It is one of the more unusual origins of a Foreign Corrupt Practices Act enforcement action.
In November 2010, the SEC conducted a periodic examination of Direct Access Partners LLC (“DAP”), a broker-dealer registered with the SEC. DAP’s Global Markets Group (“DAP Global”) primarily executed fixed income trades for customers in foreign sovereign debt. One of its customers was Bandes, an alleged Venezuelan state-owned banking entity that acts as the financial agent of the state to finance economic development projects.
According to the DOJ and SEC, the SEC examination lead to the discovery of a “fraud that was staggering in audacity and scope” (see here for the SEC release). A component of the alleged fraud included payments by Tomas Clarke (a DAP Executive Vice President who worked out of the company’s Miami office) and Alejandro Hurtado (a back-office employee of DAP in Miami) to Maria Gonzalez (V.P. of Finance / Executive Manager of Finance and Funds Administration at Bandes). According to this DOJ criminal complaint, Gonzalez oversaw Bande’s trading by DAP.
According to the criminal complaint, Clarke, Hurtado and others “directed kickback payments” to Gonzalez “in exchange for Gonzalez steering Bandes business to [DAP] and authorizing Bandes to execute bond trades with [DAP]. According to the complaint, between 2008 and 2010 “Gonzalez received at least $3.6 million in payments through insiders and affiliates of [DAP]. According to the complaint, during this time period, “with Gonzalez both acting as the authorized trading contact in regard to [DAP] and managing the relationship between Bandes and [DAP], Bandes directed substantial business to [DAP] and carried out bond transactions that resulted in [DAP] generating tens of millions of dollars in revenue.” The criminal complaint alleges various payments made or authorized by Clarke and Hurtado to an account in Switzerland held in the name of Gonzalez and/or a company owned in part by Gonzalez.
Based on the above core set of conduct, the criminal complaint charges Clarke and Hurtado with the following offenses: conspiracy to violate the FCPA, substantive FCPA violations, conspiracy to violate the Travel Act, substantive Travel Act violations, conspiracy to commit money laundering, and substantive money laundering violations.
Gonzalez, the alleged “foreign official,” was charged with conspiracy to violate the Travel Act, substantive Travel Act violations, conspiracy to commit money laundering, and substantive money laundering violations. (For other examples of “foreign officials” being criminally charged with non-FCPA offenses in connection with an FCPA enforcement action, see here and here).
In this DOJ release, Acting Assistant Attorney General Mythili Raman stated as follows. “Today’s announcement is a wake-up call to anyone in the financial services industry who thinks bribery is the way to get ahead. The defendants in this case allegedly paid huge bribes so that foreign business would flow to their firm. Their return on investment now comes in the form of criminal charges carrying the prospect of prison time. We will not stand by while brokers or others try rig the system to line their pockets, and will continue to vigorously enforce the FCPA and money laundering statutes across all industries.”
As noted in the DOJ release, “the government [also] filed a civil forfeiture action … seeking the forfeiture of assets held in a number of bank accounts associated with the scheme, including several bank accounts located in Switzerland. The forfeiture complaint also seeks the forfeiture of several properties in the Miami area related to Hurtado that were purchased with his proceeds from the scheme.”
The above core conduct also resulted in this SEC civil complaint against Clarke and Hurtado (and others) charging a variety of non-FCPA securities law violations.