While media focus has concentrated on recent high profile enforcement actions against corporations, such as those against Siemens and KBR/Halliburton, most of 2009’s publicly announced Foreign Corrupt Practices Act (“FCPA”) dispositions have involved actions against individual executives.
Since our Winter 2009 FCPA Review was released on February 13, 2009, the U.S. Department of Justice (“DOJ”) has brought FCPA enforcement actions against ten individuals. Jeffrey Tesler and Wojciech Chodan were indicted in connection with the ongoing investigation into KBR’s bribery of Nigerian government officials, six former executives of Control Components Inc. (“CCI”) were charged with FCPA violations for their alleged role in a bribery scandal involving state owned companies in several countries, and telecommunications executives Juan Diaz and Antonio Perez pleaded guilty in connection with their roles in a conspiracy to bribe Haitian government officials.
Additionally, the U.S. Securities and Exchange Commission (“SEC”) brought its own enforcement action against Thomas Wurzel, the former President of ACL Technologies Inc. (“ACL”), in a case that is instructive in analyzing the knowledge requirement for vicarious liability under the FCPA.
These enforcement actions appear to confirm warnings expressed in public statements of DOJ officials in recent months. For example, Mark Mendelsohn, Deputy Chief of the DOJ’s Fraud Section, recently stated that the DOJ will increasingly focus on the prosecution of individuals because of its powerful deterrent effect. Similarly, DOJ Trial Attorney Stacey Luck, in a recent panel discussion, warned that the DOJ was increasing the number of enforcement actions against individuals, particularly senior executives, and was seeking increasingly severe terms of imprisonment. Tesler and Chodan, for example, each face potential prison terms of fifty-five years.
Because individuals do not always weigh the risks and benefits of settlements in the same way as corporations, an increase in FCPA enforcement actions against individuals likely will result in more FCPA cases going to trial. In June alone, trials are underway in the cases against Frederick Bourke in connection with the Azeri oil scandal and former Congressman William Jefferson. Additionally, the trial of film producer Gerald Green and his wife is expected to commence in August. These trials could generate judicial decisions that provide guidance on heretofore ambiguous aspects of the FCPA.
The recent enforcement actions against individuals also demonstrate U.S. authorities’ ability to investigate and prosecute foreign nationals. For example, a Korean citizen and an Italian citizen are among the recently indicted CCI executives, and both Tesler and Chodan are U.K. citizens.
Publicly-available information regarding corruption investigations and prosecutions in other countries appears to demonstrate a similar focus of enforcement actions against individuals. For example, prominent individuals have been the subject of corruption investigations and prosecutions in Israel (former Prime Minister Ehud Olmert and current foreign minister Avigdor Lieberman), Austria (Count Alfons Mensdorff-Pouilly), Dubai (former executives of state-linked real estate developers), Bangladesh (Arafat “Koko” Rahman, son of former Prime Minister Khalehda Zia), Taiwan (former President Chen Shui Bian), Macau (former public works minister Ao Man-Long), South Korea (former president Roh Moo-Hyun and his family), and Nigeria (numerous former high level government officials).
There have been only three enforcement actions against corporations since February. United Industrial Corporation (“UIC”) settled an SEC enforcement action related primarily to the activities of its indirect wholly-owned subsidiary, ACL (and, as noted above, ACL’s former President, Wurzel) in connection with contracts to develop a military base in Egypt. This case demonstrates the potential liability that a parent company can incur as a result of actions taken by its subsidiaries.
Latin Node, Inc. pleaded guilty in connection with illicit payments to secure favorable telecommunications contracts in Yemen and Honduras. This case shows how prompt and thorough remedial action and open cooperation with the government in some cases can result in low monetary penalties, and highlights the potential benefits of careful pre-acquisition due diligence. It also indicates that the telecommunications industry continues to be a focus of DOJ and SEC investigations. (Indeed, the charges against Diaz and Perez, referenced above, also involved bribery to secure favorable telecommunications contracts in Haiti.)
Finally, Novo Nordisk A/S became the latest company to settle charges with the DOJ and SEC in connection with the U.N. Oil for Food program. None of the three corporate case settlements imposed a monitor.
International cooperation continues to play an important role in corruption investigations. U.S. authorities received assistance from the government of Haiti in prosecuting Diaz and Perez, and the United Kingdom made an arrest at the request of the United States in the prosecution of Tesler and Chodan. Nigeria’s continuing investigation into the KBR bribery scandal may have received assistance from the United Kingdom, Switzerland, and France, and may eventually receive assistance from the United States.
In the context of the recent downturn in the U.S. and global economy, U.S. authorities have warned companies to continue to invest in FCPA compliance measures. In particular, Mendelsohn recently urged companies not to scale back on compliance programs. Additionally, the assistant director of the SEC’s Enforcement Division reportedly remarked at a seminar in April that FCPA enforcement will remain “robust” under the new administration. Such statements reaffirm what was communicated by SEC Director Lori A. Richards in an open letter to CEOs of SEC-Registered Firms, issued in December 2008: “During this time of financial and market turmoil [the SEC] reminds leaders of SEC-registered firms . . . of the critical role played by your firm’s compliance programs in helping to meet your obligations under the securities laws . . . [w]hile many firms are considering reductions and cost-cutting measures, we remind you of your firm’s legal obligation to maintain an adequate compliance program.”
Indeed, the number of active FCPA investigations appears to have increased. At a recent conference, Mendelsohn stated that there are currently over 120 criminal FCPA cases under investigation, which is twenty more cases than he cited at a conference last year.
Actions Against Corporations
A. United Industrial Corporation
On May 29, 2009, the SEC announced that it had instituted a settled administrative proceeding against United Industrial Corporation (“UIC”), a Delaware corporation and “issuer” specializing in defense, training, transportation, and energy systems, in connection with charges that UIC violated the FCPA’s antibribery and accounting provisions. Specifically, the SEC alleged that UIC made illicit payments to Egyptian officials through its indirect wholly-owned U.S. subsidiary, ACL Technologies, Inc. (“ACL”) to secure contracts for ACL related to a military aircraft depot. Without admitting or denying the findings in the proceeding, UIC consented to an order requiring it to cease and desist from future FCPA violations and requiring UIC to pay $337,679 in disgorgement and prejudgment interest.
According to the SEC, from 2001 to 2003, UIC, through ACL, made multiple payments to a foreign agent in connection with a military aircraft depot that ACL was building for the Egyptian Air Force (“EAF”) in Cairo. In 1999, under the U.S. Department of Defense’s foreign military sale program (“FMS”), the Department of Defense entered into a contract with ACL to develop an F-16 combat aircraft depot for EAF. While ACL’s contract was with the Department of Defense, the FMS program allowed the EAF to direct how money would be spent on the project. The contracts at issue in this case were modification and “add-on” contracts following ACL’s initial award.
The SEC alleges that Thomas Wurzel (discussed further in the Actions against Individuals section, below), then ACL’s President and a U.S. citizen, authorized payments to the agent while he “knew or consciously disregarded the high probability” that the agent would give at least a portion of such payments to EAF officials. The agent was a retired EAF general, whom the SEC documents allege ACL hired as a consultant to help influence the EAF. The SEC noted that the agent’s potential influence among EAF officials was heightened because he was part of a small community of high-level military people and had a personal relationship with at least one active EAF official.
The SEC alleges that the agent requested a variety of payments from ACL, and that ACL made the payments to the agent under “circumstances that strongly indicated [that the funds] would be used to make illicit payments” to EAF officials. For example, the SEC cites language allegedly from emails sent by the agent to ACL, in which the agent asked for funds to provide “motivation” and to “secure our team loyalty.” ACL also allegedly channeled improper payments to EAF officials through a fraudulent “advance” payment and “marketing” payments to the agent. Regarding the marketing payments, the agent allegedly sent an email to Wurzel suggesting that additional funds were needed to meet “commitments” and to “keep the momentum.” The SEC cites no evidence that the agent actually paid EAF officials.
As a result of these payments, ACL allegedly obtained various modification and add-on contracts related to the F-16 Depot with gross revenues of approximately $5.3 million and net profit of approximately $268,000.
The SEC documents assert that UIC lacked meaningful controls to prevent or detect Wurzel’s authorization of illicit payments to the agent, and the UIC legal department approved the retention of the agent despite a lack of documented due diligence and other violations of UIC company policy. Additionally, the documents state that a UIC official directly approved at least one payment to the agent, and the illicit payments to the agent were allegedly mischaracterized on UIC’s books and records as legitimate expenses. In determining to accept UIC’s settlement offer, the SEC considered UIC’s prompt remedial action and cooperation with the SEC in its investigation.
Noteworthy Aspects of the UIC Settlement
- Attenuated Involvement of UIC in the Alleged Bribery: This case demonstrates that, in some circumstances, a parent company can incur antibribery liability for illicit payments made by subsidiaries, even when the parent company has minimal involvement in the payments. The proceeding charges UIC with antibribery violations under section 30A of the Securities Exchange Act of 1934. Such violations would include the requisite knowledge and corrupt intent by UIC to make the illicit payments. While the SEC musters substantial evidence suggesting that ACL and its former President were aware of red flags surrounding the payments to the agent, UIC’s only alleged involvement in and knowledge of the illicit payments consisted of approving the agent’s retention despite a lack of due diligence and in violation of company policy, and in approving at least one payment to the agent. The SEC also notes that Wurzel had a direct reporting line to the CEO of UIC, and that UIC routinely listed Wurzel as a member of UIC’s “senior management.”
- Low Monetary Penalty: The SEC apparently rewarded UIC’s prompt remedial action and cooperation with the SEC by agreeing to a low monetary penalty. UIC must pay disgorgement and pre-judgment interest, but no civil fine. It is also not required to retain a compliance monitor.
- No Parallel DOJ Enforcement Action to Date: Despite the lack of obvious jurisdictional impediments, the DOJ has yet to bring a related enforcement action against UIC, ACL, or Wurzel. Typically, the DOJ and SEC coordinate announcements of settled charges against corporations and individuals subject to both agencies’ jurisdiction. However, the DOJ has yet to announce any resolution with UIC (a U.S. corporation), Wurzel (a U.S. citizen), or ACL (the U.S. company Wurzel headed).
- Another Enforcement Action Related to Textron: Textron Inc. ("Textron"), the Rhode Island-based industrial conglomerate, purchased UIC in 2007, after the events at issue in this case had transpired. As reported in our Autumn 2007 FCPA Review, Textron settled FCPA charges with the SEC and DOJ related to its participation in the U.N. Oil for Food Program in August 2007.
B. Latin Node
On April 7, 2009, Latin Node, Inc. (“Latin Node”), a privately held Florida corporation that provides wholesale telecommunications services in numerous countries, pleaded guilty in the United States District Court for the Southern District of Florida to one count of violating FCPA antibribery provisions in Honduras and Yemen. As part of its plea agreement with the DOJ, Latin Node agreed to continue to cooperate with U.S. authorities in their ongoing investigations and pay a $2 million fine.
According to the criminal information, from 2004 to 2007, Latin Node paid approximately $1,100,000 in bribes to secure an interconnection agreement and preferential interconnection rates with Hondutel, the Honduran state-owned telecommunications company. Specifically, Latin Node channeled the bribe payments to various Hondutel officials by entering into sham “consulting” agreements, supplying cash to its employees with which to make bribe payments, and making direct payments to Hondutel officials. The information states that Latin Node senior executives approved each of these payments. Indeed, the information includes quotes from an email in which a Latin Node executive describes a plan that involves “winning [a Hondutel official] over with a ‘prize.’”
Additionally, from 2005 to 2006, Latin Node allegedly made seventeen payments totaling approximately $1,151,000 to secure favorable interconnection rates with TeleYemen, the Yemeni government-owned telecommunications company. Company emails indicate that Latin Node intended to make bribe payments, referred to as “commissions,” to the son of the Yemeni president, TeleYemen officials, and officials at the Yemeni Ministry of Telecommunications. According to the information, Latin Node made the bribe payments to various Yemeni officials through a third-party consultant and by direct payments to officials.
The DOJ’s investigation of Latin Node arose out of a voluntary disclosure by eLandia International Inc. (“eLandia”), shortly after eLandia acquired Latin Node in 2007. According to its September 5, 2008, 10-Q/A filing and the plea agreement, eLandia engaged in a review of Latin Node’s internal controls and legal compliance procedures as part of its acquisition and integration of Latin Node. In this review, eLandia discovered certain payments in Central America that had been made without adequate records and controls, and initiated an internal investigation with the assistance of independent legal counsel to determine whether any of Latin Node’s past payments violated the FCPA. In response to the investigation and its findings, eLandia fired Latin Node’s CEO and other senior Latin Node executives, terminated the questionable Honduran and Yemeni contracts, and amended its Quarterly Report to reflect a reallocation of the purchase price it paid for Latin Node. According to the plea agreement, eLandia’s disclosure and cooperation was “timely, thorough, and exemplary,” and involved the disclosure of thousands of non-privileged records.
Noteworthy Aspects of the Latin Node Plea Agreement
- Low Fine and No Charges Against eLandia: The DOJ appears to have rewarded eLandia’s prompt detection of Latin Node’s corrupt practices, its forceful remedial actions, and its “exemplary” disclosure and cooperation by charging Latin Node with only one count of violating the FCPA. Indeed, the DOJ assessed a fine that was less than the amount of corrupt payments involved in the bribery scheme.
- Post-Acquisition Due Diligence Affected the Value of Latin Node: In an amendment to its Quarterly Report filed in September 2008 (prior to the plea agreement), eLandia determined that the fair value of Latin Node was $20,600,000 less than its purchase price of approximately $26,819,000. The adjustment primarily stemmed from the costs of the FCPA investigation, anticipated fines and penalties, the termination of Latin Node’s senior management, and the resultant loss of business. The adjustment highlights the importance of pre-acquisition due diligence regarding FCPA issues. If eLandia had discovered Latin Node’s potential FCPA violations in pre-acquisition due diligence, the potential costs of such violations could have been factored into the sales price, and eLandia could have made a more informed decision regarding whether to purchase Latin Node.
- Continued Focus on Telecommunications Industry: This case demonstrates U.S. authorities’ continued focus on the telecommunications industry in FCPA investigations. Indeed, the recent guilty pleas of Juan Diaz and Antonio Perez, discussed below, also involved illicit payments to telecommunications officials. (See our Autumn 2008 FCPA Review and Autumn 2007 FCPA Review for discussions of a recent enforcement action against another telecommunications executive, Christian Sapsizian of Alcatel CIT).
- Individual Prosecutions May Follow: As noted in the introduction, the DOJ is increasingly focusing its efforts on prosecuting individual executives in connection with alleged FCPA violations. In this case, the settlement documents are replete with incriminating quotes from emails sent by several unnamed Latin Node executives. The presence of such evidence, and the ongoing cooperation of Latin Node and eLandia, may facilitate DOJ efforts to prosecute the individuals involved in the corruption. Additionally, according to press accounts, a member of the Yemeni Parliament has recently demanded disclosure of the Yemeni officials who accepted bribes in the Latin Node bribery scheme.
C. Novo Nordisk
On May 11, 2009, Novo Nordisk A/S (“Novo”), a Danish pharmaceutical company and a leading supplier of insulin, settled wire fraud and FCPA accounting charges with the DOJ and SEC related to kickback payments made to the government of Iraq during its participation in the U.N. Oil for Food program. Novo settled the criminal charges of conspiracy to commit wire fraud and to violate the books and records provisions of the FCPA by agreeing to pay a $9 million criminal penalty as part of a DPA with the DOJ. To settle a complaint filed by the SEC, Novo consented to the entry of a final judgment enjoining it from future FCPA violations and ordering Novo to pay over $9 million in disgorgement, pre-judgment interest, and a civil fine. At the time it made the questionable payments, Novo had ADRs publicly traded on the New York Stock Exchange, thus qualifying Novo as an “issuer” for purposes of the FCPA. Novo is the latest company to be prosecuted by the DOJ and SEC in their ongoing investigations into the U.N. Oil for Food program (please refer to our past FCPA Reviews for more information on past Oil for Food prosecutions).
According to the criminal information filed by the DOJ and the DPA, between 2001 and 2003, Novo paid approximately $1.4 million in kickbacks to a state-owned company that was part of the Ministry of Health of the government of Iraq to secure approximately $31 million in contracts to supply insulin and other medicines. Novo made the illicit payments through a Jordanian company (“Jordanian agent”) that acted as both an agent and distributor for Novo. Novo concealed the kickback payments by inflating the Jordanian agent’s commission, subject to an understanding that the agent would pass along the additional commission payments to the state-owned company. Novo recorded the payments to the Jordanian agent as legitimate commission payments, and concealed the kickback payments in the inflated contracts it submitted to the U.N. for approval.
Under Novo’s agreement with the DOJ, the company accepted responsibility for the acts described above and agreed to pay a $9 million criminal penalty. Novo also agreed to cooperate in the ongoing investigations into the Oil for Food program, and to undertake enhanced FCPA compliance measures. If Novo adheres to the terms of the DPA for three years, the DOJ will dismiss the criminal information. The DOJ, in agreeing to defer its prosecution, recognized Novo’s thorough review of the illicit payments and its implementation of enhanced compliance policies and procedures.
The related SEC action charged Novo with FCPA books and records and internal controls violations. The SEC complaint for the most part reiterates the facts presented in the criminal information and DPA, but also alleges that Novo agreed to pay approximately $1.3 million in kickback payments on two additional contracts. The SEC complaint also alleges that Novo’s net profits from the contracts on which it paid kickbacks totaled approximately $4.3 million. Additionally, the complaint notes that Novo initially refused to pay the ten percent kickback demanded by the state-owned company, and offered instead to reduce its prices by ten percent, which an Iraqi official angrily refused. The complaint also alleges that Novo increased the commissions to the Jordanian agent (which were passed on to the state-owned company) under the guise that the payments were used to cover the agent’s increased distribution and marketing costs.
Without admitting or denying the allegations, Novo consented to the entry of a final judgment permanently enjoining it from future FCPA violations and ordering Novo to pay approximately $4.3 million in disgorgement, approximately $1.7 million in pre-judgment interest, and a civil penalty of approximately $3 million. In reaching this settlement, the SEC considered the remedial acts promptly undertaken by Novo and the cooperation it afforded the SEC in its investigation.
Noteworthy Aspects of Novo’s Settlement
- Tenth Oil for Food Settlement: As reported in our past FCPA Reviews, in their ongoing investigation into the corruption surrounding the Oil for Food program, U.S. authorities have now brought FCPA enforcement actions against ten companies, including El Paso, Textron, Ingersoll-Rand, York International, Chevron, Akzo Nobel, Flowserve, AB Volvo, Fiat, and now Novo. Of the ten, Chevron received the largest monetary penalty; a combined $30 million in fines and other penalties. To date, the SEC alone has recovered over $135 million in its continuing Oil for Food investigation.
- No Antibribery Violations: As with most other Oil for Food cases, the alleged FCPA violations in Novo’s case were accounting violations, not antibribery violations. Additionally, similar to the Oil for Food enforcement actions against Flowserve Corp. in 2008, and Ingersoll Rand Co. Ltd. in 2007, the FCPA charges brought against Novo were coupled with charges of violations of other Federal laws.
Actions Against Individuals
A. President of UIC Subsidiary Settles with SEC
On May 29, 2009, the same date as its announcement of the UIC settlement described above, the SEC announced a settled enforcement action in the U.S. District Court for the District of Columbia against Thomas Wurzel, the former President of ACL (the indirect wholly-owned subsidiary of UIC) for allegedly authorizing illicit payments to secure contracts related to a military aircraft depot. Specifically, Wurzel settled charges that he violated the FCPA’s antibribery provisions by consciously disregarding the high probability that ACL’s agent would offer, provide, or promise at least a portion of the payments to EAF officials in exchange for the award of business to ACL. Additionally, Wurzel settled charges that he violated the FCPA’s accounting provisions and aided and abetted UIC’s FCPA violations. Without admitting or denying the allegations in the complaint, Wurzel consented to the entry of a final judgment permanently enjoining him from future FCPA violations and ordering him to pay a $35,000 civil penalty.
The SEC’s complaint in this case closely tracks the facts set forth in the related settled administrative proceeding against UIC. In particular, the complaint alleges that from late 2001 to 2002, Wurzel authorized three forms of illicit payments to the agent: (1) payments purportedly for labor subcontracting work, (2) a fraudulent $100,000 “advance” payment for “equipment and materials,” and (3) a $50,000 payment for “marketing” services. Wurzel allegedly made these payments in response to requests from the agent that (as noted above) strongly indicated that the agent would pass on the funds as bribes to EAF officials. Additionally, Wurzel allegedly directed his subordinates to create false invoices to conceal the fact that the “advance” payment was never repaid.
This case is notable in that Wurzel’s vicarious liability for the alleged acts of the agent is based on his “know[ing] or conscious[ly] disregard[ing] the high probability” that the agent would use the funds to bribe EAF officials. Indeed, this case is instructive in analyzing indirect liability under the FCPA. The suggestive statements in emails allegedly sent by the agent to Wurzel (regarding payments needed for “motivation,” to “secure . . . team loyalty,” to “secure our business,” and to “fulfil [sic] the present commitment”), the agent’s alleged status as a former EAF general with personal connections in the EAF community, and the unusual payment processes allegedly employed, exemplify the types of red flags that, if disregarded, can be used as evidence of the requisite level of knowledge to sustain an antibribery violation. The SEC cites no evidence that EAF officials actually received the money from the agent.
Additionally, this case is notable in that it demonstrates the jurisdictional reach of the SEC’s enforcement powers under the FCPA. Specifically, it represents one of the few antibribery enforcement actions that the SEC has brought against an individual who was employed by a subsidiary of an issuer. While such cases are uncommon, they are not unprecedented. For example, as reported in our past FCPA Reviews, the SEC charged Jason Steph, Gerald Jansen, Lloyd Biggers, and Carlos Galves, employees of a subsidiary of issuer Willbros Group, with antibribery violations.
B. UK Agents Charged in KBR Bribery Scandal
On March 5, 2009, the DOJ announced the indictments of two U.K. citizens, Jeffrey Tesler and Wojciech Chodan, for their alleged participation in a decade-long scheme to make corrupt payments to Nigerian government officials to obtain engineering, procurement and construction (“EPC”) contracts. Specifically, the DOJ charged Tesler and Chodan were charged with one count of conspiracy to violate the FCPA and ten counts of violating the FCPA’s anti-bribery provisions.
These are the fourth and fifth FCPA enforcement actions in connection with the activities of Kellogg, Brown & Root Inc. (“KBR”). KBR is a Delaware corporation that provides global EPC services, including designing and building liquefied natural gas (“LNG”) production plants. As reported in our Winter 2009 FCPA Review, in February 2009, KBR’s successor, Kellogg, Brown & Root, LLC (“KBR LLC”) and KBR’s former parent Halliburton Co. (“Halliburton”) settled charges with U.S. enforcement agencies relating to alleged bribes paid by KBR and its predecessor between 1994 and 2004 to secure contracts to build and expand an LNG plant on Bonny Island, Nigeria. KBR’s predecessor, Dresser Industries, entered into a four-company consortium (the “Joint Venture”) formed to bid on the Bonny Island project contracts with Nigeria LNG Ltd. (“NLNG”), a company controlled and partially owned by the Nigerian Government. According to U.S. government filings, the Joint Venture set up several shell companies through which it allegedly funneled over $180 million to agents for the purpose of bribing high-ranking and lower-level Nigerian officials. The DOJ and SEC alleged that the Joint Venture concealed these illicit payments by entering into sham “consulting” and “services” agreements with Tesler and Chodan. In exchange for the payments, the Joint Venture allegedly received contracts worth over $6 billion for construction and expansion of the Bonny Island project. In KBR LLC’s and Halliburton’s settlement with U.S. enforcement agencies, the companies agreed to pay a combined penalty of $579 million, KBR LLC agreed to retain an independent monitor for three years, and Halliburton agreed to engage an independent consultant to perform an assessment of the company’s internal controls.
The investigation of KBR LLC and Halliburton, and the investigation of Tesler and Chodan, was assisted by the cooperation of former KBR CEO Jack “Albert” Stanley. As reported in our Autumn 2008 FCPA Review, Stanley pleaded guilty in September 2008 to charges connected to his involvement in the bribery scheme, and agreed to cooperate with the government’s ongoing investigations. Stanley’s sentencing is scheduled for August 27, 2009.
According to the current indictment, Tesler was hired in 1995 as an agent of the Joint Venture, and Chodan was a former salesperson and consultant of a U.K. subsidiary of KBR LLC. The indictment asserts that Tesler and Chodan are subject to U.S. jurisdiction because of their agency relationship with various parties involved in the bribery scheme. The indictment alleges that, as part of the bribery scheme described above, Stanley and others met with three successive top-level officials in the executive branch of the Nigerian Government in connection with the bribe payments, and Stanley and Chodan agreed to hire Tesler to pay some of the bribes. To carry out the bribery scheme, Stanley, Tesler, Chodan and others allegedly agreed to enter into a series of consulting contracts with a Gibraltar corporation controlled by Tesler to which the Joint Venture paid approximately $132 million for Tesler to use to bribe Nigerian government officials. Tesler allegedly wire transferred bribe payments to or for the benefit of various high-level Nigerian government officials and a Nigerian political party.
Tesler and Chodan if convicted each face penalties of up to fifty-five years imprisonment (five years for each of the eleven counts they face), and forfeiture of approximately $132 million, which represents the proceeds traceable to the alleged violations.
The indictment against Tesler and Chodan was filed on February 17, 2009, but was unsealed on March 5, 2009, after the London Metropolitan Police arrested Tesler at the request of the United States. Chodan remains at large. The DOJ is seeking the defendants’ extradition from the United Kingdom. Indeed, on April 8, 2009, U.K. authorities released Tesler on bail to face an extradition hearing.
C. Virginia Physicist Sentenced
According to a DOJ Press Release, on April 7, 2009, Shu Quan-Sheng (“Shu”), a naturalized U.S. citizen residing in Newport News, Virginia, was sentenced to fifty-one months in prison for violations of the FCPA and the Arms Export Control Act. Shu was President, Secretary, and Treasurer of AMAC International Inc. (“AMAC”), a high-tech company based in Newport News. The conviction followed his November 17, 2008 guilty plea reported in our 2009 Winter Review. As we discussed then, Shu pleaded guilty to a criminal information that alleged improper contacts with Chinese government officials. According to the information, Shu paid $189,300 in illegal payments, dubbed “percentage points,” to PRC officials with a state-owned research institution to secure a $4 million liquid hydrogen tank development project for a French company represented by Shu and his company. Two other counts of the information allege that Shu illegally provided technical assistance to Chinese officials and exported to China controlled military data without the required export license. In addition to his prison sentence, Shu has already forfeited $386,740 to the U.S. Government in connection with this case. The DOJ reports that the investigation was a multi-agency effort, with the FBI as the lead agency, assisted by U.S. Customs and Border Protection, the U.S. Department of Commerce, and the Counterespionage Section of the DOJ National Security Division. Shu was sentenced in the U.S. District Court for the Eastern District of Virginia, Norfolk Division.
D. Second Superseding Indictment in the Gerald & Patricia Green Case
On March 11, 2009, federal prosecutors filed a second superseding indictment against Los Angeles couple, Gerald and Patricia Green. As described in our Autumn 2008 FCPA Review, Mr. Green, a film producer, and his wife are accused of multiple counts of violating federal laws in connection with making payments to Thai officials in exchange for winning contracts to run the Bangkok Film Festival. The payments allegedly amounted to $1.8 million, and the contracts were worth at least $14 million.
The earlier indictments brought numerous counts of FCPA violations, money-laundering violations, conspiracy, and filing false tax returns. The second superseding indictment adds a charge of obstruction of justice against Mr. Green. Specifically, the prosecutors allege that Mr. Green falsified production budgets to conceal the nature of the bribe payments, and that he did so knowingly and with intent to impede FBI’s investigation. The obstruction charge carries a maximum twenty-year sentence and fines.
Mr. and Mrs. Green were arrested in December 2007. The couple is currently out on bail and awaiting trial, which is scheduled to commence in August. Ms. Juthamas Siriwan, the Thai official who allegedly received the corrupt payments from the Greens, is under a related investigation in Thailand.
E. Former Congressman Jefferson Litigation Developments
1. Supreme Court Denies Certiorari Petition
On May 18, 2009, the Supreme Court of the United States refused to hear an appeal by former Congressman William Jefferson. On February 19, 2009, Jefferson filed a Petition for Writ of Certiorari appealing the Fourth Circuit Court of Appeals’ denial of his motion to dismiss. As reported in our Winter 2009 FCPA Review, the U.S. government charged Jefferson with soliciting and receiving bribes from various persons and businesses in exchange for promoting their products and services to African officials and participating in the bribery of a Nigerian government official. In his motion to dismiss, Jefferson had sought the dismissal of the fourteen non-FCPA counts against him, including charges of conspiracy, solicitation of bribes, wire fraud, money laundering, obstruction of justice, and racketeering.
Neither his initial motion to dismiss nor his Petition for Writ of Certiorari sought to dismiss Jefferson’s FCPA charge. In his Petition, Jefferson anticipated that the government might refer to $90,000 in marked funds found in a freezer at his home. Specifically, the Petition pointed out that, according to the indictment, this money was given to Jefferson by a government cooperating witness during an FBI sting operation to be passed on to a foreign official. Thus, Jefferson argued, this money is solely related to his FCPA charge, and would have no bearing on his appeal if the government were to raise it. Indeed, the government, in its April 2009 response, made no mention of the money. According to press accounts, Jefferson stated that he has an “honorable explanation” for his possession of these funds, which he plans to offer at trial.
2. Trial Begins
Jefferson’s trial commenced in the U.S. District Court for the Eastern District of Virginia on June 9, 2009. According to news sources, the prosecution’s witnesses originally included Lori Mody, a Virginian executive whose complaint launched the investigation into Jefferson’s affairs. Mody reportedly assisted U.S. authorities in recording conversations with Jefferson. In one such recording, Jefferson reportedly tells Mody that a Nigerian business man will have to pay bribes to get a telecommunications project of Mody’s past Nigerian Regulators: “We’ve got to motivate him real good,” Jefferson reportedly said, “he’s got a lot of people to pay off.” According to news sources, while the government will use the recordings as evidence to support their case, they recently decided not to use Mody as a witness. The defense was reportedly planning to attack Mody’s credibility by casting doubt on her mental health. The trial is expected to last one month.
F. Bourke & Kozeny Litigation
On June 1, 2009, the trial of Frederic Bourke Jr. began in the U.S. District Court for the Southern District of New York. In the trial, Bourke is answering charges of conspiring to violate the FCPA and to violate the Travel Act, an FCPA antibribery violation, making false statements to Federal investigators, and money laundering violations. As reported in our Winter 2009 FCPA Review and Autumn 2008 FCPA Review, Bourke’s prosecution is related to his alleged role in a privatization scheme for the Azeri state oil company SOCAR. According to indictments, Bourke, Viktor Kozeny, and certain others made payments in the form of privatization vouchers to Azeri officials in order to promote the privatization and gain access to the program.
According to press accounts, Bourke’s defense will focus on his lack of knowledge of Kozeny’s plan to bribe Azeri officials when he invested with Kozeny’s organization. Indeed, media sources report that the opening statement made in Bourke’s defense focused on Bourke’s cooperation with U.S. authorities, and his interest in exposing the bribery. Additionally, Bourke’s attorney reportedly cited a taped conversation between Bourke, another investor, and their lawyers, in which Bourke expresses concern that Kozeny was bribing Azeri officials. However, the prosecution also reportedly cited this recording as evidence of Bourke’s alleged knowledge of the bribery. Bourke will also reportedly attempt to undermine the prosecution’s case by introducing evidence that the vouchers did not end up in the possession of Azeri officials, as the government claims, but that they wound up with a Kansas oil executive, Gerald O’Shaughnessy.
Media sources report that the prosecution’s witnesses include Clayton Lewis, an executive of the New York-based hedge fund Omega Advisers Inc. (“Omega”). As reported in our Autumn 2007 FCPA Review, Omega settled FCPA charges with the DOJ in 2007 in connection with its role as an investor in the privatization scheme. Lewis pleaded guilty to conspiracy and FCPA antibribery violations in February 2004. The government’s witnesses also reportedly include Hans Bodmer, Kozeny’s former lawyer. The prosecution, in its opening statement, reportedly focused on Bourke’s alleged knowledge of the bribery scheme. On June 6, 2009, the court heard the testimony of John Pully, a former agent of the U.S. Drug Enforcement Administration who later worked as Kozeny’s personal assistant and head of security. As reported in our Winter 2009 FCPA Review, Pully and another former U.S. official, Christine Rastas, have agreed to testify against Bourke in exchange for U.S. authorities’ agreement not to prosecute them. As part of his testimony regarding how Kozeny enticed investors to participate in the scheme, Pulley reportedly testified that Kozeny hosted “many nice dinners,” including a private dinner for five or six individuals in New York that cost approximately $96,000. Pully also reportedly testified that Kozeny and Bourke joked that they could buy everything in Kazakhstan and rename the country “Vicki-stan,” referring to Kozeny’s wife, or “Ricky-stan,” referring to Bourke. The court has also heard the testimony of Thomas Farrel, a former aide to Kozeny, and Rastas. The trial is expected to last six weeks.
Kozeny, the alleged ringleader of the scheme to bribe Azeri officials, has successfully fought extradition to the United States and continues to reside in the Bahamas.
G. CCI Individual Prosecutions
On April 8, 2009, six former executives of Control Components Inc. (“CCI”), an Orange County, California-based designer and manufacturer of service control valves for power generation, were charged with conspiring to violate the FCPA, as part of an effort to obtain and retain contracts for the valve company from state-owned companies in countries including China, Korea, Malaysia, and the United Arab Emirates. In addition, the defendants were charged with conspiracy to violate the Travel Act, which makes it unlawful to travel and cause travel in interstate and foreign commerce, including use of the mail, with the intent to further an unlawful activity.
With the indictment of the six former executives, Stuart Carson (“S. Carson”), Hong (Rose) Carson (“R. Carson”), Paul Cosgrove, David Edmonds, Flavio Ricotti, and Han Yong Kim, a total of eight former CCI executives have been charged with conspiracy to violate the FCPA. As reported in our Winter 2009 FCPA Review, two of the former executives already pleaded guilty to conspiracy to violate the FCPA: Mario Covino and Richard Morlok on January 8, 2009, and February 3, 2009, respectively.
While employed by CCI, S. Carson served as Chief Executive Officer. S. Carson was the primary person responsible for CCI’s friend-in-camp (“FIC”) sales model, a strategy by which CCI employees and agents cultivated special relationships with foreign officials employed at state-owned companies and allegedly made payments to the FICs to secure or retain contracts. R. Carson served as CCI’s regional sales manager and regional sales director. Cosgrove served as Executive Vice President of CCI and served as the Head of CCI’s Worldwide Sales Department. Edmonds served as Vice President of Worldwide Customer Service at CCI, where he was responsible for oversight of CCI’s replacement parts sales and servicing existing valves. Ricotti, an Italian citizen, served as CCI’s Vice President and regional Head of Sales. Kim, a Korean citizen, served as the President of CCI’s Korean office and subsequently served as a consultant to CCI’s Korean office.
According to the indictment, the illicit payments occurred from approximately 1998 through approximately August 2007. Between approximately 2003 and 2007, S. Carson, R. Carson, Cosgrove, Edmonds, Ricotti, and Kim, as well as Morlok, Covino, and others directed employees and agents of CCI to make an estimated $6.85 million in illicit payments in order to secure or retain contracts in over thirty countries: approximately $4.9 million to foreign officials employed at state-owned companies and approximately $1.95 million to employees of privately-owned entities. The illicit payments were disguised as commissions to employees of state- and privately-owned companies, individuals with the power to award contracts or influence the technical specifications of an order in a manner that would favor CCI. As a result of contracts obtained thorough the illicit payments, CCI earned profits of approximately $46.5 million.
In order to obtain business, certain of the defendants also arranged for extravagant vacations with foreign officials employed at state-owned companies and private company executives, paid the college tuition of at least two foreign officials employed at state-owned companies, hosted foreign officials and private company executives at lavish sales events involving golf and other costly entertainment, and gave expensive gifts to foreign officials and private company executives. Many of the expenses incurred for travel, entertainment, and gifts were completely or largely paid for by CCI.
Additionally, according to the indictment, S. Carson allegedly halted a 2004 internal audit of CCI’s commission payments. R. Carson, Cosgrove, Edmonds, Ricotti, and Kim, as well as Morlok, Covino, and others allegedly provided false and misleading responses to internal auditors or investigators. Edmonds allegedly created false invoices to mislead the internal auditors. S. Carson, Cosgrove, Edmonds, and Ricotti, as well as Morlok, Covino, and others allegedly encouraged and approved illicit payments after CCI concluded the internal audit and instructed CCI employees not to use certain euphemisms for illicit payments in emails. Edmond allegedly prepared a spreadsheet to make several illicit payments in Korea appear legitimate. Finally, R. Carson, allegedly destroyed documents in connection with CCI’s 2007 internal investigation of commission payments.
H. Telecom Executives Plead Guilty
On May 15 and April 27, 2009, Juan Diaz, the president of an unnamed intermediary company based in Florida, and Antonio Perez, the former controller of an unnamed telecommunications company in Florida, pleaded guilty in connection with their roles in a conspiracy to pay and conceal more than $1 million in bribes to former Haitian government officials. Diaz and Perez, both residents of Miami, pleaded guilty (see Diaz’s guilty plea, and Perez’s guilty plea) to one-count criminal informations charging them with conspiring to violate the FCPA’s antibribery provisions and to violate money laundering laws. At sentencing, Diaz and Perez face a maximum of five years imprisonment and a fine of the greater of $250,000 or twice the gross gain from the illicit payments.
According to the criminal information against Diaz, from 2001 through 2003, Diaz used his shell company to receive approximately $1 million in illicit payments from three unnamed Florida-based telecommunications companies (“telecom companies”) and passed the money on to Haitian government officials to secure business advantages from Haiti’s state-owned national telecommunications company, Telecommunications D’Haiti (“Haiti Teleco”). According to the information, Diaz issued the bribe payments by wire transfer, check, and cash, as well as through payments to family members of Haitian officials. In return for the bribe payments, the telecom companies allegedly received favorable contracts, which involved preferential telecommunications rates, and a variety of credits toward owed sums. Diaz admitted that the shell company did not provide any legitimate goods or services, and that he received approximately $74,000 in commissions for laundering the bribes.
According to the criminal information against Perez, from 2001-2002, Perez offered to pay and assisted with the processing of “side payments” to a Haiti Teleco official. The “side payments” made by Perez’s company allegedly totaled over $600,000. Perez admitted that he assisted in making $36,375 in “side payments” through Diaz’s shell company, and falsely recorded the payments as “consulting services.”
International cooperation in FCPA investigations, which has become increasingly common in recent enforcement actions, played a part in the prosecution of Diaz and Perez. Indeed, in its press release, the DOJ expressed gratitude to the government of Haiti for providing substantial assistance in gathering evidence during this investigation. As noted above, this case also demonstrates U.S. authorities’ continued focus on the telecommunications industry in FCPA investigations.
AIG Whistleblower Files Civil Lawsuit
On May 1, 2009, a former American International Group Inc. (“AIG”) attorney filed suit against AIG in the U.S. District Court for the Southern District of New York, claiming she was let go for reporting on a possible FCPA violation. According to the lawsuit, Kimberly Lebron learned that AIG agreed to pay for a South Korean government official to travel to New York and London. The official would ostensibly receive training from AIG Global Real Estate during the trip; however, Ms. Lebron alleged that the training was a disguise. In return for this expense, according to Ms. Lebron’s claim, a South Korean government entity, Korea Post, would invest $50 million with AIG © Copyright 2009 Miller & Chevalier Chartered Global Real Estate. The company vigorously denied Ms. Lebron’s allegations. The initial pretrial conference in this case is scheduled for June 15, 2009.
Proposed Legislation Related to the FCPA
A. DPA, NPA, & Corporate Monitor Oversight Bill Reintroduced
In another legislative attempt at oversight of the DOJ’s use of deferred prosecution agreements (“DPAs”), non-prosecution agreements (“NPAs”) and corporate monitors, several Democratic members of the House of Representatives introduced the “Accountability in Deferred Prosecution Act of 2009.” The proposed legislation intends to set transparent standards for the use of NPAs and DPAs in federal criminal cases, which would impose limits on prosecutors’ discretion in handling these cases outside of judicial review. A nearly identical bill was introduced last year.
Specifically, the new bill requires the Attorney General to issue public guidelines for DPAs and NPAs in order to promote uniformity and increase transparency. Regarding monitors, the new bill calls for the creation of a national list of organizations and individuals who are qualified to serve as monitors. The bill also calls for an open, public, and competitive process for the selection of monitors, and the establishment of a public fee schedule for the compensation of monitors and their staff.
When the nearly identical bill was introduced last year, the DOJ revised its guidelines on the use of monitors and on the DOJ’s treatment of privilege in criminal investigations, thereby stealing momentum from the bill. Responding to allegations of cronyism in appointments, the DOJ guidelines require that the monitors have the necessary qualifications for the task and emphasize the independence of the monitors from the companies. Specifically, the guidelines require that the before arriving at a resolution of the case, the government and the company discuss the qualifications of the monitor in light of the facts of each case. Responding to this requirement, resolutions reached after the DOJ promulgated the guidelines typically provide a list of qualifications for the monitor, such as a record of prior FCPA counseling, experience with design of compliance programs, and sufficient resources to take on the task. As to the issue of privilege, the new guidelines prohibit prosecutors from drawing negative inferences, in reaching DPAs or NPAs, from investigated companies’ refusal to waive privilege.
The bill, which was reintroduced this Spring, has been assigned to the Judiciary Committee, but no hearings on it have been scheduled to date. Whether this new legislation will regain any momentum in the wake of the DOJ’s new guidelines and whether the DOJ will take further steps to avoid legislative oversight remains to be seen.
B. Private Right of Action Against Foreign Concerns Bill Introduced
On April 28, 2009, Representatives Ed Perlmutter (D-CO) and Shelley Berkley (D-NV) introduced a bill, the Foreign Business Bribery Prohibition Act of 2009, which would give domestic companies the right to sue “foreign concerns” (e.g., foreign corporations and individuals) for antibribery violations. Under the bill, domestic companies and individuals would be able to recover treble damages based on the total amount of the contract gained by the defendant foreign concern, or on the total amount of the contract lost by the domestic plaintiff. Thus, if this bill were to become law, foreign companies engaging in bribery could face potentially significant civil liability in private suits.
New Revelations on U.S. Enforcement Investigations
As noted in the Introduction, Mark Mendelsohn of the DOJ recently stated that there are approximately 120 open DOJ investigations involving alleged violations of the FCPA. According to press accounts, the following companies have recently come under investigation by the DOJ and/ or SEC for possible FCPA violations.
According to media sources, Glencore International AG, a Switzerland-based supplier of metals, energy, and grains co-founded by Marc Rich, has come under investigation by prosecutors in both the U.S. and Bahrain for payments allegedly made to employees of Aluminum Bahrain, known as Alba, a large state-owned aluminum smelter. According to press accounts, the payments, which totaled roughly $4.6 million, were allegedly made by Glencore employees to a number of accounts at a bank in Liechtenstein that were controlled by employees of Alba, all of whom have since left the company. Although the details of the alleged scheme are unclear, prosecutors in Bahrain have reportedly alleged in court filings that Alba employees received kickbacks from customers in exchange for offering Alba products at below-market prices.
B. Morgan Stanley
In a February filing with the SEC, Morgan Stanley disclosed that it had discovered that one of its employees in its office in Shanghai, China, may have violated the FCPA in connection with certain real estate deals in Shanghai. According to press accounts of the matter, the Chinese real estate market is notoriously corrupt and is rife with consulting firms that promise access to senior government officials and preferential treatment in bids for projects. Media sources identify the employee involved in the improper payments as Garth Peterson, who had been Morgan Stanley’s highest-ranking real estate executive in China and a major player in the Shanghai real estate market. Morgan Stanley reportedly fired Mr. Peterson in December of 2008. Morgan Stanley also reportedly put its global head of real estate investing, Sonny Kalsi, on administrative leave.
C. Sun Microsystems
In May of this year, following an internal investigation conducted by outside counsel, Sun Microsystems (“Sun”) disclosed in its quarterly earnings filing that it may have violated the FCPA. In its filing, the company announced that it had already made voluntary disclosures of the possible violation to the SEC and DOJ, and that it is currently cooperating with the agencies as they investigate the matter. Although the nature of the possible violation and country in which it occurred have yet to be revealed, Sun explained in its filing that the resolution of the investigation could have a “material effect” on its business.
As discussed by M&C Member James G. Tillen in “What’s Really Going On in Oracle, Sun Deal?” posted on BNET Technology on May 15, 2009, Sun’s disclosure of potential FCPA violations followed the announcement of Oracle’s proposed acquisition of the company. In a recent SEC filing, Oracle acknowledged that it was aware of Sun’s potential FCPA violations prior to signing the merger agreement with Sun. The merger agreement, however, which Sun filed with the SEC, contains representations by Sun that it complied with the FCPA, along with non-specific caveats that the representations could be modified in a separate confidential agreement. According to press accounts, Oracle and Sun have refused to comment on the apparent contradiction in their SEC filings.
1. Count Alfons Mensdorff- Pouilly, BAE Systems Lobbyist, Arrested
In February 2009, Austrian Count Alfons Mensdorff-Pouilly was arrested by Austrian authorities for his alleged involvement in the BAE bribery scandal concerning Gripen fighter jets. Mensdorff-Pouilly’s arrest came after his distant cousin, Michael Piatti-Fünfkirchen, accused the Count of laundering more than $17 million in payments from BAE which were used to secure lease agreements for the jets.
Piatti-Fünfkirchen’s allegations relate to a broader investigation by the Austrian government concerning BAE’s lease of Gripen jets to both the Czech and Hungarian governments. Between 2003 and 2004, Mensdorff-Pouilly reportedly secured these lease agreements with corrupt payments amounting to approximately $147 million. Hungarian Socialist MP, István Nyakó, has publicly rejected claims that the Hungarian Socialist party accepted improper payments in exchange for leasing the planes.
Mensdorff-Pouilly who was a BAE consultant for sixteen years, is the first BAE agent to be arrested in connection with the scandal. He is also alleged to have paid bribes for a series of weapons deals and Austria’s purchase of Eurofighter warplanes. Mensdorff-Pouilly was previously arrested by the U.K.’s Serious Fraud Office in connection with his activities on behalf of BAE.
2. BAE Releases Ethical Report
In April 2009, BAE Systems released its 2008 Corporate Responsibility Report (the “Report”). The Report details BAE’s implementation of the Woolf Committee’s recommendations for enhanced corporate responsibility. The Woolf Committee, led by the former Lord Chief Justice Woolf, was appointed by BAE improve the company’s ethical standards. In total, the Woolf Committee made twenty-three recommendations which BAE intends to implement over a three-year period.
The Report also contains details of an ethical audit which was conducted by the third party auditor, Deloitte. Deloitte was hired, in part, to monitor BAE’s implementation of its global Code of Conduct and the Woolf Committee recommendations. According to an independent Assurance Statement issued by Deloitte, BAE’s Report accurately describes its implementation of the twenty-three recommendations.
According to press accounts, in March 2009, Bangladesh’s Anti-Corruption Commission (“ACC”) charged Arafat “Koko” Rahman, the son of former Prime Minister Khaleda Zia, with laundering approximately $2 million in kickbacks. Rahman allegedly received $180,000 of these funds from Siemens A.G. (“Siemens”), which, as reported in our Winter 2009 FCPA Review and December 15, 2008 Alert, paid bribes to secure contracts related to mobile telecommunications projects in Bangladesh. If found guilty, Rahman may be imprisoned for up to seven years.
Rahman’s indictment followed shortly after U.S. authorities announced that they had filed a forfeiture action in the U.S. District Court for the District of Columbia against Rahman for approximately $3 million in alleged proceeds from bribery. According to the DOJ’s forfeiture complaint, funds for the bribe payments from Siemens and another foreign company flowed through U.S. financial institutions before reaching Rahman’s Singapore bank account, thus subjecting the funds to U.S. jurisdiction.
On May 15, 2009, the House of Commons of Canada introduced a bill proposing revisions to the Corruption of Public Officials Act (“CPOA”). As noted in Getting the Deal Through: Anti- Corruption in 40 Jurisdictions Worldwide, edited by M&C Member Homer Moyer, because the CPOA is currently silent on the question of jurisdiction, jurisdiction for foreign bribery must be established pursuant to the common law ‘real and substantial connection with Canada’ test. Under that test, the court determines the offense’s connection with Canada on the basis of numerous factors, such as the location of the decisions setting the offence into motion, the location of the harm of the offense, and the location where the offender obtains the fruit of the offense. Under the new bill, however, the jurisdiction of Canadian courts would extend to bribery committed abroad by Canadian citizens, permanent residents, and organizations, regardless of the bribery’s connection with Canada.
According to press accounts, an ongoing corruption investigation into the activities of former executives of state-linked property developers in Dubai has resulted in numerous arrests. The corruption at issue reportedly relates to the executives’ alleged acceptance of bribes and illegal commissions, among other illicit activities including fraud, embezzlement, and forgery. In one case, a bribe of approximately $1.3 million was reportedly delivered to a defendant’s home in a suitcase; in others, executives collected commissions of one or two percent on sales or resales of government-owned real estate. Some of the alleged payments were reportedly made by Sunland Group, an Australian development company.
At least twenty-five executives have reportedly been arrested, including a former minister of finance, several Australian nationals, and a U.S. citizen (Zach Shahin), who reportedly served as the chairman of Deyarr, the real estate unit of Dubai Islamic Bank (“DIB”), which is part-owned by the government. According to media accounts, international concern has been expressed about the extended period of time in which defendants have been detained without charge in Dubai. Indeed, Shahin, who has been incarcerated for more than a year, has reportedly asked U.S. authorities to insist that he be charged or released. Trials have already begun against former executives of DIB and Sama Dubai, a branch of Dubai Holding.
According to press accounts of Greece’s ongoing investigation into the Siemens corruption scandal, Greek authorities recently arrested three suspects, while two other suspects fled to Germany in order to avoid prosecution. On June 10, 2009, Greek authorities reportedly arrested the former general manager of Siemens’s Greek branch, Dionysis Dendrinos, in connection with alleged corruption in the awarding of a security contract for the 2004 Olympics. On May 28, 2009, Greek authorities arrested Giorgos Skarpelis, former deputy managing director of OTE, a state-owned telecommunications company, and former Siemens executive Ilias Georgiou in connection with their investigation into corruption surrounding contracts to modernize Greece’s telephone network. Reportedly, Michalis Christoforakos, the former managing director of Siemens Hellas, and Christos Karavelas, the former general manager of Siemens Hellas, have fled to Germany, from which Greece will likely be unable to extradite them. According to media sources, Greece has also arrested Karavelas’s wife and one of his daughters, both of whom shared bank accounts with Karavelas, and issued warrants for the arrest of his other two daughters. Greek authorities have also reportedly frozen Karavelas’s assets. Additionally, on June 6, 2009, Volker Jung, formerly the head of Siemens communications unit and the supervisory board of Siemens Hellas, was released by Greek authorities after appearing before a special examining magistrate in connection with alleged corruption involving OTE.
Siemens continues to face charges and investigations stemming from the bribery scandal in a number of countries. For further information regarding the Siemens corruption scandal, please see our December 15, 2008 Alert.
1. Ehud Olmert
Israeli police closed one of the bribery investigations of Israel’s former Primer Minister Ehud Olmert, according to media reports. The investigation, reportedly closed for lack of evidence, concerned Mr. Olmert’s purchase of a house in Jerusalem for a below-market rate, which sparked allegations of bribery. A separate investigation into Mr. Olmert’s receipt of money from a U.S. businessman Morris Talansky, described in our Winter 2009 FCPA Review, continues in both Israel and the United States.
2. Avigdor Lieberman
According to press reports, on four separate occasions in April 2009, the Israeli police questioned Israel’s new foreign minister Avigdor Lieberman in connection with a years-long investigation of allegations of bribery, fraud, and money laundering. The investigation is reportedly focused on M.L. 1, a company founded by Mr. Lieberman’s daughter. The police are specifically looking into the approximately $2.9 million that M.L. 1 reportedly received from foreign sources. Mr. Lieberman worked for M.L. 1 during his hiatus from politics between 2004 and 2006. He was allegedly paid approximately $600,000 during those two years, and received approximately $200,000 from the firm after his return to the Knesset. The press reports that Mr. Lieberman, known for his controversial remarks about Arab- Israeli relations, is fully cooperating with the inquiry.
3. Israel Officially Joins OECD Convention
In May, 2009, Israel officially joined the OECD Anti-Bribery Convention. Israel is the first Middle-Eastern country to join the Convention.
G. Japan & Vietnam
According to press accounts, on February 23, 2009, the Japanese foreign ministry announced that it will resume providing loans to Vietnam. The aid program was suspended when, in August 2008, bribery violations connected with Japanese loans to Vietnam surfaced. At the time, Japanese authorities arrested four Tokyo-based consultants for bribing Vietnamese officials to obtain contracts related to a highway construction project that the Vietnamese government financed with the help of Japanese loans. The consultants confessed to giving bribes, and were convicted and sentenced. In response to these allegations, Ho Chi Min City police arrested two former Vietnamese government officials involved in the construction project. In addition, a joint Japanese-Vietnamese task force released a report on measures to be undertaken to prevent corruption. Japanese authorities reportedly resolved that these measures adequately address the incident, and pave the way for Japan, the biggest aid donor to Vietnam, to resume lending. As further testament to Vietnam’s commitment to address the problem of corruption, state Inspector General Tran Van Truyen recently announced that Vietnam will soon ratify the UN Convention Against Corruption, which it signed in December 2003.
According to press accounts, Kenya’s new coalition government’s efforts to battle public corruption have been less than adequate. As a result, the U.S. reportedly has invoked Presidential Proclamation 7750, better known as the Kleptocracy Initiative, to permanently ban a Kenyan cabinet minister from the United States because of corruption, bringing the number of banned influential Kenyans to fourteen. President George W. Bush issued Proclamation 7750 in January 2004, following a G-8 meeting in which members promised to deny safe havens to kleptocrats. U.S. Ambassador Michael Ranneberger reportedly would not identify the most recently banned individual, citing privacy laws. Kenyan Agriculture Minister William Ruto has reportedly asserted he is not the banned individual in question. According to media accounts, widespread corruption permeates the coalition government, which was hastily put together in April 2008 to end the post-election violence.
According to press accounts, Maldivian president Mohamed Nasheed has requested the police commissioner to investigate allegations of government officials accepting bribes to recognize Kosovan independence, which the Maldives did on February 19, 2009. The Maldivian Islamic Democratic Party is alleged to have accepted a bribe of $2 million from the leader of the New Kosovo Alliance (AKR), a Kosovan opposition party, to recognize Kosovo. The vice president of the AKR has reportedly dismissed the claims as Serbian propaganda, while the Maldivian foreign minister has reportedly characterized the allegations as red herrings designed to distract and confuse voters before the parliamentary elections.
On April 21, 2009, Nigeria commenced an eight-week, inter-agency special panel to investigate the KBR/Halliburton bribery scheme. The five-person panel, headed by the Inspector-General of Police and composed of high-powered Nigerian officials, has reportedly arrested top officers, including some senators. Press reports indicate that the panel requested that high-level public officers explain their connection with the scandal. According to news reports, on May 22, 2009, the panel questioned the former Inspector-General of Police regarding his connection with the scandal, but sent him home after a forty-five minute interrogation. Others receiving letters to appear before the panel allegedly include the previous Group Managing Director of the Nigeria National Petroleum Corporation (“NNPC”) and the former head of the National Security Organization. On June 2, 2009, the panel reportedly interrogated and detained Dan Etete, former petroleum minister, and Jackson Gaius-Obaseki, former head of the national oil company. In addition to those officials interrogated by the panel, media sources identify three former Nigerian presidents (Olusegun Obasanjo, Abdulsalami Abubakar, and the late Sani Abacha) as being among those who accepted bribes in the scheme. Nigerian police have reportedly seized the passports of all officials who are being investigated by the panel.
According to press reports, the investigation has prompted agencies that are heavily involved with Nigeria’s oil industry to evade invitation letters to appear before the panel. Both the NNPC and the Ministry of Petroleum reportedly refused such letters. Additionally, news reports suggest that former government officials, including the former Petroleum Minister (Don Obot Etiebet), are surfacing to insist that they were not invited to appear before the investigation panel and to deny involvement in the scandal. Critics have asserted to the press that prosecution is unlikely, given the country’s poor record of convicting high-profile officials.
As Nigeria proceeds with its investigations, it may receive international cooperation from the United Kingdom, Switzerland, France, and the United States. According to press reports, on March 30, 2009, a Swiss court published a ruling in which it ordered the handover of certain bank account details to U.K. authorities investigating the corruption scandal. Britain’s Serious Fraud Office (“SFO”) reportedly asked for Swiss legal assistance in 2006 regarding its investigation of a U.K. citizen allegedly involved in a corrupt scheme to secure gas pipeline contracts in Nigeria. While the Swiss court’s ruling does not mention any of the companies or individuals by name, the corruption scheme described in the ruling strikingly resembles the circumstances surrounding the KBR/Halliburton bribery scandal. Furthermore, within two weeks of the Swiss court’s ruling, Nigeria’s Attorney-General and Minister of Justice reportedly stated that the majority of the bribe payments in the KBR/Halliburton bribery scandal had been traced to a Swiss bank account. French authorities have reportedly been involved in investigations connected to the bribery scandal since 2003, when they launched an investigation into fraudulent payments to Tesler (discussed above). The United States government has reportedly page 22 deferred responding to Nigeria’s formal request for legal assistance on grounds that it may interfere with an ongoing U.S. investigation but indicated that it may provide the requested information in the future. Additionally, Albert “Jack” Stanley, the former executive of KBR who pleaded guilty to FCPA charges in September 2008, has reportedly expressed his willingness to testify in Nigeria on this matter upon obtaining the consent of U.S. authorities.
Finally, Nigeria’s Attorney General and Minister of Justice reportedly announced that Nigeria would bring civil suits for damages in Nigeria and other countries against Halliburton, Willbros (discussed in our Spring 2008 FCPA Review and Winter 2008 FCPA Review) and Siemens (discussed in our Winter 2009 FCPA Review and December 15, 2008 Alert). According to press accounts, Nigerian authorities hope to recover at least $10 billion from these companies to cover various types of damages, including defamation, allegedly caused by the corruption scandals. Specifically, Nigerian authorities reportedly claim that Nigeria has suffered humiliation, discrimination against Nigerian citizens abroad, and economic losses. The Nigerian Bar Association criticized this legal action in the press, stating that it was a diversion from the real issue of investigating government corruption.
K. South Korea
Former President Roh Commits Suicide Amidst Intensifying Bribery Allegations
Former President Roh Moo-Hyun committed suicide on May 23, 2009, as the bribery allegations against him continued to intensify. Roh left a suicide note for his family expressing regret for “making too many people suffer.” Prior to his death, Roh had publicly apologized for the scandal although had not admitted to any wrongdoing.
Roh was a human rights lawyer who took office in 2003 on an anticorruption platform. Roh’s entrance to Korea’s Blue House (the office of Korea’s president) followed a long history of corruption scandals involving the Korean Government. Roh vowed to re-establish a clean government and encourage talks with North Korea. Beginning in 2009, however, investigators began aggressively investigating corruption allegations against Roh and his family. Korean prosecutors widened the scope of their investigation in early May as new bribery allegations emerged.
Roh and his relatives are alleged to have received approximately $6 million between 2003 and 2008 from a Korean business man named Park Yeon-Cha (Mr. Park was arrested in late 2009 on charges of bribery and tax evasion.) Prosecutors are also focusing on allegations that Roh channeled significant sums of money through his daughter, Roh Jeong-Yeon. Korean officials have indicated that some of the corrupt payments have ties to the United States.
After Roh’s death, Korea’s Justice Minister announced that the corruption case against Roh would be formally dismissed. Minister Kim did not say whether the investigation into Roh’s family members would continue. Having temporarily suspended the corruption probe upon Roh’s death, Korean prosecutors have reportedly resumed seeking arrest warrants and plan to subpoena ten suspects, which include several prominent government officials. On June 3, 2009, the Prosecutor General Lim Chae-jin, reportedly resigned under criticism that the prosecution went too far, and drove Roh to commit suicide.
As we reported in our Spring 2008 FCPA Review, in March 2008, the Swedish company AB Volvo settled charges of FCPA violations with the DOJ and SEC. The alleged violations took place when AB Volvo and its subsidiaries were participating in the U.N. Oil-for-Food program; allegations involved illicit payments to Iraqi officials to win contracts. Prosecution of individual employees now follows the resolution of the case against the Company. According to press reports, in March 2009, three employees of AB Volvo subsidiary involved in the allegation were charged in Sweden with committing a “grave sanction breach” for payments to Iraqi officials that violated U.N. sanctions. The prosecutor intends to seek prison sentences for the executives, who are accused of paying approximately $1.3 million to Iraqi officials between 2000 and 2002 in exchange for winning $13.8 million in contracts for the company.
M. Turks & Caicos
The U.K. Foreign Office has threatened to take over the government of Turks and Caicos, a U.K. Territory in the Caribbean, after a Commission of Inquiry reported findings of systemic corruption and financial mismanagement by the islands’ administration. The U.K. government may suspend the islands’ constitution, including its elected government, for at least two years.
Michael Misick, the Turks and Caicos Prime Minister resigned over the scandal. He is reportedly suspected of selling government land for personal gain. Upon resignation, he challenged the U.K. government’s decision to suspend the Turks and Caicos constitution, but the challenge was dismissed by the U.K. High Court. The press reports that he is planning to appeal the dismissal.
N. United Kingdom
On March 25, 2009, Jack Straw, the U.K. Justice Secretary, presented to the Parliament the draft of a new anti-bribery bill. The legislation, previewed in our Winter 2009 FCPA Review, will update the country’s set of anti-bribery laws, which have been described by critics as outmoded and disjointed. The law will criminalize receiving bribes and giving or offering bribes in the United Kingdom or overseas. Maximum prison term for a bribery offense is increased from seven to ten years, and criminal prosecution of Members of Parliament and peers is authorized. The law creates corporate criminal liability for a corporation’s negligent failure to prevent bribery on its behalf. The new anti-bribery law also provides for extra-territorial jurisdiction, extending to overseas acts of U.K. residents, nationals and corporate bodies.
The law also does away with the requirement for the Attorney General’s consent for prosecutions of anti-bribery offenses; only consent of the head of the relevant prosecuting authority is now required. The Attorney General’s intervention for national security concerns led to the controversial halt into the investigation of the BAE Systems’ Saudi deal described above. The halt resulted in widespread criticism of U.K.’s antibribery efforts, which likely gave impetus to the new legislation. The critics, however, find that the new law is not sufficient in this regard. The law explicitly permits the Secretary of State to authorize conduct that would otherwise constitute a bribery offense if necessary for security or intelligence reasons. Media critics have recommended that an independent judicial panel authorize such exceptions where necessary.
The media reports that the bribery bill will be evaluated by a joint parliamentary scrutiny committee.
Publications, Speaking Engagements, and Recognition
Homer Moyer, James Tillen, Jeffrey Hahn and Marc Alain Bohn recently authored the United States Chapter in the annually published Getting the Deal Through: Anti-Corruption in 40 Jurisdictions Worldwide. Homer Moyer also wrote the Global Overview for the publication, as well as serving as Contributing Editor.
Kathryn Cameron Atkinson posted a blog on the WrageBlog entitled "Training the Ethical Audience." The blog describes the dilemma that occurs when compliance training is provided to employees who believe they have strong moral compasses and offers suggested responses.
Homer Moyer will present on “After the Settlement: Selecting and Working with Compliance Monitors” at the American Conference Institute’s 5th European Forum on Anti-Corruption, taking place June 23- 24, 2009 in London.
John Davis will speak on FCPA Risk Management as part of the Practicing Law Institute’s The Foreign Corrupt Practices Act 2009: Coping with Heightened Enforcement Risks. The event will take place June 26, 2009 in San Francisco.
Kathryn Cameron Atkinson will speak at the Foreign Corrupt Practices Act in Latin America teleconference, sponsored by Strafford Publications, on July 9, 2009. The seminar will examine recent FCPA enforcement focused on business activity in Latin America, discuss the FCPA challenges of conducting business in Latin America, and outline strategies for FCPA compliance.
Kathryn Cameron Atkinson will be speaking on conducting FCPA due diligence in mergers and acquisitions and the limits of gift giving, facilitating payments, and hospitality at the upcoming FCPA Boot Camp, sponsored by the American Conference Institute. The event will take place July 14-15, 2009 in Chicago.
James Tillen will present on conducting effective FCPA compliance reviews and audits, as well as FCPA voluntary disclosures as part of the FCPA Boot Camp sponsored by the American Conference Institute, taking place October 1-2, 2009 in Miami, Florida. He will also be speaking at a pre-conference workshop on the fundamentals of FCPA compliance on September 30, 2009 as part of this event. To receive a discount on registration, please use code 805L10.S.
Homer Moyer and James Tillen serve as Chair and Secretary respectively of the Anti-Corruption Committee of the International Bar Association (IBA), and will host several panels on corruption issues at the 2009 IBA Annual Conference. The event will take place October 4-9, 2009, in Madrid.
Matthew Reinhard will speak on the fundamentals of FCPA compliance at the American Conference Institute’s Dubai Summit on Anti-Corruption Enforcement and Compliance Pre-Conference, taking place October 12, 2009 in Dubai. To receive a discount on registration, please use code 730L10.S
In The News
Miller & Chevalier’s Latin America Corruption Survey was featured in the article “(Anti) Corrupción” in Marcasur on March 1, 2009.
James Tillen discusses possible FCPA violations by Sun Microsystems that have arisen in the proposed acquisition by Oracle in “What’s Really Going On in Oracle, Sun Deal?” posted on BNET Technology on May 15, 2009.
Barry Pollack is quoted in the May 19, 2009 article “First New Fraud Law: More Money, More Commissions” in Compliance Week. The article discusses the Fraud Enforcement and Recovery Act (FERA) currently in Congress, which will provide more money to the SEC, the FBI, the Justice Department, and other regulators to step up enforcement on corporate fraud and will amend the False Claims Act to bolster recoveries in civil cases initiated by private litigants.
James Tillen discusses the FCPA risks logistics companies like Panalpina face, in light of the company’s recent FCPA disclosures in “Giving ‘grease’ the elbow,” published in the June 2009 edition of American Shipper.
Recognition and Awards
Homer Moyer was ranked as an FCPA Expert in the 2009 editions of Chambers Global and Chambers USA. Mr. Moyer’s extensive experience and compliance acumen was noted by Chambers and Partners.
For further information about this Review, please contact any member of Miller & Chevalier’s International Department at (202) 626-5800 or visit our website: www.millerchevalier.com.
The information contained in this newsletter is not intended as legal advice or as an opinion on specific facts. This information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. For more information about these issues, please contact the author(s) of this newsletter or your existing Miller & Chevalier lawyer contact. The invitation to contact the firm and its lawyers is not to be construed as a solicitation for legal work. Any new lawyer-client relationship will be confirmed in writing.
This newsletter is protected by copyright laws and treaties. You may make a single copy for personal use. You may make copies for others, but not for commercial purposes. If you give a copy to anyone else, it must be in its original, unmodified form, and must include all attributions of authorship, copyright notices and republication notices. Except as described above, it is unlawful to copy, republish, redistribute, and/or alter this newsletter without prior written consent of the copyright holder.