Archive for the ‘Paul Cosgrove’ Category

Friday Roundup

Friday, February 1st, 2013

The SEC files an amended complaint, Judge Leon strikes again, a provocative press release, a focus on lobbying and for the reading stack.  It’s all here in the Friday roundup.

SEC Files Amended Complaint in Jackson / Ruehlen Matter

As highlighted in this prior post, this past December Judge Keith Ellison (S.D. Tex.) issued a lengthy 61 page decision (here) in SEC v. Mark Jackson and James Ruehlen.  In short, Judge Ellison granted Defendants’ motion to dismiss the SEC’s claims that seek monetary damages while denying the motion to dismiss as to claims seeking injunctive relief.  Even though Judge Ellison granted the motion as to SEC monetary damage claims, the dismissal was without prejudice meaning that the SEC was allowed to file an amended complaint.  As explained in the prior post, Judge Ellison’s decision was based on statute of limitations grounds (specifically that the SEC failed to plead any facts to support an inference that it acted diligently in bringing the complaint) as well as the SEC’s failure to adequately plead discretionary functions relevant to the FCPA’s facilitation payments exception.

Last week, the SEC filed its amended complaint (here).  The most noticeable difference in the amended complaint, based on my brief review of the 58 page document, appears to be several allegations regarding Nigerian law, including the Customs & Excise Management Act.

Judge Leon Strikes Again

This prior post generally discussed Judge Richard Leon’s rejection of the SEC v. IBM FCPA settlement, a case that still lingers on the docket.

As noted in this Main Justice story and this Wall Street Journal story, Judge Leon has struck again.  According to the reports, yesterday Judge Leon conducted a scheduled hearing in SEC – Tyco FCPA case in chambers, much to the dismay of media assembled in open court.

As noted in this prior post, in September 2012, the DOJ and SEC announced an FCPA enforcement against Tyco International Ltd. and a subsidiary company.  Total fines and penalties in the enforcement action were approximately $26.8 million (approximately $13.7 million in the DOJ enforcement action and approximately $13.1 million in the SEC enforcement action).  As noted in this SEC release, Tyco consented to a final judgment that orders the company to pay approximately $10.5 million in disgorgement and approximately $2.6 million in prejudgment interest.  Tyco also agreed to be permanently enjoined from violating the FCPA.

Although both the IBM and Tyco enforcement actions involve the SEC’s neither admit nor deny settlement language, this would not seem to be the key thread between these two enforcement actions that is drawing the ire of Judge Leon.  Rather as explained in this post summarizing the IBM enforcement action and this post highlighting various notable features of the Tyco action, both companies are repeat FCPA violators.  In resolving the “original” FCPA enforcement actions – IBM in 2000 and Tyco in 2006 – both companies agreed to permanent injunctions prohibiting future FCPA violations.

This prior post titled “Meaningless Settlement Language” detailed Judge Jed Rakoff’s discussion of so-called ”obey the law” injunctions in SEC v. Citigroup and this prior guest post discussed an Eleventh Circuit decision last year vacating a SEC “obey the law” injunction.

A Provocative Press Release

The law firm Bienert, Miller & Katzman (“BMK”) represented Paul Cosgrove (a former executive of Control Components Inc.) in the so-called Carson enforcement actions.  The Carson action involved a notable “foreign official” challenge and as highlighted in previous posts here, here, and here, after Judge Selna issued a pro-defendant jury instruction, the DOJ soon thereafter offered the remaining defendants (Stuart Carson, Hong Carson, David Edmonds, and Cosgrove) plea agreements which the defendants accepted.  As to those plea agreements, I ended each post by saying – the conclusions are yours to reach.  In Fall 2012, the defendants were sentenced as follows:  S. Carson (four months in prison), H. Carson (three years probation), Edmonds (four months in prison) and Cosgrove (15 months of home detention).  See this prior post regarding Carson sentencing issues.

In a January 17th press release (here), BMK stated as follows.

“BMK and counsel for three other defendants … conducted a worldwide investigation and developed evidence suggesting the government’s evidence was incomplete, the court documents indicate.  Ultimately,  most companies bought CCI valves because they were the best in the world (not because of bribes); most of the supposed “public officials” denied receiving any bribes; and, in most cases, the alleged improper payments were never actually made, according to court records.

Further, through an aggressive litigation and motion strategy, counsel were able to obtain jury instructions that highlighted the government’s heavy burden of proof at trial.  For example, the trial court agreed with defense counsel that the government was obligated to prove defendants’ knew they were dealing with “foreign officials,” something that would have been extremely difficult for the government to prove.  The supposed bribery recipients worked for companies that appeared to operate like private companies in the United States, making it very unlikely that the defendants realized they were dealing with “government officials.”

BMK and other defense counsel  raised several other issues that brought the government’s ability to obtain a conviction, or defend an appeal, into serious doubt.  These motions called into question whether the alleged bribe recipients were even “public officials” as intended by the FCPA; whether the Travel Act even applied to the case; and, whether defendants were entitled to millions of pages of documents that had been withheld from them by CCI, their former employer.  Each of these issues likely would have been decided for the first time on an appeal in this case.”

[Full disclosure - I was an engaged expert in the Carson cases, filed a "foreign official" declaration in connection with the motion to dismiss, and was disclosed as a testifying expert for the trial]

Lobbying

In my double-standard series (here), I have highlighted various aspects of lobbying here in the U.S.  The beginning of the recent opinion in U.S. v. Ring (D.C. Circuit) is an interesting read.  In pertinent part, it states as follows (internal citations omitted).

“Lobbying has been integral to the American political system since its very inception.  […] As some have put it more cynically, lobbyists have besieged the U.S. government for as long as it has had lobbies.” […]  By 2008, the year Ring was indicted, corporations, unions, and other organizations employed more than 14,000 registered Washington lobbyists and spent more than $3 billion lobbying Congress and federal agencies. […] 

The interaction between lobbyists and public officials produces important benefits for our representative form of government. Lobbyists serve as a line of communication between citizens and their representatives, safeguard minority interests, and help ensure that elected officials have the information necessary to evaluate proposed legislation. Indeed, Senator Robert Byrd once suggested that Congress “could not adequately consider [its] workload without them.” […]

In order to more effectively communicate their clients’ policy goals, lobbyists often seek to cultivate personal relationships with public officials. This involves not only making campaign contributions, but sometimes also hosting events or providing gifts of value such as drinks, meals, and tickets to sporting events and concerts. Such practices have a long and storied history of use—and misuse. During the very First Congress, Pennsylvania Senator William Maclay complained that “New York merchants employed ‘treats, dinners, attentions’ to delay passage of a tariff bill.” […] Sixty years later, lobbyists working to pass a bill that would benefit munitions magnate Samuel Colt “stage[d] lavish entertainments for wavering senators.” […] Then, in the 1870s, congressmen came to rely on railroad lobbyists for free travel. [...]. Indeed, one railroad tycoon complained that he was “averag[ing] six letters per day from Senators and Members of Congress asking for passes over the road.”

Reading Stack

Some dandy articles/essays to pass along regarding the FCPA books and records provisions, victim issues and criminal procedure.

FCPA Books and Records Provisions

Michael Schachter (Willkie Farr & Gallagher and a former Assistant United States Attorney in the Southern District of New York, where he focused on criminal prosecution of securities fraud and was a member of the Securities and Commodities Fraud Task Force) recently authored an article concerning the FCPA’s books and records provisions.  Titled “Defending an FCPA Books and Records Violation” and published in the New York Law Journal, the article begins as follows.

“In recent years, the books and records provisions of the [FCPA] have taken on new life, as both the [DOJ and SEC] have announced their intention to bring more charges, especially against individuals, for violation of this section of the FCPA.  A review of recent enforcement actions reveals that the Justice Department and the SEC consider the books and records requirement violated whenever corrupt payments are made to a foreign official and recorded in a corporation’s books as anything other than a ‘bribe,’ including, but not limited to, such things as commissions, social payments, or after sales service fees.  This article proposes that the books and records provision is, in fact, narrower than the Justice Department and the SEC interpretations suggest, and argues that both agencies may be using the provision to punish behavior falling outside the FCPA’s reach.”

Spot on.  See prior posts here and here.  See here for a word cloud of the FCPA’s books and records and internal control provisions.

Corporate Employer’s As Victims

The title of Professor Peter Henning’s recent White Collar Crime Watch post in the New York Times DealBook was “How Can Companies Sue Defendants in Insider Trading Cases?”  The post concerned the Mandatory Victims Restitution Act and Professor Henning writes that it ”has been interpreted to allow companies that incur costs in cooperating with the government to seek repayment of their expenses from defendants” and the “statute requires a court to order the reimbursement to victims of ‘other expenses incurred during participation in the investigation or prosecution of the offense.’”

The parallels to a company incurring expenses in connection with FCPA investigations based on employee conduct is obvious.

Yet, Professor Henning writes as follows.

“[T]he crucial word in the Mandatory Victims Restitution Act is “incurred,” and there isn’t a consensus among federal courts over what expenses are covered.  Companies want it to include all costs related to any part of the case, including dealing with the S.E.C. even though it can only pursue a civil enforcement case. Defendants take a much narrower view, arguing that mandatory restitution covers only expenses arising as direct result of the criminal prosecution by the Justice Department.

Ham Sandwich Nation

Glenn Reynolds (University of Tennessee College of Law) recently published an essay titled “Ham Sandwich Nation: Due Process When Everything is a Crime” (see here to download).  The essay does not mention the FCPA, yet it is very much applicable to the FCPA.  In just the past year, approximately 25 individuals criminally indicted by the DOJ have put the DOJ to its burden of proof and ultimately prevailed.  Ham Sandwich Nation would also seem applicable given the extensive use of NPAs and DPAs in the FCPA context.  The thesis of the essay is spot on.  Reynolds write as follows.

“Though people suspected of a crime have extensive due process rights in dealing with the police, and people charged with a crime have even more extensive due process rights in courts, the actual decision whether or not to charge a person with a crime is almost completely unconstrained.  Yet, because of overcharging and plea bargains, that decision is probably the single most important event in the chain of criminal procedure.”

Year In Review

The Year in Review version of Debevoise & Plimpton’s always informative and comprehensive FCPA Update is here.   Among the many topics discussed in the FCPA Update is the notion that many FCPA enforcement actions are based on very old conduct and the following observation.  “Targets of enforcement actions also run the risk that regulators – whether consciously or not – apply current expectations of appropriate compliance measures and effective internal controls mechanisms when evaluating the adequacy of procedures that existed at times when less rigorous standards may have commonly been considered acceptable.”  For my similar previous observation, see this prior post.

*****

A good weekend to all.

Friday Roundup

Friday, September 14th, 2012

A focus on asset recovery, a substantial upgrade to the DOJ’s FCPA website, might Comverse Technologies face a double prosecution, Cosgrove is sentenced to home confinement, and on-point.  It’s all here in the Friday roundup.

Asset Recovery

The Arab Forum of Asset Recovery (here) took place earlier this week in Doha, Qatar.  President Obama delivered this recorded message.  Attorney General Eric Holder delivered this speech at the event and stated as follows.  “Corruption has long been recognized as a transnational problem that demands a coordinated, global response.  Time and again, we’ve seen its destructive, corrosive effects – hindering development, impeding advancement, and siphoning precious resources away from those in need at a time when they could hardly be more scarce – and when the world economy could hardly be more vulnerable.  We’ve come to understand its impact in eroding trust, favoring the interests of a dishonest few over the needs of the hardworking many, and even breeding contempt for the rule of law.”  In his speech, Holder provided some highlights of the DOJ’s Kleptocracy Asset Recovery Initiative as well as outlined a U.S. committment to additional resources including two additional Justice Department attorneys to work exclusively on asset recovery and mutual legal assistance issues.

During this speech Holder further stated as follows.  “As Attorney General, I’ve consistently worked to ensure that anticorruption remains a top priority for my colleagues at every level of the Justice Department.  From our robust enforcement of the Foreign Corrupt Practices Act – an important law under which we have secured more than 30 individual convictions and over 40 corporate resolutions, totaling more than $2.1 billion in penalties, over the last three years alone; to the anticorruption work of our prosecutors stationed both in the United States and overseas – I’m proud to report that we’ve made great strides in our fight against corruption, within – as well as beyond – our borders.”

DOJ FCPA Website

As previously reported by the on-line news site Main Justice (here), the DOJ recently upgraded its FCPA website.  Of particular note from a research perspective, the DOJ’s list of enforcement actions now appears to be complete – see here.  A link to the DOJ’s FCPA website, as well as numerous other resources, is included on the resources page of this website – here.

Comverse Technology

As noted in this previous post, in 2011 Comverse Technology resolved a DOJ and SEC enforcement action by agreeing to pay $2.8 million (a $1.2 million criminal fine via a DOJ non prosecution agreement; $1.6 million in disgorgement and prejudgment interest via a SEC settled complaint).

The resolution documents contained the standard template clauses.

The two-year NPA (here) stated that for the term of the agreement, Comverse shall “commit no crimes whatsover” and that if the “Department in its sole discretion determines that Comverse has committed any crime after signing this Agreement” that Comverse “shall thereafter be subject to prosecution for any violation of federal law of which the Department has knowledge  …”.

The SEC release (here) noted that Comverse consented to a “conduct-based injunction that prohibits Comverse from having books and records that do not accurately reflect, or from having internal controls that do not prevent or detect, any illegal payments made to obtain or retain business.”

Last week in an SEC filing (here) Comverse (CTI) disclosed as follows, after describing its 2011 resolution action and compliance obligations.

“CTI had implemented safeguards in an effort to eliminate improper practices by our employees, consultants, external sales agents and resellers. These safeguards, however, have proven to be ineffective in some instances. In response to the findings of the CTI Audit Committee’s internal investigation, CTI identified a material weakness in our anti-fraud program controls, including those relating to the FCPA, and as part of its remediation our safeguards were modified. However, these modified safeguards, the implementation of these remedial measures and any future improvements may prove to be less than effective, and our employees, consultants, external sales agents or distributors may engage in the future in conduct for which we might be held responsible. Violations of the FCPA and other laws of the United States and other countries may result in significant civil and/or criminal penalties and other sanctions, which could have a material adverse effect on our business, financial condition and results of operations.”

One can look at Comverse’s recent disclosure in two ways.  That the company does not have a committment to FCPA compliance and has not taken its post-enforcement action compliance obligations seriously.  The other is that even a company under the threat of double prosecution (the first being for conduct at issue in the NPA, the second being the post-enforcement action conduct) can not, despite presumed good faith best efforts, guarantee FCPA compliance across its vast business organization and can not ensure that its numerous employees, consultants, external sales agents and resellers will not engage in problematic conduct.

Cosgrove Sentence

As noted in this previous post, in May Paul Cosgrove (one of the defendants in the so-called Carson case involving former employees of Control Components Inc.) pleaded guilty to a one-count superseding information charging him with making a “corrupt payment to a foreign government official in China in violation of the FCPA.”  As noted in the prior post and as detailed in the plea agreement, Cosgrove suffers from significant health issues.  The DOJ stated, in its sentencing memo (here) as follows.  “Absent defendant’s health condition, the government would recommend a term of incarceration of 15 months. However, to the extent the Court believes that defendant’s health condition warrants a non-incarceratory sentence, the government recommends that the term of home confinement be 15 months.”

As noted in this article from the Orange County Register, yesterday U.S. District Court Judge James Selna sentenced Cosgrove to 13 months home confinement.

On-Point

Russell Ryan (a former assistant director of the SEC’s division of enforcement and currently with King & Spalding – here) had a dandy op-ed (here) recently in the Wall Street Journal concerning the SEC seeking to punish, not just conduct, but an individual being  ”unrepentant” and “impenitent.”  Ryan’s piece reminded me of this prior post in which the DOJ criticized an FCPA corporate defendant for not cooperating “based on jurisdictional issues.”  Once again, do the enforcement agencies expect defendants to roll over and play dead?

*****

A good weekend to all.

Checking In On The Carson Case

Thursday, May 31st, 2012

This post checks in on the case commonly referred to as the “Carson” case (even though as indicated in this prior post, last month Stuart and Hong Carson pleaded guilty).  This post summarizes the recent superceding information against Paul Cosgrove and his guilty plea.  David Edmonds remains a defendant in the case and is scheduled to go to trial in late June.  This post ends by linking to briefs in connection with the DOJ’s motion to exclude Edmond’s designated experts, including myself, from testifying at trial.

Cosgrove Information and Plea

In April 2009, Paul Cosgrove was criminally charged, along with other defendants who were also former employees of Control Components Inc. (CCI), in a criminal indictment (here) for engaging in ”a conspiracy to secure contracts by paying bribes to officials of foreign state-owned companies as well as officers and employees of foreign and domestic private companies.”

As to Cosgrove, the indictment alleged as follows.  “From in or around 2003 through in or around 2007, defendant Cosgrove caused [CCI's] employees and agents to make corrupt payments totaling approximately $1.9 million to officers and employees of state- owned companies, and corrupt payments totaling approximately $300,000 to officers and employees of private companies.”  “[CCI's] state-owned customers included, but were not limited to, Jiangsu Nuclear Power Corporation (“JNPC”)  (China), Guohua Electric Power (China), China Petroleum Materials and Equipment Corporation (“CPMEC”), PetroChina, Dongfang  Electric Corporation (China), China National Offshore Oil Corporation (“CNOOC”), Korea Hydro and Nuclear Power (“KHNP”),  Petronas (Malaysia), and National Petroleum Construction Company (“NPCC”) (United Arab Emirates).  Each of these state-owned entities was a department, agency, and instrumentality of a  foreign government, within the meaning of the FCPA. The officers  and employees of these entities, including the Vice-Presidents, Engineering Managers, General Managers, Procurement Managers, and Purchasing Officers, were “foreign officials” within the meaning of the FCPA.”

As noted in the DOJ release (here), Cosgrove was charged with one count of conspiracy to violate the FCPA and the Travel Act, six counts of violating the FCPA and one count of violating the Travel Act.

Shortly thereafter, CCI resolved an FCPA enforcement action based on the same core set of conduct alleged in the above indictment.  (See here for the prior post).  I noted then, as I had since launching this website in July 2009, that the DOJ’s position that employees of state-owned companies, regardless of position, are “foreign officials” under the FCPA is an unchallenged and untested legal theory – and one I believe is ripe for challenge.

In February 2011 (as noted in this prior post), for the first time in FCPA history, a federal court judge, with the benefit of a detailed and complete overview of the FCPA’s extensive legislative history on the “foreign official” element, was asked to rule on the DOJ’s interpretation that employees of alleged state-owned or state-controlled enterprises are “foreign officials” under the FCPA.  My declaration on the FCPA’s legislative history relevant to “foreign official” (here) was used in the “foreign official” motion to dismiss.

In May 2011 (as noted in this prior post), Judge James Selna denied the “foreign official” motion to dismiss and concluded that “the question of whether state-owned companies qualify as instrumentalities under the FCPA is a question of fact.”  The “foreign official” issue thus moved to the jury instructions (as noted in this prior post).

In February 2012 (as noted in this prior post), Judge Selna issued certain jury instructions.  Not surprisingly, Judge Selna carried forward his previous “instrumentality” analysis into the “instrumentality” jury instruction.  Yet, in a significant development in terms of the future of the case, Judge Selna issued an instruction titled “knowledge of status of foreign official.”  In pertinent part, the instruction stated as follows.

[.....]

“(4) The defendant offered, paid, promised to pay, or authorized the payment of money, or offered, gave, promised to give, or authorized the giving of anything of value to a foreign official;

(5) The payment or gift at issue in element 4 was to (a) a person the defendant knew or believed was a foreign official or (b) any person and the defendant knew that all or a portion of such money or thing of value would be offered, given, or promised (directly or indirectly) to a person the defendant knew or believed to be a foreign official. Belief that an individual was a foreign official does not satisfy this element if the individual was not in fact a foreign official.”

In his order, Judge Selna stated as follows.

“The Government proposes to add the following paragraph to element 5:”

The government need not prove that the defendant knew the legal definition of “foreign official” under the FCPA or knew that the intended recipient of the payment or gift fell within the legal definition. The defendant need not know in what specific official capacity the intended recipient was acting, but the defendant must have known or believed that the intended recipient had authority to act in a certain manner as specified in element 6.”

The Court does not believe that this language is necessary, and it is potentially confusing.”

Earlier this week, the DOJ announced (here) that Cosgrove “pleaded guilty … before U.S. District Judge James V. Selna in Santa Ana, Calif., to a one-count superseding information charging him with making a corrupt payment to a foreign government official in China in violation of the FCPA.”

Unlike the original indictment, the four page superseding information as to Cosgrove (here) focuses solely on Sichuan Chemical Works Group Ltd. (here) and states as follows.  “Sichuan Chemical was a department, agency, and instrumentality of a foreign government within the meaning of the FCPA [...] the officers and employees of Sichuan Chemical were ‘foreign officials’ within the meaning of the FCPA.”  The superseding information states that in July 2003 “Cosgrove corruptly caused an e-mail to be sent authorizing the payment of approximately $7,500 to officials of Sichuan Chemical for the purpose of securing Sichuan Chemical’s business.”

As noted in the DOJ’s release, “at sentencing, Cosgrove, 65, faces up to 15 months in prison.”  Sentencing is scheduled for Aug. 27, 2012.

The Cosgrove plea agreement (here) incorporates the substance of Judge Selna’s jury instruction set forth above.  In addition, the plea agreement states as follows.  “Defendant Cosgrove knew Sichuan Chemical was a Chinese state-owned entity.  Defendant Cosgrove understands that at any trial, the government would prove sufficient facts to demonstrate that Sichuan Chemical was a government instrumentality within the meaning of the FCPA … and its employees ‘foreign officials’ within the meaning of the FCPA.”  As to the $7,500 payment Cosgrove authorized via e-mail, the plea agreement states as follows.  “As a result of this payment, CCI earned profits of approximately $5,625 in connection with the sale of the valve.”

The plea agreement further states as follows.  “Although defendant Cosgrove did not actually know that the $7,500 was to be offered, given, or promised to any employees at Sichuan Chemical for the purpose of securing Sichuan Chemical’s business, he was aware of a high probability of this circumstance and failed to make additional inquiries concerning the nature of the commission and the suspected recipient in order to determine whether the proposed commission payment might be made to an employee at Sichuan Chemical for the purpose of securing Sichuan Chemical’s business.”  The plea agreement further states as follows.  “Although defendant Cosgrove did not know about the prohibitions of the FCPA, defendant Cosgrove was aware that the law would forbid making an undisclosed payment to an employee of a customer for the purpose of securing the customer’s business.”

As set forth in the plea agreement, the advisory Sentencing Guidelines range for the conduct at issue is 10-16 months imprisonment.  The plea agreement states as follows.  “Defendant and the Department of Justice agree that … an appropriate disposition of this case is that the court impose a sentence of:  no more than 15 months imprisonment; three years supervised release …; up to a $20,000 fine; no amount of restitution; and a $100 special assessment.  Defendant reserves the right to seek variance or a downward departure in the offense level based upon defendant’s medical condition.  At sentencing, defendant will present evidence of his medical condition, to include the following:  Defendant has a lengthy history of coronary problems, gastric bleeding, and other serious health issues for which he has received treatment since at least 2003.  On August 16, 2010, defendant underwent emergency heart quadruple bypass surgery and has since been under the treatment and care of his cardiologist to ensure defendant remains in stable condition.”

In the plea agreement, Cosgrove waived any statute of limitations defenses.

Some have called the Cosgrove plea a “big win” and a “victory” for the DOJ (see here and here).  The conclusions are yours to reach.

Expert Issues

See here for the DOJ’s motion to exclude Edmond’s expert witnesses, here for Edmond’s response, and here for the DOJ’s reply.

Judge Selna Rejects State Actor Theory

Wednesday, May 16th, 2012

Prior posts (here, here, and here) discussed a motion to suppress and a motion to dismiss brought by various defendants in the Carson matter.  Given the recent guilty pleas of Stuart Carson and Hong Carson (see here), as a practical matter the motions only affected the remaining defendants – Paul Cosgrove and David Edmonds.

In the motion to suppress, defendants moved to suppress statements which they made to attorneys from Steptoe & Johnson during the course of Steptoe’s internal investigation on behalf of Control Components, Inc. and its parent IMI plc.  The theory of the motion was that the Steptoe attorneys were part of the Government’s investigation and therefore state actors.

Judge Selna rejected the state actor theory – see here for his tentative order.  Judge Selna stated as follows.  “As a matter of fact finding, there is no basis to conclude on the basis of events that transpired prior to the interviews or in the aftermath that the Steptoe lawyers were acting as agents of the Government.”  The tentative order states as follows.  “Steptoe contacted the Department of Justice.  [...]  There is no evidence that the Government had any input in the determination of which employees to interview or what they should be asked.  Although [Mark] Mendelsohn [former DOJ FCPA Unit Chief] was advised of the first day of interviews via e-mail, he did not provide guidance or input for the next day’s interviews, and put off discussing the ‘specifics’ of the interviews until the following week.”

Judge Selna further stated as follows.  “The facts here do not establish more than a unilateral determination on the part of CCI and its parent to cooperate with the Government.  Surely, it was in CCI’s interest and a legitimate activity to investigate potential criminal conduct in its business operations.  The Government had no involvement with the Defendants’ interviews, and it cannot be said that Steptoe’s action were so intertwined with the Government that those interviews may be ‘fairly treated’ as the conduct of the Government.  [...]  The record is clear that CCI through its parent IMI had made a decision to conduct an internal investigation before Steptoe contacted the Government.”

*****

Judge Selna also issued a tentative ruling (here) denying defendants’ motion to dismiss the indictment “on a series on individual grounds upon which they claim to have been denied due process and on the basis of the cumulative effect of these individual deficiencies.”

Judge Selna noted that “a number of claims [were] predicated on the theory that Steptoe & Johnson … was the agent of the Government and joint investigator” and that such issues were properly resolved in the above-described tentative order.

As to the Defendants’ assertion that the FCPA and Travel Act lacked clarity, Judge Selna stated that “this is simply a cameo reprise of their earlier attacks on these statutes which the Court addressed at length, and rejected.”

As to the Defendants’ theories regarding denial of access to witnesses, missing documents, and foreign documents, Judge Selna concluded that none of these issues were “attributable to unilateral government action.”  As to Brady issues, Judge Selna concluded that “the Government has used its reasonable efforts to secure materials in the possession of CCI.”

*****

During Monday’s hearing on the motions, Judge Selna indicated that he will soon be issuing formal denials of the motions.  The remaining defendants in the Carson matter – Paul Cosgrove and David Edmonds – are scheduled to stand trial in late June.

Checking In On The Carson Case

Thursday, April 19th, 2012

In April 2009, Stuart and Hong Carson (husband and wife) were criminally charged, along with other defendants who were also former employees of Control Components Inc. (CCI), in a criminal indictment (here) for engaging in ”a conspiracy to secure contracts by paying bribes to officials of foreign state-owned companies as well as officers and employees of foreign and domestic private companies.”

The indictment alleged as follows.

“Company A’s state-owned customers included, but were not limited to, Jiangsu Nuclear Power Corporation (“JNPC”)  (China), Guohua Electric Power (China), China Petroleum Materials and Equipment Corporation (“CPMEC”), PetroChina, Dongfang  Electric Corporation (China), China National Offshore Oil Corporation (“CNOOC”), Korea Hydro and Nuclear Power (“KHNP”),  Petronas (Malaysia), and National Petroleum Construction Company (“NPCC”) (United Arab Emirates).  Each of these state-owned entities was a department, agency, and instrumentality of a  foreign government, within the meaning of the FCPA. The officers  and employees of these entities, including the Vice-Presidents, Engineering Managers, General Managers, Procurement Managers, and Purchasing Officers, were “foreign officials” within the meaning of the FCPA.”

As noted in the DOJ release (here), Stuart Carson was charged with one count of conspiracy to violate the FCPA and the Travel Act, and two counts of violating the FCPA.  Hong Carson was charged with one count of conspiracy to violate the FCPA and the Travel Act, five counts of violating the FCPA, and one count of destruction of records in connection with a matter within the jurisdiction of a department or agency of the United States.  This latter charge was ultimately dismissed by the DOJ.  As stated in the DOJ release, “in the period from 2003 through 2007, the defendants caused the valve company to pay approximately $4.9 million in bribes, in violation of the Foreign Corrupt Practices Act (FCPA), to officials of foreign state-owned companies …”.

Shortly thereafter, Control Components Inc. resolved an FCPA enforcement action based on the same core set of conduct alleged in the above indictment.  (See here for the prior post).  I noted, then, as I had since launching this website in July 2009, that DOJ’s position that employees of state-owned companies, regardless of position, are “foreign officials” under the FCPA is an unchallenged and untested legal theory – and one I believe is ripe for challenge.

In February 2011 (as noted in this prior post), for the first time in FCPA history, a federal court judge, with the benefit of a detailed and complete overview of the FCPA’s extensive legislative history on the “foreign official” element, was asked to rule on the DOJ’s interpretation that employees of alleged state-owned or state-controlled enterprises are “foreign officials” under the FCPA.  My declaration on the FCPA’s legislative history relevant to “foreign official” (here) was used in the “foreign official” motion to dismiss.

In May 2011 (as noted in this prior post), Judge James Selna denied the “foreign official” motion to dismiss and concluded that “the question of whether state-owned companies qualify as instrumentalities under the FCPA is a question of fact.”  The “foreign official” issue thus moved to the jury instructions (as noted in this prior post).

In February 2012 (as noted in this prior post), Judge Selna issued certain jury instructions.  Not surprisingly, Judge Selna carried forward his previous “instrumentality” analysis into the “instrumentality” jury instruction.  Yet, in a significant development in terms of the future of the case, Judge Selna issued an instruction titled “knowledge of status of foreign official.”  In pertinent part, the instruction stated as follows.

[.....]

“(4) The defendant offered, paid, promised to pay, or authorized the payment of money, or offered, gave, promised to give, or authorized the giving of anything of value to a foreign official;

(5) The payment or gift at issue in element 4 was to (a) a person the defendant knew or believed was a foreign official or (b) any person and the defendant knew that all or a portion of such money or thing of value would be offered, given, or promised (directly or indirectly) to a person the defendant knew or believed to be a foreign official. Belief that an individual was a foreign official does not satisfy this element if the individual was not in fact a foreign official.”

In his order, Judge Selna stated as follows.

“The Government proposes to add the following paragraph to element 5:”

The government need not prove that the defendant knew the legal definition of “foreign official” under the FCPA or knew that the intended recipient of the payment or gift fell within the legal definition. The defendant need not know in what specific official capacity the intended recipient was acting, but the defendant must have known or believed that the intended recipient had authority to act in a certain manner as specified in element 6.”

The Court does not believe that this language is necessary, and it is potentially confusing.”

Earlier this week, the DOJ announced (here) that Stuart Carson and Hong Carson “each pleaded guilty … before U.S. District Judge James V. Selna in Santa Ana, Calif., to separate one-count superseding informations charging them with making a corrupt payment to a foreign government official in violation of the FCPA.”

Unlike the original indictment, the four page superseding information as to Stuart Carson (here) focuses solely on Turow Power Plant in Poland and states as follows.  “Turow was a department, agency, and instrumentality of a foreign government, within the meaning of the FCPA, [...].  The officers and employees of Turow were “foreign officials” within the meaning of the FCPA.”  The superseding information states that on March 8, 2000, Stuart Carson “corruptly caused an e-mail to be sent authorizing the payment of approximately $16,000 to officials of Turow for the purpose of securing Turow’s business.”

Unlike the original indictment, the four page superseding information as to Hong Carson (here) focuses solely on Kuosheng Nuclear Power Plant in Taiwan and states as follows.  “Kuoshen was a department, agency, and instrumentality of a foreign government, within the meaning of the FCPA, [...].  The officers and employees of Kuosheng were “foreign officials” within the meaning of the FCPA.  The superseding information states that on August 14, 2002, Hong Carson “corruptly caused an e-mail to be sent authorizing the payment of $40,000 to officials of Kuosheng for the purposes of securing Kuosheng’s business.”

As noted in the DOJ’s release, “at sentencing (Oct. 15, 2012), Stuart Carson, 73, faces up to 10 months in prison.  Rose Carson, 48, faces a sentence of three years probation, which may include up to six months of home confinement.”

The conclusions are yours to reach.

Paul Cosgrove and David Edmonds remain defendants in the case and their trial is scheduled for June.

*****

Previous posts here and here discussed the motion to suppress filed by Cosgrove and Edmonds (joined by Hong Carson) to suppress certain statements made by the individuals to CCI and its counsel (Steptoe & Johnson) on the basis that its counsel were de facto public actors and that CCI’s actions in compelling their statements were “fairly attributable to the government” and ought to be suppressed.

Earlier this week, Judge Selna, whose practice is to issue tentative rulings, tentatively ruled (here), in connection with a subpoena to Steptoe & Johnson, that production must be made as to the following.  “All communications exchanged between Steptoe, IMI, and/or CCI on the one hand, and the United States Department of Justice, on the other hand during the period August 10 through August 25 2007 which relate to interviews of CCI employees, taken or to be taken, for the purpose of investigating actual or suspected violations of the [FCPA and Travel Act].  This includes but is not limited to all e-mails exchanged between Patrick Norton (Steptoe & Johnson) and Mark Mendelsohn (former DOJ FCPA unit chief).  Judge Selna noted that such information “could yield admissible evidence under the defendants’ Government-actor theory of agreements or understanding between Steptoe that would render Steptoe lawyers agents of the Government, specifically the Department of Justice, at the time the interviews of defendants were conducted.”

Judge Selna also issued another tentative ruling (here) regarding various aspects of the subpoena to Steptoe & Johnson that will be of interest to FCPA practitioners.