decision.  They never are, when so much has been invested, and the agents and the prosecutors are so convinced of the righteousness of their position.  I for one however am confident this will be in the end a positive, if not painful, lesson that results in better prosecutions of individuals in the future under the FCPA.  As for the defendants, I hope the healing process is a swift one and that they get back to their normal lives in the very near future.

Finally, I would be remiss if I did not comment on the tireless and spirited effort by the defense counsel from all over the country who came here to try these very lengthy and complicated cases under difficult circumstances and some even pro bono.  Their hard work and effective advocacy are a testament to how strong our criminal defense bar is nationwide.

As so without further adieu I grant the government’s motion to dismiss.  The defendants are excused.”

With Judge Leon’s words, the world changed for twenty-two individuals and their families.  Yet the wounds inflicted and damage done to their real reputations and real careers will never fully heal.

Friday Roundup

Friday, December 28th, 2012

Sleepless nights, briefings complete, Africa Sting lawyers recognized, a leader of the FCPA bar on voluntary disclosure, small bribes in Russia, and satire.  It’s all here in the Friday roundup.

Sleepless Nights

According to this recent article by Ashby Jones of the Wall Street Journal, FCPA enforcement is one of “three concerns costing big-company lawyers the most sleep.”

Briefings Complete

One of the bigger FCPA stories of 2012, and one that will reach into 2013 as well, are challenges by foreign defendants in two separate SEC Foreign Corrupt Practices Act enforcement actions.

Prior posts here and here have discussed the briefing in SEC v. Herbert Steffen (a former Siemens executives).

Prior posts here and here have discussed the briefing in SEC v. Elek Straub, Andras Balogh and Tamas Morvai (former Magyar Telecom executives).

Defendants in both actions recently filed reply briefs.

Steffen (here) argues in summary fashion, as follows.

“In its opposition, the SEC asks this Court to assert personal jurisdiction over a defendant: (1) who is a German citizen and resident; (2) who conducted no business in the United States; (3) whose only alleged U.S. “contact” resulted from the unilateral actions of another party; (4) whose allegedly improper conduct occurred entirely outside the United States; and (5) whose conduct was not aimed at and caused no injury in the United States. This request should be rejected. Because the SEC has not met its burden to plead legally sufficient allegations establishing personal jurisdiction over Mr. Steffen, its complaint must be dismissed. In addition, the SEC has failed to explain how its action against Mr. Steffen is not barred by the applicable statute of limitations, 28 U.S.C. § 2462. In addition, although the SEC acknowledges that the purpose of the statutory tolling provision is to ensure that a defendant does not evade U.S. prosecution by “fleeing to another country” where he is “difficult to locate and serve,” it ignores that Mr. Steffen did nothing to evade the SEC, and that the SEC was able to locate him and obtain an order to serve him by publication in Germany, the country of his nationality and residency. Under these circumstances, accepting the SEC’s argument would mean that claims against foreign-national defendants who reside abroad are perpetual, not subject to any time limitations. Finally, even if this Court were to accept a continuing violation theory for securities violations, it does not help the SEC’s case because Mr. Steffen did not take any unlawful acts within the limitations period. For all of these reasons, the motion to dismiss should be granted with prejudice.”

Straub, Balogh and Morvai’s reply brief (here) addresses many of the same jurisdictional and statue of limitations issues at issue in the Steffen challenge.  In addition, the former Magyar Telekom executive’s brief argues that: (1) the pertinent SEC filing the SEC relies upon in making certain allegations was not even filed with the Commission, (2) the SEC has failed to allege corrupt use of an instrumentality of interstate commerce by the defendants; and (3) the SEC has failed to allege the identity of the alleged foreign bribery recipients.

With both the DOJ and SEC bringing more FCPA enforcement actions against foreign actors – for instance in 2011 90% of DOJ individual prosecutions were against foreign nationals and 100% of SEC individual prosecutions were against foreign nationals – the challenges are noteworthy.  Particularly so because Judge Leon, in the Africa Sting case, rejected the DOJ’s jurisdictional theory against U.K. national Pankesh Patel (see here for the prior post) in what was believed to be the first instance of judicial scrutiny concerning FCPA jurisdiction against foreign nationals.

Africa Sting Lawyers Recognized

Two Africa Sting defense lawyers were recently recognized by Law360 as White Collar MVPs.

Michael Madigan (Orrick Herrington & Sutcliffe) represented John Gregory Godsey, who was found not guilty by the jury.  (See here for the prior post).  Commenting on the Africa Sting cases, Madigan stated as follows.  “This case stands out as a significant one. There are certain cases that come along that alter the system of justice and I think this is really one of them.”

In the Law360 article, Madigan was specifically cited for his leadership in leading defense discovery efforts which resulted in the FBI having to turn over its text messages with Richard Bistrong.   According to the article, the Africa Sting case was the ”first major criminal trial to achieve court-ordered production in discovery of thousands of text messages between FBI agents of the government’s key cooperating informant.”  As noted in the article – “The texts showed FBI agents joking with the informant that ‘you could sell snow to an Eskimo’ — a notion that undercut allegations that Godsey and other defendants were willing participants in a bribery scheme. The texts also revealed FBI agents wondering who would play them when Hollywood made a movie about the investigation.”

Eric Dubelier (Reed Smith) was also recognized for his work on the Africa Sting case, specifically his pro bono representation of R. Patrick Caldwell, a former secret service agent and Vietnam veteran, who was also found not guilty by the jury.

In the Law360 article, Dubelier stated as follows regarding his representation of Caldwell.  “Having spent time in the government myself and knowing people like Pat, I thought, You know what? If anyone deserves to represented, this guy does.  Pat really had held only two jobs his entire life: the first as a US soldier in combat, the second as a U.S. Secret Service agent.  His whole career had been in service to the U.S., but it had earned him nothing close to the resources he needed to defend himself against this prosecution. Providing Pat with the defense he deserved was simply the right thing to do.”

As noted by the Law360 article, “After the acquittals — and the mistrials of three additional defendants — and after a concerned jury foreman penned an open letter expressing deep skepticism about the case, the government ultimately dropped the case against the remaining defendants including those awaiting trial and three who already had pled guilty.”

See here for the February 6, 2012 guest post on FCPA Professor by the Africa Sting jury foreman.

Voluntary Disclosure

Willkie Farr & Gallagher FCPA attorneys Martin Weinstein, Robert Meyer and Jeffrey Clark recently published a new book, “The Foreign Corrupt Practices Act:  Compliance, Investigations and Enforcement.”

In this recent Metropolitian Corporate Counsel interview, the authors answer various questions, including the following.

Q: Do you advise your clients to self-report?

Weinstein: We are very cautious about self-reporting to the government. We certainly sometimes advise companies to self-report, but in general we believe that most companies can handle their compliance problems properly without disclosure or government involvement and can appropriately remediate compliance issues and be prepared to respond should the government ever inquire.  Companies across industries fix compliance problems – for instance, in a target company that they are acquiring or have just acquired – every day, without the assistance of the U.S. government.  This is good all around: it allows the acquiring company to proceed with the acquisition, raises the standard of compliance in the acquired company, and permits the government to deploy its enforcement resources where they are needed most. Our book clearly sets forth how to proceed down such a path. That said, the book also discusses the kinds of circumstances in which self-disclosure may be necessary or advisable and helps readers navigate through that fact-specific, critical strategic decision.

Small Bribes In Russia

Relevant to the question I often ask – do FCPA violations occur because companies have bribery as a business strategy or because companies are subject to difficult and opaque business conditions abroad  – is this recent Washington Post article concerning the prevalence of small bribes in Russia.

FCPA Satire

If you like satire, you must check out this post by James McGrath at his Internal Investigations blog.

*****

A good weekend to all.

Richard Bistrong Reports To Prison

Monday, October 1st, 2012

Today’s post is from Paul Calli (Carlton Fields – here).  Calli represented Stephen Giordanella in the Africa Sting case and as noted in this prior post Giordanella was completley exonerated.

*****

Richard Bistrong Reports To Prison

Paul Calli

This Johnny Cash song is an appropriate background song for this post.

Following a lifetime of lying , cheating and stealing, Friday night it all caught up to Richard Bistrong and he turned himself in to serve his 18 month prison sentence at the United States Penitentiary in Lewisburg, PA.   The Federal Bureau of Prisons makes that information available to the public here  and calculates his release date as January 15, 2014.

Bistrong, as you know from previous FCPA Professor posts, as well as articles in the New York Times and Washington Post, became a member of the team with the FBI and the FCPA unit at Main Justice – then led by Hank Bond Walther – to concoct what will perhaps go down as the most ill conceived and greatest failure ever in the enforcement of U.S. criminal law: the “Africa Sting” case.

Bistrong’s lifetime of drug transactions, bribery, tax evasion, prostitution crimes, predilection for “hard core pornography” (you can’t truly appreciate the impact of that phrase until you hear Mike Madigan from Orrick articulate it to a jury), is second to none and turned out to be merely a lead-in to his staggering moral transgressions and self-inflicted personal failures, all of which came out during the trial or in trial preparation.

Against this backdrop, it was not without drama when sometime in November 2011 during the second trial , after two years of pretrial litigation and DOJ’s unsuccessful prosecution that resulted in no convictions and a hung jury in the first Africa Sting trial (during which the government elected to not call its star witness), Bistrong entered the court room to begin a month of testimony.  It really was “all eyes” in the court room on the person about whom everyone had heard so much, and you could hear a pin drop.  After all, in a text message later introduced into evidence Bistrong wrote to Chris Farvour, his FBI handler, “tell Hank (Bond Walther) that I’m an ace on cross exam!”

I remember that after a real short time it became apparent that Bistrong was the most narcissistic person I had ever heard.  It wasn’t just that he could not tell the truth – I think everyone expected that eventuality – it was that he seemed to think he was above criticism and above everyone else.  He was smug and self-righteous.  He didn’t seem contrite at all.  He wanted to argue.  He gave the impression that he felt he was smarter than everyone else, especially than the lawyers cross examining him.  He gave a false portrayal of himself on the witness stand, and tried to get the jury to believe he was someone they could trust.  He tried to make forced eye contact with the jurors, and it was uncomfortable to watch him do so.  Heck, why wouldn’t he think he could pull off that manipulation one last time?  He had been doing it his whole life, including recently.  But it was perplexing, because Bistrong’s words, tone and demeanor recorded on tape and in text messages with his BFF’s in the FBI could not be reconciled with the Bistrong that he tried to sell while on the witness stand.  After a while many of the jurors turned away from him and couldn’t’ look at him even as he testified.  Those who looked at him to me seemed to be interested in him more as a psychology case study than as someone whose testimony they could ever trust.  As the jury foreperson wrote in his FCPA Professor guest post (here), “…more than one juror voiced concern that it would be unjust for the defendants in this case to be convicted when the government relied so heavily on Mr. Bistrong who freely admitted on the stand more illegal acts than the entire group of defendants was accused of…” and “the jury with near unanimity found nearly all of the prosecution witnesses to be evasive and combative.”  In the end, Bistrong’s venality and greed got the best of him.

I can’t imagine a more talented, committed, and passionate group of defense attorneys than the ones with whom I had the honor of trying the Africa Sting case.  It was a remarkable experience to watch them shine throughout, and vindicate their clients.  Notwithstanding all that legal talent, however, the most concise, poignant and important summary of this case came from the bench.   As United States District Judge Richard J. Leon wisely cautioned: “We certainly don’t want the moral of the story to be: Steal big. Violate the law big. Cooperate big.  Probation.”

I hope that everyone on the Bistrong team understands that.

Reading Bistrong’s recent comments in a Forbes article (here), it is clear Bistrong maintains the belief that he is a “victim” and “fallen hero” who did something noble.  In reality, nothing could be farther from the truth. I hope that prison is the place where Richard Bistrong is able to finally right his ship, come clean with himself and learns how to be truthful, and that he comes out prepared and able to be a productive member of society, during his three years on federal supervised release and beyond.

Friday Roundup

Friday, August 24th, 2012

The sting may be over but it effects are not, Orthofix information unsealed, checking in on Wal-Mart, a pipeline report, a safe assumption, and the alternative reality.   It’s all here in the Friday roundup.

Stung By The Sting

The manufactured Africa Sting case may be over, but it effects are still being felt.

Allied Defense Group (“ADG”) employed Mark Frederick Morales, one of the individuals charged in the case.  The company stated in its recent quarterly filing (here) as follows.

“In February and March, 2012, the DOJ dismissed charges against all individuals indicted in the FCPA sting operation, including the former employee of MECAR USA. Since this time, the Company’s FCPA counsel has had several discussions with the DOJ and SEC regarding the agencies’ respective inquiries. Based upon these discussions, it appears likely that resolution of these inquiries will involve a payment by the Company to at least one of these government agencies in connection with at least one transaction involving the former employee of Mecar USA. At this point, the amount of this payment is undeterminable.”

As noted in this previous post, in January 2010, ADG agreed to be acquired by Chemring Group PLC.

Another publicly traded company that employed an Africa Sting defendant, Amaro Goncalves, is Smith & Wesson.  The company disclosed in its most recent quarterly filing (here) as follows.

“On February 21, 2012, the DOJ filed a motion to dismiss with prejudice the indictments of the remaining defendants who are pending trial, including our former Vice President-Sales, International & U.S. Law Enforcement. On February 24, 2012, the district court granted the motion to dismiss. We cannot predict, however, when the investigation will be completed or its final outcome. There could be additional indictments of our company, our officers, or our employees. If the DOJ determines that we violated FCPA laws, we may face sanctions, including significant civil and criminal penalties. In addition, we could be prevented from bidding on domestic military and government contracts and could risk debarment by the U.S. Department of State. We also face increased legal expenses and could see an increase in the cost of doing international business. We could also see private civil litigation arising as a result of the outcome of the investigation. In addition, responding to the investigation may divert the time and attention of our management from normal business operations. Regardless of the outcome of the investigation, the publicity surrounding the investigation and the potential risks associated with the investigation could negatively impact the perception of our company by investors, customers, and others.”

Even though the individual Africa Sting cases are over, the case provided a point of entry into several companies and an entire industry and its effects are still being felt as demonstrated by the above disclosures.

Orthofix

This previous post discussed the July enforcement action against Orthofix International.  As noted in the post, the specifics of the DOJ’s allegations were not known as the information against Orthofix was filed under seal.  The information (here) was recently unsealed.  In summary fashion, the DOJ alleged as follows under the heading “corrupt conduct.”  “From [2003 through March 2010], with the knowledge of Orthofix Executive A [a citizen of Peru and legal permanent resident in the U.S. who was a senior manager of Orthofix Inc. (an indirectly wholly owned subsidiary) and responsible for sales operations in Latin America], Promeca [an entity incorporated and headquartered in Mexico and an indirectly wholly owned subsidiary of Orthofix International] and its employees paid approximately $300,000 to Mexican officials, in return for agreements with IMSS and its hospitals to purchase millions of dollars in Orthofix International products.”

IMSS is a social service agency of the Mexican government that provided public services to Mexican workers and their families and the Mexican Officials identified in the information are as follows.

Mexican Official 1 – a deputy administrator of Magdelena de las Salinas (a hospital in Mexico City that IMSS owned and controlled)

Mexican Official 2 – the purchasing director of Magdelena de las Salinas

Mexican Official 3  – the purchasing director of Lomas Verdes (a hospital in the State of Mexico that IMSS owned and controlled)

Mexican Official 4 – a sub-director of IMSS

According to the information, “Executive A knew of the payments and things of value [provided to the Mexican Officials] but failed to stop the scheme or report the scheme to Orthofix Interntional or Orthofix’s Inc.’s compliance department.”

Under the heading “Internal Controls” the information alleges, among other things, as follows.  “Orthofix International,which grew its direct distribution footprint in part by purchasing existing companies, often in high-risk markets, failed to engage in any serious form of corruption-related diligence before it purchased Promeca.  Although Orthofix International promulgated its own anti-corruption policy, that policy was neither translated into Spanish nor implemented at Promeca.  Orthofix International failed to provide any FCPA-related traning to many of its personnel, including Executive A.  Orthofix also failed to train Promeca personnel for years on the FCPA, to test regularly or audit particular transactions, or to ensure that subsidiary maintained controls sufficient to detect, deter or prevent illicit payments to government officials.”

The information charges one count of violating the FCPA’s internal control provisions.

Checking In On Wal-Mart

During the media feeding frenzy after the New York Times Wal-Mart article (see here for the prior post), I had the pleasure to appear on Eliot Spitzer’s Viewpoint program on Current TV.  At the end of the segment, after the substantive issues were discussed, Spitzer offered that he has several contacts in the FCPA bar and that, regardless of the substantive issues involved in Wal-Mart’s FCPA scrutiny or the ultimate outcome, lots of lawyers were poised to make lots of money.

Spitzer of course was right.

During its second quarter earnings call (see here for the transcript) Wal-Mart executives stated as follows.   ”Within core corporate, we incurred approximately $34 million in expenses related to third-party advisors reviewing matters involving the Foreign Corrupt Practices Act and we expect these expenses to continue through the rest of the year.”  Later in the call, the following was said.  “We also expect to incur approximately $35 to $40 million in expenses for the review of matters relating to the Foreign Corrupt Practices Act during each of the remaining quarters for this fiscal year.”

In other news, on the civil litigation front, as noted in this Reuters article “an Indiana union pension fund that owns shares in Wal-Mart Stores Inc has sued the company to gain access to thousands of internal documents related to allegations that a Wal-Mart subsidiary bribed Mexican government officials.”  According to the report, the lawsuit, filed in Delaware’s Chancery Court, alleges the “company had made a ‘woefully deficient’ production of documents following an earlier out-of-court demand and that hat documents were produced were ‘so heavily redacted,’ or blacked out, they were nearly worthless.”

Turning to Capital Hill, several prior posts have chronicled efforts by Representative Elijah Cummings and Henry Waxman to conduct a shadow investigation of Wal-Mart in the aftermath of the New York Times article (see here for the previous post).  As indicated in this recent press release and this recent letter the lawmakers are growing impatient.  In pertinent part, the letter to Wal-Mart CEO Michael Duke stated as follows.

“We are writing to give you a final opportunity to respond to our requests for information about allegations that your company violated the Foreign Corrupt Practices Act. Although you have stated on multiple occasions that you intend to cooperate with our investigation, you have failed to provide the documents we requested, and you continue to deny us access to key witnesses. Your actions are preventing us from assessing the thoroughness of your internal investigation and from identifying potential remedial actions.

During the course of our investigation, we have learned that Wal-Mart’s concerns about potential violations of the Foreign Corrupt Practices Act are not limited to operations in Mexico, but are global in nature. Your outside counsel informed us that, before allegations of bribery in Mexico became public, Wal-Mart retained attorneys to conduct a broad review of the company’s anti-corruption policies. This review identified five “first tier” countries “where risk was the greatest.” Wal-Mart then conducted a worldwide assessment of the company’s anti-corruption policies, culminating in a series of recommendations and policy changes based on those findings.

In addition, we have obtained internal company documents, including internal audit reports, from other sources suggesting that Wal-Mart may have had compliance issues relating not only to bribery, but also to “questionable financial behavior” including tax evasion and money laundering in Mexico.”

Pipeline Report

Add NCR Corporation and Expro International to the list of companies under FCPA scrutiny.

NCR

Global technology company NCR Corp. recently disclosed here as follows.

“NCR has received anonymous allegations from a purported whistleblower regarding certain aspects of the Company’s business practices in China, the Middle East and Africa, including allegations which, if true, might constitute violations of the Foreign Corrupt Practices Act.  NCR has certain concerns about the motivation of the purported whistleblower and the accuracy of the allegations it received, some of which appear to be untrue.  NCR takes all allegations of this sort seriously and promptly retained experienced outside counsel and began an internal investigation that is ongoing. NCR does not comment on ongoing internal investigations.  Certain of the allegations relate to NCR’s business in Syria. NCR has ceased operations in Syria, which were commercially insignificant, notified the U.S. Treasury Department, Office of Foreign Assets Control (OFAC) of potential apparent violations and is taking other measures consistent with OFAC guidelines.”
Based on the disclosure, an analyst downgraded NCR stock (see here) causing shares to drop approximately 10%.
Expro
As reported in this Wall Street Journal Corruption Currents post, Expro International (an oil field management company owned by a Goldman Sachs-backed private equity consortium) “is re-investigating claims that its employees paid bribes in Kazakhstan.”  The report states as follows.  “Expro International and the consortium, Umbrellastream, received allegations from an anonymous tipster in May that two of Expro’s former operations coordinators in Western Kazakhstan oversaw and approved bribes to customs officials there from 2006 until summer 2009, according to an email reviewed by Corruption Currents. The alleged bribes were paid to clear Expro’s equipment through customs to avoid costly delays, the tipster said.  The allegations have sparked an internal investigation by Expro’s lawyers at Gibson, Dunn & Crutcher LLP into the claims, according to another email. But it appears the investigation is not the first time Expro has scrutinized its operations in Kazakhstan.”
Add a few, but take one off.
As noted in this recent Friday roundup, Academi, Inc., formerly known as Xe Services, formerly known as Blackwater recently resolved a non-FCPA case and the DPA specifically stated that the agreement “does not apply to the Foreign Corrupt Practices Act investigation independently under investigation by the DOJ.”  As noted in this previous post, Blackwater has been under investigation for FCPA violations in Iraq and as noted in this previous post, its FCPA scrutiny in Iraq inspired Representative Peter Welch to introduce H.R. 5366, the “Overseas Contractor Reform Act,” an impotent debarment bill that passed the House in September 2010 (see here).
However, as on-line news agency Main Justice reports here, reference to the FCPA investigation in the recent DPA appears to have been a drafting error.  Citing a July 19th letter to the company, Main Justice reports that the DOJ has closed its “foreign bribery inquiry” of the company.  Main Justice cites the following portion of the declination letter.  “[The DOJ has closed its inquiry] based on a number of factors, including but not limited to, the investigation undertaken by Academi and the steps taken by the company to enhance its anti-corruption compliance program.”
A Safe Assumption

This previous post regarding the recent Pfizer enforcement action raised the following question(s).

Does anyone truly believe that the only reason Chinese doctors prescribed Pfizer products was because under the “point programs” the physician would receive a tea set?  Does anyone truly believe that the only reason Czech doctors prescribed Pfizer products was because the company sponsored educational weekend took place at an Austrian ski resort?  Does anyone truly believe that the only reason Pakistani doctors offered Wyeth nutritional products to new mothers was because the company provided office equipment to the physicians?

The questions were asked in the context of disgorgement remedies, but can also be asked in the context of product safety.  One can safely assume that if the enforcement agencies had any evidence to suggest that the products at issue jeopardized public safety, the enforcement agencies would have alleged such facts, as they occasionally do in FCPA enforcement actions (see Innospec for instance).

The absence of such allegations make this recent article by Online Pharmacy Safety foolishly speculative.  The article states as follows.

“[The conduct at issue in the enforcement action] puts the safety of consumers at risk.   If large companies are able to bribe their way to getting more business, and anticipate government officials to turn a blind eye, the wrong products could be getting into the hands of consumers worldwide.  The Pfizer products approved by foreign governments and prescribed by doctors may not have been the best product available, which could endanger consumers. Doctors put selfishness at the expense of patients, and the company was putting profits ahead of its public safety.”

Alternative Reality

Harvey Silverglate (author of Three Felonies a Day: How the Feds Target the Innocent) hit the ball out of the park with this recent Wall Street Jouranl op-ed.  Referring to the recent Gibson Guitar Lacey Act enforcement action and how the resolution documents muzzle the company (as is typical in FCPA NPAs and DPAs), Silverglate wrote as follows.

“Through these and myriad other techniques, federal investigator and prosecutors create an alternative reality that favors their own institutional interests, regardless of the truth or of justce.  All citizens and companies become subject to the Justice Department’s essentially unfettered power.  Remedying this problem cannot be left to the victims of this governmental extortion, because their risks are too high if they fight; nor will their lawyers likely blow the whistle, since the bar makes a tidy living by playing the game.  It is up to the rest of civil society to let the Justice Department emperor know that we see he is not wearing clothes.”

*****

A good weekend to all.