Archive for the ‘Fernando Maya Basurto’ Category

Potpourri

Monday, April 9th, 2012

“Can Someone Please Turn On the Lights”

Former U.S. Attorney General Michael Mukasey (here - currently at Debevoise & Plimpton and active in the FCPA reform movement on behalf of the Chamber of Commerce) and James Dunlop (here – Jones Day) recently published “Can Someone Please Turn On the Lights?  Bringing Transparency to the Foreign Corrupt Practices Act” (here).  Published in Engage, a publication of the Federalist Society, the article asserts as follows.

” … [The] unobjectionable vision [of the FCPA] has virtually disappeared in a miasma of aggressive prosecutions by the Justice Department … The FCPA is almost never litigated in court. Public companies are the typical FCPA target, and such defendants are rarely positioned to litigate criminal charges, or even risk indictment, given (among other things) the substantial risk of federal contract debarment in many industries. The same is often true for individuals, most of whom face substantial prison time if convicted and who are thus unwilling to hang their hopes on uncertain interpretive arguments. As a result, the FCPA has had almost no judicial oversight, with the result that corporations trying to comply with its mandates find they are fighting corruption in the dark, their quest for standards confined to making mitigation arguments in prosecutors’ offices. This has enabled the FCPA’s enforcers, the Justice Department, and the Securities and Exchange Commission, to ‘win’ most FCPA cases through plea bargains or settlements, in which regulators set the terms, and into which regulators import their capacious constructions of the FCPA. This regulatory latitude has, in turn, transformed the FCPA into a catch-all for illicit conduct abroad, no matter how removed the target of the enforcement action is from the underlying offense. As Professor Mike Koehler has put it, ‘the FCPA means what the enforcement agencies say it means.’”

The article next states that “because the FCPA will never be heavily litigated—thus depriving the courts of the opportunity to clarify its murky text—Congress must speak clearly about what conduct does and does not violate the FCPA.”  The article then largely tracks the reform proposals originally set forth in the Chamber sponsored white paper “Restoring Balance” (here).

Regardless of your views on FCPA reform, the Mukasey, Dunlop article is well written, extensively footnoted, and should find a place on your reading stack.

Checking in on the Carson Case

This previous post highlighted the Carson defendants recent motion to suppress (here) and motion to dismiss (here).

In substance, the motion to suppress argued that “from the outset of [Control Component Inc's] CCI’s internal investigation in August 2007, CCI, through its counsel Steptoe & Johnson LLP (“Steptoe”), worked hand-in-hand with DOJ to investigate the matters at issue in this case.”  The motion further argued as follows.  “The DOJ and CCI essentially agreed to a private information-sharing arrangement between them. With this agreement in place, CCI selectively disclosed only information CCI believed inculpated Defendants and DOJ did not seek additional information.”  According to the motion, “the collaborative nature of DOJ’s and CCI’s relationship provided both parties benefits, to the detriment of Defendants …”.

Last week the DOJ filed (here) its opposition brief.  In summary, the DOJ asserts as follows.  “Only state actors can violate a defendant’s Fifth Amendment rights, and the evidence shows that the Company’s actions were not the result of any pressure or influence from the government sufficient to convert the Company’s lawyers to state actors.”

The government submitted in camera the notes of Mark Mendelsohn, then Deputy Chief of the DOJ’s Fraud Section, reflecting his summary of the Company’s voluntary disclosure and many of the factual issues in dispute concern e-mails between Steptoe & Johnson and Mendelsohn.  As to these e-mails, the DOJ states as follows.  “These e-mails show no nexus between the Company and the government.  Instead, they show a company in cooperative mode informing the government of what is transpiring in its internal investigation.  [....] At no time did the government direct the actions of Steptoe/CCI.  The government did not instruct the company who to interview or what questions to ask.  In fact, the government provided no direction or instruction as to the conduct of the interviews.”

Citing caselaw that purports to show that a company’s efforts to cooperate with the government do not transform it into an arm of the state, the DOJ states that a company’s voluntary disclosure coupled with DOJ policy regarding a company’s cooperative efforts does not equate to state action and that finding state action “on these facts alone would be unprecedented and unwarranted, the effect of which would be to turn the cooperating company into a government agent in every case.  There is no precedent for such an outcome.”

The DOJ also filed last week (here) its opposition to the motion to dismiss which mostly focused on due process / discovery issues.

Common Ground

Recently, Ann Hollingshead, writing on Global Financial Integrity’s (GFI) blog (here), made a spot-on observation regarding the type of “petty corruption” (or what I will call “harassment bribery”) common throughout the world.  Hollingshead stated as follows.

“But this type of corruption is pervasive and deeply entrenched in the culture of many nations. It makes life difficult for citizens trying to live their lives and carry out what should be ordinary tasks. And in many countries—like India for example—where paying a bribe is illegal, the corrupt official forces everyday citizens to choose between completing your transaction and complying with the law. It is in this way that systematic corruption creates both a power imbalance and a forced cooperative between those demanding the bribe and those paying it.” (emphasis added).

I agree and the same is precisely the point I argue in “Revisiting a Foreign Corrupt Practices Act Compliance Defense” (here) as to a specific reason, among others, warranting an FCPA compliance defense.  Like Hollingshead, I too focus on India and note as follows.  “Recent FCPA enforcement actions concerning business conduct in India demonstrate that harassment bribery is common and that companies operating in India face – just as locals face – difficult conditions simply to get things done.”  I further note that “companies seeking to do business in many foreign countries are often funneled into an arbitrary world of low-paying civil servants who frequently supplement their meager salaries through bribe payments condoned in the host country.”

It is encouraging to see that proponents of an FCPA compliance defense and opponents on an FCPA compliance defense seem to at least agree on the business conditions present in many foreign markets giving rise to discussion of an FCPA compliance defense.

Hollinghead’s comments on GFI’s blog would seem drastically different from GFI’s previous statements concerning the general issue.  Previously, in connection with the June 2011 House FCPA hearing, GFI (and others) release a statement (here) that stated as follows.  “If a company is found to be in violation of the FCPA, then the existence of a company’s compliance program must not have prevented the acts of bribery. So why should the existence of their compliance program be a defense to the charge of bribery?”

Basurto Sentenced to Time Served

As detailed in this prior post, Fernando Maya Basurto was charged along with John Joseph O’Shea.  Unlike O’Shea, who decided to put the DOJ to its burden of proof – and when he did he prevailed (see here), Basurto (the principal of the Mexican company that performed work for ABB’s business unit on its contracts with CFE) pleaded guilty.

The DOJ release (here) stated as follows.  “Basurto pleaded guilty …  to a one-count information charging him for his role in the conspiracy.  In his plea, Basurto admitted that while he acted as a sales representative for the Texas business unit, he conspired with others to make corrupt payments to CFE officials, helped launder the bribe monies, and engaged in a cover up to obstruct the investigations of the Department of Justice and the SEC.  Basurto also admitted that he submitted false invoices and helped fabricate correspondence in contemplation of federal investigations into the bribery.”

As part of his plea agreement, Basurto agreed to cooperate with the DOJ in its prosecution of O’Shea and Basurto was a key DOJ  witness at O’Shea’s trial.  However, the presiding judge, Judge Lynn Hughes (S.D. Tex.), stated, in dismissing the FCPA charges against O’Shea, that Basurto knew “ almost nothing” and that his answers “were abstract and vague, generally relating to gossip.”

Last week, Hughes granted the DOJ’s request and sentenced Basurto to time served.  As noted by Christopher Matthews (here - Wall Street Journal Corruption Currents), Basurto was arrested in April 2009 and was released on bail in July 2011, according to court records.

ABB

Friday, October 1st, 2010

Earlier this week the DOJ and SEC announced a wide ranging enforcement action against ABB Ltd. and its subsidiaries ABB Inc., and ABB Ltd. – Jordan.

Swiss-based ABB Ltd. (here) is a provider of power and automation technologies with American Depositary Shares publicly traded on the New York Stock Exchange.

This post summarizes the various aspects of the enforcement action in which ABB Ltd. and ABB Inc. agreed to pay a total of $58.3 million ($19 million in DOJ criminal penalties and $39.3 million in SEC disgorgement and civil penalties).

DOJ

ABB Ltd. Deferred Prosecution Agreement

As noted in this DOJ release, ABB Ltd. agreed to enter into a deferred prosecution agreement (DPA). ABB’s press release (here) states that the DPA “includes provisions related to the involvement of a subsidiary in Jordan in the Oil for Food Program” and that “in lieu of an external compliance monitor, the DOJ and SEC have agreed to allow ABB to report on its continuing compliance efforts and the results of the review of its internal processes for a three-year period going forward.”

In other words, the DPA appears limited to the conduct of ABB Ltd. – Jordan (summarized below) and not the conduct of ABB Inc. (summarized below).

[Note - to my knowledge the DPA has yet to be publicly released. Here is a request for DOJ readers of this blog. Under the DOJ's "old" website, the charging documents were released and linked along with the press release. With the revamped website, the charging documents are nowhere to be found requiring interested persons to go to Pacer or other sources. The charging documents ultimately end up on the DOJ's FCPA specific website, but in many cases it takes weeks. DOJ may want to consider the old system which provided real-time access to these important charging documents]

ABB Ltd. – Jordan Criminal Information

The information charges ABB Ltd. – Jordan (“ABB-Jordan”) with one count of conspiracy to commit wire fraud and to violate the FCPA’s books and records provisions.

According to the information (here), ABB-Jordan was a wholly-owned subsidiary of ABB Ltd. ABB-Jordan, through its 95% owned subsidiary ABB Near East Trading Ltd. (“ABB Near East”) provided equipment and services to electrical utilities, including control measurement and protection systems, transducers, and metering equipment.

The information charges that ABB Near East “had three principle customers under the United Nations Oil-for-Food Program (“OFFP”) … the General Company for Electricity Energy Production, the Baghdad Mayoralty, and State Company Baghdad Electricity Distribution all of which were regional companies of the Iraqi Electricity Commission, an Iraqi government agency” (collectively the “Iraqi Electricity Companies”).

The information charges that “from in or about April 2000 through in or about April 2004, ABB Near East, received eleven purchase orders for electrical equipment and services worth over $5.9 million with the Iraqi Electricity Companies, pursuant to the OFFP.” According to the information, “to obtain these purchase orders, ABB Near East caused over $300,000 in kickbacks to be paid to the government of Iraq” and that “in order to generate the funds to pay the kickbacks to the Iraqi government and conceal those payments, ABB Near East would inflate the price of its contracts with the Iraqi government by approximately 10% before submitting the contracts to the U.N. for approval.”

According to the information, the kickback payments were falsely characterized on ABB-Jordan’s or ABB Near East’s books and records which were “incorporated into the books and records of ABB Ltd. for purposes of preparing ABB Ltd’s year-end financial statements.”

According to the DOJ release, “ABB Ltd. admitted that [ABB-Jordan] agreed to pay kickback payments to the former Iraqi government” in connection with OFFP contracts and “agreed to pay a criminal penalty of $1.9 million.”

ABB Inc. Criminal Information

According to the information (here) ABB Inc. is an “indirect subsidiary” of ABB Ltd. incorporated under Delaware law. The information charges that ABB Inc. “conducted business, in part, through a business unit called ABB Network Management (“ABB NM”) that had its principal place of business in Sugar Land, Texas and was acquired by ABB Inc. in or around January 1999.”

According to the information, “ABB NM’s primary business was to provide products and services to electrical utilities for network management in power generation, transmission, and distribution.” The information charges that “many of ABB NM’s clients were foreign state-owned utilities” and that “ABB NM conducted business in a number of its foreign markets through sales representatives.”

The information largely centers on the conduct of John Joseph O’Shea and Fernando Maya Basurto and business with Comision Federal de Electricidad (“CFE”) – a Mexican electrical company. According to the information, O’Shea was the “General Manager of ABB NM” who “oversaw its operations both before and after its acquisition by ABB Inc.” and was “responsible for approving payments to sales representatives.” According to the information, Basurto was a “citizen of Mexico” who “performed work for ABB NM on its contracts with CFE.”

O’Shea was criminally charged in November 2009 (see here). Basurto has pleaded guilty (see here). For more, see this prior post.

For additional FCPA enforcements involving CFE see this recent post.

The information details an elaborate scheme that is summarized in the DOJ release as the payment of bribes “from 1997 to 2004 that totaled approximately $1.9 million” to various officials at CFE and that “in exchange for the bribe payments … ABB NM received contracts worth more than $81 million in revenue.”

As noted in the DOJ release, “ABB Inc. pleaded guilty to a criminal information charging it with one count of violating the anti-bribery provisions of the FCPA and one count of conspiracy to violating these provisions of the FCPA.” According to the release, the court “imposed a sentence that included a criminal fine of $17.1 million.”

The information specifically states that “ABB Inc. terminated O’Shea in November 2004 and thereafter conducted a thorough internal investigation of the improper payments. It voluntarily disclosed the conduct to the DOJ and the SEC in April 2005.”

SEC

The SEC’s civil complaint against ABB Ltd. (see here) picks up both the Iraq and Mexico conduct mentioned above and charges ABB Ltd. with violating the FCPA’s anti-bribery, books and records, and internal control provisions.

The complaint alleges in summary fashion as follows:

“From 1999 to 2004, ABB, through a U.S. subsidiary and six foreign-based subsidiaries, offered and paid bribes to government officials in Mexico to obtain and retain business with government owned power companies, and paid kickbacks to Iraq to obtain contracts under the United Nations Oil for Food Program. In all, ABB’s subsidiaries made at least $2.7 million in illicit payments in these schemes to obtain contracts that generated more than $100 million in revenues for ABB.”

The complaint describes numerous payments, including payments to “pay for the Mediteranean cruise vacation for two CFE officials and their wives” and “tuition for the son of a CFE official” at a “private military school in Wisconsin.”

As to the “Mexican bribery scheme”, the SEC alleges that “ABB, which failed to conduct any due diligence on the use or payments to [a Mexican agent] and other companies, improperly recorded the illicit payments on its books as payments for commission and services on the projects.”

As to the OFFP, the complaint alleges that “from approximately 2000 to 2004, ABB participated in the Oil for Food program through six of its subsidiaries” and that the “six subsidiaries developed various schemes to pay secret kickbacks to Iraq in order to obtain contracts. The kickbacks were characterized as after sales service fees but in reality they were nothing more than bribes paid to the Iraqi regime.” According to the SEC, “kickbacks of approximately $810,793 were paid in connection with the subsidiaries’ sales of goods on twenty-seven contracts with promises to pay additional kickbacks of $239,501 on three other contracts. The total revenues on the contracts were approximately $13,577,727 and profits were $3,801,367. ABB improperly disguised the [after sales service fees] on its books and records by mischaracterizing them as legitimate after sales services, consultation costs or commissions.”

Further the SEC alleged as follows:

“as evidenced by the extent and duration of the illicit payments to foreign officials, the large number of ABB subsidiaries involved in these bribery and kickback schemes, ABB’s knowledge from the prior Commission action of illicit payments by other ABB subsidiaries, the improper recording of millions of dollars of illicit payments in ABB’s books and records, ABB’s failure to detect these irregularities, and ABB’s failure to conduct sufficient due diligence on local agents and others, ABB failed to devise and maintain an effective system of internal controls to prevent or detect these anti-bribery and books and records violations.”

In an SEC release (see here) SEC officials stated: “as the sanctions in this case demonstrate, there are significant consequences for public companies that fail to implement strong compliance programs and prevent corrupt payments to government officials” and that “multi-national companies that make illicit payments through layers of subsidiaries will be held accountable.”

Without admitting or denying the SEC’s allegations, ABB Ltd. consented to the entry of a final judgment that permanently enjoins the company from future FCPA violations, orders the company to pay $17,141,474 in disgorgement, $5,662,788 in prejudgment interest, and a $16,510,000 penalty. According to the SEC release, “the order also requires the company to comply with certain undertakings regarding its FCPA compliance program.”

In a press release (here), ABB noted that it “initiated these matters in a voluntary disclosure to the DOJ and SEC beginning in 2005.” The company stated that it “cooperated fully with the DOJ and SEC and has put in place a global comprehensive compliance and integrity program the DOJ has said ‘may become a benchmark for the industry.’”

Laurence Urgenson (here) and others from Kirkland & Ellis LLP represent the ABB entities.

A Bribery Scheme Hatched at the "Eggs Benedict Place"

Monday, November 23rd, 2009

The DOJ announced today (see here) that John Joseph O’Shea was recently arrested for his alleged role in a conspiracy to bribe Mexican foreign officials to secure contracts with the Comision Federal de Electridad (“CFE”), an apparent Mexican state-owned utility company (see here). In addition to charging conspiracy to violate the FCPA, the indictment contains twelve substantive FCPA charges (among other charges).

According to the unsealed indictment (see here), O’Shea was the General Manager of Texas Business A, a business that provides products and services to electrical utilities in a number of foreign markets. According to the indictment, one of O’Shea’s responsibilities was approving payments to sales representatives.

According to the indictment, Texas Business A is a business unit of Subsidiary A (a company with its principal place of business in Sugar Land, Texas) and Subsidiary A, in turn, is a subsidiary of Corporation A (a company headquartered and incorporated in Switzerland with publicly-traded American Depositary Shares on the NYSE).

In other words, both Subsidiary A and Corporation A are subject to the FCPA and may be the focus of a forthcoming enforcement action. Also of note is that Mexican Company X, Intermediary Company O (a company incorporated in and headquartered in Mexico) and Intermediary Company S (a company incorporated in Panama and headquartered in Mexico) are all alleged to be “an agent of a domestic concern” under 78dd-2(h)(1). DOJ recently noted (see here) that it is willing to go after agents and intermediaries which facilitate bribe payments and the “agent of a domestic concern” designation would seem to be setting the table for a possible enforcement action against such companies as well.

According to the indictment, one customer Texas Business A did business with is CFE and officials N,J,C and G at CFE had influence over decisions concerning Texas Business A’s contracts with CFE

(Sorry for the alphabet soup, but this is how the indictment reads).

According to the indictment, Texas Business A obtained multiple contracts with CFE while using Mexican Company X (including its principal, Fernando Maya Basurto) as its sales representative under several commission-based agreements.

The indictment alleges that O’Shea conspired and agreed with Basurto, Subsidiary A, Texas Business A, and the intermediary companies and others to make improper payments to Mexican “foreign officials” to obtain or retain business for Subsidiary A and Texas Business A in violation of the FCPA and that O’Shea did indeed offer, authorize, or make the improper payments indirectly through others to the CFE officials in violation of the FCPA.

According to the indictment, the payments assisted Texas Business A secure two contracts with CFE worth approximately $81 million in revenue.

According to the indictment, the improper payments were concealed through a series of financial transactions, first to U.S. bank accounts in the name of Basurto and certain of his family members, then through false invoices received from Basurto in the names of the intermediary companies, and then to the “foreign officials.”

According to the indictment, after O’Shea was terminated from Texas Business A, he, Basurto, and others tried to cover up their conduct after learning that Corporation A had disclosed the suspected payments to the DOJ, SEC and Mexican authorities.

In describing O’Shea’s cover up, the indictment states, “On or about April 27, 2005, O’Shea sent Basurto an e-mail that read, in part, “It seems my lawyer thinks it is OK to use a private e-mail such as yahoo, as it would seem much more difficult for anyone to get the exchanges – if it is a company email it belongs to them. I believe [sic] we should alter opur [sic] normal routine; meaning not meet at the ‘eggs benedict’ place.”

Consistent with DOJ’s recent statements on this issue, the indictment seeks from O’Shea forfeiture of approximately $3 million in proceeds derived from his improper conduct.

As noted in the DOJ’s release, Basurto recently pleaded guilty to a one-count criminal information (see here) charging him with conspiracy to violate the FCPA. The DOJ news release also notes that a Mexican citizen had pleaded guilty for his role in the bribery scheme.