Archive for the ‘FCPA Sentences’ Category

Friday Roundup

Friday, July 25th, 2014

The U.K. SFO flexes its pre-Bribery Act muscle in criminally charging an Alstom subsidiary, other scrutiny alerts and updates, nominate, double standard, quotable, and for the reading stack.  It’s all here in the Friday roundup.

Alstom

As has been widely reported (see here and here for instance), the U.K. Serious Fraud Office announced:

“Alstom Network UK Ltd, formerly called Alstom International Ltd, a UK subsidiary of Alstom, has been charged with three offences of corruption contrary to section 1 of the Prevention of Corruption Act 1906, as well as three offences of Conspiracy to Corrupt contrary to section 1 of the Criminal Law Act 1977. The alleged offences are said to have taken place between 1 June 2000 and 30 November 2006 and concern large transport projects in India, Poland and Tunisia.”

According to the release, “the SFO investigation commenced as a result of information provided to the SFO by the Office of the Attorney General in Switzerland concerning the Alstom Group, in particular Alstom Network UK Ltd.”

I inquired with the SFO press office regarding any original source charging documents and was informed as follows.  ”Beyond our press release today, the nearest date for documents likely to be made available would be the charge sheet at the first court hearing – presently arranged for 9 September, at Westminster Magistrates’ Court.”

As readers likely know, since April 2013 the DOJ has charged four individuals associated with Alstom Power Inc., a subsidiary of Alstom, in connection with an alleged bribery scheme involving the Tarahan coal-fired steam power plant project in Indonesia. (See more below for a recent guilty plea).

As was the case in the U.S. – U.K. enforcement action against BAE (see here for the prior post) there may have been and/or currently is turf war issues between the agencies as to which agency is going to prosecute alleged conduct occurring in various countries.

Speaking of the DOJ action against various individuals associated with Alstom Power, last week, the DOJ announced that William Pomponi, a former vice president of regional sales at Alstom Power, pleaded guilty to a criminal information charging him with conspiracy to violate the FCPA in connection with the awarding of the Tarahan power project in Indonesia.

Assistant Attorney General Leslie R. Caldwell stated:

“The Criminal Division of the Department of Justice will follow evidence of corruption wherever it leads, including into corporate boardrooms and corner offices.  As this case demonstrates, we will hold both companies and their executives responsible for criminal conduct.”

As noted in the DOJ release:

“Pomponi is the fourth defendant to plead guilty to charges stemming from this investigation.   Frederic Pierucci, the vice president of global boiler sales at Alstom, pleaded guilty on July 29, 2013, to one count of conspiracy to violate the FCPA and one count of violating the FCPA; and, David Rothschild, a former vice president of regional sales at Alstom Power Inc., pleaded guilty to conspiring to violate the FCPA on Nov. 2, 2012.  Marubeni Corporation, Alstom’s consortium partner on the Tarahan project, pleaded guilty on March 19, 2014, to one count of conspiracy to violate the FCPA and seven counts of violating the FCPA, and was sentenced to pay a criminal fine of $88 million.   FCPA and money laundering charges remain pending against Lawrence Hoskins, the former senior vice president for the Asia region for Alstom, and trial is scheduled for June 2, 2015.”

See here for the original post highlighting the enforcement action against the individuals associated with Alstom and here for the original post regarding the Marubeni enforcement action.

Scrutiny Alerts and Updates

SEC Enforcement Action Against Former Magyar Telekom Executives

From Law360:

“The SEC has slimmed down its FCPA case against three former Magyar Telekom PLC executives, dropping claims they bribed government officials in Montenegro, according to a new complaint …  The amended complaint alleged former Magyar CEO Elek Straub and two other former executives, Andras Balogh and Tamas Morvai, authorized bribe payments to government officials in the Republic of Macedonia in exchange for regulations designed to hurt a competitor. The SEC, in its initial complaint in December 2011, had also alleged the defendants engaged in a second bribery scheme in Montenegro.  The agency said in a July 14 court filing that it would “continue to pursue the same legal causes of action alleged in its original complaint,” but without the claims related to Montenegro.  The SEC previously advised the court and defense attorneys in January 2014 of its intention to narrow the suit.”

Interesting, isn’t it, what happens when the SEC is put to its burden of proof.

Kowalewski Pleads Guilty

The DOJ announced:

“Bernd Kowalewski, the former President and CEO of BizJet, pleaded guilty … to conspiracy to violate the Foreign Corrupt Practices Act (FCPA) and a substantive violation of the FCPA in connection with a scheme to pay bribes to officials in Mexico and Panama in exchange for those officials’ assistance in securing contracts for BizJet to perform aircraft maintenance, repair and overhaul services.”

Assistant Attorney General Leslie Caldwell stated:

“The former CEO of BizJet, Bernd Kowalewski, has become the third and most senior Bizjet executive to plead guilty to bribing officials in Mexico and Panama to get contracts for aircraft services.  While Kowalewski and his fellow executives referred to the corrupt payments as ‘commissions’ and ‘incentives,’ they were bribes, plain and simple.  Though he was living abroad when the charges were unsealed, the reach of the law extends beyond U.S. borders, resulting in Kowalewski’s arrest in Amsterdam and his appearance in court today in the United States.  Today’s guilty plea is an example of our continued determination to hold corporate executives responsible for criminal wrongdoing whenever the evidence allows.”

U.S. Attorney Danny Williams (N.D. Okla.) stated:

“I commend the investigators and prosecutors who worked together across borders and jurisdictions to vigorously enforce the Foreign Corrupt Practices Act. Partnership is a necessity in all investigations. By forging and strengthening international partnerships to combat bribery, the Department of Justice is advancing its efforts to prevent crime and to protect citizens.”

See here and here for posts regarding the 2012 DOJ enforcement action against BizJet and here and here for the 2013 DOJ enforcement action against Kowalewski and others associated with BizJet.

Cilins Sentenced

As noted in this prior post, in April 2013 the DOJ announced (here) that “Frederic Cilins a French citizen, has been arrested and accused of attempting to obstruct an ongoing investigation into whether a mining company paid bribes to win lucrative mining rights in the Republic of Guinea.”  The Criminal Complaint charged Cilins with one count of tampering with a witness, victim, or informant; one count of obstruction of a criminal investigation; and one count of destruction, alteration, and falsification of records in a federal investigation.  Cilins was linked to Guernsey-based BSG Resources Ltd and in March 2014 the DOJ announced that Cilins pleaded guilty “to obstructing a federal criminal investigation into whether a mining company paid bribes to win lucrative mining rights in the Republic of Guinea.”  (See this prior post).

Last week, the DOJ announced that Cilins was sentenced to 24 months in prison.  In the DOJ release, U.S. Attorney Preet Bharara said:

“Frederic Cilins went to great lengths to thwart a Manhattan federal grand jury’s investigation into an alleged bribery scheme in the Republic of Guinea. In an effort to prevent the federal authorities from learning the truth, Cilins paid a witness for her silence and to destroy key documents. Today, Cilins learned that no one can manipulate justice.”

Assistant Attorney General Leslie Caldwell said:

“Cilins offered to bribe a witness in an FCPA investigation to stop the witness from talking to the FBI. Today’s sentence holds Cilins accountable for his effort to undermine the integrity of our justice system, and sends a message that those who interfere with federal investigations will be prosecuted and sent to prison.”

FBI Assistant Director-in-Charge George Venizelos said:

“Cilins obstructed the efforts of the FBI during the course of this investigation. His guilty plea and sentence demonstrate our shared commitment with the U.S. Attorney’s Office to hold accountable those who seek to interfere with the administration of justice. This case should be a reminder to all those who try to circumvent the efforts of a law enforcement investigation: the original crime and the cover-up both lend themselves to prosecution.”

According to the release, Cilins was also ordered to pay a fine of $75,000 and to forfeit $20,000.

GSK

From Reuters:

“GlaxoSmithKline faces new allegations of corruption, this time in Syria, where the drugmaker and its distributor have been accused of paying bribes to secure business, according to a whistleblower’s email reviewed by Reuters. Britain’s biggest drugmaker said on Thursday it was investigating the latest claims dating back to 2010, which were laid out in the email received by the company on July 18. The allegations relate to its former consumer healthcare operations in Syria, which were closed down in 2012 due to the worsening civil war in the country.  [...]  GSK has been rocked by corruption allegations since last July, when Chinese authorities accused it of funneling up to 3 billion yuan ($480 million) to doctors and officials to encourage them to use its medicines. The former British boss of the drugmaker’s China business was accused in May of being behind those bribes.  Since then, smaller-scale bribery claims have surfaced in other countries and GSK is now investigating possible staff misconduct in Poland, Iraq, Jordan and Lebanon. Syria is the sixth country to be added to the list. The allegations there center on the company’s consumer business, including its popular painkiller Panadol and oral care products. Although rules governing the promotion of non-prescription products are not as strict as for prescription medicines, the email from a person familiar with GSK’s Syrian operations said alleged bribes in the form of cash, speakers’ fees, trips and free samples were in breach of corruption laws. The detailed 5,000-word document, addressed to Chief Executive Andrew Witty and Judy Lewent, chair of GSK’s audit committee, said incentives were paid to doctors, dentists, pharmacists and government officials to win tenders and to obtain improper business advantages.”

Separately, this Reuters article states that the U.K. SFO  ”is working with authorities in China in a first for such Anglo-Chinese cooperation as it carries out its own investigation into alleged corruption at GSK.”  The article quotes SFO Director David Green as follows:  ”Certainly, so far as I am aware it is the first time we have had cooperation with the Chinese on an SFO case.”

Separately, in the U.S. this Wall Street Journal article states:

“Federal Bureau of Investigation agents have been interviewing current and former GSK employees in connection with bribery allegations made against the drug maker in China, according to a person familiar with the matter, as fresh claims of corruption surfaced against Glaxo’s operations in Syria. The interviews have taken place in Washington, D.C., in the past few months and are part of a Justice Department investigation into GSK’s activities in China, the person added. The U.S. Securities and Exchange Commission also is investigating the company’s business in China, according to people familiar with the matter.”

Key Energy Services

The company stated as follows in its Second Quarter 2014 Update and Earnings Release.

“Pre-tax expenses of approximately $5 million were incurred in connection with the previously disclosed Foreign Corrupt Practices Act investigations.”

Nominate

If FCPA Professor adds value to your practice or business or otherwise enlightens your day and causes you to contemplate the issues in a more sophisticated way, please consider nominating FCPA Professor for the ABA Journal’s Blawg 100 list (see here).

Double Standard

Beginning in 2009, I began writing about the “double standard” and how – despite the similarities between the FCPA and 18 USC 201 (the domestic bribery statute) – a U.S. company’s interaction with a “foreign official” is subject to more scrutiny and different standards than interaction with a U.S. official.  Since 2009, approximately 30 posts have appeared under the “double standard” subject matter tag.

Against this backdrop, I was happy to see another individual tackle the same general topic.  See here from the Global AntiCorruption Blog – “Is U.S. Campaign Finance Law More Permissive of Corruption Than the FCPA?”

Quotable

In this Corporate Crime Reporter interview, former U.S. Attorney Neil MacBride (E.D. Va.) says the following regarding the use of non-prosecution and deferred prosecution agreements:  “The Department now has the ability to reach more ambiguous conduct where it might be more difficult to prove a criminal conviction in court.”

Wait a minute!

If the conduct is ambiguous and the DOJ would have a difficult time to prove a criminal conviction in court, there should be no non-prosecution or deferred prosecution agreement.  Period.  End of story. The rule of law commands such a result.

Reading Stack

Over at the FCPA Compliance & Ethics blog, Tom Fox recently published a three-part series on M&A issues and the FCPA.  See Part I, Part II, and Part III.

Sherman & Sterling’s mid-year FCPA Digest, including its “Trends and Patterns” is here.  Among the trends and patterns:

“Recent paper victories by the SEC could be perceived as setbacks in the Commission’s actions against
individual defendants; and

The SEC has continued its practice of pursuing its theory of strict liability against a parent corporation
for the acts of its corporate subsidiaries.”

Kudos to Sherman & Sterling for adopting the “core” approach to keeping FCPA statistics.  (See here for the prior post regarding my suggested “core” approach).  The Digest states:

“We count all actions against a corporate “family” as one action. Thus, if the DOJ  charges a subsidiary and the SEC charges a  parent issuer, that counts as one action. In  addition, we count as a “case” both filed  enforcement actions (pleas, deferred prosecution agreements, and complaints)  and other resolutions such as  non-prosecution agreements that include  enforcement-type aspects, such as financial  penalties, tolling of the statute of  limitations, and compliance requirements.”

The most recent edition of Miller & Chevalier’s FCPA Update is here.  Debevoise & Plimpton’s always informative FCPA Update is here and Mayer Brown’s FCPA mid-year update is here.

Warning, the enforcement statistics cited in certain of the above updates will cause confusion because they do not adopt the “core” approach.

*****

A good weekend to all.

Alleged Bribes For Buses, However A Bumpy Road For The DOJ

Thursday, May 8th, 2014

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

This post highlights related Foreign Corrupt Practices Act enforcement actions brought by the DOJ in the early 1990s concerning an alleged scheme to sell buses to the Saskatchewan, Canada Transportation Company (STC), an alleged instrumentality of the Canadian government.

The enforcement action was a bumpy road for the DOJ.  Among other things, both the trial court and appellate court rebuked the DOJ’s position that the alleged “foreign officials” could be charged with conspiracy to violate the FCPA and both decisions contain an extensive review of the FCPA’s legislative history.  As to the alleged bribe payors, two defendants put the DOJ to its burden of proof at trial and were acquitted.

*****

In March 1990, the DOJ charged George Morton in this criminal information with conspiracy to violate the FCPA’s anti-bribery provisions. Morton is described as a Canadian national agent who represented Texas-based Eagle Bus Manufacturing Inc. (a subsidiary of issuer Greyhound Lines, Inc.) in connection with the sale of buses in Canada.  According to the information, Morton conspired with others in paying $50,000 to alleged Canadian “foreign officials” to obtain or retain business for Eagle Bus in violation of the FCPA.

The foreign officials were Darrell Lowry and Donald Castle, both Canadian nationals, and the Vice-President and President, respectively, of Saskatchewan Transportation Company (STC), an alleged instrumentality of the government of the Province of Saskatchewan.

The information specifically alleged that Morton requested “that Eagle pay money, in the sum of approximately two percent of the purchase price of 11 buses to be purchased by STC from Eagle, to officials of STC in order to ensure that Eagle received a contract for the sale of the buses.”  The information also alleged that Morton and others “offered, promised and agreed to pay, and authorized the payment of money to officials of the government of the Province of Saskatchewan in order for Eagle to obtain and retain a contract to sell buses to STC.”

According to the information, Morton and his conspirators used “various methods to conceal the conspiracy in order to insure the continuing existence and success of the conspiracy, including but not limited to: preparing and using false invoices and other documentation; and arranging to have an STC check drawn payable to a corporation owned and controlled by Morton and converting the proceeds into Canadian currency.”

The information alleges, as to overt acts among other things, that Morton traveled from Canada to Texas “to discuss the payment of money to officials of STC in order to obtain and retain a contract to sell the 11 buses.”

In this plea agreement, Morton pleaded guilty and agreed to cooperate with the DOJ.

This “Factual Resume” in the Morton case suggests that the purchase price of the buses was approximately $2.77 million.  It further suggests that Lowry told Morton “that a payment of Canadian $50,000 would be necessary in order for Eagle to ensure that the bus contract would be approved by STC’s Board of Directors” and that “Morton, whose compensation from Eagle was dependent upon the transaction being completed, agreed to attempt to obtain Eagle’s agreement to make the requested payment.” The Factual Resume further suggested that, while in Texas, “Morton met with Eagle’s President, John Blondek, and with Vernon Tull, a Vice-President of Eagle” and that “at the meeting, it was agreed that the requested payment would be made.”

A few days after Morton pleaded guilty, the DOJ filed this criminal indictment against Blondek and Tull (the Eagle executives) and Castle and Lowry (the alleged “foreign officials”).

The allegations were based on the same core conduct alleged in the Morton information and the indictment charged all defendants with conspiracy to violate the FCPA’s anti-bribery provisions.  Original source media reports suggest that videotaped evidence existed in which Tull told an official at Greyhound (who helped the FBI arrange the videotaped exchange) that Lowry was accepting the money for “political purposes.”

Castle and Lowry moved to dismiss the charge against them on the basis that “as Canadian officials, they cannot be convicted of the offense charged against them.”  In this June 1990 Memorandum Opinion and Order (741 F.Supp. 116), the trial court granted the motion.  The issues, as framed by the court, were as follows.

“[It is undisputed] that Defendants Castle and Lowry could not be charged with violating the FCPA itself, since the Act does not criminalize the receipt of a bribe by a foreign official.  The issue here is whether the government may prosecute Castle and Lowry under the general conspiracy statute, 18 USC 371, for conspiring to violate the FCPA.  Put more simply, the question is whether foreign officials, whom the government concedes it cannot prosecute under the FCPA itself, may be prosecuted under the general conspiracy statute for conspiring to violate the Act.”

By analogizing to a prior Supreme Court [Gebardi v. U.S.] which addressed a similar issue, the court stated:

“Congress intended in both the FCPA [and the statute at issue in Gebardi] to deter and punish certain activities which necessarily involved the agreement of at least two people, but Congress chose in both statute to punish only one party to the agreement.  In Gebardi the Supreme Court refused to disregard Congress’ intention to exempt one party by allowing the Executive to prosecute that party under the general conspiracy statute for precisely the same conduct.  Congress made the same choice in drafting the FCPA, and by the same analysis, this Court may not allow the Executive to override the Congressional intent not to prosecute foreign officials for their participation in the prohibited acts.”

The court next reviewed the FCPA’s legislative history and concluded that “Congress had absolutely no intention of prosecuting the foreign officials involved, but was concerned solely with regulating the conduct of U.S. entities and citizens.”

In rejecting the DOJ’s position, the court stated, among other things as follows.

“… Congress knew it had the power to reach foreign officials in many cases, and yet declined to exercise that power.  Congress’s awareness of the extent of its own power reveals the fallacy in the government’s position that only those classes of persons deemed by Congress to need protection are exempted from prosecution under the conspiracy statute.  The question is not whether Congress could have included foreign officials within the Act’s proscriptions, but rather whether Congress intended to do so, or more specifically, whether Congress intended the general conspiracy statute, passed many years before the FCPA, to reach foreign officials.”  (emphasis in original).

The court then stated:

“The drafters of the statute knew that they could, consistently with international law, reach foreign officials in certain circumstances. But they were equally well aware of, and actively considered, the “inherent jurisdictional, enforcement, and diplomatic difficulties” raised by the application of the bill to non-citizens of the United States. See H.R.Conf.Rep. No. 831, 95th Cong., 1st Sess. 14, reprinted in 1977 U.S. Cong. & Admin.News 4121, 4126. In the conference report, the conferees indicated that the bill would reach as far as possible, and listed all the persons or entities who could be prosecuted. The list includes virtually every person or entity involved, including foreign nationals who participated in the payment of the bribe when the U.S. courts had jurisdiction over them. Id. But foreign officials were not included.

It is important to remember that Congress intended that these persons would be covered by the Act itself, without resort to the conspiracy statute. Yet the very individuals whose participation was required in every case—the foreign officials accepting the bribe—were excluded from prosecution for the substantive offense. Given that Congress included virtually every possible person connected to the payments except foreign officials, it is only logical to conclude that Congress affirmatively chose to exempt this small class of persons from prosecution.

Most likely Congress made this choice because U.S. businesses were perceived to be the aggressors, and the efforts expended in resolving the diplomatic, jurisdictional, and enforcement difficulties that would arise upon the prosecution of foreign officials was not worth the minimal deterrent value of such prosecutions. Further minimizing the deterrent value of a U.S. prosecution was the fact that many foreign nations already prohibited the receipt of a bribe by an official. See S.Rep. No. 114 at 4, 1977 U.S. Cong. & Admin.News at 4104 (testimony of Treasury Secretary Blumenthal that in many nations such payments are illegal). In fact, whenever a nation permitted such payments, Congress allowed them as well.

Based upon the language of the statute and the legislative history, this Court finds in the FCPA what the Supreme Court in Gebardi found in the Mann Act: an affirmative legislative policy to leave unpunished a well-defined group of persons who were necessary parties to the acts constituting a violation of the substantive law. The Government has presented no reason why the prosecution of Defendants Castle and Lowry should go forward in the face of the congressional intent not to prosecute foreign officials. If anything, the facts of this case support Congress’ decision to forego such prosecutions since foreign nations could and should prosecute their own officials for accepting bribes. Under the revised statutes of Canada the receipt of bribes by officials is a crime, with a prison term not to exceed five years, see Criminal Code, R.S.C. c. C–46, s. 121 (pp. 81–84) (1985), and the Royal Canadian Mounted Police have been actively investigating the case, apparently even before any arrests by U.S. officials. Defendant Castle’s and Lowry’s Supplemental Memorandum In Support of Motion to Dismiss, filed May 14, 1990, at 10. In fact, the Canadian police have informed Defendant Castle’s counsel that charges will likely be brought against Defendants Castle and Lowry in Canada. Id. at 10 & nn. 3–4. Thus, prosecution and punishment will be accomplished by the government which most directly suffered the abuses allegedly perpetrated by its own officials, and there is no need to contravene Congress’ desire to avoid such prosecutions by the United States.

As in Gebardi, it would be absurd to take away with the earlier and more general conspiracy statute the exemption from prosecution granted to foreign officials by the later and more specific FCPA. Following the Supreme Court’s admonition in an analogous criminal case that “[a]ll laws are to be given a sensible construction; and a literal application of a statute, which would lead to absurd consequences, should be avoided whenever a reasonable application can be given to it, consistent with the legislative purpose,” [...] the Court declines to extend the reach of the FCPA through the application of the conspiracy statute.”

Accordingly, Defendants Castle and Lowry may not be prosecuted for conspiring to violate the Foreign Corrupt Practices Act, and the indictment against them is Dismissed.”

It is also interesting to note that the trial court observed as follows regarding the FCPA’s legislative history.

“The legislative history repeatedly cited the negative effects the revelations of such bribes had wrought upon friendly foreign governments and officials.  [...]  Yet the drafters acknowledged, and the final law reflects this, that some payments that would be unethical or even illegal within the United States might not be perceived similarly in foreign countries, and those payments should not be criminalized.”

The DOJ appealed the trial court’s dismissal of the conspiracy charge against Castle and Lowry. In this March 1991 5th Circuit opinion (925 F.2d 831) the court stated:

“We hold that foreign officials may not be prosecuted under 18 USC 371 for conspiring to violate the FCPA.  The scope of our holding, as well as the rationale that undergirds it, is fully set out in [the trial court opinion] which we adopt and attach as an appendix hereto.”

In this July 1991 superseding indictment, the DOJ charged Blondek and Tull with conspiracy to violate the FCPA’s anti-bribery provisions, Blondek with two substantive FCPA anti-bribery violations and Tull with three substantive FCPA anti-bribery violations.  In addition, the superseding indictment charged Blondek, Tull, Castle and Lowry with violating 18 USC 1952 (interstate and foreign travel or transportation in aid of racketeering enterprises – also known as the Travel Act).

In October 1991, the DOJ filed this Civil Complaint for Permanent Injunction against Eagle Bus based on the same core conduct. Without admitting or denying the allegations in the complaint, in this Consent and Undertaking Eagle Bus agreed to a Final Judgment of Permanent Injunction enjoining the company from future FCPA violations.  Of note, the Consent and Undertaking states:

“[Eagle Bus] has cooperated completely with the Department of Justice in a criminal investigation arising from the circumstances described in the complaint [...] and will continue to cooperate.  The DOJ has agreed that, in the event neither Eagle Bus, nor its parent corporation Greyhound Lines shall violate the FCPA during the period of the following three years, the DOJ will not object to the defendant’s subsequent motion to dissolve the permanent injunction.”

This February 1992 DOJ Motion for Downward Departure in Morton’s case states as follows.

“Morton cooperated with the United States in the investigation and indictment of defendants John Blondek, Donald Castle, Darrell Lowry and Vernon Tull.  Blondek and Tull were tried and acquitted of all charges on October 12, 1991.  Castle and Lowry have not been been apprehended and remain fugitives.  Morton rendered substantial assistance to the United States in the preparation and prosecution of the case against Blondek and Tull.  [...]  Morton also appeared as a witness for the Crown in criminal proceedings in Regina, Saskatchewan, Canada, against Castle and Lowry.  The United States is informed that Morton was of substantial assistance in that case.  In the Canadian case, Castle was acquitted of all charges, while Lowry was convicted of all charges.  Lowery has been sentenced to approximately 16 months incarceration.”

Morton was sentenced to three years probation.

According to docket entries, in April 1996, the DOJ moved to dismiss the charges against Castle and Lowry.

Other than a single sentence in the above mentioned DOJ motion for a downward departure in the Morton case, I was unable to find any public reporting or reference to the Blondek and Tull trial in which they were acquitted of all charges.  There is no reference to the trial on the DOJ’s FCPA website and efforts to learn more about the trial from former DOJ enforcement attorneys or those representing Eagle Bus were either not fruitful or unsuccessful.

FCPA trials are rare.  Thus if anyone has any information about the Blondek and Tull trial, please contact me at fcpaprofessor@gmail.com.

*****

One final note about the “buses for bribery” enforcement action.  In an original source media article, George McLeod, the provincial cabinet minister responsible for STC, said “he has seen no information that Saskatchewan paid an inflated price for the luxury buses.”  He is quoted as follows.  ”I don’t think the product is on trial.  As far as I’m aware, we received an excellent product for the price.”

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.

Did Richard Liedo Win Or Lose?

Monday, December 23rd, 2013

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

This previous post highlighted the 1989 Foreign Corrupt Practices Act enforcement action against NAPCO International in connection with military sales to the Republic of Niger.  The previous post noted that the DOJ also criminally charged the Vice President of the Aerospace Division of NAPCO and that this individual exercised his constitutional right to a jury trial and put the DOJ to its burden of proof.

That person was Richard Liedo and his enforcement action is worthy of its own post.

Among other things, the Liebo enforcement action resulted in a rare appellate FCPA decision, and an often overlooked one at that given that the court concluded that a jury could find that a subordinate who acted at his supervisor’s direction in providing a thing of value to a foreign official lacked “corrupt” intent.

In this lengthy 62 page criminal indictment, the DOJ charged Liebo in connection with the same bribery scheme alleged in the NAPCO action.  In pertinent part, the DOJ alleged that in connection with aircraft sales to Niger, Liebo conspired with others to violate the FCPA by making payments or authorizing payments of money to “officials of the Government of Niger, that is, 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] 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.”

In addition to the conspiracy charge (count 1), the DOJ also charged Liebo with 10 counts of violating the FCPA’s anti-bribery provisions (counts 2 – 11), one count of violating the FCPA’s books and records provisions (count 12), three counts of aiding and abetting in the preparation of false corporate income tax returns (counts 13 – 15), and five counts of making false statements to the Defense Security Assistance Agency (DSAA) of the U.S. Department of Defense in connection with the sales (counts 16 – 20).

Liebo exercised his constitutional right to a jury trial and put the DOJ to its burden of proof.

The jury considered 19 charges against Liebo (on the first day of trial, the court granted the DOJ’s motion to dismiss one of the false statement charges) and he was acquitted of 17 charges.  The only charges Liebo was convicted of was one count of violating the FCPA’s anti-bribery provisions and one count of making a false statement to DSAA.  The FCPA charge related to the payment of $2,028 “for the airline tickets purchased for Barke’s wedding and honeymoon travel.”

As noted in this judgment, Liebo was sentenced to 18 months in federal prison.  However, as noted in a Trace Compendium entry, “Liebo only served two of the 18 months, having petitioned for, and eventually received, a retrial.”

As noted in this Eighth Circuit opinion, Liebo appealed and argued on appeal that “his convictions should be reversed because of insufficient evidence and because the district court erred in instructing the jury” and that the “district court abused its discretion by denying his motion for a new trial based on newly discovered evidence.”

As to the FCPA anti-bribery charge Liebo was found guilty on, he argued on appeal that: (1) there was insufficient evidence to show that the airline tickets were given to obtain or retain business; and (2) that there was no evidence to show that his gift of honeymoon tickets was done corruptly.

After setting forth the standard of review (i.e. considering the evidence in the light most favorable to the government with all reasonable inferences and credibility determinations made in support of the jury’s verdict), the court stated as follows as to obtain or retain business.

“There is sufficient evidence that the airplane tickets were given to obtain or retain business. Tiemogo testified that the President of Niger would not approve the contracts without his recommendation. He also testified that Liebo promised to “make gestures” to him before the first contract was approved, and that Liebo promised to continue to “make gestures” if the second and third contracts were approved. There was testimony that Barke helped Liebo establish a bank account with a fictitious name, that Barke used money from that account, and that Barke sent some of the money from that account to Tiemogo. Barke testified that he understood Liebo deposited money in the account as “gestures” to Tiemogo for some “of the business that they do have together.”

Although much of this evidence is directly relevant to those counts on which Liebo was acquitted, we believe it appropriate that we consider it in determining the sufficiency of evidence as to the counts on which Liebo was convicted.

[…]

Moreover, sufficient independent evidence exists that the tickets were given to obtain or retain business. Evidence established that Tiemogo and Barke were cousins and best friends. The relationship between Barke and Tiemogo could have allowed a reasonable jury to infer that Liebo made the gift to Barke intending to buy Tiemogo’s help in getting the contracts approved. Indeed, Tiemogo recommended approval of the third contract and the President of Niger approved that contract just a few weeks after Liebo gave the tickets to Barke. Accordingly, a reasonable jury could conclude that the gift was given “to obtain or retain business.”

As to corrupt intent, the court stated as follows.

“Liebo also contends that the evidence at trial failed to show that Liebo acted “corruptly” by buying Barke the airline tickets. In support of this argument, Liebo points to Barke’s testimony that he considered the tickets a “gift” from Liebo personally. Liebo asserts that “corruptly” means that the offer, payment or gift “must be intended to induce the recipient to misuse his official position….”  […] Because Barke considered the tickets to be a personal gift from Liebo, Liebo reasons that no evidence showed that the tickets wrongfully influenced Barke’s actions.

We are satisfied that sufficient evidence existed from which a reasonable jury could find that the airline tickets were given “corruptly.” For example, Liebo gave the airline tickets to Barke shortly before the third contract was approved. In addition, there was undisputed evidence concerning the close relationship between Tiemogo and Barke and Tiemogo’s important role in the contract approval process. There was also testimony that Liebo classified the airline ticket for accounting purposes as a “commission payment.” This evidence could allow a reasonable jury to infer that Liebo gave the tickets to Barke intending to influence the Niger government’s contract approval process. We conclude, therefore, that a reasonable jury could find that Liebo’s gift to Barke was given “corruptly.” Accordingly, sufficient evidence existed to support Liebo’s conviction.”

As to Liebo’s argument on appeal that the “district court abused its discretion by denying his motion for a new trial based on newly discovered evidence,” Liebo noted that “two months after his conviction, a NAPCO employee provided Liebo with a memorandum showing [a superior's] approval to the charge of the airline tickets.”  Liebo argued that the discovery of this evidence warranted a new trial.  In support, Liebo argued that “he was acquitted on all other bribery counts for which there was evidence that the payment in question was approved [by a superior].  Liebo argued that evidence of a superior’s approval of the wedding trip was a determinative factor in the jury’s verdict by “pointing to a question sent out by the jury during their deliberations asking whether there was ‘any information regarding authorization for payment of wedding trip.’”

After noting that motions for a new trial based on newly discovered evidence are looked upon with disfavor, the court also noted that “courts have granted a new trial based on newly discovered evidence especially when the evidence supporting the defendant’s conviction is weak.”

The court closed its opinion as follows.

“[T]he evidence against Liebo, while sufficient to sustain the conviction, was not overwhelming. Indeed, we believe that the company president’s approval of the purchase of the tickets is strong evidence from which the jury could have found that Liebo acted at his supervisor’s direction and therefore, did not act “corruptly” by giving the tickets to Barke. Furthermore, we are highly persuaded that the jury considered such approval pivotal, especially in light of the question it submitted to the court during its deliberations and its acquittal of Liebo on the other bribery counts in which evidence of approval existed. Accordingly, we hold that the district court clearly abused its discretion in denying Liebo’s motion for a new trial.”

In the re-trial, Liebo was convicted of aiding and abetting FCPA anti-bribery violations and making a false statement to the DSAA.  He was then sentenced to three years probation, two months home detention, and 400 hours of community service.

Based on all of the above, the question is raised – did Richard Liedo win or lose when he put the DOJ to its burden of proof?

In this the exam grading season, I know where I come out when the one with the burden is 90% unsuccessful.

One Of The More Dubious FCPA Enforcement Actions Of All-Time

Wednesday, December 18th, 2013

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

If one were to compile a list of the most dubious Foreign Corrupt Practices Act enforcement actions of all-time, near the top of the list would be the DOJ’s 1994 enforcement action against Vitusa Corporation and its President Denny Herzberg.

In this criminal information, the DOJ alleged that Vitusa (a New Jersey corporation engaged in the business of selling commodities and other goods) “entered into a lawful contract to sell milk powder to the Government of the Dominican Republic.”

The DOJ then alleged as follows.

“Although Vitusa delivered the milk powder to the Government of the Dominican Republic, the Dominican government did not pay Vitusa promptly for the milk powder received and, in fact, maintained an outstanding balance due for an extended period of time.  Vitusa, therefore, made various efforts to collect the outstanding balance due, including contacting officials of the United States and Dominican Governments to obtain their assistance in securing payment in full.”

According to the DOJ, “during the pendency of the contract, Servio Tulio Mancebo (a citizen of the Dominican Republic) communicated to Herzberg a demand made by a foreign official [a senior official of the Government of the Dominican Republic] which called for the payment of a ‘service fee’ to that official in return for the official using that official’s influence to obtain the balance due to Vitusa for the milk powder contract from the Dominican Government.”

According to the DOJ, “Herzberg agreed to Mancebo’s proposal that Vitusa would pay a ‘service fee’ indirectly to the foreign official.”  Thereafter, the DOJ alleged that the Government of the Dominican Republic made payment of $63,905.12 to Vitusa on the contract, but that following Herzberg’s instruction, “Mancebo retained $20,000 from that payment.”

According to the DOJ, Vitusa and Herberg knew “that all or a portion of the money would be given to the foreign official for the purpose of inducing the official to use that official’s position and influence with the Government of the Dominican Republic in order to obtain and retain business, that is, full payment of the balance due for Vitusa’s prior sale of milk powder to the Government of the Dominican Republic.”

Based on the above allegations, the DOJ charged Vitusa with violating the FCPA’s anti-bribery provisions.

Based on the same allegations, the DOJ also charged Herzberg with violating the FCPA’s anti-bribery provisions.  (See here for the DOJ’s Statement of Facts).

Vitusa pleaded guilty and agreed to pay a $20,000 criminal fine (see here).

Herzberg also pleaded guilty and was placed on two years probation (see here).  Herzberg was also ordered to pay a $5,000 criminal fine, but the judgment notes that “this fine shall be applied to the $20,000 fine to be paid by Vitusa Corp.”

In the DOJ’s sentencing document (as to both Vitusa and Herberg – see here and here) the DOJ stated:

“The unlawful payments to the foreign official were made in order to obtain payment of a legitimate and lawful obligation owed by the Government of the Dominican Republic to Vitusa.  There was no loss to any party and no individual victim exists.”

See here Vitusa Corp.’s current website.

FCPA aficionados know that the Vitusa / Herzberg action is not the only FCPA enforcement action in which an enforcement agency alleged that payments in connection with securing a bona fide receivable violated the anti-bribery provisions.  See here for the prior post on the SEC’s 2010 FCPA enforcement action against Joe Summers.