Archive for the ‘Africa Sting’ Category

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.

A Final Embarassing Setback For The DOJ Related To The Africa Sting Cases

Wednesday, August 1st, 2012

Yesterday, the DOJ was dealt a final embarrassing setback in connection with the Africa Sting cases as Judge Leon rejected the DOJ’s recommendation of no jail time for Richard Bistrong and sentenced the conductor of the manufactured sting to 18 months in prison followed by three years of supervised release.  (For more on the Africa Sting case, see here, as well as numerous prior posts under the subject matter heading Africa Sting).

Bistrong, of course, was not charged in connection with the Africa Sting case.   As noted in this prior post, in February 2009 he pleaded guilty to real-world conduct including conspiring with others: (i) to obtain for his employer [Armor Holdings] United Nations body armor contracts (valued at $6 million) by causing his employer to pay $200,000 in commissions to an agent while knowing that the agent would pass along a portion of that money to a United Nations procurement officer to cause the officer to award the contracts; (ii) to obtain for his employer, a $2.4 million pepper spray contract with the National Police Services Agency of the Netherlands by paying a Dutch agent approximately $15,000 while knowing that the agent would pass along some of that money to a procurement officer with the Police Services Agency to influence the contract; and (iii) to obtain for his employer (although it was never obtained), a contract to sell fingerprint ink pads to the Independent National Elections Commission of Nigeria by making kickback payments to a commission official indirectly through an intermediary company.

In this letter to Judge Leon, Bistrong candidly acknowledged spending a portion of his adult life ”engaged in dishonest, deceitful and illegal behavior.”  (See here for a copy of Bistrong’s sentencing memorandum).

Nevertheless, in its sentencing memorandum (here) the DOJ stated as follows.  “Given Bistrong’s substantial assistance to law enforcement, the government recommends that Bistrong be sentenced within the guideline range to a sentence that includes a combination of probation, home confinement, and/or community service.”  After detailing Bistrong’s cooperation, the DOJ stated “put simply, the length, depth, breadth, and thoroughness of Bistrong’s proactive cooperation was extraordinary.”  As to the failure of the Africa Sting cases, the DOJ stated as follows.  “[T]he dismissals and acquittals were not caused by a failure of Bistrong’s cooperation or assistance. Like any other case involving cooperating witnesses, the government views Bistrong’s cooperation in the investigation and prosecution of others independently from the outcome of the Gabon case against others. Credit should be based on Bistrong’s truthfulness and the completeness of his cooperation, irrespective of the outcome of any particular investigation, case, or trial.”

As to the DOJ recommending no prison time for Bistong, Judge Leon remarked, as noted in this post by Mike Scarcella at the Blog of LegalTimes, that the DOJ was “asking for the moon.”  In this Wall Street Journal Corruption Currents post, Chris Matthews describes “a courtroom packed with prosecutors, agents from the Federal Bureau of Investigation and a handful of the men Bistrong helped to indict gathered to learn his fate.”  Matthews quotes Judge Leon as follows in rejecting the DOJ’s sentencing recommendation.  “We certainly don’t want the moral of the story to be: Steal big. Violate the law big. Cooperate big. Probation.”

Michael Madigan (Orrick – here) who represented an individual defendant in the Africa Sting case and who was present at yesterday’s sentencing observed as follows.  “Judge Leon had it right on in observing that Bistrong got a huge break on the front side by being charged only with a one count conspiracy despite years of serious criminal conduct both in the US and in England (where he received immunity, with the help of the DOJ).  The Judge’s rejection of the DOJ’s recommendation of probation was well warranted on the facts of the case.  For example, the evidence showed Bistrong made millions illegally and actually made $1.2 million while acting as a government informant which the government allowed him to keep for his personal use (such as paying for his luxury wedding at the Ritz Carlton overlooking the Pacific while he was serving his difficult duty as a government informant).  Bistrong was a one man crime wave who richly deserved his jail sentence.”

Inside The “Africa Sting” Trial: Anatomy Of A Failed Prosecution

Monday, July 23rd, 2012

A guest post today from Eric Bruce, Matthew Menchel and David McGill.  The authors were all trial counsel during the first “Africa Sting” trial in the United States District Court for the District of Columbia.  Bruce and Menchel are partners at Kobre & Kim LLP and lead their Washington, DC and Miami offices respectively and McGill is an associate in the firm’s New York office.

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Inside The “Africa Sting” Trial:  Anatomy Of A Failed Prosecution

Many media outlets and commentators have dedicated a great deal of attention to the DOJ’s decision to abandon its prosecution of 22 executives from the military products industry for alleged FCPA and money laundering violations arising from a first-of-its-kind sting operation that included an FBI agent posing as a representative of the minister of defense for the West African nation of Gabon.  And rightfully so—after all, it is not every day that the DOJ chooses to walk away from a major investment of investigative and prosecutorial resources, as well as 22 indictments, let alone in a high-profile context such as the “Africa Sting” case.  But for those on the front lines of the trial, the DOJ’s extraordinary decision to retreat from this case was the culmination of a long-running tactical chess match between the government and defense counsel that began long before the first witness was sworn in.

From our perspective as defense counsel for Pankesh Patel, a U.K. citizen who went to trial in the opening trial of the “Africa Sting” case, there were two especially critical developments that shaped the outcome of the first trial and contributed mightily to the DOJ’s failed prosecution efforts: (1) the Court’s pre-trial ruling on the admissibility of alleged evidence of prior bad acts; and (2) our unusual decision to call the government’s lead case agent as the sole defense witness in our case-in-chief.

The 404(b) Rulings

As the saying goes, every battle is won or lost before it is ever fought.  And this case was no exception.  After reviewing the documents and recordings evidence produced by the government before trial, it became immediately clear to us that the legal fight over the admissibility of alleged “prior bad acts” evidence would have an enormous impact on the trial.

The government argued that its vast collection of alleged prior bad acts evidence should be admitted under Federal Rule of Evidence 404(b) as evidence of the defendants’ knowledge and intent.  Alternatively, the government argued that if any of the defendants asserted an entrapment defense (given that the charges arose from a sting operation), the same prior bad acts evidence should be admissible to show that the defendants were predisposed to commit FCPA violations.

The government, however, exercised almost no restraint in the type and quantity of evidence they sought to admit under Rule 404(b).  In their Rule 404(b) Notice, the government sought to admit evidence of an additional seven allegedly corrupt deals against the four defendants in the first trial.  Seeking to admit such a wide range of prior bad acts evidence pertaining to deals outside the U.S. was, in our view, a strategic misstep by the government.  This scattershot approach by the government bolstered our argument that the evidence should be excluded under Rule 403 because admitting the evidence would risk transforming an already-complex, multi-defendant trial into a divergent series of mini-trials involving witnesses and events from all over the globe.

Moreover, because our client, Mr. Patel, was a U.K. citizen operating a small U.K. company who had not done any prior deals in the United States, we also advanced some unique arguments that further highlighted the prejudice and confusion that would have arisen if the alleged prior bad acts evidence was admitted.  For example, we argued that evidence concerning allegedly corrupt conduct by a U.K. citizen in Nicaragua, if true, might violate U.K. law or Nicaraguan law, but it could not possibly demonstrate our client’s intent or predisposition to violate U.S. law, let alone the FCPA in particular, where that alleged conduct had no connection to the United States and our client was not even a U.S. citizen.

Ultimately, the Court agreed with our arguments and denied the government’s motion to admit the alleged prior bad acts evidence, largely under a Rule 403 analysis.  Having succeeded in substantially narrowing the scope of trial, our next challenge was to make the flaws in the government’s sting operation the focus of trial.

The “Commission Sandwich”

As former federal prosecutors, we were familiar with the DOJ’s guidelines pertaining to undercover operations and, more specifically, the requirement that the illegality of the deal be made reasonably clear to the targets of an investigation.  In this case, we believed there were significant problems with the manner in which the government ran the sting operation—most notably, its reliance on the cooperating witness, Richard Bistrong, to make strategic decisions about the operation and how to explain the illegality of the Gabon deal in various meetings with the defendants.  Further, instead of allowing Bistrong’s importance in the operation to gradually recede as an FBI undercover assumed greater responsibility, as is traditionally the case with sting operations, the government made the critical mistake of allowing Bistrong to “call the shots” and make key investigative decisions throughout the entire investigation.

For example, at Bistrong’s suggestion, the government chose to describe the allegedly corrupt payment to the Gabonese Minister of Defense as a “commission” when speaking with the defendants, instead of using any number of words that would have more clearly connoted its supposed illegality – e.g., bribe, kickback, payoff, “butter up,” “grease,” etc.  Worse yet, having chosen an innocuous word for the payment, the government—again, at Bistrong’s urging—intentionally buried the commission reference between perfectly legitimate discussion about other aspects of the transaction, thereby further increasing the chances that a target would miss it.  Bistrong even came up with a catch phrase for this technique—he called it the “commission sandwich.”  In a text message that Bistrong sent to the lead FBI case agent explaining his approach, Bistrong proudly explained “I just think its important to sandwhich [sic] the commission statement.”

Naturally, the “commission sandwich” and the way in which the FBI let a highly-incentivized informant orchestrate the sting operation were important themes we wanted to weave into our defense.  But resolving the tactical question of how to bring the “commission sandwich” and other serious flaws in the sting operation to light at trial ultimately required a bold stroke.

Calling the Lead Case Agent

In the weeks leading up to trial, we became convinced that, as a matter of trial strategy, the government would not call its star cooperating witness, Richard Bistrong, to the witness stand.  It was not simply that Bistrong had a lot of “baggage,” though the sheer amount of it – including corruption, false statements, habitual drug use, and frequenting prostitutes – was staggering.  Rather, it was Bistrong’s conduct during the sting operation itself, including lying to defendants about the legality or illegality of the deal and discouraging them from seeking legal advice, that led us to conclude that the government would leave Bistrong on the sidelines.  After all, the government already had tape recordings of all of the calls and meetings involving the defendants’ discussions with Bistrong and the undercover agents.  So why risk putting him on the stand?

When the government filed a series of motions on the eve of trial seeking to preclude the defense from, among other things, impeaching non-testifying witnesses; making missing witness arguments; attacking the legitimacy of the government’s undercover techniques; and making use of recordings not otherwise introduced by the government, our hunch was proven correct.  Not only that, but it had also become clear to us that the government intended to go even farther and would not call its own lead case agent, FBI Special Agent Christopher Forvour, as a witness.  By avoiding Bistrong and Agent Forvour, the government’ s strategy, it seemed to us, was to present a sanitized version of the sting operation through witnesses who were several steps removed from the operational decisions, thereby leaving us with little room to bring out evidence of the investigation’s shortcomings.

To countermand this strategy, we asked the government witnesses who were called as witnesses a series of questions about strategic decisions relating to the sting operation.  If the answer was “I don’t know,” the next question was always “Well, who would know?”  The answer was always the same:  Agent Forvour.  We took this approach for two reasons.  First, we thought this strategy would at least raise questions in the minds of the jurors as to why the government never called its lead case agent, who was present at counsel’s table for the entire trial.  Second, it set the stage for us to possibly call Agent Forvour as a witness in our defense case to get answers to questions that everyone in the courtroom was now curious about.

Ultimately, after a lot of internal debate amongst the trial team, we made the very unusual decision to call the lead case agent in our case-in-chief.  It was not a decision without risks.  Calling a professional witness over whom you have no control and who does not want to help you, without knowing what he will say, can easily backfire.  Nevertheless, because the government had largely succeeded to that point in limiting the trial evidence to tape recordings admitted through witnesses who had no role in directing the investigation, we felt the jury lacked a clear understanding of the serious problems underlying the government’s investigation.

In the end, the strategy worked.  Through Agent Forvour, we were able to demonstrate the major flaws in the government’s investigation and demonstrate just how much Bistrong, as opposed to the FBI, was in charge of key operational decisions and scripting what words would be used to describe the unlawful payments to the defendants during the sting.  In the process, we believe that we came across as truth-seekers (a critical element to any advocate’s credibility), shedding light on all the things that the government had strived to keep from the jury.  The momentum of the entire case swung in our direction during that examination.  It was truly a game-changing decision.

While the net result of the first trial was a deadlocked jury and a mistrial, our ability to capitalize on the government’s avoidance of its two key witnesses worked well enough that the government changed its trial strategy 180 degrees and decided to call both Bistrong and Agent Forvour in the second trial.  But because we succeeded in locking the government into positions that were developed during the first trial, it fared no better the second time around.  The second trial also ended in a series of mistrials and acquittals and, thereafter, the government decided to end this failed prosecution, dismissing all remaining charges against all 22 defendants.

The Future of FCPA Enforcement

While it remains to be seen exactly how the DOJ’s failed prosecution of the “Africa Sting” case will impact future enforcement efforts, this sort of high-profile setback will undoubtedly impact the way in which the DOJ and the FBI conducts their investigations and evaluates their cases for prosecution.  At the same time, we expect that companies and individuals who find themselves as targets of FCPA enforcement efforts will become increasingly aggressive in resisting the Department’s interpretation of the statute, which had gone largely unchallenged in the years preceding the “Africa Sting” trial.