Archive for the ‘Carson’ Category

Recent Sentencing Activity

Tuesday, April 30th, 2013
Previous posts have highlighted the sentences of various defendants in the so-called Carson / CCI enforcement action.  The sentences were as follows.
Stuart Carson (four months in prison, followed by eight months of home detention).
Hong Carson (three years probation to include six months of home detention)
Paul Cosgrove (thirteen months of home detention)
David Edmonds (four months in prison followed by four months of home confinement).

In mid-March, Judge James Selna (C.D. Cal.) sentenced the remaining defendants in the case – Mario Covino, Richard Morlok and Flavio Ricotti.

This post highlights various issues connected to these sentences.  Each of these defendants were the first to plead guilty in the case and cooperated with the DOJ in the prosecution of the above defendants – the so-called “Carson” defendants.  Much is made in the sentencing memos of this and the fact that Covino, Ricotti, and Morlok did not force the DOJ to prove its case.  (For more on the ending of the cases against the ”Carson” defendants as the DOJ was close to being put to its burden of proof, see prior posts here and here).  The sentencing memos also shed light on the perceived unfairness from the defendants’ point of view of potentially receiving stiffer sentences than the ”Carson” defendants.  This did not happen as Judge Selna sentenced Covino and Morlok to probation and Ricotti to time served.

Covino

Covino was sentenced to three years probation, including a three-month period of home detention.

As explained in the DOJ’s sentencing memorandum, Covino was the first CCI employee to plead guilty.  The DOJ stated as follows.

“Beginning in February 2008, during the initial stages of the government’s investigation, defendant provided and subsequently continued to provide the government with invaluable information concerning the bribery practices at CCI.  [...] Defendant had a first-hand view of CCI’s “friends in camp” sale model and the improper payments that were an integral part of that model.  Defendant gave the government an insider’s view of the company’s sales practices, accounting systems, terminology, executives, employees, and agents, and provided a compelling narrative for the documents that indicated improper payments.  Defendant entered into a plea agreement in December 2008 and pleaded guilty in January 2009.  [...]  The government’s indictment of six individual defendants followed in April 2009.”

The DOJ further stated that “for several of the counts and overt acts in the indictment, defendant’s statements were the only witness testimony the government had available to corroborate payment records and e-mails.”

In its sentencing memo, the DOJ made much of the fact that Covino’s early acceptance of responsibility ”can be contrasted with the much later acceptance of responsibility by the Carsons, Cosgrove, and Edmonds, each of whom pleaded guilty only after approximately three years of hard-fought, protracted litigation.”  Elsewhere, the DOJ stated that it is “only fair” that Covino do “no worse than the defendants who resisted the government’s case for three years and only struck deals on the eve (or near eve) of trial.”  The DOJ recommended a sentence of probation.

Morlok

Covino was sentenced to three years probation, including a three-month period of home detention.

As explained in the DOJ’s sentencing memorandum, Morlok was the “second CCI employee to plead guilty, doing so just a few weeks after Mario Covino.”  The DOJ memo states that Morlok was CCI’s Finance Director from 2002 through 2007 and that in July 2007, ”shortly after a new Chief Financial Officer joined CCI and became defendant’s new boss, defendant precipitated a confrontation with senior sales executives over commission payments to Korea.  This confrontation ultimately escalated into the new CFO’s discovery of the systematic corrupt payments made by CCI from 1998 until 2007 as alleged in the indictment.  This discovery caused CCI to undertake an internal investigation that led to its voluntary disclosure to the Department of Justice.”  In all other respects, the DOJ’s sentencing memorandum is similar to the above Covino sentencing memo.

Morlok’s sentencing memorandum makes much of the fact that the “Guidelines calculations contained in the plea agreements for the Carson Defendants are significantly less severe than those included in the plea agreements for Mr. Morlock and Mr. Covino, the two cooperators in this matter.”  The sentencing memo states that “this inconsistency is a result only of a change in the government’s strategic position.”  Morlok’s sentencing memo states that he “accepted responsibility for his conduct not only after the government’s investigation began, but well before that, when he took steps in 2004 and in 2007 to bring CCI’s misconduct to the attention of CCI’s parent company.”  The memo states, “as the government points out, Mr. Morlok’s whistleblowing ultimately caused the internal investigation that led to CCI’s voluntary disclosure to the Department of Justice.”

Ricotti

Ricotti was sentenced to time served.

As explained in the DOJ’s sentencing memorandum, after the grand jury indictment in the case in April 2009, Ricotti, an Italian citizen and resident, was detained in Germany, subsequently extradicted, and following his guilty plea served nearly 11 months in federal custody.  The memo indicates that Ricotti was the third CCI employee to plead guilty after Mario Covino and Richard Morlock, both of whom pleaded guilty pre-indictment.  In all other respects, the DOJ’s sentencing memorandum is similar to the above Covino and Morlok sentencing memos.  Given Ricotti’s time in custody, the DOJ recommended a sentence of time served.

Ricotti’s sentencing memo makes much of the fact that given his time in custody he “already served the longest sentence in this case despite having cooperated and pleaded guilty long” before the other defendants “some of whom are significantly more culpable than Mr. Ricotti.”  Ricotti’s sentencing memo states as follows.

“Most of this time [Ricotti's time in custody] was in the United States, thousands of miles away from any family or friends.  Although he speaks English, Mr. Ricotti was completely cut off from Italian life and language.  Thus, Mr. Ricotti served ‘harder’ time than most defendants in this jurisdiction who usually have some cultural and family ties to the U.S.”

The sentencing memo also states as follows.  “After Mr. Ricotti began to cooperate and pleaded guilty, the remaining defendants continued their pitched litigation campaign against the government’s case for another year and forced the government to prepare for trial.  Nonetheless, they received disparately more favorable plea agreements and hence lighter sentences than Mr. Ricotti.”

*****

Thomas Farrell, a defendant in the long-running Bourke/Kozeny matter concerning alleged payments in Azerbaijan, was also recently sentenced.  Farrell, according to the DOJ, was involved in various investment vehicles used by Bourke, Kozeny and others in connection with the bribery scheme and pleaded guilty in 2003 to conspiracy to violate the FCPA and a substantive FCPA violation.  Judge Shira Scheindlin sentenced Farrell to time served with no period of supervised release.

Friday Roundup

Friday, February 1st, 2013

The SEC files an amended complaint, Judge Leon strikes again, a provocative press release, a focus on lobbying and for the reading stack.  It’s all here in the Friday roundup.

SEC Files Amended Complaint in Jackson / Ruehlen Matter

As highlighted in this prior post, this past December Judge Keith Ellison (S.D. Tex.) issued a lengthy 61 page decision (here) in SEC v. Mark Jackson and James Ruehlen.  In short, Judge Ellison granted Defendants’ motion to dismiss the SEC’s claims that seek monetary damages while denying the motion to dismiss as to claims seeking injunctive relief.  Even though Judge Ellison granted the motion as to SEC monetary damage claims, the dismissal was without prejudice meaning that the SEC was allowed to file an amended complaint.  As explained in the prior post, Judge Ellison’s decision was based on statute of limitations grounds (specifically that the SEC failed to plead any facts to support an inference that it acted diligently in bringing the complaint) as well as the SEC’s failure to adequately plead discretionary functions relevant to the FCPA’s facilitation payments exception.

Last week, the SEC filed its amended complaint (here).  The most noticeable difference in the amended complaint, based on my brief review of the 58 page document, appears to be several allegations regarding Nigerian law, including the Customs & Excise Management Act.

Judge Leon Strikes Again

This prior post generally discussed Judge Richard Leon’s rejection of the SEC v. IBM FCPA settlement, a case that still lingers on the docket.

As noted in this Main Justice story and this Wall Street Journal story, Judge Leon has struck again.  According to the reports, yesterday Judge Leon conducted a scheduled hearing in SEC – Tyco FCPA case in chambers, much to the dismay of media assembled in open court.

As noted in this prior post, in September 2012, the DOJ and SEC announced an FCPA enforcement against Tyco International Ltd. and a subsidiary company.  Total fines and penalties in the enforcement action were approximately $26.8 million (approximately $13.7 million in the DOJ enforcement action and approximately $13.1 million in the SEC enforcement action).  As noted in this SEC release, Tyco consented to a final judgment that orders the company to pay approximately $10.5 million in disgorgement and approximately $2.6 million in prejudgment interest.  Tyco also agreed to be permanently enjoined from violating the FCPA.

Although both the IBM and Tyco enforcement actions involve the SEC’s neither admit nor deny settlement language, this would not seem to be the key thread between these two enforcement actions that is drawing the ire of Judge Leon.  Rather as explained in this post summarizing the IBM enforcement action and this post highlighting various notable features of the Tyco action, both companies are repeat FCPA violators.  In resolving the “original” FCPA enforcement actions – IBM in 2000 and Tyco in 2006 – both companies agreed to permanent injunctions prohibiting future FCPA violations.

This prior post titled “Meaningless Settlement Language” detailed Judge Jed Rakoff’s discussion of so-called ”obey the law” injunctions in SEC v. Citigroup and this prior guest post discussed an Eleventh Circuit decision last year vacating a SEC “obey the law” injunction.

A Provocative Press Release

The law firm Bienert, Miller & Katzman (“BMK”) represented Paul Cosgrove (a former executive of Control Components Inc.) in the so-called Carson enforcement actions.  The Carson action involved a notable “foreign official” challenge and as highlighted in previous posts here, here, and here, after Judge Selna issued a pro-defendant jury instruction, the DOJ soon thereafter offered the remaining defendants (Stuart Carson, Hong Carson, David Edmonds, and Cosgrove) plea agreements which the defendants accepted.  As to those plea agreements, I ended each post by saying – the conclusions are yours to reach.  In Fall 2012, the defendants were sentenced as follows:  S. Carson (four months in prison), H. Carson (three years probation), Edmonds (four months in prison) and Cosgrove (15 months of home detention).  See this prior post regarding Carson sentencing issues.

In a January 17th press release (here), BMK stated as follows.

“BMK and counsel for three other defendants … conducted a worldwide investigation and developed evidence suggesting the government’s evidence was incomplete, the court documents indicate.  Ultimately,  most companies bought CCI valves because they were the best in the world (not because of bribes); most of the supposed “public officials” denied receiving any bribes; and, in most cases, the alleged improper payments were never actually made, according to court records.

Further, through an aggressive litigation and motion strategy, counsel were able to obtain jury instructions that highlighted the government’s heavy burden of proof at trial.  For example, the trial court agreed with defense counsel that the government was obligated to prove defendants’ knew they were dealing with “foreign officials,” something that would have been extremely difficult for the government to prove.  The supposed bribery recipients worked for companies that appeared to operate like private companies in the United States, making it very unlikely that the defendants realized they were dealing with “government officials.”

BMK and other defense counsel  raised several other issues that brought the government’s ability to obtain a conviction, or defend an appeal, into serious doubt.  These motions called into question whether the alleged bribe recipients were even “public officials” as intended by the FCPA; whether the Travel Act even applied to the case; and, whether defendants were entitled to millions of pages of documents that had been withheld from them by CCI, their former employer.  Each of these issues likely would have been decided for the first time on an appeal in this case.”

[Full disclosure - I was an engaged expert in the Carson cases, filed a "foreign official" declaration in connection with the motion to dismiss, and was disclosed as a testifying expert for the trial]

Lobbying

In my double-standard series (here), I have highlighted various aspects of lobbying here in the U.S.  The beginning of the recent opinion in U.S. v. Ring (D.C. Circuit) is an interesting read.  In pertinent part, it states as follows (internal citations omitted).

“Lobbying has been integral to the American political system since its very inception.  […] As some have put it more cynically, lobbyists have besieged the U.S. government for as long as it has had lobbies.” […]  By 2008, the year Ring was indicted, corporations, unions, and other organizations employed more than 14,000 registered Washington lobbyists and spent more than $3 billion lobbying Congress and federal agencies. […] 

The interaction between lobbyists and public officials produces important benefits for our representative form of government. Lobbyists serve as a line of communication between citizens and their representatives, safeguard minority interests, and help ensure that elected officials have the information necessary to evaluate proposed legislation. Indeed, Senator Robert Byrd once suggested that Congress “could not adequately consider [its] workload without them.” […]

In order to more effectively communicate their clients’ policy goals, lobbyists often seek to cultivate personal relationships with public officials. This involves not only making campaign contributions, but sometimes also hosting events or providing gifts of value such as drinks, meals, and tickets to sporting events and concerts. Such practices have a long and storied history of use—and misuse. During the very First Congress, Pennsylvania Senator William Maclay complained that “New York merchants employed ‘treats, dinners, attentions’ to delay passage of a tariff bill.” […] Sixty years later, lobbyists working to pass a bill that would benefit munitions magnate Samuel Colt “stage[d] lavish entertainments for wavering senators.” […] Then, in the 1870s, congressmen came to rely on railroad lobbyists for free travel. [...]. Indeed, one railroad tycoon complained that he was “averag[ing] six letters per day from Senators and Members of Congress asking for passes over the road.”

Reading Stack

Some dandy articles/essays to pass along regarding the FCPA books and records provisions, victim issues and criminal procedure.

FCPA Books and Records Provisions

Michael Schachter (Willkie Farr & Gallagher and a former Assistant United States Attorney in the Southern District of New York, where he focused on criminal prosecution of securities fraud and was a member of the Securities and Commodities Fraud Task Force) recently authored an article concerning the FCPA’s books and records provisions.  Titled “Defending an FCPA Books and Records Violation” and published in the New York Law Journal, the article begins as follows.

“In recent years, the books and records provisions of the [FCPA] have taken on new life, as both the [DOJ and SEC] have announced their intention to bring more charges, especially against individuals, for violation of this section of the FCPA.  A review of recent enforcement actions reveals that the Justice Department and the SEC consider the books and records requirement violated whenever corrupt payments are made to a foreign official and recorded in a corporation’s books as anything other than a ‘bribe,’ including, but not limited to, such things as commissions, social payments, or after sales service fees.  This article proposes that the books and records provision is, in fact, narrower than the Justice Department and the SEC interpretations suggest, and argues that both agencies may be using the provision to punish behavior falling outside the FCPA’s reach.”

Spot on.  See prior posts here and here.  See here for a word cloud of the FCPA’s books and records and internal control provisions.

Corporate Employer’s As Victims

The title of Professor Peter Henning’s recent White Collar Crime Watch post in the New York Times DealBook was “How Can Companies Sue Defendants in Insider Trading Cases?”  The post concerned the Mandatory Victims Restitution Act and Professor Henning writes that it ”has been interpreted to allow companies that incur costs in cooperating with the government to seek repayment of their expenses from defendants” and the “statute requires a court to order the reimbursement to victims of ‘other expenses incurred during participation in the investigation or prosecution of the offense.’”

The parallels to a company incurring expenses in connection with FCPA investigations based on employee conduct is obvious.

Yet, Professor Henning writes as follows.

“[T]he crucial word in the Mandatory Victims Restitution Act is “incurred,” and there isn’t a consensus among federal courts over what expenses are covered.  Companies want it to include all costs related to any part of the case, including dealing with the S.E.C. even though it can only pursue a civil enforcement case. Defendants take a much narrower view, arguing that mandatory restitution covers only expenses arising as direct result of the criminal prosecution by the Justice Department.

Ham Sandwich Nation

Glenn Reynolds (University of Tennessee College of Law) recently published an essay titled “Ham Sandwich Nation: Due Process When Everything is a Crime” (see here to download).  The essay does not mention the FCPA, yet it is very much applicable to the FCPA.  In just the past year, approximately 25 individuals criminally indicted by the DOJ have put the DOJ to its burden of proof and ultimately prevailed.  Ham Sandwich Nation would also seem applicable given the extensive use of NPAs and DPAs in the FCPA context.  The thesis of the essay is spot on.  Reynolds write as follows.

“Though people suspected of a crime have extensive due process rights in dealing with the police, and people charged with a crime have even more extensive due process rights in courts, the actual decision whether or not to charge a person with a crime is almost completely unconstrained.  Yet, because of overcharging and plea bargains, that decision is probably the single most important event in the chain of criminal procedure.”

Year In Review

The Year in Review version of Debevoise & Plimpton’s always informative and comprehensive FCPA Update is here.   Among the many topics discussed in the FCPA Update is the notion that many FCPA enforcement actions are based on very old conduct and the following observation.  “Targets of enforcement actions also run the risk that regulators – whether consciously or not – apply current expectations of appropriate compliance measures and effective internal controls mechanisms when evaluating the adequacy of procedures that existed at times when less rigorous standards may have commonly been considered acceptable.”  For my similar previous observation, see this prior post.

*****

A good weekend to all.

Carson Sentencing Issues

Monday, November 12th, 2012

As noted in this previous post, this past April, Stuart and Hong Carson (husband and wife) pleaded guilty in the DOJ’s long-standing case against them.  The guilty pleas came after the trial court judge (Judge James Selna – C.D. Cal.) issued a pro-defendant jury instruction relating to knowledge of foreign official.  (See here).  On the brink of the DOJ being put to its ultimate burden of proof on “foreign official” and other elements as well, the DOJ offered plea agreements to substantially reduced charges and the defendants, likely mindful of the high costs of testing their innocence, did what most rationale, risk averse actors in their position would do – agreed to plead guilty.

Last week, Judge Selna sentenced Stuart Carson to four months imprisonment, followed by eight months of home detention, and ordered him to pay a $20,000 fine.  Judge Selena sentenced Hong Carson to three years probation, to include six months of home detention, and ordered her to pay a $20,000 fine.

This post provides an overview of the Carson sentencing issues and highlights two issues from Judge Selna’s H. Carson sentencing memo.

First, Judge Selna stated as follows. ”The Court also does not give credit to the fact that she was educated in China, and has spent her career in a business environment that at a minimum raises potential conflicts with the Foreign Corrupt Practices Act.  There is no cultural defense to the present crime or any other under black letter law.”

Second, Judge Selna seemingly questioned the strength of the DOJ’s case.  He stated as follows.  “The Court also takes into account the strength of the Government’s case had the matter gone to trial.  While the Court found no legal impediment to the prosecution in the face of numerous challenges, the ultimate outcome of a number of issues on appeal was uncertain to a greater or lesser degree.”

As many readers know, in February 2011, the Carsons (along with other defendants in the case) filed a “foreign official” challenge (see this prior post) based in part on my “foreign official” declaration (see here).  As noted in this prior post, Judge Selna denied the pre-trial motion and concluded that the question of whether state-owned companies qualify as instrumentalities under the FCPA is a question of fact.

All of the below mentioned original source documents from the Stuart and Hong Carson sentencing can be accessed here.

Stuart Carson

In its sentencing brief, the DOJ recommended a six month sentence and a $20,000 fine.  The six month sentence factored in the DOJ’s request for a downward departure given Stuart Carson’s plea agreement and his cooperation and assistance to the DOJ including his willingness to testify at the trial of co-defendants Cosgrove and Edmonds.  The DOJ stated as follows.  “In the wake of defendant’s guilty plea and disclosure of his willingness to testify, co-defendants Cosgrove and Edmonds each entered into their own plea agreements with the government and subsequently pleaded guilty.  Defendant’s guilty plea and his willingness to testify as a government witness altered the landscape for the remaining defendants.  It enabled the government to focus its trial preparation on the two remaining defendants, wich would have resulted in a better trial presentation if those defendants had gone to trial.  And defendant’s testimony would have aided the government in its chances of obtaining a conviction.”

In its brief, the DOJ acknowledged that a guidelines range of zero to six months normally results in probation without any time in custody, but stated that “such an outcome is not appropriate for this defendant, because a sentence of straight probation or even a sentence that includes a component of home confinement would not adequately address defendant’s offense conduct or deter others from similar conduct.  As the President of CCI from 1989 through 2005, defendant was the highest-ranking CCI executive charged in this case.”

In recommending a six month sentence, the DOJ disagreed with the Probation Officer who concluded that a non-custodial sentence was warranted.  The DOJ stated as follows.  “The government sees a significant problem with the Probation Officer’s analysis, which seems largely driven by an effort to achieve some kind of parity with Cosgrove’s sentence.  It ignores the fact that it was Cosgrove’s serious and well-documented medical condition which compelled the Court to impose home confinement in lieu of imprisonment.”  [As noted in this prior post, in September, Judge Selna sentenced Cosgrove to 13 months home confinement].

In its brief the DOJ stated as follows.  “While the dollar amount involved in defendant’s offense conduct may not be large, it is the government’s view that any violations of the FCPA represents a ‘serious offense’ …”.

Judge Selna sentenced Stuart Carson to four months imprisonment, followed by eight months of home detention and a $20,000 fine.

Judge Selna stated as follows.  “In a typical case [involving a guidelines range of 0-6 months] probation with a term of home detention would be the appropriate sentence.  This case is not typical.  Although S. Carson pled to a single transaction, which was not listed in the Indictment, it is evident that the scheme was far broader, and that as chief executive officer of CCI, he played a major role in crafting and implementing the bribery scheme.  This case has garnered substantial attention in the general press and the business press.  Others in S. Carson’s position will be looking at the sentence which the Court imposes.  Deterrence is the overriding factor in the Court’s conclusion that a term of imprisonment is required here.  The Court needs to make clear that the Foreign Corrupt Practices Act has a serious purpose, and that it will be enforced.  [...]  A sentence of probation with home detention would be a minor inconvenience to a person in S. Carson’s circumstances.  It would not reflect the seriousness of the crime, and clearly would fall short of achieving the goal of deterrence.”

Judge Selna ordered that Stuart Carson surrender to the Bureau of Prisons on or before May 31, 2013.

Hong Carson

In its sentencing brief, the DOJ recommended a sentence of three years probation with a term of six months of home confinement.  Its recommendation factored in a two-level variance from the guidelines range of 10 to 16 months based on the same acceptance of responsibility and cooperation factors referenced above in connection with Stuart Carson as well as defendant’s circumstances.

The DOJ’s brief further states as follows.  “Defendant additionally argues that she is differently situated from her c0-defendants, in that she ‘viewed business [in China] through very different lenses based on her upbringing, education, and professional experience.’  The government cannot disagree that defendant, who was born in China and lived there until age 26, lacked the American education and early business training of her co-defendants.”

Judge Selna sentenced Hong Carson to three years probation to include six months of home detention and a $20,000 fine.  However, in his ruling Judge Selna rejected the DOJ’s recommendation of a variance based on Hong Carson’s circumstances.  Judge Selna stated as follows.  “The Court also does not give credit to the fact that she was educated in China, and has spent her career in a business environment that at a minimum raises potential conflicts with the Foreign Corrupt Practices Act.  There is no cultural defense to the present crime or any other under black letter law.”

In his sentencing memo, Judge Selna further stated as follows.  “The Court also takes into account the strength of the Government’s case had the matter gone to trial.  While the Court found no legal impediment to the prosecution in the face of numerous challenges, the ultimate outcome of a number of issues on appeal was uncertain to a greater or lesser degree.”

Judge Selna recommended that H. Carson’s home detention be served either before or after S. Carson’s serves his term of imprisonment so that one parent is available to meet the needs of the Carson children.

 

Edmonds Pleads Guilty As Trial Nears

Monday, June 18th, 2012

The Department of Justice would like for all to believe that its plea agreements represent acknowledgment of the legitimacy of its enforcement theories including as to “foreign official.”  A prior guest post (here) referred to this dynamic as prosecutorial common law.  As to “foreign official,” in the Carson briefing (see here at pg. 46) the DOJ stated the following - because DOJ has secured approximately 35 guilty pleas from individuals who admitted to bribing officials at SOEs ”it is thus ‘plain as a pikestaff’ that the FCPA prohibits paying bribes to officials who work at SOEs.”  You can subscribe to that position if you choose or realize that testing one’s innocence comes at a high cost in our system.  (See here for the prior post).

The conclusion is yours to draw, the facts are as follows.

*****

In April 2009, David Edmonds was criminally charged, along with other defendants who were also former employees of Control Components Inc. (CCI), in a criminal indictment (here) for engaging in “a conspiracy to secure contracts by paying bribes to officials of foreign state-owned companies as well as officers and employees of foreign and domestic private companies.”

As to Edmonds (the Vice-President of Worldwide Customer Service at CCI), the indictment alleged as follows.  “From in or around 2003 through in or around 2007, defendant Edmonds caused [CCI's] employees and agents to make corrupt payments totaling approximately $430,000 to officers and employees of state-owned companies, and corrupt payments totaling approximately $220,000 to officers and employees of private companies.”  “[CCI's] state-owned customers included, but were not limited to, Jiangsu Nuclear Power Corporation (“JNPC”)  (China), Guohua Electric Power (China), China Petroleum Materials and Equipment Corporation (“CPMEC”), PetroChina, Dongfang  Electric Corporation (China), China National Offshore Oil Corporation (“CNOOC”), Korea Hydro and Nuclear Power (“KHNP”),  Petronas (Malaysia), and National Petroleum Construction Company (“NPCC”) (United Arab Emirates).  Each of these state-owned entities was a department, agency, and instrumentality of a  foreign government, within the meaning of the FCPA. The officers  and employees of these entities, including the Vice-Presidents, Engineering Managers, General Managers, Procurement Managers, and Purchasing Officers, were “foreign officials” within the meaning of the FCPA.”

As noted in the DOJ release (here), Edmonds was charged with one count of conspiracy to violate the FCPA and the Travel Act, three counts of violating the FCPA and two counts of violating the Travel Act.

Shortly thereafter, CCI resolved an FCPA enforcement action based on the same core set of conduct alleged in the above indictment.  (See here for the prior post).  I noted then, as I had since launching this website in July 2009, that the DOJ’s position that employees of state-owned companies, regardless of position, are “foreign officials” under the FCPA is an unchallenged and untested legal theory – and one I believe is ripe for challenge.

In February 2011 (as noted in this prior post), for the first time in FCPA history, a federal court judge, with the benefit of a detailed and complete overview of the FCPA’s extensive legislative history on the “foreign official” element, was asked to rule on the DOJ’s interpretation that employees of alleged state-owned or state-controlled enterprises are “foreign officials” under the FCPA.  My declaration on the FCPA’s legislative history relevant to “foreign official” (here) was used in the “foreign official” motion to dismiss.

In May 2011 (as noted in this prior post), Judge James Selna denied the “foreign official” motion to dismiss and concluded that “the question of whether state-owned companies qualify as instrumentalities under the FCPA is a question of fact.”  The “foreign official” issue thus moved to the jury instructions (as noted in this prior post).

In February 2012 (as noted in this prior post), Judge Selna issued certain jury instructions.  Not surprisingly, Judge Selna carried forward his previous “instrumentality” analysis into the “instrumentality” jury instruction.  Yet, in a significant development in terms of the future of the case, Judge Selna issued an instruction titled “knowledge of status of foreign official.”  In pertinent part, the instruction stated as follows.

[.....]

“(4) The defendant offered, paid, promised to pay, or authorized the payment of money, or offered, gave, promised to give, or authorized the giving of anything of value to a foreign official;

(5) The payment or gift at issue in element 4 was to (a) a person the defendant knew or believed was a foreign official or (b) any person and the defendant knew that all or a portion of such money or thing of value would be offered, given, or promised (directly or indirectly) to a person the defendant knew or believed to be a foreign official. Belief that an individual was a foreign official does not satisfy this element if the individual was not in fact a foreign official.”

In his order, Judge Selna stated as follows.

“The Government proposes to add the following paragraph to element 5:”

The government need not prove that the defendant knew the legal definition of “foreign official” under the FCPA or knew that the intended recipient of the payment or gift fell within the legal definition. The defendant need not know in what specific official capacity the intended recipient was acting, but the defendant must have known or believed that the intended recipient had authority to act in a certain manner as specified in element 6.”

The Court does not believe that this language is necessary, and it is potentially confusing.”

As noted in this prior post, in April 2012 – a few months prior to trial, Stuart and Hong Carson pleaded guilty to conduct not found in the original indictment.  Pursuant to a plea agreement, Stuart Carson, 73, faces up to 10 months in prison and Rose Carson, 48, faces a sentence of three years probation, which may include up to six months of home confinement.

As noted in this prior post, in late May 2012 – a few weeks prior to trial, Paul Cosgrove (a 65 year old individual who recently underwent emergency heart quadruple bypass surgery) pleaded guilty to conduct not found in the original indictment.  Pursuant to a plea agreement, Cosgrove faces up to 15 months in prison.

Last week - a few weeks prior to his trial, the DOJ announced (here) that Edmonds pleaded guilty to a one-count superseding information charging him with making a corrupt payment to a foreign government official in violation of the FCPA.

Unlike the original indictment, the four page superseding information as to Edmonds (here) focuses solely on Public Power Corporation of Greece (“Public Power”) and states as follows.  “Public Power was a department, agency, and instrumentality of a foreign government with the meaning of the FCPA” and “officers and employees of Public Power were ‘foreign officials’ within the meaning of the FCPA.”  The superseding information then states that “on or about May 15, 2000″ Edmonds “corruptly caused an e-mail to be sent authorizing the payment of approximately $45,000 to officials of Public Power for the purpose of securing Public Power’s business.

For more on Public Power during the general time period alleged in the superceding information, see this Annual Report.

As noted in the DOJ’s release (here), “Edmonds, 59, faces up to 15 months in prison.  Sentencing is scheduled for Nov. 19, 2012.”

The Edmonds plea agreement (here) incorporates the substance of Judge Selna’s jury instruction set forth above.  In addition, the plea agreement states as follows.  “Defendant Edmonds understands that at any trial, the government would prove sufficient facts to demonstrate that Public Power was a government instrumentality within the meaning of the FCPA [...] and its employees ‘foreign officials’ within the meaning of the FCPA.”

The plea agreement further states as follows.  “Although defendant Edmonds did not actually know that the approximately $45,000 was to be offered, given, or promised to an employee of Public Power for the purpose of securing Public Power’s business, he was aware of a high probability of this circumstances and failed to make additional inquiries concerning the nature of the commission and the suspected recipient in order to determine whether the proposed commission payment might be made to an employee at Public Power for the purpose of securing Public Power’s business.”  The plea agreement further states as follows.  “Although defendant Edmonds did not know about the prohibitions of the FCPA, defendant Edmonds was aware that the law would forbid making an undisclosed payment to an employee of a customer for the purpose of securing the customer’s business.”

In the plea agreement, Edmonds waived any statute of limitations defenses.

Checking In On The Carson Case

Thursday, April 19th, 2012

In April 2009, Stuart and Hong Carson (husband and wife) were criminally charged, along with other defendants who were also former employees of Control Components Inc. (CCI), in a criminal indictment (here) for engaging in ”a conspiracy to secure contracts by paying bribes to officials of foreign state-owned companies as well as officers and employees of foreign and domestic private companies.”

The indictment alleged as follows.

“Company A’s state-owned customers included, but were not limited to, Jiangsu Nuclear Power Corporation (“JNPC”)  (China), Guohua Electric Power (China), China Petroleum Materials and Equipment Corporation (“CPMEC”), PetroChina, Dongfang  Electric Corporation (China), China National Offshore Oil Corporation (“CNOOC”), Korea Hydro and Nuclear Power (“KHNP”),  Petronas (Malaysia), and National Petroleum Construction Company (“NPCC”) (United Arab Emirates).  Each of these state-owned entities was a department, agency, and instrumentality of a  foreign government, within the meaning of the FCPA. The officers  and employees of these entities, including the Vice-Presidents, Engineering Managers, General Managers, Procurement Managers, and Purchasing Officers, were “foreign officials” within the meaning of the FCPA.”

As noted in the DOJ release (here), Stuart Carson was charged with one count of conspiracy to violate the FCPA and the Travel Act, and two counts of violating the FCPA.  Hong Carson was charged with one count of conspiracy to violate the FCPA and the Travel Act, five counts of violating the FCPA, and one count of destruction of records in connection with a matter within the jurisdiction of a department or agency of the United States.  This latter charge was ultimately dismissed by the DOJ.  As stated in the DOJ release, “in the period from 2003 through 2007, the defendants caused the valve company to pay approximately $4.9 million in bribes, in violation of the Foreign Corrupt Practices Act (FCPA), to officials of foreign state-owned companies …”.

Shortly thereafter, Control Components Inc. resolved an FCPA enforcement action based on the same core set of conduct alleged in the above indictment.  (See here for the prior post).  I noted, then, as I had since launching this website in July 2009, that DOJ’s position that employees of state-owned companies, regardless of position, are “foreign officials” under the FCPA is an unchallenged and untested legal theory – and one I believe is ripe for challenge.

In February 2011 (as noted in this prior post), for the first time in FCPA history, a federal court judge, with the benefit of a detailed and complete overview of the FCPA’s extensive legislative history on the “foreign official” element, was asked to rule on the DOJ’s interpretation that employees of alleged state-owned or state-controlled enterprises are “foreign officials” under the FCPA.  My declaration on the FCPA’s legislative history relevant to “foreign official” (here) was used in the “foreign official” motion to dismiss.

In May 2011 (as noted in this prior post), Judge James Selna denied the “foreign official” motion to dismiss and concluded that “the question of whether state-owned companies qualify as instrumentalities under the FCPA is a question of fact.”  The “foreign official” issue thus moved to the jury instructions (as noted in this prior post).

In February 2012 (as noted in this prior post), Judge Selna issued certain jury instructions.  Not surprisingly, Judge Selna carried forward his previous “instrumentality” analysis into the “instrumentality” jury instruction.  Yet, in a significant development in terms of the future of the case, Judge Selna issued an instruction titled “knowledge of status of foreign official.”  In pertinent part, the instruction stated as follows.

[.....]

“(4) The defendant offered, paid, promised to pay, or authorized the payment of money, or offered, gave, promised to give, or authorized the giving of anything of value to a foreign official;

(5) The payment or gift at issue in element 4 was to (a) a person the defendant knew or believed was a foreign official or (b) any person and the defendant knew that all or a portion of such money or thing of value would be offered, given, or promised (directly or indirectly) to a person the defendant knew or believed to be a foreign official. Belief that an individual was a foreign official does not satisfy this element if the individual was not in fact a foreign official.”

In his order, Judge Selna stated as follows.

“The Government proposes to add the following paragraph to element 5:”

The government need not prove that the defendant knew the legal definition of “foreign official” under the FCPA or knew that the intended recipient of the payment or gift fell within the legal definition. The defendant need not know in what specific official capacity the intended recipient was acting, but the defendant must have known or believed that the intended recipient had authority to act in a certain manner as specified in element 6.”

The Court does not believe that this language is necessary, and it is potentially confusing.”

Earlier this week, the DOJ announced (here) that Stuart Carson and Hong Carson “each pleaded guilty … before U.S. District Judge James V. Selna in Santa Ana, Calif., to separate one-count superseding informations charging them with making a corrupt payment to a foreign government official in violation of the FCPA.”

Unlike the original indictment, the four page superseding information as to Stuart Carson (here) focuses solely on Turow Power Plant in Poland and states as follows.  “Turow was a department, agency, and instrumentality of a foreign government, within the meaning of the FCPA, [...].  The officers and employees of Turow were “foreign officials” within the meaning of the FCPA.”  The superseding information states that on March 8, 2000, Stuart Carson “corruptly caused an e-mail to be sent authorizing the payment of approximately $16,000 to officials of Turow for the purpose of securing Turow’s business.”

Unlike the original indictment, the four page superseding information as to Hong Carson (here) focuses solely on Kuosheng Nuclear Power Plant in Taiwan and states as follows.  “Kuoshen was a department, agency, and instrumentality of a foreign government, within the meaning of the FCPA, [...].  The officers and employees of Kuosheng were “foreign officials” within the meaning of the FCPA.  The superseding information states that on August 14, 2002, Hong Carson “corruptly caused an e-mail to be sent authorizing the payment of $40,000 to officials of Kuosheng for the purposes of securing Kuosheng’s business.”

As noted in the DOJ’s release, “at sentencing (Oct. 15, 2012), Stuart Carson, 73, faces up to 10 months in prison.  Rose Carson, 48, faces a sentence of three years probation, which may include up to six months of home confinement.”

The conclusions are yours to reach.

Paul Cosgrove and David Edmonds remain defendants in the case and their trial is scheduled for June.

*****

Previous posts here and here discussed the motion to suppress filed by Cosgrove and Edmonds (joined by Hong Carson) to suppress certain statements made by the individuals to CCI and its counsel (Steptoe & Johnson) on the basis that its counsel were de facto public actors and that CCI’s actions in compelling their statements were “fairly attributable to the government” and ought to be suppressed.

Earlier this week, Judge Selna, whose practice is to issue tentative rulings, tentatively ruled (here), in connection with a subpoena to Steptoe & Johnson, that production must be made as to the following.  “All communications exchanged between Steptoe, IMI, and/or CCI on the one hand, and the United States Department of Justice, on the other hand during the period August 10 through August 25 2007 which relate to interviews of CCI employees, taken or to be taken, for the purpose of investigating actual or suspected violations of the [FCPA and Travel Act].  This includes but is not limited to all e-mails exchanged between Patrick Norton (Steptoe & Johnson) and Mark Mendelsohn (former DOJ FCPA unit chief).  Judge Selna noted that such information “could yield admissible evidence under the defendants’ Government-actor theory of agreements or understanding between Steptoe that would render Steptoe lawyers agents of the Government, specifically the Department of Justice, at the time the interviews of defendants were conducted.”

Judge Selna also issued another tentative ruling (here) regarding various aspects of the subpoena to Steptoe & Johnson that will be of interest to FCPA practitioners.