One FCPA sentencing transcript I recently received was the August 2010 transcript from Gerald and Patricia Green’s sentencing hearing.

In terms of background, as noted in this previous post, in September 2009, the Greens were found guilty by a federal jury of conspiracy to violate the FCPA, substantive FCPA violations, and other charges.  See here for the DOJ New Release.  As noted in the release, evidence introduced at trial showed that “beginning in 2002 and continuing into 2007, the Greens conspired with others to bribe the former governor [Siriwan] of the Tourism Authority of Thailand (TAT) in order to get lucrative film festival contracts as well as other TAT contracts.”

As noted in this previous post, in August 2010 District Court Judge George Wu (Central District of California) rejected the DOJ’s 10 year sentencing recommendation and sentenced both Gerald and Patricia to six months in prison.

The sentencing transcript (here) indicates that Judge Wu believed that the Greens helped make the TAT a success, performed the services it was engaged to perform in a professional manner, and increased revenue for the country.

Wu stated as follows.

“Insofar as the nature of the crimes are concerned, the jury found that the defendants bribed the head official of the TAT in order to obtain contracts to operate the Bangkok International Film Festival between 2002 and 2006.  The Court finds that by engaging in that scheme the defendants were not trying to get money from the Thai government without performing the services or even to engage in those services in a slipshod manner.  Prior to the Greens’ involvement, the Bangkok  International Film Festival was not a particularly successful endeavor in any sense of the word. Through the Greens’ management the Bangkok International Film Festival gained in stature, reputation and increased revenue for the country.  The defendants are claiming that the nation of Thailand profited in the sum of 140 million. I find that that figure is somewhat excessive. Although, I do feel that the evidence does show that there was a profit when everything was said and done, including any payments that were made either to the Greens or to Ms. Siriwan.  Therefore, the Court would find that the Greens’ efforts and also actually their scheme did not actually cause any monetary loss for the country.”

Elsewhere in the sentencing transcript, Judge Wu and DOJ attorney Jonathan Lopez had the following exchange as to whether the contracts at issue benefited Thailand.

“MR. LOPEZ:  [...] It’s hard to argue that providing film festivals [provides a substantial benefit to the country].

THE COURT: It depends on the amount of money that’s involved and that’s generated. If it was successful, which it was, that does in turn engender jobs of one sort or another to the tourist industry having films being made in the country and things of that sort.

MR. LOPEZ: Well, their sentencing papers have not established any sort of direct link of that nature, if that argument was even relevant.

THE COURT: I think they proffered the evidence of it. The government may not find that evidence to be substantial, but the defense did proffer it.”

The transcript also indicates that Judge Wu (1) was not persuaded by the DOJ’s position that the reputational harm to Thailand was a proper issue to consider at sentencing; and (2) was troubled by the DOJ’s presumption that the Greens corrupted the Thai official when the opposite could equally be true – that the Thai Official corrupted the Greens.

The following exchange between Judge Wu and DOJ attorneys Jonathan Lopez and Bruce Searby is interesting.

“MR. LOPEZ:  One thing that the Court I don’t think is taking — or that I’d like to ask the Court to take into fuller consideration is, setting aside the economic harm, the reputational harm corruption has, that is the reputational harm that comes to a city domestically or internationally or a state internationally where corruption exists.  There is a reputational harm to the system, to the people, to the integrity of the government when corruption is not punished swiftly. That is one of the reasons why the FCPA has been enacted is to promote the ending of corruption. Corruption in and of itself is a crime, and these two defendants engaged in pure corruption with the governor in this scheme.  Your Honor looks as though he may be confused by something I’m saying.

THE COURT: No. I’m not confused by what you are saying. It’s just that when you were making that argument, I presume you were referring to the United States.

MR. LOPEZ: Well, I’m referring both to the United States and to Thailand. You had mentioned Thailand is not a monetary victim. These defendants victimized Thailand reputationally as well, and I don’t want that point to be lost. I can expand further.

THE COURT: Obviously, when one has a bribe, one has to have the person receiving the bribe. I suppose that that is some sort of reputational harm. But conversely, however, this Court can only decide the issue of punishment as to the defendants it has here insofar as Ms. Siriwan is concerned, and the issue as to whether or not Ms. Siriwan  has somehow sullied the reputation of Thailand is something that this Court can’t deal with.

MR. LOPEZ: The government posits that the defendants assisted in the sullying of the reputation of the Thai government system by assisting in corrupting that system through their actions.  No other American company was able to bid on these projects. No other Thai company was able to bid on these projects because the defendants had a lock on it, and the statement that contracts should be awarded based on merit and not pay, the jury found that those two defendants paid for all of those contracts. That’s a corruption of the system.

THE COURT: And I understand that they have to suffer the consequences of that, but vis-a-vis the reputation of Thailand, again, the fact that I punish these defendants in one way or another is not going to affect the reputation of Thailand. It’s up to the Thai government to take steps vis-a-vis its own officials as to whether or not it feels that those officials deserve some sort of punishment one way or another.

MR. LOPEZ: I believe you can, Your Honor.

THE COURT: I can only do the punishment insofar as these defendants are concerned. I can’t affect Thailand’s reputation one way or another by my sentencing.

MR. LOPEZ: I believe you can, Your Honor. I believe it sends a message, both domestically and both internationally, that the United States citizens are not going to promote corruption in other countries and add to that. That’s the United States’ side of it.

THE COURT: But, unfortunately, for those persons in Thailand, there might be other countries with other persons who may attempt to do corruption in a similar fashion. They are not governed by United States law. So, therefore, unless the Thai government takes steps in that regard, I don’t understand how the Thai — Country of Thailand’s reputation vis-a-vis corruption or not corruption is affected.

MR. LOPEZ: The fact remains that these two defendants corrupted the Thai system, and they are before this Court.

THE COURT: Or vice versa. It might very well be that Siriwan posed the endeavor to the Greens. There is no evidence one way or the other on that. [...] In which case we would have a situation where the Thai high governmental official corrupted two persons whom do not have any criminal convictions prior to this point in time, whose reputation at least amongst the persons who have provided letters to this country was unsullied, and it was that Thai official who corrupted the otherwise incorruptible citizens of this country.

MR. LOPEZ: First of all, Your Honor, I think you are basing your –

THE COURT: I’m using your argument in the same way. Since there is no evidence as to who corrupted who, your presumption is that the defendants corrupted the Thai official. It might have very well been that the Thai official corrupted them.

MR. LOPEZ: Your Honor, I think the Court is confused as to what my argument is. It does not center around whose idea it was. It does not center around that.  It centers around the corruption that took place period.  From 2002 to 2007 these defendants engaged in a conspiracy, no matter whose idea it was initially, to corrupt the Thai system as well as to sully the reputation of the United States and its businesses that operate out of the United States. I submit to the Court that that is a harm. That is a harm to both Thailand and to both the United States and that these –

THE COURT: I would agree that obviously when bribery becomes a issue there is a reputational harm.

MR. LOPEZ: Yes.

THE COURT: But again, to make a strong point vis-a-vis the sentencing, before I would have any sort of position as to what effect that would have on how I sentence, I would have to know such things as who corrupted who. Otherwise, what difference does it make.

[...]

THE COURT:  What I did is to utilize that argument vis-a-vis [Lopez's] contention that in this particular situation the defendants are somehow to blame because of the bribery situation without placing any equal blame on the part of Ms. Siriwan who was involved as well.

MR. SEARBY: Your Honor, I would happily place equal blame on Governor Siriwan for what has happened, no doubt about it.

THE COURT: All right.

MR. SEARBY: However, the defendants here dived into bribery with both feet because they initially started bribing the governor in one contract.

THE COURT: I understand your position.

MR. SEARBY: Basically, they ran wild in these various other contracts.

THE COURT: I understand your position.

MR. SEARBY: There is no doubt they were willing participants and enthusiastic participants in bribery. In fact, as the evidence came out at trial, they had practically no other revenue other than TAT contracts that they obtained through bribery.

MR. LOPEZ: Your Honor, I want to make sure this point is clear. Of course, the governor has an equal share of blame in this regard, but the governor is not before you.  These two defendants are before you. That’s one of the reasons why I’m a little confused as to the government’s emphasis on what’s happening in Thailand.  The government submits that this Court’s opinion should not be governed by what Thailand does with its own citizens. That should not be a relevant factor. It’s not the situation where if Thailand doesn’t punish their person we shouldn’t punish our people. Two wrongs don’t make a right.  It’s the same type of argument that people have said about foreign bribery; well, that’s what you have to do in that country, so obviously it’s okay. Well, no, that’s not what you have to do in that country. Punishment should not be withheld from one defendant because another defendant is still going through the process. We don’t know what’s going to happen with that other defendant. [See here for a recent post concerning the DOJ's enforcement action against Siriwan]. There is a process in place. Because we are further along does not mean that, that process is not happening. These are the defendants before you. These defendants have that blame.

THE COURT: I understand. What else from the government?”

*****

Bribery is seldom a black and white issue.  There are many shades of gray.  However this color often appears only during sentencing of FCPA  individual defendants when someone other than the DOJ is defining the colors.

Haiti Teleco Case

Previous posts (here and here)  detailed Joe Esquenazi’s and Carlos Rodriguez’s motion for acquittal or a new trial based on statements made (and then seemingly retracted) by Jean Max Bellerive (Prime Minister of Haiti) concerning the ownership of Haiti Teleco – the entity at the middle of the bribery scheme.  In the DOJ’s response (here) to the defendants’ motion, the DOJ argues, among other things, that “the Government did not seek the first Bellerive declaration from the Republic of Haiti, and there is no need for an evidentiary hearing as to when or how the Government obtained it.”  As to the second Bellerive declaration, the DOJ stated that “the Government assisted Mr. Bellerive in preparing the declaration” in which Bellerive, as noted in the prior post, stated that the first declaration was strictly for internal purposes and he did not know it was going to be used in criminal legal proceedings in the U.S. or that it was going to be used in support of the argument that Teleco was not part of Public Administration of Haiti.

Substantively, the DOJ argues that the first Bellerive declaration does not “contain newly discovered evidence” because the jury “heard most of” the points addressed in the first Bellerive declaration from Garry Lissade, the DOJ’s expert witness, who testified as to the legal status of Haiti Teleco after “he conducted extensive research, including legal research and interviews, in reaching his conclusions.”

The DOJ’s position in many FCPA enforcement actions concerning state-owned or state-controlled entities seems to be that the ownership structure of the entity at issue should be obvious and easily ascertainable to defendants.  If so, why did Lissade (Haiti’s former Minister of Justice) have to “conduct extensive research, including legal research and interviews, in reaching his conclusion” that Teleco was a Haitian public entity?

Africa Sting Case

The second Africa Sting trial involving defendants John Mushriqui, Jeana Mushriqui, R. Patrick Caldwell, Stephen Giordanella, John Godsey, and Marc Morales is set to begin on September 22nd.  The second trial will be more narrowly focused than the first Africa Sting trial that resulted in a mistrial (as well as dismissal of certain counts including money laundering conspiracy charges).

Why?  Because the DOJ did not oppose defendants’ motion to dismiss the money laundering conspiracy charges.  In pre-trial briefing, the DOJ stated as follows.  “At the conclusion of the government’s case-in-chief in the first trial, the Court granted a motion for judgment of acquittal on Count Forty-Four of the Superseding Indictment with respect to the defendants in the first trial. The government continues to believe that the Court should not have granted the motion and that Count Forty-Four should have been submitted to the jury. But the government understands the Court’s ruling and will not object to the Defendant’s motion. The government’s position in this filing recognizes the Court’s past ruling, and in no way suggests that the government will not seek to bring similar charges in future cases.”

Siriwan “Foreign Official” Case

A previous post (here) detailed how Juthamas Siriwan and Jittisopa Siriwan (the “foreign officials” in the Green FCPA enforcement action) were fighting back against DOJ criminal charges.  As noted in the post, the Siriwans argued as follows.  “This is the first judicial challenge to a novel prosecutorial approach the Government recently developed to charge foreign officials allegedly involved in corruption.  That approach is aimed at overcoming a fundamental FCPA limitation.  The FCPA does not criminalize a foreign public official’s receipt of a bribe.  Nor can the Government employ an FCPA conspiracy charge against a foreign public official.  Accordingly, these new enforcement initiatives require expansive interpretations [of] “promotion money laundering” [under the Money Laundering Control Act].”  The Siriwans further argued as follows.  “Congress has extensively amended the FCPA, yet it deliberately has not extended FCPA liability to foreign officials.  If the Government wishes to extend U.S. criminal penalties to foreign officials accepting a bribe, it must go back to Congress, rather than employ dubious charging tactics to evade the direct and repeated congressional choice not to apply FCPA criminal liability to such officials.”

In its opposition brief (here) filed last week, the DOJ stated as follows.  “Upon analysis of defendants’ arguments, it is quickly evident that, in support of their positions, defendants routinely conflate and confuse multiple statutes, interpret and argue the elements of uncharged statutes, and ignore case law relevant to the statutes actually charged.”  Among other things, the DOJ stated as follows.  “That foreign officials cannot face liability for FCPA offenses does not give foreign officials a free pass to commit other, entirely separate, crimes.”  The DOJ noted that the Siriwans are not charged with accepting a bribe, or conspiring to violate the FCPA, but rather with “the separate, and entirely analytically distinct, crime of international transportation money laundering to promote the Greens’ violation of the FCPA.”  The DOJ noted that just because Siriwan ”was a foreign official at the time of these offenses, and therefore, not charged under the FCPA does not change the analysis.”

As reported by Samuel Rubenfeld at Wall Street Journal Corruption Currents, a hearing on Siriwans’ motion to dismiss is scheduled for Oct. 20.

For instance, in U.S. v. Castle, 925 F.2d 831 (5th Cir. 1991), the court was called upon to consider whether “foreign officials” who are excluded from prosecution under the FCPA itself, could nevertheless be prosecuted under the general conspiracy statute (18 USC 371) for conspiring to violate the FCPA.  The court held that “foreign officials”  could not be prosecuted for conspiring to violate the FCPA and adopted the rationale set forth in the trial court opinion (see 741 F.Supp. 116).   That rationale was that Congress, in passing the FCPA, only chose to punish one party to the bribe agreement and the DOJ could not therefore  ”override the Congressional intent not to prosecute foreign officials for their participation in the prohibited acts” through use of the conspiracy statute.  The trial court stated as follows.  “The drafters of the [FCPA] 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.”  The trial court observed that prosecution and punishment of “foreign officials” (in the Castle case alleged Canadian “foreign officials”) ”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.”  For those of you scoring at home, Castle represents a DOJ loss in a contested FCPA matter.

In recent years, however, the DOJ has used other laws in an attempt to reach “foreign officials.”  This trend has been profiled here and here.  For instance, in January 2010, in connection with the Gerald and Patricia Green FCPA enforcement action, a criminal indictment was unsealed against Juthamas Siriwan and Jittisopa Siriwan.  According to the indictment, Juthamas “was the senior government officer of the Tourism Authority of Thailand (TAT)” and she is the “foreign official” the Greens were convicted of bribing.  Jittisopa is the daughter of the “foreign official” and also alleged to be an “employee of Thailand Privilege Card Co. Ltd.” an entity controlled by TAT and an alleged “instrumentality of the Thai government.”  The charges against the Siriwans were not FCPA charges, but largely conspiracy to money launder and “transporting funds to promote unlawful activity.”

As detailed in this Wall Street Journal Corruption Currents story by Joe Palazzolo, the Siriwans are fighting back.  On behalf of the Siriwans, lawyers at Kelley Drye & Warren LLP recently field this motion to dismiss to the indictment.

In summary, the Siriwans state as follows.  “This is the first judicial challenge to a novel prosecutorial approach the Government recently developed to charge foreign officials allegedly involved in corruption.  That approach is aimed at overcoming a fundamental FCPA limitation.  The FCPA does not criminalize a foreign public official’s receipt of a bribe.  Nor can the Government employ an FCPA conspiracy charge against a foreign public official.  Accordingly, these new enforcement initiatives require expansive interpretations [of] “promotion money laundering” [under the Money Laundering Control Act].”  The Siriwans state as follows.  “Congress has extensively amended the FCPA, yet it deliberately has not extended FCPA liability to foreign officials.  If the Government wishes to extend U.S. criminal penalties to foreign officials accepting a bribe, it must go back to Congress, rather than employ dubious charging tactics to evade the direct and repeated congressional choice not to apply FCPA criminal liability to such officials.”

As noted in Palazzolo’s article, the DOJ has yet to respond to Siriwans’ motion and U.S. District Judge George Wu (C.D. of California) has scheduled a hearing on the motion for October 20th.

In a development that goes straight to a point raised by the Castle court, Thailand’s National Counter-Corruption Commission (NCCC) has reportedly found sufficient grounds to believe that Juthamas Siriwan received money from the Greens and that Jittisopa Siriwan was an accomplice in the bribery case.  The NCCC has reportedly forwarded its conclusion to the Thai Attorney-General for legal action against the Siriwans.  For more, see here from the Bangkok Post.

The Siriwan’s challenge is the latest in “this year of FCPA judicial scrutiny.”  Previously this year, there was the first judicial challenge to the DOJ’s “foreign official” interpretation that made extensive use of the FCPA’s legislative history (see here); the first dd-3 judicial challenge (see here); the first victim petition under the FCPA (see here); and the first Travel Act judicial challenge (see here).

*****

In a related development (see here), the DOJ has dropped its appeal of Gerald and Patricia Green’s sentence.  As detailed in this prior post, in September 2009, Gerald and Patricia Green were found guilty by a federal jury of substantive FCPA violations, conspiracy to violate the FCPA, and other charges.  After several sentencing delays, in August 2010 (see here), Judge Wu rejected the DOJ’s 10 year sentencing request for both Gerald and Patricia Green and sentenced the Greens to six months in prison, followed by three years probation.  In its sentencing brief, the DOJ urged the court to “disregard defendants’ efforts to obscure the landscape of FCPA sentencing, which generally reflects significant prison terms for convicted individuals.”  I asked at the time whether the “landscape of FCPA sentencing” truly reflected “significant prison terms” as stated by the DOJ – a statement even more true now (see the FCPA Sentences tab under the Search page).

I was surprised to learn that the DOJ was appealing the Green sentences and I am thus not surprised to learn that the DOJ has dropped its appeal.  In short, do you think the DOJ wants anything FCPA related before the 9th Circuit?

For instance, and as described more fully below, the DOJ sought a 14-17 year sentence for lead defendant Nam Nguyen, but the judge sentenced him to 16 months (plus 2 years of supervised release).

Further, the DOJ sought multi-year sentences for two defendants, but the judge sentenced them to probation.

The DOJ’s sentencing memoranda (see here for the 79 pages of collective material) provide an interesting read and clearly demonstrate the growing divide between how the DOJ views FCPA defendants and how judges view such defendants at sentencing. For instance, Judge Shira Scheindin stated at Frederic Bourke’s sentencing (see here) “after years of supervising this case, it’s still not entirely clear to me whether Mr. Bourke is a victim or a crook or a little bit of both.”

The DOJ stated in Nam Nguyen’s sentencing memo that its recommendation (168-210 months) should be accepted “to promote general deterrence” and that conduct such as Nguyen’s “will hardly be deterred by sending the message that the consequences of such conduct is at worst several months of imprisonment.”

Yet, the judge still sentenced Nam Nguyen to 16 months (plus 2 years of supervised release).

Also of note is that the DOJ criticized Nam Nguyen for “subjectively” looking at the “history of FCPA sentencing, focusing on the statistical outlier of the case U.S. v. Green … but ignoring the more common cases of significant prison time” such as “Charles Jumet, who paid less than 1/3 of what Nguyen paid in bribes, but received 87 months’ imprisonment.”

Let me assert that it is the DOJ who is “subjectively” looking at the “history of FCPA sentencing” and that Jumet is the “statistical outlier” – not sentences such as of the Greens.

Indeed, it is very common for FCPA defendants to be sentenced to prison terms measured in days and months, not years.

Consider the following recent sentences:

Greens – 6 months (August 2010)

Frederic Bourke – 366 days (November 2009)

Jim Bob Brown – 366 days (January 2010)

Jason Edward Steph – 15 months (January 2010)

The below post provides an overview of the Nexus sentences as well as the DOJ’s sentencing memos.

Nam Nguyen

Sentence: 16 months, 2 years of supervised release

DOJ Recommendation: 168-210 months

In its sentencing memorandum, the DOJ stated that Nguyen “paid bribes to multiple Vietnamese government officials in exchange for contracts for his business” and that “Nguyen literally offered a bribe on every single contract bid over a period of more than nine years …”.

DOJ sought a four-level sentencing enhancement “because the offense involved a public official in a high-level decision-making or sensitive position.” Specifically, the DOJ asserted that Nguyen paid bribes to “Nguyen Van Tan, who was the Managing Director of T&T Co. Ltd. … the procurement arm of Vietnam’s Ministry of Public Safety.”

Other items of interest from the DOJ’s sentencing memorandum.

In a footnote, the DOJ asserts that “the court has ruled in favor of the government” on the “foreign official” issue briefed in the case. However, as noted in this prior post, the DOJ specifically argued throughout its brief that a court decision as to this issue was premature. What actually happened is that the judge denied the defendants’ motion to dismiss without comment or analysis. The DOJ stated in the same footnote that because Nguyen’s counsel discussed the “foreign official” issue in his sentencing memorandum, that this “raises serious questions as to whether or not he has actually accepted responsibility for his crimes.”

The DOJ memo contains “Exhibit A” – a chart detailing the “Sentences of Natural Persons Who Pleaded Guilty to FCPA Violations Since 2001.”

The chart is misleading.

Nowhere in the chart does it indicate, nor in the brief referencing the chart is it noted, that the sentences are not just for FCPA violations, but, in many cases, sentences based on other violations of law as well.

For instance, in the longest sentence on the DOJ’s chart – Charles Jumet (87 months) nowhere is it noted that the “FCPA” portion of the sentence was actually lower. Jumet pleaded guilty to two counts – conspiracy to violate the FCPA and making false statements to federal agents. The false statements portion of his sentence was 20 months. Thus, Jumet’s “FCPA” sentence was 60 months – not 87 months as suggested by the DOJ’s chart.

An Nguyen

Sentence: 9 months, 3 years of supervised release (notwithstanding that, per the DOJ’s sentencing memorandum, Nguyen was on probation at the time of his offense)

DOJ Recommendation: 87-108 months

In its sentencing memorandum the DOJ stated that Nguyen “paid bribes to multiple Vietnamese government officials in exchange for contracts for his family’s business.” Elsewhere in the memo, the DOJ states that “Nguyen’s bribery was particularly egregious.” In connection with its decision not to seek a sentencing enhancement for an offense involving a public official in a high-level decision-making or sensitive position, the DOJ noted that “Nguyen was unaware of the nature, position, or role of the specific officials who received the bribe payments.”

Kim Nguyen

Sentence: 2 years probation

DOJ Recommendation: 70-87 months (even after the DOJ’s downward departure recommendation)

The DOJ requested a Section 5K1.1 downward departure. The DOJ noted that “even though Kim Nguyen did not begin providing information to the government until shortly before trial” this information nevertheless “appeared to play a role in her siblings’ decisions to plead guilty.” The DOJ noted that “Nguyen met with the government on approximately two occasions to explain the business practices and financial records of Nexus Technologies” and “explained various entries in the Nexus books which allowed the government accurately to calculate the total amount of bribes paid by the defendants …”

In its sentencing memo, the DOJ stated that “Nguyen played a critical role in this conspiracy, as she was the person responsible for handling the finances and maintaining the books and records of Nexus.” The DOJ stated that Nguyen “funneled the bribe payments to an off-shore company controlled by Nexus, which then forwarded the bribe payments to the Vietnamese officers, and it was Kim Nguyen who falsified the associated wire-transfer documents to cover their tracks.” The DOJ further asserted that e-mail correspondence “makes it very clear that Kim Nguyen knew exactly what she was doing, and why.” As with An Nguyen, the DOJ did not seek a sentencing enhancement for Kim Nguyen and noted that “Kim Nguyen was unaware of the nature, position, or role of the specific officials who received the bribe payments.”

Joseph Lukas

Sentence: 2 years probation

DOJ Recommendation: 37-46 months (even after the DOJ’s downward departure recommendation)

The DOJ requested a Section 5K1.1 downward departure. The DOJ noted that Lukas “met with the government on approximately seven separate occasions over the course of approximately 1.5 years and explained everything he knew about his co-defendants, their criminal conduct, their personal histories, and their business records.” According to the DOJ, “Lukas also created spreadsheets of information for the government, voluntarily turned over his computer for government analysis, and spent hours upon hours poring through documents in order to explain the business practices of Nexus Technologies and the Nguyen siblings.”

In its sentencing memorandum, the DOJ stated that “Lukas helped Nexus Technologies pay bribes to multiple Vietnamese government officials in exchange for contracts.” According to the DOJ, “Lukas was responsible for vendor relations and negotiations in the United States (which included identifying vendors who could supply the requested goods at low enough prices to allow the bribe payments.)”.

*****

As to the Greens’ sentence, the DOJ noted in footnote 8 of Nam Nguyen’s sentencing memo that the “DOJ is considering appealing the sentence in that case.”

As noted in the DOJ release:

“The conspiracy and FCPA charges each carry a maximum penalty of five years in prison, and each of the money laundering counts carries a maximum penalty of up to 20years in prison. The false subscription of a U.S. income tax return carries a maximum penalty of three years in prison and a fine of not more than $100,000.”

Sentencing was originally set for December 17, 2009, was delayed several times, and, at one point, was removed from the calendar altogether (see here).

U.S. District Court Judge George Wu of the Central District of California reportedly wanted to learn more about other FCPA sentences as well as Mr. Green’s health issues.

The DOJ requested a 10 year sentence for both Gerald and Patricia Green.

The DOJ stated that the “court must decline defendants’ remarkable invitation to join the wholesale speculation of FCPA ‘pundits’ as to whether corporate settlements are ‘shielding’ to corporate executives from punishment.”

In closing, the DOJ urged the court to “disregard defendants’ efforts to obscure the landscape of FCPA sentencing, which generally reflects significant prison terms for convicted individuals.”

According to this report, Judge Wu yesterday sentenced the Greens, before a packed courtroom, to six months in prison, followed by three years probation (six months of which must be served as home confinement).

According to the report, Judge Wu “also set a restitution figure of $250,000″ but “if the Greens, who have had their accounts frozen and assets seized since being arrested in 2007, can prove that none of the $1.8 million they paid in bribes to Thai officials can be recovered, then they will only have to pay $3,000 in restitution.”

Does the “landscape of FCPA sentencing” truly reflect “significant prison terms” as stated by the DOJ?

True, any prison term is significant for a defendant and his/her family and friends.

But with a top sentence of 60 months (Charles Jumet – see here), the 366 day sentence for Frederic Bourke in November 2009 (see here), the 15 month sentence for Jason Edward Steph and the 366 day sentence for Jim Bob Brown both in January 2010 (see here) and now the 6 month sentence for the Greens – is this yet another instance in which DOJ’s FCPA rhetoric does not match reality?

*****

H-P news that does not involve its former CEO, what others are saying about the Giffen Gaffe, SciClone’s stock drop, and Siemens $1 billion customer … it’s all here in the Friday roundup.

H-P Inquiry Escalates

According to a story in today’s Wall Street Journal by David Crawford, the DOJ “has asked Hewlett-Packard Co. to provide a trove of internal records as part of an international investigation into allegations that H-P executives paid bribes in Russia, according to people familiar with the investigations.”

According to the story, the DOJ request “came after German prosecutors complained H-P had refused to provide them with all of the records they requested” and after “H-P initially argued that the German request for bookkeeping records, some of which are five years old, imposed an ‘undue hardship’ on the company.”

The article indicates that the DOJ “asked H-P to comply voluntarily with the request and hasn’t subpoenaed the records” and that “H-P has yet to provide some records” but is “cooperating with the investigations.” According to H-P, the investigation
“involves people that have largely left the company and matters that happened as much as seven years ago.”

What Others Are Saying About Giffen

It’s been one week since the Giffen Gaffe (see here).

Here is what others are saying about the enforcement action that began with charges that James Giffen made “more than $78 million in unlawful payments to two senior officials of the Republic of Kazakhstan in connection with six separate oil transactions”, yet ended with a misdemeanor tax violation against Giffen and an FCPA anti-bribery charge against a functionally defunct entity (The Mercator Corporation -in which Giffen was the principal shareholder, board chairman, and chief executive officer) focused merely on two snowmobiles.

Scott Horton, writing at Harper’s Magazine (see here) noted that “[t]he outcome is a huge embarrassment to federal prosecutors, who had invested a decade in resources in the effort to convict Giffen of FCPA and related violations.”

Horton, who has been following the case for years, highlighted how the “case has been the focus of political manipulation concerns for years” and closed with this paragraph:

“Kazakhs have long claimed that their government’s strategy of resolving the Giffen case by using the right levers with the American administration–a process that led them to hire former attorneys general and high-profile retired prosecutors, private investigators, and public-relations experts–would be successful. The outcome in the Giffen case appears to ratify that view. The notion of an independent, politically insulated criminal-justice administration in America has just taken another severe hit.”

Steve LeVine, author of The Oil and The Glory page at Foreign Policy, noted (here) that the Giffen resolution is “a considerable comedown for the federal government” and that Giffen’s lawyer “understood correctly that he could set up a collision between the Justice Department and the CIA in which the latter would probably prevail.”

The FCPA and Stock Price

What affect, if any, does an FCPA disclosure or resolution have on a company’s stock price?

It’s an issue I’ve explored before (see here) and best I can tell the evidence is inconclusive and the answer is – it depends.

In the case of a company that does business almost exclusively in China disclosing an FCPA inquiry focused on China, the answer is that disclosure of the FCPA inquiry matters – and quite a bit.

On Monday, SciClone Pharmaceuticals Inc., a Delaware company based in California, disclosed in a 10-Q filing (here) as follows:

“On August 5, 2010 SciClone was contacted by the SEC and advised that the SEC has initiated a formal, non-public investigation of SciClone. In connection with this investigation, the SEC issued a subpoena to SciClone requesting a variety of documents and other information. The subpoena requests documents relating to a range of matters including interactions with regulators and government-owned entities in China, activities relating to sales in China and documents relating to certain company financial and other disclosures. On August 6, 2010, the Company received a letter from the DOJ indicating that the DOJ was investigating Foreign Corrupt Practices Act issues in the pharmaceutical industry generally, and had received information about the Company’s practices suggesting possible violations.”

SciClone’s business is focused primarily on China with 90+% of its revenue derived from China sales. Thus, it is not surprising that an FCPA inquiry focused on China had a material impact on the company’s stock price.

As noted in this Reuters story, news of the FCPA inquiry sent SciClone’s shares, at one point, down 41% to a 52 week low.

Siemens $1 Billion Customer

In December 2008, Siemens agreed to pay $800 million in combined U.S. fines and penalties to settle FCPA charges for a pattern of bribery the DOJ termed “unprecedented in scale and geographic scope.” According to the DOJ, for much of Siemens’ operations around the world, “bribery was nothing less than standard operating procedure.”

The Siemens enforcement action remains the largest FCPA settlement ever (even though Siemens itself was not charged with FCPA anti-bribery violations).

On the one year anniversary of the Siemens enforcement action, I ran a post – Siemens – The Year After (see here) which highlighted how the U.S. government continues to do substantial business with the company it charged with engaging in a pattern of bribery “unprecedented in scale and geographic scope.”

This U.S. government business has helped Siemens outperform its competitors in a difficult recessionary environment and much of the company’s recent success is the direct result of government stimulus programs around the world.

Using Recovery.gov (a U.S. government website designed “to allow taxpayers to see precisely what entities receive Recovery money ..”), I highlighted how several Siemens’ business units have been awarded several dozen contracts funded by U.S. taxpayer stimulus dollars.

It is against this backdrop that Paul Glader’s recent piece in the Wall Street Journal “Siemens Seeks More U.S Orders” caught my eye.

According to the article, Siemens Corp. (the U.S. division of Siemens) currently brings in about $1 billion a year from the U.S. government, a figure the division hopes to double by 2015.

Eric Spiegel, chief executive of Siemens Corp., is quoted in the article as saying: “[o]ne of the beauties of the federal-government spending is it didn’t drop off during the recession.”

To that, I’ll add that one of the unfortunate beauties of engaging in bribery the U.S. government terms “unprecedented in scale and geographic scope” is no slow down in U.S. government contracts in the immediate aftermath of the enforcement action.

It’s one of the FCPA greatest headscratchers – FCPA violaters are and remain some of the U.S. government’s biggest suppliers and contracting partners.

As I’ve noted in numerous prior posts, efforts are underway to try to change this. See here, here and here.

*****

A good weekend to all.

I then posted the question – what is the common thread in these three FCPA enforcement actions – a fact which speaks to the great difficulty individual FCPA defendants generally have in mounting a legal defense?

Before the answer, the background.

Individual FCPA defendants tend to work for companies. Under respondeat superior theories of liability, the company is going to have a very difficult time “distancing” itself from its employees conduct.

Thus, all corporate FCPA enforcement actions tend to be resolved through a non-prosecution agreement, a deferred prosecution agreement, or a plea. Entering into one of these resolution vehicles is often easier, more cost efficient, and more certain than actually mounting a legal defense based on the FCPA’s statutory elements. Further, because these resolution vehicles are subject to little or no judicial scrutiny and are entered into the context of the DOJ possessing certain “carrots” and “sticks” they do not necessarily reflect the triumph of one party’s legal position over the other.

While these resolution vehicles may indeed avert “another Arthur Anderson” here is the problem.

A key feature of each resolution vehicle is a statement along the following lines:

“[company] admits, accepts, and acknowledges responsibility for the conduct set forth in [the statement of facts] and agrees not to make any public statement contradicting [the statement of facts]” (see UTStarcom NPA here);

“[company] admits, accepts and acknowledges that it is responsible for the acts of its officers, employees and agents as set forth in the Statement of Facts [...] and that the facts described [...] are true and accurate [...] and that should the DOJ initiate prosecution that is deferred by this agreement [company] agrees that it will neither contest the admissibility of, nor contradict, in any such proceeding, the Statement of Facts” (see AGA Medical DPA here); or

“Defendant admits,agrees and stipulates that the factual allegations set forth in the Statement of Facts [...] are true and correct, that it is responsible for the acts of its former officers and employees described in the Statement of Facts, and that the Statement of Facts accurately reflects CCI’s criminal conduct” (see Control Components Inc. Plea Agreement here).

So what can you do if you are the targeted employee of such a company?

More likely than not, your employee has already terminated you (even before all the facts may be known) to demonstrate to the DOJ that it is implementing “prompt remedial actions” – a factor DOJ will consider when making its charging decision (see here).

Then, because of the resolution vehicle your employer entered into to make the DOJ go away, you are stuck with your employer admitting and accepting responsibility for your misconduct, even though there has been no finding that your conduct was even misconduct.

Against this backdrop, it is no surprise that nearly all FCPA individual defendants plead. What choice do they really have?

So that brings us back to the quiz answer.

Perhaps it was pure coincidence, perhaps not, but the three individual FCPA trials all occurred in the context of there being no parallel NPA, DPA or plea with a corporate entity.

However, contrary to numerous reports and even statements attributed to DOJ officials, the Africa Sting case is not the first time that pro-active, undercover investigative techniques have been used in an FCPA investigation. In other words, this is not a new development as demonstrated below.

Shu Quan-Sheng

In September 2008, Shu Quan-Sheng (a naturalized U.S. citizen and President, Secretary, and Treasurer of AMAC International (“AMAC”), a high tech company located in Virginia with an office in Beijing, China) was charged in a criminal complaint (see here and here) with, among other things, offering bribes to Chinese “foreign officials” in violation of the FCPA.

An affidavit (see here) in support of the criminal complaint by an FBI special agent describes several pro-active, undercover investigative methods including court authorized electronic surveillance and physical surveillance. Among other things, the affidavit describes several phone conversations Shu participated in connection with the bribery scheme.

Shu plead guilty to FCPA violations (among other charges) and was sentenced to 51 months in prison. (see here).

Gerald and Patricia Green

In January 2008, Gerald and Patricia Green, owners and operators of Film Festival Management (a private Los Angeles based private entertainment company) were criminally indicted for conspiring to bribe an official with the Tourism Authority of Thailand (TAT) and for making improper payments to the TAT official in violation of the FCPA. (see here and here).

The criminal charges were supported by an affidavit (see here) from an FBI special agent which describes several pro-active undercover investigative methods, including a multiple agent trip to Thailand to witness Mr. Green meeting with the Thai “foreign official.”

In September 2009 (see here), the Greens were found guilty by a federal jury of substantive FCPA violations, conspiracy to violate the FCPA, and other charges. The Greens are scheduled to be sentenced in March 2010.

William Jefferson

In June 2007, then U.S. Congressman William Jefferson was criminally indicted (see here and here). The charges included substantive FCPA violations and conspiracy.

According to numerous media sources (see here), the FBI affidavit released in connection with the investigation describes several pro-active, undercover investigative techniques including cooperating witnesses wearing FBI wires and video surveillance.

In August 2009, Jefferson was acquitted of substantive FCPA charges by a federal jury, but convicted of a wide range of other charges. (see here for more on the Jefferson case). In November 2009, Jefferson was sentenced to 13 years in prison and he remains free on bail pending his appeal.

WrageBlog (see here) has also identified two other previous instances of pro-active, undercover investigative techniques employed in connection with FCPA investigations.

In connection with the Green case (see here), an indictment was recently unsealed (see here) against Juthamas Siriwan and Jittisopa Siriwan.

According to the indictment, Juthamas “was the senior government officer of the Tourism Authority of Thailand (TAT)” and she is the “foreign official” the Greens were convicted of bribing. Jittisopa is the daughter of the “foreign official” and also alleged to be an “employee of Thailand Privilege Card Co. Ltd.” an entity controlled by TAT and an alleged “instrumentality of the Thai government.”

Incidentally, the Green’s sentencing (which was to occur today) in which the government is essentially seeking a life sentence for Mr. Green based on FCPA, as well as other convictions and factors, was postponed until March. For more on that issue, see here.

As noted in the first Indicting a “Foreign Official” post a month ago (see here), the FCPA only covers “bribe-payers, not “bribe-takers.”

Thus, like the prior indictment against the alleged Haiti “foreign officials” (Robert Antoine and Jean Rene Duperval), the charges against the Siriwans are not FCPA charges, but largely conspiracy to money launder and “transporting funds to promote unlawful activity.”

However, unlike Antoine and Duperval who are alleged to have U.S. bank accounts which were used in the connection with the bribery scheme, the Siriwan’s bank accounts were located in Singapore, the United Kingdom, and the Isle of Jersey.

There are however facts alleged in the Siriwan indictment which suggest a U.S. nexus. The indictment alleges that the Greens did on occasion “arrange for cash payments to be made directly to Juthamas Siriwan, including during her trips to Los Angeles, California.” The indictment further alleges that Juthamas Siriwan “sent and caused to be sent to co-conspirator Gerald Green a facsimile on TAT letterhead providing wire instructions for transferring funds.” Finally, the indictment also alleges that “co-conspirator Patricia Green received instructions to divide ‘commission’ payments owed to defendant Juthamas Siriwan into wire transfer to three separate accounts.” Although the indictment does not say, it is presumed that the facsimile and instructions were sent to the U.S.

The “transporting funds to promote unlawful activity” charges (two – eight) of the indictment rely on 18 USC 1956(a)(2)(A) which reads in pertinent part:

“(2) Whoever transports, transmits, or transfers, or attempts to transport, transmit, or transfer a monetary instrument or funds from a place in the United States to or through a place outside the United States or to a place in the United States from or through a place outside the United States

(A) with the intent to promote the carrying on of specified unlawful activity

shall be sentenced to a fine of not more than $500,000 or twice the value of the monetary instrument or funds involved in the transportation, transmission, or transfer, whichever is greater, or imprisonment for not more than twenty years, or both.”

The specified unlawful activity alleged in the indictment is “namely, bribery of a foreign official” in violation of the FCPA; “bribery of a public official of Thailand” in violation of Thai law; and the “misappropriation, theft, or embezzlement of public funds by or for the benefit of a public official” in violation of Thai law.

In November 2009, Attorney General Eric Holder stated (see here) that the U.S. was committed to recovering funds obtained by “foreign officials” through bribery and the indictment seeks forfeiture of approximately $1.7 million in the foreign bank accounts.

The FCPA is no exception, particularly when it comes to the FCPA’s “while knowing” standard set forth in the FCPA’s third party payment provisions which generally prohibit otherwise improper payments to “any person, while knowing that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly” to a foreign official. (see 78dd-1(a)(3)).

The third party payment provisions have not always included this “while knowing” standard. When first enacted in 1977 and up until 1988 (when the FCPA was amended), the third party payment provisions had a broader standard and applied if a defendant engaged in the prohibited conduct “while knowing or having reason to know” that all or a portion of such money or thing of value would be offered, given, or promised, directly or indirectly to a foreign official.

In a superb new piece titled, “The ‘Knowledge’ Requirement of the FCPA Anti-Bribery Provisions: Effectuating Or Frustrating Congressional Intent?,” – Kenneth Winer and Gregory Husisian of Foley & Lardner (the “Authors”) conclude that “[t]he DOJ and SEC … now interpret the knowledge requirement so broadly that they have effectively eviscerated the 1988 statutory changes thereby raising an important question: Are the DOJ and SEC frustrating the intent of Congress by ignoring the reason that Congress amended the FCPA?” (see here).

These are the type of questions we like to posed here at the FCPA Professor blog and, for the record, I am glad to see that I am not alone in questioning whether certain aspects of current FCPA enforcement frustrate or contradict Congressional intent in enacting or amending the FCPA.

The authors do a fine job of walking the reader through a concise overview of the “knowledge” element’s legislative history, particularly the 1988 House and Senate bills which sought to amend the “knowledge” element. Reviewing case law cited in the compromise conference report, the Authors conclude that the “intent of the 1988 amendments” was to “address concerns that FCPA intermediary violations could be found where there was no actual knowledge” and that even though “Congress adopted language to cover situations beyond actual knowledge, it did so in a very circumscribed fashion.”

That fashion, according to the Authors, – “[o]nly in the limited circumstances where the party had something very close to actual knowledge – that is, both awareness of a ‘high probability’ that a corrupt payment would be made and a ‘deliberate’ decision to avoid gaining information in a conscious effort to avoid learning the truth – is the knowledge requirement satisfied.”

According to the Authors, the DOJ and SEC, and most FCPA commentators, talk about “willful blindness” or “head in the sand” language, provide a list of red flags, and then state that “failure to follow up on red flags will be treated as knowledge, regardless of the reason why the person did not inquire.”

Suppose a company is aware of a “high probability” that a corrupt payment is being made on its behalf, but that the company, perhaps because of “cost, delay, disruption or likely futility involved” in attempting to conduct an investigation, does not further. Under the “common view,” such a failure to investigate is a form of culpable knowledge.

Nonsense says Winer and Husisian. They note that “[o]f course, failing to conduct sufficient due diligence or ignoring red flags can, in many circumstances, be foolish in the extreme,” but that, as noted in the FCPA’s legislative history and cases cited therein, such “foolishness, in and of itself, cannot constitute a finding that knowledge is present.”

According to the Authors, the “net effect of this attitude is to bring the FCPA back to its original ‘reason to know’ standard” and the current enforcement approach utilizing this standard is nothing more than “implementing an approach that Congress specifically rejected.”

Winer and Husisian close by saying:

“The SEC, DOJ, and many commentators might think it would be best if the knowledge requirement was satisfied by failure to conduct adequate due diligence or the failure to follow up on red flags (even if the defendant was not motivated by a purpose of avoiding knowledge of the corrupt payment). But that is not the policy balance that Congress struck in the 1988 amendments. The agencies should rethink their interpretation of the FCPA and enforce the knowledge requirement as Congress intended.”

***

Curious as to the Author’s take on the knowledge jury instructions from the Bourke and Green trials this summer? The Bourke jury instructions – thumbs up; the Green jury instructions – thumbs down.

According to the DOJ release, evidence introduced at trial showed that “beginning in 2002 and continuing into 2007, the Greens conspired with others to bribe the former governor of the [Tourism Authority of Thailand] in order to get lucrative film festival contracts as well as other TAT contracts.” According to the release, the evidence also established that the Green’s attempted to disguise the bribe payments by labeling them “sale commissions” and by making the payments “for the benefit of the former governor through the foreign bank accounts of intermediaries, including bank accounts in the name of the former governor’s daughter and friend.”

Reacting to the verdict, Assistant Attorney General Breuer stated that the DOJ “will not waiver in its fight against corruption, whether perpetrated within our borders or abroad” and that the FCPA “is a powerful tool that the [DOJ] will continue to use in an effort to stop individuals like the Greens who seek to further their own business interests through bribes paid to foreign officials.”

The Greens are to be sentenced in December and the conspiracy and FCPA charges each carry a maximum penalty of five years in prison.

As mentioned, the Green trial was the third FCPA trial of the summer.

The other two were the Bourke matter (see here) and the Jefferson matter (see here).

Leading up to these trials, the FCPA bar and the enforcement officials themselves, predicted that one result of these trials would be greater clarity of some of the FCPA’s murky elements.

While the verdicts were, on balance, pro-DOJ verdicts, the verdicts reached in these trials were not exactly uniform.

Bourke was convicted of conspiracy to violate the FCPA (the case did not proceed to trial on a substantive FCPA violation).

Jefferson was also convicted of conspiracy (although it is not entirely clear if the jury found him guilty of conspiracy to violate the FCPA). However, Jefferson was found not guilty on the substantive FCPA charge (the charge predicated on the “cash in the freezer” allegations).

Have these trials provided any greater clarity as to various FCPA elements as widely predicted?

I think it is far to say that as a result of the Bourke verdict (even though it was not a substantive FCPA trial), the FCPA’s knowledge standard has never been broader, and can be satisfied even when an investor, like Bourke, does not actually pay a bribe, but is merely aware that others may be making bribe payments in a widely viewed corrupt country for the potential benefit of an entity in which he is an investor (see here and here).

Beyond this, I’m not sure that any further clarity as to substantive FCPA elements has resulted from these trials, but I would be interested to hear what others have to say.

Will these trials and the largely pro-DOJ verdicts send a “proceed with caution” message to any individual or corporation faced with an FCPA enforcement action and stiffle legitimate defense theories based on the FCPA’s elements?

I expect so, yet that is indeed unfortunate as a significant portion of FCPA enforcements are based largely on DOJ/SEC’s untested and unchallenged interpretations of the law.