Archive for the ‘BizJet International’ Category

Friday Roundup

Friday, May 2nd, 2014

U.S. reportedly did not cooperate, Avon’s reaches a settlement “understanding” and other scrutiny alerts, the “financial SWAT team,” at the SEC, FCPA Inc. news, and for the reading stack.  It’s all here in the Friday roundup.

U.S. Reportedly Did Not Cooperate

The DOJ talks a lot about cooperation with foreign law enforcement partners with its comes to its Foreign Corrupt Practices Act enforcement program.  For instance, and as noted in this prior post, in June 2013 the DOJ’s Acting Assistant Attorney General stated:

“Through our increased work on prosecutions with our foreign counterparts and our participation in various multi-lateral fora like the OECD and United Nations, it is safe to say that we are cooperating with foreign law enforcement on foreign bribery cases more closely today than at any time in history.  This type of collaboration is absolutely critical if we are going to have a meaningful impact on corruption internationally.  As our economies become more interdependent, corruption itself is increasingly transnational.  What may be a domestic corruption concern for one country may very well be a foreign bribery concern for another.”

In 2012 and 2013 (see here and here) the DOJ brought related FCPA enforcement actions against BizJet and various former executives regarding, in part, conduct involving officials from Panama’s Aviation Authority.

Panama also investigated the conduct at issue, but according to this report in Panama-Guide.com (a website that provides English translations of original source news articles):

“Panama’s Superior Prosecutor for Organized Crime requested the judges responsible for the case to provisionally close a case involving allegations of the payments of bribes to officials of the Civil Aviation Authority by the US company BizJet, that received the contract to maintain the presidential aircraft between 2004 and 2009. The prosecutor sent his request in early March 2014, because law enforcement authorities in the United States failed to respond to a second request for judicial assistance in order to clarify key pieces of data (evidence) contained in the Panamanian investigation. The prosecutor sent their first request for assistance to the United States in May 2012 asking for collaboration, but the answer they sent in response to the Panamanian investigators was not enough (insufficient) for them to continue the investigation. They sent a second request for assistance in 2013, asking for the evidence that linked the Panamanians to the alleged bribes.  According to judicial sources, these elements would be important to the process. The director of the AAC, Rafael Barcenas, confirmed that the officials mentioned in investigation in the United States are still working for the entity, and while there is no legal decision his office will not take any action against them.”

Scrutiny Alerts

Avon

Yesterday, Avon disclosed as follows regarding the FCPA scrutiny it has been under since 2008.

“We have now reached an understanding with respect to terms of settlement with each of the DOJ and the staff of the SEC. Based on these understandings, the Company would, among other things: pay aggregate fines, disgorgement and prejudgment interest of $135 [million] with respect to alleged violations of the books and records and internal control provisions of the FCPA, with $68 [million] payable to the DOJ and $67 [million] payable to the SEC; enter into a deferred prosecution agreement (“DPA”) with the DOJ under which the DOJ would defer criminal prosecution of the Company for a period of three years in connection with alleged violations of the books and records and internal control provisions of the FCPA; agree to have a compliance monitor which, with the approval of the government, can be replaced after 18 months by the Company’s agreement to undertake self monitoring and reporting obligations for an additional 18 months. If the Company remains in compliance with the DPA during its term, the charges against the Company would be dismissed with prejudice. In addition, as part of any settlement with the DOJ, a subsidiary of Avon operating in China would enter a guilty plea in connection with alleged violations of the books and records provision of the FCPA. The expected terms of settlement do not require any change to our historical financial statements. Final resolution of these matters is subject to preparation and negotiation of documentation satisfactory to all the parties, including approval by our board of directors and, in the case of the SEC, authorization by the Commission; court approval of the SEC settlement; and court approval of the DPA and acceptance of the expected guilty plea by an Avon subsidiary operating in China. We can provide no assurances that satisfactory final agreements will be reached, that authorization by the Commission or the court approvals will be obtained or that the court will accept the guilty plea or with respect to the timing or terms of any such agreements, authorization, and approvals and acceptance.”

A $135 million settlement will be the 11th largest in terms of fine / penalty amounts.

Some media outlets were quick to link disclosure of the future FCPA settlement to the approximate 10% slide in Avon’s stock price yesterday.  For instance, USA Today stated:

“Avon Products stock swooned more than 12% in mid-day trading after the company agreed to pay $135 million for long-standing federal changes that it paid bribes in China and other countries.”

However, Avon’s FCPA disclosure was in the same SEC filing in which the company disclosed, among other things, a 6% drop in total units sold during Q1, beauty sales were off 12%, and sales in North America fell 22%.

Johnson Controls

In its most recent quarterly filing, Johnson Controls first disclosed the following:

“In June 2013, the Company self-reported to the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) alleged Foreign Corrupt Practices Act (FCPA) violations related to its Building Efficiency marine business in China dating back to 2007. These allegations were isolated to the Company’s marine business in China which had annual sales ranging from $20 million to $50 million during this period. The Company, under the oversight of its Audit Committee and Board of Directors, proactively initiated an investigation into this matter with the assistance of external legal counsel and external forensic accountants. In connection with this investigation, the Company has made and continues to evaluate certain enhancements to its FCPA compliance program. The Company continues to fully cooperate with the SEC and the DOJ; however, at this time, the Company is unable to predict the ultimate resolution of this matter with these agencies.”

In 2007, Johnson Controls was a signatory to the York International FCPA enforcement action (see here and here) principally involving alleged conduct in connection with the Iraq Oil for Food Program.  According to the DOJ, “nearly all of the conduct described in the [York International Criminal] Information took place prior to York’s acquisition by Johnson Controls, Inc. on December 9, 2005.”

JPMorgan

In its most recent quarterly filing, JPMorgan disclosed as follows regarding its pending FCPA scrutiny:

“Referral Hiring Practices Investigations. Various regulators are investigating, among other things, the Firm’s compliance with the  Foreign Corrupt Practices Act and other laws with respect to the  Firm’s hiring practices related to candidates referred by clients, potential clients and government officials, and its engagement of consultants in the Asia Pacific region. The Firm is cooperating with these investigations.”

Teva Pharamaceuticals

In August 2012, the company first disclosed its FCPA scrutiny and in its most recent SEC filing disclosed as follows.

“Beginning in 2012, Teva received subpoenas and informal document requests from the Securities and Exchange Commission (“SEC”) and the Department of Justice (“DOJ”) to produce documents with respect to compliance with the U.S. Foreign Corrupt Practices Act (the “FCPA”) in certain countries. Teva has provided and will continue to provide documents and other information to the SEC and the DOJ, and is cooperating with the government in their investigations of these matters. Teva is also conducting a voluntary worldwide investigation into certain business practices that may have FCPA implications and has engaged independent counsel to assist in its investigation. In the course of its investigation, which is continuing, Teva has identified issues in Russia, certain Eastern European countries, certain Latin American countries and other countries where it conducts business that could rise to the level of FCPA violations and/or violations of local law. In connection with its investigation of these issues, Teva has become aware that Teva affiliates in certain countries under investigation provided to local authorities inaccurate or altered information relating to marketing or promotional practices. Teva continues to bring these issues to the attention of the SEC and the DOJ. No conclusion can be drawn at this time as to any likely outcomes in these matters.”

Och-Ziff

Och-Ziff Capital Management disclosed as follows in its recent quarterly filing:

“Beginning in 2011, and from time to time thereafter, the Company has received subpoenas from the Securities and Exchange Commission and requests for information from the U.S. Department of Justice in connection with an investigation involving the Foreign Corrupt Practices Act and related laws. The investigation concerns an investment by a foreign sovereign wealth fund in some of the Och-Ziff funds in 2007 and investments by some of the funds, both directly and indirectly, in a number of companies in Africa. At this time, the Company is unable to determine how the investigation will be resolved and what impact, if any, it will have. An adverse outcome could have a material effect on the Company’s consolidated financial statements. “

“Financial SWAT Team”

It receives scant attention compared to FCPA enforcement, but another prong of the DOJ’s efforts to combat bribery and corruption is its Kleptocracy Asset Recovery Initiative under which prosecutors in the DOJ Asset Forfeiture and Money Laundering Section work in partnership with federal law enforcement agencies to forfeit the proceeds of foreign official corruption. (See this 2009 post highlighting Attorney General Holder’s announcement of the program).

Earlier this week, speaking at Ukraine Forum on Asset Recovery Attorney General Holder announced “the creation of a dedicated Kleptocracy squad within the FBI.”  He stated:

“This specialized unit will partner with our Asset Forfeiture and Money Laundering Section to aggressively investigate and prosecute corruption cases – not only in Ukraine, but around the world. The squad of about a dozen personnel will consist of case agents and forensic analysts who are capable of unraveling the intricate money laundering transactions commonly employed by kleptocrats. Their sophisticated work will be supported by deputy marshals from the United States Marshals Service and analysts from FinCEN, which is our financial intelligence unit. And this new initiative will provide the United States with increased capacity to respond rapidly to political crises as they arise – so we can help prevent stolen assets from being dissipated or secreted away by deposed regimes.”

At the SEC

Further to the notion that SEC enforcement seems at times to be a numbers game, SEC Chair Mary Jo White testified as follows before the House Financial Services Committee.

“The Commission continues to pursue companies that bribe foreign officials to obtain or retain business, and over the last two-and-a-half years, we have obtained over $679 million in monetary relief from FCPA actions. For example, the SEC has brought FCPA actions charging a company with a bribe scheme involving business with Aluminum Bahrain; another company with various bribes and improper payments in the Middle East and Africa and violations of U.S. sanctions and export control laws involving Cuba, Iran, Syria, and Sudan; and a third company with bribe schemes involving business with the National Iranian Oil Company. The Commission is also focused on holding individuals accountable, with ongoing FCPA-related litigation against former executives of a number of corporations.”

Fact check.

Since 2008,  approximately 82% of corporate SEC FCPA enforcement actions have not (at least yet) resulted in any SEC charges against company employees and the SEC has not brought an individual FCPA enforcement action since 2012.

Although White’s FCPA testimony focused on the numbers, elsewhere she was quick to point out that:

“Quantitative metrics alone, however, are not the proper yardstick of the measure of Enforcement’s effectiveness. Enforcement considers the quality, breadth, and effect of the actions pursued.”

Staying with the SEC, its tough to beat the following for lack of transparency.  Recently in an insider trading enforcement action, the SEC entered into a non-prosecution agreement with an “individual.”

FCPA Inc. News

Few FCPA Inc. participants are publicy-traded companies.  Thus, it is often difficult to take the pulse of FCPA Inc. other than anecdotal information.  However, one FCPA Inc. participant that is publicly traded is FTI Consulting.  In a recent earnings release, the company stated:

“The major driver of quarterly results was Forensic and Litigation Consulting with a record quarter, fueled by a number of front-page newspaper assignments from across the globe relating to high-stakes client events ranging from FCPA investigations to mortgage-backed security litigations. Similarly, our Technology business continued to perform very well, driven by ongoing FCPA and financial services investigations as well as increased cross-border M&A related ‘second request’ activity.”

As previously highlighted, as Acting Assistant Attorney General for the Criminal Division, Mythili Raman often carried forward much of the same rhetoric former Assistant Attorney General Lanny Breuer frequently articulated concerning the DOJ’s FCPA enforcement program.  Raman will now be joining Breuer at Covington & Burling.  The firm announced that “Mythili Raman … is joining Covington & Burling as a partner. Ms. Raman will practice in the firm’s litigation and white collar groups and be resident in the Washington office.”

As noted in this Covington biography:

“As Acting Assistant Attorney General of the Criminal Division from 2013-2014, and before then, as the Principal Deputy Assistant Attorney General of the Criminal Division from 2009-2013, Ms. Raman oversaw the work of more than 600 prosecutors and led the Justice Department’s national and international criminal law enforcement initiatives, including investigations of [among other things] violations of the U.S. Foreign Corrupt Practices Act.”

For additional coverage see here from the New York Times and here from the Wall Street Journal.

For the Reading Stack

ProPublica takes a look at various aspects of white-collar law enforcement, including the “Breu Crew” (a reference to former Assistant Attorney General Lanny Breuer”) in “The Rise of Corporate Impunity.”  See here for my article “Lanny Breuer and Foreign Corrupt Practices Act Enforcement.”

Three cheers for Northwestern Professors Juliet Sorensen and Karen Alter for resisting the “feel good” notion that the International Criminal Court ought to be prosecuting corruption.  Writing in “Let Nations, Not the World, Prosecute Corruption,” the authors state:

“It is easy to understand the attraction of adding the crime of corruption to the International Criminal Court’s jurisdiction. Like violent atrocities, embezzlement and blackmail may be perpetrated on innocents. Corruption can be an international crime, featuring offshore accounts, money laundering and bribery of foreign officials. Moreover, when political leaders are involved in mass corruption, their crimes can become too dangerous for local judges and prosecutors to tackle. [...] But to add this crime to the court’s jurisdiction would be a mistake. It is limited for good reason to genocide, war crimes, crimes against humanity and in the future, the crime of aggression.  [...]  Before we give the court a new and even harder crime to prosecute, we must make sure that it can succeed in its core mandate. What international criminal law does best is prosecute those most responsible, at the apex of the pyramid, when individual nations are unwilling or unable to do so.  Finally, we must recognize that already the International Criminal Court faces a crisis of political support. [...]  The status quo is surely not a perfect one. But international intervention is not a panacea. The International Criminal Court needs to stay focused on the important task of prosecuting those most responsible for mass atrocities. Rather than put more resources into international criminal prosecution, the resources and energy of the international community should go towards bolstering national resources to investigate, prosecute, and deter public corruption.”

See here for “Anti-Corruption Compliance:  Meeting the Global Standard” recently published in Bloomberg BNA’s Corporate Law and Accountability Report by Arnold & Porter attorneys Keith Korenchuk, Samuel Witten and Daniel Bernstein:

“Designing an effective anti-corruption compliance program that meets the requirements of many different jurisdictions seems like a daunting task. Executives at global companies are likely to ask themselves: Do we need dozens of different compliance programs? Will we be subject to conflicting standards in the various countries where we do business? How can we ensure proper oversight of activity that occurs all over the globe? In addressing these questions, multinational companies should take note of the broad global consensus that has developed around what governments and international organizations expect of corporate anti corruption compliance programs. While there is no one-size-fits-all program—and a company must bear in mind applicable local laws—this global standard is welcome news. Here we review the commonly accepted best practices for an anti-corruption compliance program.”

From various Jones Day attorneys (here), “India’s New Corporate Social Responsibility Requirements – Beware of the Pitfalls”:

“In August 2013, the Indian parliament passed the Indian Companies Act, 2013 (the “New Act”), which has replaced the Companies Act of 1956. The New Act has made far-reaching changes affecting company formation, administration and governance, and it has increased shareholder control over board decisions. [...]  One of the New Act’s most startling changes—which came into effect on April 1, 2014—has been to impose compulsory corporate social responsibility  obligations (“CSR”) upon Indian companies and foreign companies operating in India. These obligations mainly come in the form of mandatory amounts companies must contribute to remediating social problems. This is a wholly new requirement; although companies were permitted, within certain limits, to make charitable contributions in the past, the New Act is essentially a self-administered tax.  [...] If the Indian company undertaking CSR is a subsidiary of a United States entity, or if its business activities “touch” the U.K., then the U.S. Foreign Corrupt Practices Act (“FCPA”) or the U.K. Bribery Act (“UKBA”), respectively, as well as other regulatory laws of these jurisdictions, may apply to the Indian company’s CSR payments. This may raise serious issues of compliance and liability.”

See here for “China Introduces New Health Care Sector Anti-Corruption Regulations” by Richard Grams and Allan Golder:

“As part of a concerted effort to tackle systemic commercial bribery in the country’s health care sector, China’s National Health and Family Planning Commission recently introduced separate new regulations aimed at hospitals and physicians, as well as the medical product companies that supply them.”

*****

A good weekend to all.

Where Was The BizJet Board?

Thursday, April 11th, 2013

Many assume that my article “The Facade of FCPA Enforcement“ is all about over-enforcement of the FCPA based on untested and dubious legal theories not subjected to judicial scrutiny.  To be sure, these topics are discussed in great detail in the article.

However, also discussed in great detail in the article is the opposite end of the spectrum.  That being, despite seemingly clear-cut instances of corporate bribery per the government’s own allegations, a corporate enforcement action is resolved without FCPA anti-bribery charges.  The 2010 article discussed the most pertinent cases at the time – Siemens and BAE.

In this April 2012 post, I first commented on the egregious nature of the BizJet corporate enforcement action and noted that when conduct giving rise to corporate liability involves senior executive misconduct and apparent knowing acquiescence by the Board, the entity - simply put – should not be offered an alternative resolution vehicle.  Yet, BizJet was allowed to resolve the enforcement action via a deferred prosecution agreement, meaning that should it abide by the terms and conditions of the agreement, BizJet will never be required to plead guilty to anything.

The following was known in 2012 about the BizJet enforcement action.

  • The conduct giving rise to the enforcement action was engaged in by various executives at the highest levels of the company.
  • The Board of Directors was specifically informed by certain of the executives that the company “would pay referral fees in order to gain market share.”

Information revealed in connection with the recent unsealing of the former BizJet executives enforcement action (see here and here for prior posts) adds the following relevant information.

  • The scope of the improper conduct engaged in by the various executives was not just limited to Mexico and Panama as suggested by the 2012 corporate enforcement action.  Rather, according to the DOJ, improper conduct also related to BizJet business in Brazil and Chile.
  • According to the DOJ, the scope of the improper conduct was not just limited to foreign business conduct, but domestic business conduct as well.  The recently unsealed information states that customers or potential customers BizJet bribed “included customers both in the United States and abroad.
  • Regarding the above referenced Board of Directors meeting, the DOJ asserts that in response to a question by a director about how BizJet would survive the next six months without ‘burning cash,’ a senior executive stated that BizJet expected to gain market share by paying ‘referral fees’ just as the competition was doing.

In short, and per the DOJ allegations, BizJet was an egregious instance of corporate bribery, broad in scope. conceived of and executed by senior executives, with board knowledge and acquiescence.

The question ought to be asked – where was the BizJet board and what, if anything, did it do in November 2005 upon learning that senior executives were engaged in bribery?

Per the DOJ’s allegations, this was not a situation in which the Board of Directors needed to engage in any detailed inspection of the company’s books and records or have sophisticated knowledge to discover the bribery scheme.  Rather, the Board was specifically told by senior executives that the company was engaged in bribery.

In a notable case in the corporate director context (Francis v. United Jersey Bank) the court stated that “the sentinel asleep at his post contributes nothing to the enterprise he is charged to protect [...] Shareholders have a right to expect that directors will exercise reasonable supervision and control over the policies and practices of a corporation.  The institutional integrity of a corporation depends upon the proper discharge by directors of those duties.”

The egregious BizJet enforcement action also raises the question of whether corporate criminal liability means anything?

Many, including myself, believe that corporate criminal liability principles need revisiting.

For purposes of this post however, the important perspective is that of the DOJ which has long maintained that corporate criminal liability is a fundamentally sound legal doctrine not in need of revision.

If that is the DOJ position, then it must be asked – does corporate criminal liability actually mean anything if a company like BizJet – given the DOJ’s allegations – is not actually criminally prosecuted or required to plead guilty?

In short, the resolution vehicles the DOJ has created and championed has again lead to a “facade of enforcement” - albeit an instance on the opposite end of the spectrum that I normally highlight.

Unsealed Documents In Enforcement Acton Against Former BizJet Executives Reveal A Trove Of Information

Tuesday, April 9th, 2013

Yesterday’s post (here) summarized the criminal indictments against former BizJet executives Bernd Kowalewski and Jald Jensen.  Today’s post discusses the related criminal informations, based on the same core set of conduct, against former BizJet executives Peter DuBois (former Vice President of Sales & Marketing) and Neal Uhl (former Controller, Vice President of Finance).  As noted in the prior post, DuBois and Uhl agreed to plead guilty and were sentenced last week.

Today’s post also highlights documents recently unsealed in the DuBois and Uhl action which reveal a trove of information of interest to anyone curious about the inner workings of an FCPA enforcement action and connecting the dots to other FCPA enforcement actions.

DuBois was charged via a criminal information (here) with one count of conspiracy to violate the FCPA’s anti-bribery provisions and one substantive FCPA anti-bribery violation.  The conduct at issue is the same core set of conduct at issue in 2012 BizJet corporation action, as well as the criminal indictments against Kowalewski and Jensen.  That is a scheme to “obtain aircraft maintenance, repair and overhaul (“MRO”) service contracts and other business [for BizJet] from foreign government customers, including the Mexican Federal Police, the Mexican President’s Fleet, Sinaloa and the Panama Aviation Authority, by paying bribes to government officials employed by the foreign government customers.”

The DuBois information was filed on December 27, 2011 and the related motion by the DOJ to seal the docket (since unsealed) reveals the following.

As part of his plea agreement, DuBois worked in an undercover capacity for the government.  The motion specifically states as follows.  “As part of his work in an undercover capacity, Mr. DuBois has recorded conversations with former BizJet executives and other subjects of the government’s ongoing investigation.”  Later, the motion to seal states that “public identification of Mr. DuBois as a defendant who likely is cooperating with the government may jeopardize the undercover aspect of the government’s investigation.”

In the plea agreement, DuBois agreed to pay a forfeiture amount of $98,950 “representing proceeds derived by defendant in connection with the conspiracy” and to pay an additional $61,000 as the amount DuBois “received … as a result of his participation in the conspiracy.”

The DOJ’s memo in support of a downward departure for sentencing states as follows.

DuBois “assisted in the investigation from the outset and cooperated fully with the government throughout its investigation.  DuBois submitted to multiple interviews by the government and has assisted in every way that the government has asked.  DuBois told the truth to the government from the outset and continued to do so up until this very day.  DuBois’ cooperation not only assisted the government in connection with its investigation into BizJet, but also led to the investigation of another maintenance, repair, and overhaul company engaged in a similar scheme to pay bribes to government officials overseas.”

This last portion of the DOJ’s memo makes clear that the 2012 FCPA enforcement action against NORDAM Group (see here for the prior post) had its origins in the BizJet enforcement action.  Both BizJet and NORDAM Group are Tulsa, OK based aircraft maintenance companies.  The link and information about DuBois’ undercover role also raises the issue of whether individual prosecutions related to the NORDAM Group corporate enforcement action are also forthcoming.

As noted in the DOJ release, DuBois was sentenced to 60 months probation and eight months home detention.

Uhl was charged via a criminal information (here - filed on December 28, 2011) with one count of conspiracy to violate the FCPA’s anti-bribery provisions.  The conduct at issue is the same core set of conduct as indicated above, that is a scheme to “obtain aircraft maintenance, repair and overhaul (“MRO”) service contracts and other business [for BizJet] from foreign government customers, including the Mexican Federal Police, the Mexican President’s Fleet, Sinaloa and the Panama Aviation Authority, by paying bribes to government officials employed by the foreign government customers.”  See here for the Uhl plea agreement.

In the Uhl matter, the DOJ’s motion for a downward departure states as follows.

 Uhl ”agreed to a voluntary proffer session and, when confronted by the government, admitted to the illegal conduct.  Throughout the course of the investigation, Uhl was cooperative and provided truthful information that substantially assisted the government in confronting other co-conspirators and witnesses.  Uhl offered to assist in any way that he could.”

As noted in the DOJ release, Uhl was sentenced to 60 months probation, eight months home detention, and was ordered to pay a $10,000 fine.

The motions to seal in both the DuBois and Uhl actions further state as follows. ”BizJet’s corrupt payments were not limited to Mexico.  BizJet employees bribed key decision makers in a number of countries, including Panama, Brazil, and Chile.”  This is notable in that the 2012 BizJet corporate enforcement action made no mention of conduct in Brazil or Chile.  This demonstrates that resolution documents in a corporate FCPA enforcement action are the result of negotiations and that final documents rarely offer the complete picture of the conduct that allegedly occurred.

Both the DuBois and Uhl plea agreements further indicate that BizJet’s bribery scheme was not just in foreign countries.  Both plea agreements state that the customers or potential customers BizJet bribed “included customers both in the United States and abroad.

Former BizJet Executives Charged / Sentenced

Monday, April 8th, 2013

This prior post from 2012 discussed the BizJet corporate enforcement action and was titled “BizJet FCPA Enforcement Action Involves Executive Conduct.”  In summarizing that action, the post highlighted DOJ allegations as to Executive A, Executive B, Executive C, and Sales Manager A.

If the DOJ’s rhetoric of holding individuals accountable in the context of corporate resolutions is to mean anything (as noted in this prior post, since 2008 approximately 75% of DOJ corporate enforcement have not resulted in any related individual charges against company employees) the BizJet corporate action was one where related individual enforcement actions were to be expected given the DOJ’s prior specific allegations concerning the above individuals.

It turns out that the above individuals were criminally charged some time ago, but last Friday, in this release, the DOJ unsealed the actions and revealed the names of the above individuals.

Executive A is Bernd Kowalewski; Executive B is Peter DuBois; Executive C is Neal Uhl; and Sales Manager A is Jald Jensen.

In the release, the DOJ announced as follows.

“Kowalewski and Jensen were charged by indictment filed in U.S. District Court for the Northern District of Oklahoma on Jan. 5, 2012, with conspiring to violate the Foreign Corrupt Practices Act (FCPA) and to launder money, as well as substantive charges of violating the FCPA and money laundering.  The two defendants are believed to remain abroad.”

The DOJ further announced as follows.

“DuBois and Uhl pleaded guilty on Jan. 5, 2012, to criminal informations, and their pleas were unsealed [last Friday].  DuBois pleaded guilty to one count of conspiracy to violate the FCPA and one count of violating the FCPA.  Uhl pleaded guilty to one count of conspiracy to violate the FCPA.  Both defendants were sentenced [last Friday] by U.S. District Judge Gregory K. Frizzell in the Northern District of Oklahoma.  DuBois’s sentence was reduced from a sentencing guidelines range of 108 to 120 months in prison to probation and eight months home detention based on his cooperation in the government’s investigation.  Uhl’s sentence was similarly reduced for cooperation from a guidelines range of 60 months in prison to probation and eight months home detention.”

The conduct at issue in the indictments and informations is the same core set of conduct at issue in the 2012 BizJet corporate enforcement action.  That is, DOJ allegations that the individuals ”paid bribes to officials employed by the Mexican Policia Federal Preventiva, the Mexican Coordinacion General de Transportes Aereos Presidenciales, the air fleet for the Gobierno del Estado de Sinaloa in Mexico, the air fleet for the Estado De Roraima in Brazil, and the Republica de Panama Autoridad Aeronautica Civil in exchange for those officials’ assistance in securing contracts for BizJet to perform MRO [aircraft maintenance, repair and overhaul] services.”

This post summarizes the indictments (here and here) against Kowalewski (the President and CEO of BizJet between 2004 through March 2010) and Jensen (a regional sales manager at BizJet between 2004 and 2010).  A future post will summarize the enforcement actions against DuBois and Uhl.  The informations in those cases (here and here) have been released, but the plea agreements and sentencing documents are not yet in the public domain.

Kowalewski Indictment

At its core, the indictment alleges a scheme “to obtain and retain MRO service contracts and other business for BizJet and others from foreign government customers, including the Mexican Federal Police, the Mexican President’s Fleet, Sinaloa, the Panama Aviation Authority, the State of Roraima, and other customers, by paying bribes to foreign officials employed by such customers.”  According to the indictment, the bribe payments were called ‘commission,’ ‘incentives’ or ‘referral fees.”  The indictment also alleges that Kowalewski and others “would and did attempt to conceal the payments to foreign officials by using Avionica [a California company owned by Jensen and located at his personal residence that operated "under the pretense of providing aircraft maintenance brokerage services"] to funnel the payments to the foreign officials by making payments in cash delivered by hand to the foreign officials.”

The six counts of FCPA anti-bribery violations are based on the following:

  • “check mailed in the amount of $20,000 by BizJet in Tulsa, OK to [Panamanian Official] in return for [the official's] assistance in securing business for BizJet with the Panama Aviation Authority”
  • “wire transfer in the amount of $30,000 from BizJet’s bank account in New York to Avionica’s bank account in California for use to bribe [Mexican Official] in return for [the official's] assistance in securing business for BizJet with the Mexican President’s Fleet”
  • “wire transfer in the amount of $18,000 from BizJet’s bank account in New York to Avionica’s bank account in California for use to bribe [Mexican Official] in return for [the official's] assistance in securing business for BizJet with Sinaola”
  • “wire transfer in the amount of $176,000 from BizJet’s bank account in New York to Avionica’s bank account in California for use to bribe foreign officials employed by the Mexican Federal Police in return for their assistance in securing business for BizJet with the Mexican Federal Police”
  • “wire transfer in the amount of $210,000 from BizJet’s bank account in New York to Avionica’s bank account in California for use to bribe foreign officials employed by the Mexican Federal Police in return for their assistance in securing business for BizJet with the Mexican Federal Police”
  • “two checks mailed in the amount of $22,912.38 and $6,417.44 by BizJet in Tulsa, OK to [Mexican Official] in return for [the official's] assistance in securing business for BizJet with Sinaloa.”

Like the BizJet corporate enforcement action, the Kowalewski indictment also contains allegations which suggest a complicit board of directors at the company.  The indictment states as follows concerning a November 2005 board meeting:

  • Kowalewski explained at the meeting that “directors of maintenance and chief pilots in the past received ‘commission’ of $3,000 to $5,000 but were now demanding $30,000 to $40,000 in ‘commission.”
  • In response to a question by a director about how BizJet would survive the next six months without ‘burning cash,’ Kowalewski stated that BizJet expected to gain market share by paying ‘referral fees’ just as the competition was doing.

The indictment also alleges as follows.

“[In January 2010], after receiving an e-mail stating that the internal auditors of BizJet’s parent company would be conducting a detailed audit of BizJet’s incentive payments and requesting that Kowalewski prepare and make available all relevant documents, Kowalewski caused deletion software to be installed and run on his computer that erased content from his computer.”

Based on the above allegations, the DOJ charged Kowalewski with one count of conspiracy to violate the FCPA’s anti-bribery provisions, six counts of FCPA anti-bribery violations.  In addition, the indictment charges one count of money laundering conspiracy and three counts of substantive money laundering.

Jensen Indictment

At its core, the indictment alleges the same scheme as in the Kowalewski indictment, including the same six substantive FCPA anti-bribery violations, as well as money laundering conspiracy and three counts of substantive money laundering.  The Jensen indictment further alleges FCPA and money laundering forfeiture allegations which state that “upon conviction” of the offenses, Jensen “shall forfeit” to the U.S. “any property, real or personal, which constitutes, or is derived from, proceeds traceable to the offenses.”

Acting Assistant Attorney General Mythili Raman stated in the DOJ release as follows.

“The charges announced today allege a conspiracy by senior executives at BizJet to win contracts in Latin American countries through bribery and illegal tactics.  Former BizJet executives, including the former president and chief executive officer, allegedly authorized and caused hundreds of thousands of dollars to be paid directly and indirectly to ranking military officials in various foreign countries, and two former executives have pleaded guilty for their roles in the conspiracy.  These charges reflect our continued commitment to holding individuals accountable for violations of the FCPA, including, as in this instance, after entering into a deferred prosecution agreement with their employer.”

Assistant Director in Charge Valerie Parlave of the FBI’s Washington Field Office stated in the DOJ release as follows.

“Business executives have a responsibility to act appropriately in order to maintain a fair and competitive international market.  The unsealing of these bribery charges, and today’s sentencing, demonstrate that the FBI is committed to curbing corruption and will pursue all those who try to advance their businesses through bribery.”

The former BizJet executive enforcement action announced last Friday is the first FCPA enforcement action of 2013.  The last DOJ FCPA enforcement action (of any kind – corporate or individual) was in September 2012 and the last time the DOJ brought an FCPA enforcement action against an individual was in April 2012. (See here for the prior post).

For additional coverage, see here from Tulsa World.

Hit And Misses

Tuesday, May 15th, 2012

Recently on his Forbes column (here), Howard Sklar paused to rethink some of his FCPA positions based on my recent post (here) and this recent article by former Attorney General Michael Mukasey.  On the theory (perhaps presumed) that others derive value from FCPA Commentariat (that’s Howard’s term, not mine) debates, this post discusses Howard’s hits and misses and encourages him to keep rethinking.

I agree with Howard (in fact, I know from my prior FCPA practice experience) that DPAs and NPAs seldom tell the complete story.  This truism seems to give Howard comfort that perhaps all DPA and NPAs represent actual, provable FCPA violations notwithstanding the conduct actually set forth in the resolution documents.  However, this truism causes me discomfort because, based on my experience, for every aggravating fact left out of the resolution documents there are also frequently two mitigating facts left out of the resolution documents.

Howard is spot on though when he says that “the DOJ must realize that the information they disclose forms the enforcement record they have to defend.”  Criticism as to the actual facts and conduct the DOJ sets forth in an NPA or DPA - and the resulting analysis as to the ultimate issue of whether the conduct actually violates the FCPA – are problems entirely of the DOJ’s own making.

Why?

Because the DOJ encourages those subject to the FCPA to look to these documents as evidence of conduct violating the FCPA and for guidance as to enforcement theories.  In “The Facade of FCPA Enforcement” (here at pgs. 998-1000) I called this the “absurdity of FCPA caselaw.”  For instance in this GAO report (Appendix III), the DOJ explained, in its view, why NPAs/DPAs ”are beneficial” including that “DPAs and NPAs benefit the public and industries by providing guidance on what constitutes improper conduct.”  Furthermore, in the aftermath of the November 2010 Senate FCPA hearing, the DOJ was asked various ways about FCPA uncertainty and lack of guidance. The DOJ responded (see here) that it “provides clear guidance to companies with respect to FCPA enforcement through a variety of means” including “charging documents, plea agreements, deferred prosecution agreements and non-prosecution agreements, press releases, and relevant pleadings and orders.”  The DOJ stated that “these documents are lengthy and detailed.”  You might want to re-read the Lufthansa Technik NPA (here) at this point – the last words that should enter your brain are lengthy and detailed.

Howard next admits to his “true bias” (as a former SEC attorney) and is confident in his ability to size up people and is confident that prosecutors would never bring bad cases even if the “asynchronous information can make it seem that way.”  I’ll let Judge Richard Leon and Judge Alex Kozinski respond to that issue.  When granting the DOJ’s motion to dismiss the Africa Sting cases, Judge Leon spoke of how prosecutors can become ”so convinced of the righteousness of their position.” (See here for the prior post).  As noted in this recent post, the Ninth Circuit recently addressed the DOJ’s “trust us” position and stated as follows.  “The government assures us that, whatever the scope of the CFAA, it won’t prosecute minor violations.  But we shouldn’t have to live at the mercy of our local prosecutor. [...] And it’s not clear we can trust the government when a tempting target comes along.”

Howard next asserts that despite the temptation DOJ prosecutors may have to resolve cases via an NPA vs. doing nothing, he “suspects that is less of a problem that you’d think.”  Credible evidence suggests otherwise.  See e.g., Peter Spivak & Sujit Raman, Regulating the ‘New Regulators’:   Current Trends in Deferred Prosecution Agreements, 45 Am. Crim. L. Rev. 159, 176 (2008) (“we heard from colleagues in the defense bar of prosecutors who, in their haste to compel the company’s cooperation in pursuit of individuals, have pressed the entity to enter into a diversion agreement before any particular’s guilty could definitely be established).  Even Mark Mendelsohn (former DOJ FCPA unit chief) has indicated that a ”danger” with NPAs and DPAs ”is that it is tempting” for the DOJ “to seek to resolve cases through DPAs or NPAs that don‟t actually constitute violations of the law.”  See Corporate Crime Reporter, Sept. 13, 2010.

The clincher, in Howard’s mind, that NPAs and DPAs have never been used to resolve cases that do not actually represent FCPA violations seems to be this – he has not heard any complaint “from any practitioners, on or off the record, in public or in private” of this being the case.

There is a very simple explanation for this.  These resolution vehicles muzzle the companies and their defense counsel.  The following template clause (from the recent BizJet International DPA – here) is common.

Public Statements by BizJet

BizJet expressly agrees that it shall not, through present or future attorneys, officers, directors, employees, agents or any other person authorized to speak for BizJet make any public statement, in litigation or otherwise, contradicting the acceptance of responsibility by BizJet set forth above or the facts described in the attached Statement of Facts.  Any such contradictory statement shall, subject to cure rights of BizJet described below, constitute a breach of this Agreement and BizJet thereafter shall be subject to prosecution as set forth in [this] Agreement.  The decision whether any public statement by any such person contradicting a fact contained in the Statement of Facts will be imputed to BizJet for the purpose of determining whether they have breached this Agreement shall be the sole discretion of the Department.

No FCPA lawyer representing a company party to an FCPA NPA or DPA is going to risk breaching the agreement just to make a splash on the FCPA conference circuit.

Another template clause in such resolution vehicles (as in the recent BizJet DPA) is the requirement that the company “shall first consult” with the DOJ to see if it has any objection before the company issues a press release or holds a press conference in connection with the resolution.

As noted in this prior post, when the U.K. Serious Fraud Office inserted such language into its Innospec settlement, it received a lashing from Lord Justice Thomas who stated as follows.  “It would be inconceivable for a prosecutor to approve a press statement to be made by a person convicted of burglary or rape; companies who are guilty of corruption should be treated no differently to others who commit serious crimes.”

Finally, the least persuasive of Howard’s points in favor of NPAs and DPAs is that without such agreements “our lowered enforcement would reflect in international efforts as well” and that Russia ”would certainly not take its responsibilities seriously – if it saw reduced enforcement in the U.S.”

I take Howard’s point and on this issue I largely blame civil society and monitoring organizations (who do good work in other areas) but put out misleading report cards when it comes to enforcement statistics.  For instance, as noted in this prior post concerning the OECD’s Phase 3 Review of the U.S., one of the many ironies of the review was that while loudly praising the U.S. for its “high level” of enforcement, the Report quietly criticized and questioned many of the policies and enforcement theories which yield the “high level” of enforcement.  More to the point, the OECD noted ”one of the reasons for the impressive FCPA enforcement record in the U.S.” is the use of NPAs and DPAs,  yet the report noted that these agreements are subject to little or no judicial scrutiny.

It is plainly obvious (as noted in this prior post) that a reason (there are other reasons as well noted in the post) for the divergent level of enforcement in OECD countries is due to the fact that, to the best of my knowledge, only the U.S. has three options in “prosecuting” such cases:  charge, don’t charge, or use an NPAs or DPA.  Given the, what at times seems like a new “global arms race” to see which country can move up the enforcement score cards, other countries – most notably the U.K. – want these agreement as well.  However, this is all the more reason to get things right in this country least our “facade of FCPA enforcement” be further exported.  Quality should matter more than quantity when it comes to criminal law enforcement.

Keep rethinking Howard.