[This post is part of a periodic series regarding "old" FCPA enforcement actions]
In 1989, the DOJ criminally charged Minnesota based military equipment and supplies company Venturian Corporation, along with its wholly-owned subsidiary NAPCO International, with conspiracy to violate the Foreign Corrupt Practices Act, substantive FCPA offenses (anti-bribery, books and records and internal controls), as well as various tax fraud offenses.
The conduct at issue was in connection with the Foreign Military Sales (FMS) program in which the U.S. government made loans to certain foreign governments to finance the purchase of defense items of U.S. origin. The Defense Security Assistance Agency (DSAA), an agency of the U.S. Department of Defense, was responsible for directing, administering, and supervising FMS loans. In connection with the FMS program, contractors and commercial suppliers were required to certify, among other things, that: (i) ”commissions would be paid only to bona fide employees or agencies which neither exerted or proposed to exert improper influences to solicit or obtain the contact;” and (ii) “no rebates, gifts or gratutities contrary to U.S. law have been or would be given to officers, officials or employees of the purchaser …”.
The conduct at issue concerned the Republic of Niger, a foreign nation qualified to receive FMS loan assistance from the DSAA, specifically Tahirou Barke Doka (the First Counselor of the Embassy of Niger in Washington, D.C.) and Captain Ali Tiemogo (Chief of Maintenance for the air force component of the Niger Ministry of Defense).
According to the detailed 50-page information, Niger entered into a contract with Dornier GmbH (a West German aircraft maintenance company) to perform maintenance on Nigerien C-130′s. However, according to the indictment, “the Government of Niger had insufficient funds to pay for Dornier’s services and Dornier sought to affiliate with a U.S. contractor so that the Government of Niger could qualify” for the FMS program.
Thereafter, NAPCO, acting in cooperation with Dornier, began negotiations with the Government of Niger for a contract to furnish replacement parts and to perform maintenance on two C-130 transport aircraft owned by the airforce of the Government of Niger. Four contracts, in the approximate amount of $2.4 million, were entered into between NAPCO and the Government of Niger.
The information alleges that NAPCO conspired with others to violate the FCPA by making payments or authorizing payments of money to “officials of the Government of Niger, that is, Counselor Tahirou Barke Doka and Captain Ali Tiemogo” and “Fatouma Mailelel Boube and Amadou Mailele, both relatives of Tiemogo, while knowing that all or a portion of such money would be offered, given or promised, directly or indirectly, to foreign officials, namely Barke and Tiemogo” for the purpose of “influencing the acts and decisions of Barke and Tiemogo in their official capacities, and inducing them to use their influence with the Ministry of Defense.”
The information further alleged that NAPCO ”falsely represent[ed] to DSAA the identifies of NAPCO’s agents, misrepresenting the percentages of contract funds paid and to be paid to non-U.S. suppliers and filing misdated invoices.”
According to the information, the aggregate amount of bribes paid to Barke and Tiemogo was approximately $131,000. In addition, the information alleges that Barke ”traveled from Washington, D.C. to Niger for his wedding and subsequent honeymoon in Paris, Stockholm and London, using tickets charged to a NAPCO account.”
The information further alleges that NAPCO and others used various methods to conceal the conspiracy such as “preparing and using bogus commission agreements,” “creating a fictitious commission agent,” using the names of Mailele and Boube ”in order to conceal the payment of bribes,” “falsely representing to DSAA that Mailele and Boube were NAPCO’s agents “when these persons were not its agents, had performed no services for NAPCO, and had acted solely as the intermediaries for Tiemogo and Barke for the purpose of concealing the bribe payments.
In addition to the conspiracy charge and a substantive FCPA charges, the information also alleges that NAPCO filed false and fraudulent U.S. tax returns which “falsely claimed certain deductions for the payment of agent commissions.”
NAPCO pleaded guilty to the above charges (see here for the plea agreement). As noted in the plea agreement, the DOJ and the company settled on a fine amount in the “aggregate amount of $1 million in satisfaction of its criminal and civil fines, penalties, taxes and restitution.” The amount consisted of the following: $785,000 for the criminal charges set forth in the information, $140,000 in restitution “for full payment of its civil tax liability to the DSSA for appropriate crediting to the FMS account of Niger,” and $75,000 restitution to the IRS for full payment of all criminal and civil tax liabilities.
The plea agreement notes that the DOJ will not prosecute NAPCO for “Napco’s contracts with Egypt,” “alleged United States Customs violations arising from the sale of misidentified radios to the Government of Egypt and to other countries;” or “FCPA violations arising from the transactions evidenced in the documents Napco produced to the Yellow Grand Jury.”
The plea agreement further states:
“The Department of Justice will advise the Department of Defense, Defense Logistics Agency, which is the suspension and debarment authority in this matter, of the facts learned during the government’s investigation of Napco; Napco’ s cooperation during the investigation; and the importance of this prosecution in the government’s efforts towards eradicating fraud in the Foreign Military Sales program.”
The above settlement terms are set forth in this judgment.
According to original source media reports, the DSSA ”uncovered the fraud when it checked the name of one of the agents with the government of Niger.” Media reports quoted Theodore Greenberg (Deputy Chief DOJ Fraud Section) as follows: “[money from the FMS program] is to be used for the military preparedness of certain governments; that, of course, is important to our national security.” Media reports quoted Peter Clark (DOJ FCPA Unit) as follows: “the object of the program is to be getting the biggest bank for the buck – not to pay illegal bribes.”
(See here for NAPCO’s current company website).
(The FMS program is still an active program of the Defense Department – see here).
In addition to the enforcement action against NAPCO / Venturian, the DOJ also brought an injunctive action against Dornier. Of note, the DOJ described Dornier (a German company) as an “agent of NAPCO” and thus a “domestic concern” under the FCPA. As to relevant jurisdiction allegations, the DOJ alleged that a Dornier employee Axel Kurth, had telephone conversations with NAPCO employees in Minnesota and that Kurth traveled in the U.S. “where he met with officers of NAPCO” to discuss the alleged improper payments. Without admitting or denying the DOJ’s allegations, Dornier consented to a permanent injunction prohibiting future FCPA violations.
In addition, the DOJ criminally charged the Vice President of the Aerospace Division of NAPCO. That individual exercised his constitutional right to a jury trial, put the DOJ to its burden of proof, and the results and ultimate outcomes will be explored in a future post.