Archive for the ‘Executive Enforcement Action’ Category

Bribery Of A Foreign Official On U.S. Soil

Thursday, April 17th, 2014

[This post is part of a periodic series regarding "old" FCPA enforcement actions]

The core enforcement action described below highlights a rare instance of FCPA violations being charged along with violations of the U.S. domestic bribery statute.  The enforcement action is also a rare instance of the United States being the location where the foreign official was allegedly bribed.

Control Systems Specialist / Darrold Crites

In this 1998 criminal information, the DOJ alleged that Control Systems Specialist, Inc. (“Control Systems” a company engaged in the purchase, repair, and resale of surplus military equipment) and its President Darrold Crites made improper payments to a Brazilian Air Force Lt. Colonel (“Col. Z”) stationed at Wright Patterson Air Force Based in Ohio.  The information describes Col. Z  as follows.

“Col. Z was the Foreign Liaison Officer for the Air Force of the Republic of Brazil … and was authorized to make purchases of military equipment on behalf of the Brazilian Aeronautical Commission (“BAC”), the purchasing agent of the Brazilian Air Force.  The BAC was an “instrumentality” of the Government of Brazil.”

The DOJ alleged that Crites met with a civilian employee of the United States Air Force who worked at Wright Patterson Air Force Base as the Command Country Manager (“Country Manager”) for Brazil and was responsible for representing the United States Air Force in dealings with Col. Z.

According to the DOJ, “Country Manager agreed to provide Crites with surplus part numbers, model numbers, and U.S. military sources of surplus parts in exchange for the promise of payments of money, using information he would obtain through his position as a civilian employee of the United States Air Force.”

In turn, the DOJ alleged that “Crites would thereafter purchase the surplus equipment identified by the Country Manager, recondition it, and resell the same to the BAC.”  According to the DOJ, Col. Z would approve the BAC’s purchase from Control Systems in exchange for payments of money.  Specifically, the DOJ alleged that Crites paid Col. Z “a series of bribes, disguised as ‘consultant fees,’ for each bid accepted by Col. Z on behalf of the BAC.”

The DOJ also alleged that Crites formed a separate company (“Company Y”) with the assistance of an Ohio businessman (“Businessman X”) to pay bribes to Col. Z “in exchange for his approval of Company Y’s bids to sell surplus U.S. military equipment to the BAC.”

According to the DOJ, Crites and Businessman X, as officers of Company Y “arranged not less than forty-four purchases of surplus U.S. military equipment for repair and resale to the BAC.”  The DOJ alleged as follows.

“Some of the surplus equipment was obtained by the BAC through the Defense Reutilization and Marketing Service (DRMS) under the Foreign Military Sales (FMS) program and then provided to Control Systems for repair.  Other equipment was purchased directly by Control Systems or Company Y, repaired, and then sold to the BAC.  In all cases, after each purchase was effected, Col. Z was paid for his approval of the transactions.”

According to the DOJ, Crites, Control Systems and others “paid a total of $99,000 to the Country Manager and a total of $257,139 to Col. Z.”

Based on the above allegations, the DOJ charged Control Systems and Crites with conspiracy to violate the FCPA’s anti-bribery provisions and a substantive violation of the FCPA’s anti-bribery provision.  Based on the allegations involving the Country Manager, the DOJ also charged Control Systems and Crites with violating 18 USC 201, the domestic bribery statute.

Pursuant to this plea agreement, Crites pleaded guilty to the three charges described above.  In the plea agreement, Crites agreed to cooperate with the DOJ.  According to the statement of facts in the plea agreement, “Crites and Control Systems received approximately $672,298 as a result of the contracts received from the government of Brazil.”  According to a docket entry, Crites was sentenced to three years probation (with the first six months of probation to be spent in home confinement with electronic monitoring with work release privileges) and 150 hours of community service.

Pursuant to this plea agreement, Control Systems also pleaded guilty to the three charges described above.  According to a docket entry, Control Systems was ordered to pay a $1,500 fine and was sentenced to one year probation.

International Materials Solutions Corp. / Thomas Qualey

Based on the same core allegations in the Control Systems / Crites enforcement action, in 1999 the DOJ also alleged in this criminal information that International Materials Solutions Corporation (“IMS” – like Control Systems an Ohio company that engaged in the purchase, repair, and resale of surplus military equipment) and Thomas Qualey (the President of IMS) conspired to violate the FCPA’s anti-bribery provisions and violated the FCPA’s anti-bribery provisions.  According to the information, IMS and Qualey paid a total of $67,563 to Col. Z to induce the approval by Col. Z of a bid by IMS for the acquisition and repair of ten fork lift trucks.

Pursuant to this plea agreement, Qualey pleaded guilty to the two charges described above.  According to the Statement of Facts in the plea agreement, Qualey and IMS “received approximately $392,250 as a result of the contracts received from the Government of Brazil.”  According to this judgment, Qualey was sentenced to three years probation ((with the first four months of probation to be spent in home confinement with electronic monitoring with work release privileges) and 150 hours of community service and ordered to pay a $5,000 fine.

Pursuant to this plea agreement, IMS pleaded guilty to the two charges described above.  According to this judgment, IMS was ordered to pay a $1,000 fine plus and was sentenced to one year probation.

See this prior post for another FCPA enforcement in connection with the U.S. Foreign Military Sales program.

Further To The Clustering Phenomenon

Wednesday, April 16th, 2014

Earlier this week, the DOJ announced that two additional individual defendants have been added to the Foreign Corrupt Practices Act (and related) enforcement action against individuals associated with broker dealer Direct Access Partners.  (See here for the original May 2013 enforcement action against Jose Hurtado and Tomas Clarke and here for an additional individual, Ernesto Lujan, being added to the enforcement action in June 2013).

Like in the previous enforcement actions, the additional defendants (Benito Chinea and Joseph DeMeneses, the Chief Executive Officer and a managing partner, respectively of Direct Access Partners) were criminally charged in connection with alleged improper payments to Maria Gonzalez (V.P. of Finance / Executive Manager of Finance and Funds Administration at Bandes, an alleged Venezuelan state-owned banking entity that acted as the financial agent of the state to finance economic development projects).

As noted in the DOJ’s release, Chinea and DeMeneses were each charged with one count of conspiracy to violate the FCPA and the Travel Act, five counts of violating the FCPA, and five counts of violating of the Travel Act. Chinea and DeMeneses were also charged with one count of conspiracy to commit money laundering and three counts of money laundering. DeMeneses was further charged with one count of conspiracy to obstruct justice.  (See here for the SEC’s announcement of a related enforcement action against Chinea and DeMeneses.  Like the SEC’s prior enforcement actions against the other individuals, Chinea and DeMeneses are charged with various securities law violations, but not FCPA offenses as the individuals – while associated with a broker dealer –  are not associated with an issuer).

As noted in the DOJ’s release, in August 2013 Lujan, Hurtado and Clarke each pleaded guilty to conspiring to violate the FCPA, to violate the Travel Act and to commit money laundering, as well as substantive counts of these offenses.

The DOJ’s enforcement action against Chinea and DeMeneses is further to the curious clustering phenomenon clearly observable in FCPA enforcement.

As highlighted in this previous post (with statistics calculated through the end of 2013), 53% of the individuals charged by the DOJ with FCPA criminal offenses since 2008 have been in just four cases and 75% of the individuals charged by the DOJ since 2008 have been in just nine cases.

Of further note (and again with statistics calculated through the end of 2013), of the 89 individuals charged by the DOJ with FCPA criminal offenses since 2008, 61 of the individuals (69%) were employees or otherwise affiliated with private business entities (for instance – Haiti Teleco related enforcement actions, Control Components Inc. Latin Node, Nexus Technologies, BizJet, not to mention failed prosecutions against various Africa Sting defendants and individuals associated with Lindsey Manufacturing).

This is a striking statistic given that 48 of the 60 corporate DOJ FCPA enforcement actions since 2008 (80%) (again using statistics calculated through the end of 2013) were against publicly traded corporations.  In short, a private entity DOJ FCPA enforcement is approximately three times more likely to have a related DOJ FCPA criminal prosecution of an individual than a public entity DOJ FCPA enforcement action.

Thus far in 2014, the trends have been further magnified.  In addition to this week’s action:

  • 5 individuals associated with private company Group DF were charged with FCPA offenses (see here); and
  • 3 individuals associated with private company PetroTiger Ltd. were charged with FCPA offenses (see here)

DOJ Announces FCPA Enforcement Action Against Former CEO’s and General Counsel Of PetroTiger

Tuesday, January 7th, 2014

Yesterday the DOJ announced FCPA and related charges against former executives of PetroTiger Ltd., a British Virgin Islands oil and gas company with operations in Colombia and offices in New Jersey, “for their alleged participation in a scheme to pay bribes to foreign government officials in violation of the FCPA, to defraud PetroTiger, and to launder proceeds of those crimes.”

The individuals charged were former co-CEOs of PetroTiger Joseph Sigelman and Knut Hammarskjold and former general counsel Gregory Weisman.

According to the DOJ release, Sigelman and Hammarskjold “were charged by sealed complaints filed in the District of New Jersey on Nov. 8, 2013″ and “Hammarskjold was arrested Nov. 20, 2013, at Newark Liberty International Airport” and “Sigelman was arrested on Jan. 3, 2014, in the Philippines and appeared [yesterday] in Guam before a U.S. Magistrate Judge” and “will have an initial appearance in New Jersey federal court on a date to be determined.”  According to the release, Weisman “pleaded guilty on Nov. 8, 2013, to a criminal information charging one count of conspiracy to violate the FCPA and to commit wire fraud.”

Sigelman

This criminal complaint, charges Sigelman with conspiracy to violate the FCPA’s anti-bribery provisions as well as three substantive FCPA charges.  The FCPA charges are based on allegations that Sigelman and others made at least four transfers of money in the approximate amount of $333,500 to an account in Colombia of a “foreign government official in Colombia.”

Elsewhere, the complaint identifies the foreign official as “an official at Ecopetrol [who] had influence over the approval and award of contracts by Ecopetrol, including the Mansarovar Contract.”  Ecopetrol is alleged to be “the state-owned and state-controlled petroleum company in Colombia” and the complaint states as follows.

“Ecopetrol was created by national law, and it was required by law that Colombia conserve, at a minimum, eighty percent of the shares in circulation, with voting rights. During the relevant time period, Colombia controlled 89.9% of Ecopetrol’s outstanding capital stock, and held the right to elect the majority of the members of the company’s board of directors. Ecopetrol’s board of directors included the Minister of Mines and Energy, the Minister of Finance, and the Director of the National Planning Agency of Colombia. Ecopetrol was responsible for approving contracts to drill or perform services on oil fields in Colombia, including the Mansarovar Contract.”

The complaint also refers to the official’s wife and states that “the Official’s Wife purportedly provided finance and management related consulting services for PetroTiger [when] in reality, the Official’s Wife served as a conduit for bribe payments to the Official.”

Under the heading “Bribery Scheme,” the complaint alleges that Sigelman and other PetroTiger executives [Hammarskjold and Weisman] ”attempted to secure the Mansarovar Contract” and ”because Ecopetrol had ultimate authority for approving projects and contracts to perform oil-related services in Colombia, Sigelman [and the other executives] were required to obtain approval from Ecopetrol for the Mansarovar Contract.”

According to the complaint, Sigelman and others “in order to secure Ecopetrol’s approval for the Mansarovar Contract,” “paid bribes to the Official, who had the ability to influence the approval process.”

The complaint states that Sigelman and others “attempted to conceal the bribes by funneling the payments through the Official’s Wife and by falsely claiming in documents that the payments were for finance and management consulting services that the Official’s Wife purportedly performed for PetroTiger.”  The complaint further states that “when transfers to the bank account in the name of the Official’s Wife failed as a result of incorrect account information,” Sigelman and others “transferred the money directly to a bank account in the name of the Official.”

According to the complaint, PetroTiger was successful in “obtaining Ecopetrol’s approval, and secured the Mansarovar Contract” which was valued “at approximately $39.6 million, and has resulted in a gross profit to date, of approximately $3.5 million.”

The Sigelman complaint also charges one count of conspiracy to commit money laundering and one count of conspiracy to commit wire fraud.  These charges are based, in pertinent part, on allegations that an owner of a company ”being acquired by Sigelman and others” transferred approximately $262,000 “as part of an illegal kickback scheme” to Sigelman’s bank account and that Sigelman then “divided up the money and transferred portions of the money” to other PetroTiger executives.  According to the complaint, Sigelman and the others “did not disclose to their investing partners that they were receiving a kickback in exchange for the additional money that the investing partners would be paying in connection with the acquisition of the Target Company.  As a result, the investing partners were deprived of money and property and the honest services of” Sigelman and others.  According to the complaint, this “Target Company” was “an oil services company with operations in Colombia” that PetroTiger acquired in 2009 for approximately $53 million.

Hammarskjold

This criminal complaint also charges Hammarskjold with conspiracy to violate the FCPA’s anti-bribery provisions as well as three substantive FCPA charges based on the same conduct alleged in the Sigelman complaint.

The Hammarskjold complaint also charges one count of conspiracy to commit money laundering and one count of conspiracy to commit wire fraud based on the same kickback scheme alleged in the Sigelman complaint.

Weisman

This criminal information alleges the same bribery scheme and kickback scheme as the Sigelman and Hammarskjold complaints.  However, the information only charges one count of conspiracy to violate the FCPA and to commit wire fraud.

The Weisman information further states as follows.

“On or about September 28, 2010, at board meeting of PetroTiger, Executive A [Sigelman] stated that he and others were dealing with non-transparent commercial practices in Colombia.  On or about September 28, 2010, at the board meeting … in response to a question about whether Executive A was upholding PetroTiger’s Code of Business Principles, which included a prohibition on bribery, Executive A stated that he was.”

The Weisman information also contains a forfeiture allegation seeking forfeiture of approximately $52,000 (the amount of the alleged kickback Weisman received).

In the DOJ’s release, Acting Assistant Attorney General Mythili Raman stated:

“We have said – repeatedly and emphatically – that foreign corruption, whether committed by companies or by the individuals entrusted to run those companies, will not be tolerated.   And, our track record in vigorously enforcing the FCPA has shown that message to be undeniably true.  The charges unsealed today against two former CEOs of PetroTiger and the guilty plea announced today of the former General Counsel reaffirm our clear message that we will prosecute corruption and fraud wherever we find it.   Bribery distorts what should be a level playing field and deprives corporations and governments of funds that should instead be used to strengthen those institutions.   Today’s announcement should be a reminder to CEOs and other executives who seek to corrupt the system at the expense of honest businesses:   we are not going away.”

U.S. Attorney Paul Fishman of the District of New Jersey stated:

“Bribery of public officials, whether at home or abroad, corrupts business opportunity and undermines trust in government.  The under-the-table deals alleged in today’s charges are not an acceptable way of doing business.”

Special Agent in Charge Aaron Ford of the FBI’s Newark Division stated:

“The FBI is committed to pursuing those who disrupt the level playing field to which companies in the U.S. and around the world are entitled.  We will continue to investigate these matters by working with law enforcement agencies, both foreign and domestic, to ensure that both corporations and executives who bribe foreign officials for lucrative contracts are punished.”

The DOJ’s release further states:

“The department has worked closely with and has received significant assistance from its law enforcement counterparts in the Republic of Colombia and greatly appreciates their assistance in this matter.   The department also thanks the Republic of the Philippines, including the Bureau of Immigration, for its assistance in this matter.   Significant assistance was also provided by the Criminal Division’s Office of International Affairs.”

Swiss National, A Former Maxwell Technologies Exec, Criminally Charged

Thursday, October 17th, 2013

When highlighting the frequent lack of individual Foreign Corrupt Practices Act charges in connection with most corporate FCPA enforcement action, the qualifier “at least yet” has always been used.  This qualifier if warranted because in certain instances individual charges follow years after a corporate FCPA enforcement action.

For instance, in January 2011 Maxwell Technologies (a California-based manufacturer of energy storage and power delivery products) resolved parallel DOJ and SEC FCPA enforcement actions concerning alleged business conduct in China by agreeing to pay approximately $14 million.

Alleging the same core conduct at issue in the 2011 corporate enforcement action, earlier this week the DOJ criminally charged Alain Riedo, a Swiss citizen, with conspiracy and substantive violations of the FCPA’s anti-bribery provisions, books and records and internal controls provisions.  According to the indictment, Riedo was, at various relevant times, a Vice President and General Manager of Maxwell Technologies S.A. (a wholly-owned subsidiary of Maxwell Technologies incorporated and located in Switzerland)  as well as a Senior Vice President and officer of Maxwell.  As noted in this SEC filing, in July 2009 the employment contract between Riedo and Maxwell was terminated.

According to this Wall Street Journal Risk and Compliance post, Riedo is currently “the director of the Fribourg chapter of the Chamber of Commerce and Industry of Switzerland” and the DOJ considers Riedo a fugitive.

As indicated above, the allegations in the Riedo indictment mirror the conduct at issue in the 2011 Maxwell corporate enforcement action.

In pertinent part, the DOJ alleges that Riedo and others made “corrupt payments to Chinese government officials, including officials at Pinggao Group, Xi-an XD and Shenyang HV, and to others” and falsely “record[ed] such payments on Maxwell’s books, records, and accounts, in order to obtain and retain business, prestige, and increased compensation for Riedo, Maxwell, Maxwell S.A. and others.”

As in the prior corporate enforcement action, Pinggao is alleged to be a “state-owned and state-controlled manufacturer of electric-utility infrastructure in Henan Provice, China,” Xi-an XD is alleged to be a “state-owned and state-controlled manufacturer of electric-utility infrastructure in Shaanxi Province, China,” and Shenyang HV is alleged to be “either state-owned or substantially controlled by the Chinese government.”

Like the prior corporate enforcement, Agent 1 (a Chinese national who served as Maxwell S.A.’s third party agent from 2002 to 2009 and was “responsible for the sale of Maxwell capacitors to customers” in China) is prominently mentioned in the Riedo indictment.  According to the indictment, Agent 1 “would and did pay bribes to Chinese government officials” and “would and did ensure that the quotes [obtained from Maxwell S.A.] contained a secret mark-up of approximately 20 percent, resulting in a higher total price to the Chinese customers for Maxwell S.A.’s equipment.”  According to the indictment, Riedo and another individual caused Maxwell S.A.’s books and records to “falsely record the ‘extra amount’ bribe payments as commissions, sales expenses, or consulting fees.”

The indictment further alleges that Riedo and another individual “would and did hamper efforts by other Maxwell executives to learn the truth about operations and finances at Maxwell S.A’s operations in Switzerland” and that “after Maxwell terminated its sales-representative arrangement with Agent 1, Riedo would and did attempt to re-hire Agent 1 as the company’s sales agent in China under the name of another company and against the instructions of Maxwell’s CEO.”

The DOJ generally alleges the following U.S. acts by Riedo.

  • Riedo electronically transmitted or caused to be transmitted to Maxwell’s headquarters in California Maxwell S.A’s false books and records and also caused the false entries to be included “in Maxwell’s books, records, and accounts, including Maxwell’s publicly filed financial statements and SEC filings.”
  • Riedo signed a “sub-certification” as part of Maxwell’s Sarbanes-Oxley process and falsely certified information that Riedo knew was incorrect and that Riedo caused the false “sub-certification” and other financial data to be sent to corporate headquarters in California.
  • Riedo sent an e-mail from Switzerland to California “asking Maxwell’s CFO to release funds to Agent 1 to retain business in China”
  • Riedo sent an e-mail from Switzerland to California attaching an “FCPA” certificate and asking Maxwell’s CFO to proceed in approving payment of an extra amount.

The DOJ further alleges that Riedo completed an internal Maxwell questionnaire and answered “no” to various FCPA issues “when in fact Riedo knew that Agent 1 was, directly and indirectly, receiving extra-amount payments and passing those payments along to employees of Chinese state-owned entities and other companies in order to obtain or retain business.”

Based on the above allegations, the indictment charges conspiracy to violate the FCPA’s anti-bribery and books and records and internal controls provisions, two substantive violations of the anti-bribery provisions, five substantive violations of the FCPA’s books and records provisions, and one substantive violation of the FCPA’s internal controls provisions.

This will be an interesting case to follow should Riedo choose to contest the DOJ’s charges.

Aside from the enforcement theory that employees of alleged China SOEs are “foreign officials” under the FCPA (the same general issue is currently on appeal before the 11th Circuit – see here), are potential jurisdiction issues.  In certain respects, this action may implicate the same general issues as in SEC v. Elek Strab et. al (see here for the pre-trial motion to dismiss decision) and SEC v. Herbet Steffen (see here for the pre-trial motion to dismiss decision).

Checking In

Thursday, August 1st, 2013

This post checks in on recent developments in two enforcement actions:  (i) the FCPA enforcement action against various individuals associated with Alstom; and (ii) the FCPA-related enforcement action against alleged Haitian “foreign official” Jean Duperval currently on appeal to the 11th Circuit.

Alstom-Related Action

Earlier this week, the DOJ announced that Lawrence Hoskins, “a former senior vice president for the Asia region for [Alstom], was charged in the District of Connecticut with conspiring to violate the Foreign Corrupt Practices Act (FCPA) and to launder money, as well as substantive FCPA and money laundering violations.”

The conduct at issue in the Second Superceding Indictment is the same core conduct alleged in original criminal charges filed against Frederic Pierucci and David Rothschild, as well as the conduct alleged in the Superceding Indictment which added William Pomponi to the action.  (See here and here for previous posts).    That is -  alleged payments in connection with the Tarahan coal-fired steam power plant project in Indonesia.  In the prior charging documents, Hoskins was generically referred to as Executive A.

As noted in previous posts, Rothschild pleaded guilty to conspiracy to violate the FCPA.

The DOJ further announced in its release earlier this week that Pierucci pleaded guilty to one count of conspiring to violate the FCPA and one count of violating the FCPA.  (See here for the plea agreement).

Duperval Action

This previous post detailed the 11th Circuit appeal of Jean Duperval.  Duperval was one of the alleged “foreign officials” charged in connection with the Haiti Teleco enforcement actions (see here for a summary and roundup of the entire Haiti Teleco enforcement actions) with non-FCPA offenses and he was found guilty by a jury of various money laundering charges.

As noted in the previous post, in his appeal Duperval argues, among other things, as follows.  “The evidence was insufficient to prove beyond a reasonable doubt that Haiti Teleco was a government instrumentality and that Jean Rene Duperval was a foreign official as required to prove that a violation of the Foreign Corrupt Practices Act generated proceeds of a specified unlawful activity – a necessary predicate for the convictions on the money laundering conspiracy and substantive money laundering charges.”

As noted in the previous post, Duperval’s substantive arguments as to “foreign official” largerly mirror the arguments of Joel Esquenazi and Carlos Rodriguez (also criminally charged and convicted in the Haiti Teleco matter) in their historical “foreign official” appeal to the 11th Circuit (see here for links to the briefing).

Among other things, Duperval’s argument includes discussion and several citations to my “foreign official” declaration  (see here).

Briefing is now complete in the Duperval appeal.

Not surprisingly, the DOJ’s arguments in connection with “foreign official” largely mirror the arguments it makes in the Esquenazi and Rodriguez appeal.  The DOJ is again seeking to exclude my foreign official declaration from the record and its brief states:

“Duperval relies on a 144-page declaration by a proposed defense expert that was filed on behalf of the defendants in Carson.  Although Duperval suggests that this Court may take judicial notice of the declaration because it relates to legislative history, the declaration selectively reviews the legislative history and draws inferences in support of a defense motion to dismiss the indictment. As such, it is not necessarily the statement of a disinterested expert, it was not reviewed as a scholarly article, and it was never subject to impeachment in the case below.”

Last week Duperval filed a reply brief, and not surprisingly, the arguments in connection with “foreign official” largely mirror the arguments made by Esquenazi and Rodriguez in their reply brief.  As to my “foreign official” declaration, the brief states:

“The government also condemns Duperval’s reference to Professor Michael J. Koehler’s declaration addressing the legislative history of the FCPA, which was filed in United States v. Carson. Aside from the analysis contained in the Koehler declaration, the substance of the declaration is the legislative history of the FCPA. The Court can surely take notice of legislative history, and evaluate the utility and accuracy of Professor Koehler’s declaration for itself. But the Government’s claim that the declaration of a professor filed in another criminal proceeding and under penalty of perjury is somehow of lower status than a law-review article reviewed by law students strains credulity.”

It will be an interesting “foreign official” Fall in the 11th Circuit.