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.