Search

Editors

Richard L. Cassin Publisher and Editor

Andy Spalding Senior Editor

Jessica Tillipman Senior Editor

Elizabeth K. Spahn Editor Emeritus

Cody Worthington Contributing Editor

Julie DiMauro Contributing Editor

Thomas Fox Contributing Editor

Marc Alain Bohn Contributing Editor

Bill Waite Contributing Editor

Shruti J. Shah Contributing Editor

Russell A. Stamets Contributing Editor

Richard Bistrong Contributing Editor 

Eric Carlson Contributing Editor

Bill Steinman Contributing Editor

Aarti Maharaj Contributing Editor


FCPA Blog Daily News

Tuesday
Jun302009

Enforcement Report For Q2 '09

During the second quarter there were, by our count, eleven Foreign Corrupt Practices Act enforcement actions. They involved four companies -- three firms resolved criminal or civil charges, or both, and one disclosed an investigation -- and 13 individuals who were either indicted, put on trial, pleaded guilty or sentenced. Here's the rundown:

Joseph T. Lukas (June 29, 2009) Guilty plea to a two-count criminal indictment.

Lukas, 60, a partner in Nexus Technologies Inc. until 2005, was indicted in September 2008 on one count of conspiracy to bribe Vietnamese public officials in violation of the Foreign Corrupt Practices Act and one substantive count of violating the FCPA. He admitted in his guilty plea that from 1999 to 2005, he and other Nexus employees agreed to pay, and knowingly paid, bribes to Vietnamese government officials in exchange for contracts with the officials' agencies. At his sentencing scheduled for April 2010, he faces up to 10 years in prison and a possible $350,000 fine.

The 2008 indictment also charged Nexus and alleged co-conspirators Nam Nguyen, Kim Nguyen and An Nguyen, all U.S. citizens, with similar violations. Their cases are still pending.

William Jefferson (June 9, 2009) The start of his federal criminal trial in Alexandria, Virginia.

It's the first time a former member of congress has been prosecuted under the Foreign Corrupt Practices Act. Jefferson, 62, faces up to 20 years in prison. He's accused of violating the FCPA by arranging bribes to African officials to win contracts for his family's companies, and with soliciting and accepting bribes, wire fraud, money laundering and obstruction of justice. He lost an election last year for a 10th term in the House of Representatives from a district that includes New Orleans.

Frederic Bourke (June 1, 2009) The start of his federal criminal trial in Manhattan.

The co-founder of luxury handbag brand Dooney & Bourke is accused of investing in a deal in Azerbaijan in 1998 that he knew involved paying bribes to officials there. He faces up to 30 years in jail for conspiring to violate the FCPA, money laundering and lying to federal investigators. Bourke says he didn't know about the bribery. His co-defendant Viktor Kozeny is a fugitive in the Bahamas.

United Industrial Corporation (UIC) (May 29, 2009) Civil enforcement action resolved.

The Securities and Exchange Commission filed a settled enforcement action against UIC, an aerospace and defense systems contractor. UIC agreed to pay $337,679.42 in disgorgement and prejudgment interest. (See also Thomas Wurzel below.)

Thomas Wurzel (May 29, 2009) Civil enforcement action resolved.

The SEC filed a settled enforcement action against Thomas Wurzel, the former president of UIC's one-time subsidiary, ACL Technologies, Inc.. He agreed to pay a $35,000 civil penalty. The SEC said Wurzel authorized illegal payments to Egyptian Air Force officials in 2001 and 2002 through an agent in return for business related to a military aircraft depot in Cairo.

Wurzel and UIC were charged with violating the antibribery, books and records and internal controls provisions of the Foreign Corrupt Practices Act; Wurzel also faced aiding and abetting violations.

Novo Nordisk A/S (May 11, 2009) Criminal and civil enforcement actions resolved.

Denmark-based Novo Nordisk agreed to pay a $9 million criminal penalty and enter into a deferred prosecution agreement with the DOJ for illegal kickbacks paid to the former Iraqi government under the U.N. oil-for-food program. It also agreed to pay $3,025,066 in civil penalties and $6,005,079 in disgorgement of profits, including pre-judgment interest, to the SEC.

The DOJ charged Novo with one count of conspiracy to commit wire fraud and to violate the books and records provisions of the FCPA. In the civil enforcement action, the SEC charged Novo with violating the FCPA's books and records and internal controls provisions.

Sun Microsystems (May 7, 2009) Investigation disclosed.

Sun said in an SEC filing that it may have violated the FCPA. It didn't reveal where the payments might have occurred or how much the bribes amounted to. But it said the potential offenses, which it has reported to U.S. and other authorities, "could possibly have a material effect on our business."

Juan Diaz and Antonio Perez (April 27, 2009) Guilty pleas to a one-count criminal information.

Diaz and Perez, both 51 of Miami, pleaded guilty to a one-count criminal information. They were charged with conspiracy to violate the FCPA by making corrupt payments to officials from Telecommunications D'Haiti. Diaz paid and concealed $1,028,851 in bribes while acting as an intermediary for three private telecommunications companies. Perez arranged bribes of $674,193 to the Haitian officials while he worked as a controller at one of the companies from March 1998 to January 2002.

Stuart Carson, Hong (Rose) Carson, Paul Cosgrove, David Edmonds, Flavio Ricotti, and Han Yong Kim (April 9, 2009) Indicted by a federal grand jury.

The six former executives of Control Components Inc., an Orange County, Calif.-based valve company, were charged with conspiracy to violate the FCPA and the Travel Act, violating the FCPA, and as to Hong (Rose) Carson, one count of obstruction. It was the biggest multi-party indictment of individuals yet under the FCPA.

Earlier this year, two other former executives from Control Components admitted paying bribes to foreign officials and have been cooperating with authorities. Richard Morlok, 55, the former finance director, and Mario Covino, 44, the company's former director of worldwide factory sales, pleaded guilty to one count of conspiracy to violate the FCPA. They're sentencing is set for July 20, 2009.

Shu Quan-Sheng (April 7, 2009) Sentenced to prison.

The Virginia-based physicist who sold controlled space-launch technology to China by bribing government officials there was sentenced to 51 months in prison. Shu, 68, a native of China and naturalized U.S. citizen, pleaded guilty in November 2008 to one count of violating the FCPA and two counts of violating the Arms Export Control Act. Shu had already forfeited $386,740 to the federal government before being sentenced to prison.

Latin Node Inc. (April 7, 2009) Criminal enforcement action resolved.

The former privately held Florida telecommunications company pleaded guilty to a one-count criminal information and agreed to pay a fine of $2 million over the next three years. It was charged with violating the FCPA's antibribery provisions by making improper payments in Honduras and Yemen.
_______________

Click on the party names for the original posts, with links to the charging documents, plea agreements, and news and litigation releases.

View our enforcement report for Q1 '09 here.

View our 2008 enforcement index here.
.

Monday
Jun292009

Guilty Plea In Vietnam Bribery Case

A former executive of a Philadelphia-based export company pleaded guilty Monday to being part of a conspiracy to bribe Vietnamese government officials in violation of the Foreign Corrupt Practices Act.

Joseph T. Lukas, 60, a resident of New Jersey, was a partner in Nexus Technologies Inc. until 2005. He admitted that from 1999 to 2005, he and other Nexus employees agreed to pay, and knowingly paid, bribes to Vietnamese government officials in exchange for contracts with the officials' agencies. The bribes were falsely described in the company's books as "commissions."

Lukas now faces up to 10 years in prison and a possible $350,000 fine. His sentencing is scheduled for April 6, 2010.

He was arrested in September 2008, a day after being indicted by a federal grand jury in Philadelphia on one count of conspiracy to bribe Vietnamese public officials in violation of the Foreign Corrupt Practices Act and one substantive count of violating the FCPA. The indictment also charged the company and alleged co-conspirators Nam Nguyen, Kim Nguyen and An Nguyen, all U.S. citizens, with similar violations. Those cases are still pending.

According to the indictment, Nexus, a privately-held Delaware company with offices in Philadelphia, New Jersey and Vietnam, sold third-party underwater mapping and bomb containment equipment, helicopter parts, chemical detectors, satellite communication parts and air tracking systems to the government of Vietnam.

The indictment charged that the defendants paid at least $150,000 to officials at Vietnam’s Ministries of Transport, Industry and Public Safety to secure supply contracts. It said Nam Nguyen negotiated contracts and bribes with Vietnamese government officials while Lukas negotiated with vendors in the United States. Kim and An Nguyen allegedly arranged for the transfer of funds at Nam Nguyen’s direction.

The company's website (in English and Vietnamese) says:

Nexus specializes in supplying equipment and consulting / system integrating services for five high-growth, state-funded industries:

* Petroleum
* Power Generation, Transmission and Distribution
* Civil Aviation
* Marine & Sea Ports
* Other Heavy Industries

Doing business in Asia requires relationships, trust, and the time to build them. Nexus is proud to have established, through its consistent presence and reliable performance, trusted relationships with customers.

The three other individual defendants in the case and Nexus are presumed innocent until and unless proven guilty at trial beyond a reasonable doubt.

View the DOJ's June 29, 2009 release here.
.

Sunday
Jun282009

Writing Modern History

An extended interview in this month's Guernica with Michela Wrong is great reading. She's the British journalist who's current book is It’s Our Turn to Eat: The Story of a Kenyan Whistle-Blower. In the book and the interview, she uses the story of John Githongo to talk about the root causes of corruption in Africa, digging deep into tribalism, colonialism and western aid. In other words, she's a serious (but never boring) journalist -- we'd call her a "writer and thinker" -- who doesn't fall for slogans and bumper stickers when it comes to the causes of graft and its cures.

We won't spoil the interview. But here's the set up:

On February 6, 2005, John Githongo appeared at Michela Wrong’s London doorstep, on the run and fearing for his life. Githongo, Kenya’s anti-corruption czar, had done his job too well. Over the past two years, Githongo had uncovered a string of shady procurement deals that led directly to the same ministers who had hired him, including President Mwai Kibaki. In the largest of these, a mysterious British firm called Anglo Leasing was awarded government contracts at hugely inflated prices.

When Githongo investigated the company, he was told to back off, eventually discovering that Anglo Leasing did not exist—“Anglo Leasing,” one minister told a stunned Githongo, “is us.” Then the death threats began. Wrong, a long-time Africa correspondent for various British publications and a friend of Githongo’s, had extended the invitation for a London stay at their last dinner together, where Githongo seemed nervous and distracted. That was three months earlier. Now here he was, suitcase in hand, in need of a safe house. . .

Read our prior posts about John Githongo here.

* * *
From Frederic Bourke's Trial. On Friday the prosecution rested its case. The defense called Robert Evans, Bourke's friend since their seventh-grade in Michigan. His account, Bloomberg's David Glovin reported, "contradicted that of Hans Bodmer, [Viktor] Kozeny’s former lawyer, who earlier testified that he told Bourke details of the bribery scheme during a walk around an Azerbaijan hotel at 8 a.m. on Feb. 6, 1998."

Evans said he and Bourke didn't arrive in Baku that day until 9:30 a.m. and didn't talk with Bodmer until hours later. Evans also said Bodmer told them the Azeri president supported Kozeny’s venture and “was in on the deal.” But he said nothing about illegal payments.

Glovin recaps the case this way: "Bourke, who was once married to a member of the family that owned Ford Motor Co., is accused of investing $8 million with Kozeny knowing he was paying bribes. Backed by $350 million, Kozeny wanted to buy Azerbaijan’s state oil company, known as Socar, for one-tenth of what he valued it and to re-sell it at a profit. . . . Bourke denies knowing of the bribes and says Kozeny stole more than $180 million from him and other investors. Azerbaijan, a nation in the Caspian Sea region, never sold Socar, wiping out the investment. Kozeny, who has also been charged in the case, is a fugitive living in the Bahamas."

Why, by the way, do we mention David Glovin so often? Because he's the only journalist publishing regular accounts of Bourke's trial. He's also a great reporter who covers the federal courthouse in Manhattan for Bloomberg. When the Madoff story broke on his turf, his dispatches -- packed with facts, color and analysis that reached beyond daily journalism -- led the international coverage. So we're lucky he's sitting in on the Bourke proceedings, which he thinks might conclude this week.

Read David Glovin's reports on the trial here.

Read all our posts about U.S. v. Kozeny and the prosecution of Frederic Bourke here.
.

Thursday
Jun252009

Will Graft Defeat Iraq?

We like to end our weeks around here with a light touch. But not today. We just read a disturbing story from Reuters' Aseel Kami in the Washington Post. He describes the "pandemic of corruption" now gripping Iraq. After all that's happened there, it's tragic news. The voices in Kami's story sound authentic and you can't miss the cruel side of what's going on -- even in the petty stuff. Here's a sample:

"I cannot move one step without bribing people," said Adel Hamza, who as head of public relations at a foreign construction company is responsible for getting contracts signed, stamped and authenticated by Iraqi authorities. "Everyone has got their mouths open as if I am feeding birds. . . ."

Haider Abdul-Muhsin says that when he needs to get Interior Ministry officials to sign identification documents, he has to spread money around like confetti.

"From the entry gate where a security guard stands till I get to the officer, I have to pay money to get my paperwork processed. This is not normal," said Muhsin. . .

Housewife Najat al-Azzawi said the lack of public services six years after the invasion made her nervous about the future.

"Security was previously the problem, now corruption heads the list," she said.

The story asks the chilling question: Will Iraq's corruption brew so much discontent that the insurgency will renew itself?

* * *
From Frederic Bourke's Trial. Bloomberg's David Glovin (who else?) reported here the testimony from Bourke's long-time lawyer. David Hempstead (Western Michigan BA, Wayne State JD), a tax partner in Detroit's Bodman LLP, said he "told Bourke the Azeris had paid for their interest because Kozeny's lawyer had told him as much."

Bourke is on trial in federal court in Manhattan for conspiring with Czech fugitive Viktor Kozeny to bribe Azeri officials in violation of the Foreign Corrupt Practices Act. Prosecutors allege Bourke knew Kozeny was paying bribes of millions of dollars in cash and a secret two-thirds interest in the venture Kozeny formed to buy the state oil company.

I went back to Ric [Bourke] and said, "They're saying the Azeris were putting in full value," Hempstead testified [Wednesday] in Manhattan federal court. Ric said, "Alright" . . . I certainly believed the government of Azerbaijan could come up with the money to invest with Kozeny, said Hempstead, Bourke's lawyer of 35 years.

Read David Glovin's reports on the trial here.

Read all our posts about U.S. v. Kozeny and the prosecution of Frederic Bourke here.
.

Wednesday
Jun242009

A Billion Calls Later . . .

We admit it. Praise for China's perennial anti-corruption campaigns doesn't fall easily from our lips. There are always questions about the numbers the central government tosses around ("prosecutors nationwide prosecuted 8,939 officials for duty dereliction in 2008, up 5.4 percent year on year"). And the practice of putting corrupt officials to death leaves us more than a little queasy. But here's some China news we can get behind.

The government has set up a nationwide anti-corruption hotline. There's one phone number that operates 24 hours a day -- (0086-10) 12309, and a corresponding web site at www.12309.gov.cn.

The China Journal says, "Citizens who report corruption will receive up to 10% of the funds recovered by the government, according to new national guidelines (in Chinese here). Awards will generally be capped at 100,000 yuan ($14,600) , though with provincial approval the amount can be increased up to 200,000 yuan. The new measures also include commissions for reporting other crimes as well, including rights violations."

Will it work? Hard to say. Positive signs are that the hotline's operators have promised to protect the confidentiality of informants. And there are criminal and civil penalties for anyone who retaliates against them.

Are hotlines working in the U.S.? They seem to be. A story in the June 23 edition of Compliance Week by Melissa Klein Aguilar makes the case by citing numbers from The Network, a third-party hotline operator, and BDO Consulting. They analyzed "477,940 reports from 1,328 organizations with more than 12 million employees from 2004 through 2008."

Their findings:

  • Hotline complaints rose last year to 9.4 incidents per 1,000 employees, up from 9 in 2007 and 8.3 in 2006;
  • 70% of those making hotline complaints didn’t notify management first, and a majority of the complainants chose to remain anonymous;
  • In 2008, 71% of all hotline fraud complaints warranted an investigation; and
  • Reports on corruption and fraud, misuse of assets or information, conflicts of interest and Foreign Corrupt Practices Act violations increased from 10.9 percent of all complaints in 2006 to 21 percent in 2009.
Our reading: Most hotline complaints aren't frivolous. They increase an organization's accountability for legal compliance. That means there's more chance of those involved with bribes, either giving or receiving, to be caught and punished.

Compliance Week is by subscription only. The 2009 Corporate Governance and Compliance Hotline Benchmarking Report can be downloaded from The Network after registering here.
.

Tuesday
Jun232009

More Journalists Murdered In The Philippines

Anti-corruption journalists in the Philippines are under siege. Two were killed in the same week this month. The latest victim was newspaper commentator Antonio Castillo. He was shot on June 12 by two gunmen on a motorcycle in the central Philippines town of Uson, according to the Center for Media Freedom and Responsibility.

A few days earlier, Crispin Perez Jr., a lawyer and part-time radio commentator at a government-owned station in San Jose City in the central Philippines, was shot to death outside his home. He hosted a weekly public affairs broadcast. His criticism of deals between a local power company and suppliers had earned him enemies.

Last week, gunmen also attacked the offices of another Philippines media group in Bangued, the capital of Abra province. The target appeared to be a Catholic-run community weekly newspaper and two affiliated radio stations. No one was hurt in the drive-by shooting. A priest who runs the paper said he thought the attack was related to articles and editorials about corruption involving another local power company. A journalist working on that story was the target of an earlier drive-by shooting at her family's home last month. No one was harmed.

Five journalists in the Philippines have been murdered this year because of their work. Last year the death toll was six. And since 1986, the total is 80, with 22 of those deaths coming since 2000. The New York-based Committee to Protect Journalists (CPJ) has said the Philippines government isn't doing enough to shield journalist or to bring their attackers to justice.

On the CPJ's Impunity Index -- a list of countries where journalists are killed regularly and governments fail to solve the crimes -- the Philippines ranks as the sixth most dangerous place. The years measured are 1999 through 2008. Other countries among the most dangerous are Iraq, Sierra Leone, Somalia, Sri Lanka, Colombia, Afghanistan, Nepal, Russia and Pakistan.

* * *
From William Jefferson's Trial. Judge T.S. Ellis III is unhappy about the slow going in the federal corruption and FCPA trial of the former congressman from Louisiana.

According to the Times Picayune, "The judge expressed some impatience Monday with the pace of the proceedings, as former iGate CEO Vernon Jackson began his fourth day of testimony in the case. Jefferson, a Democrat, is facing a 16-count indictment that accuses him of seeking and sometimes receiving bribes in exchange for his help in brokering deals in West Africa. 'If this case lasts six weeks it will certainly be contrary to my intentions,' said Ellis, who admonished both sides against getting bogged down in 'minutiae."

Read all our posts about William Jefferson here.
.

Monday
Jun222009

Russian Headwinds Hit Investors

Russia -- the world's largest country by land mass, with 11 time zones and 142,000,000 people, one of five permanent members on the UN Security Council, member of the Group of Eight (G8) industrialized nations, and possessor of the largest stockpile of nuclear weapons on the planet -- yes, that Russia, ranks 120th on the World Bank's Doing Business Index (here). That's low, but in the narrower category of dealing with construction permits, it sits at a subterranean 180th, just one spot above last-place Eritrea. There's no doubt, then, that Russia is the modern world's undisputed red-tape colossus.

Just what that means for foreign investors who take compliance seriously was illustrated by a recent story from the AP via the Moscow Times.

The background: Global furniture retailer Ikea -- privately held and based in Sweden -- opened its first store in Russia in 2000 and has since opened 10 more. Its country investment, it says, amounts to more than $3 billion and its workforce in Russia has grown to 7,000.

According to the AP report, Ikea has always had a tough time dealing with Russian red tape and corruption. "On several occasions the company had to delay openings of its stores as regional authorities raised issues with store construction and design, safety or environmental features." As bad as past problems were, however, they may be getting a lot worse.

A store-opening in Samara in the Volga River region is now more than a month late and counting. Local bureaucrats imposed a last-minute requirement that the building be able to withstand hurricane-like 30-meter-per-second winds, even though the strongest winds recorded there have never exceeded 17 meters per second. Ikea now says there's no timeline for the opening.

And authorities last month began investigating whether the company violated anti-monopoly laws. They allege Ikea urged tenants in a mall it runs outside Moscow to buy services from certain vendors. Ikea says the allegations are false.

The company used to be an outspoken critic of bribery and corruption in Russia. It dropped that approach and now uses softer words, like "gray areas." Does the change in vocabulary signal a change in compliance policies? Who knows? But for now, at least, Ikea has put all further Russian expansion on hold. And it's not clear how it intends to deal with the current pressures.

A Western business person in Russia said, "For a foreign company that is still dependent on a lot of different ministries to do their work to go on [an aggressive anti-corruption] campaign ... tends to be a bad idea. If they want to have a future in a country, they can't make enemies."

* * *
From Frederic Bourke's Trial. The defense needed a shot in the arm and got it on Friday, big time. Bourke's friend George Mitchell took the stand for four hours in the federal criminal trial in Manhattan. That's a lot of face time from the former Democratic Senate majority leader and current special envoy for President Obama to the Middle East.

Mitchell's message? Bourke, who recommended the Azeri privatization deal, never suggested bribes were being paid. An while Mitchell now regrets his $200,000 investment in Viktor Kozeny's crooked scheme, he trusted Bourke then and still trusts him today.

The Courthouse News Service has an account of Mitchell's testimony here; Bloomberg's David Glovin filed his report here.

Read all our posts about U.S. v. Kozeny and the prosecution of Frederic Bourke here.
.

Sunday
Jun212009

Sir Allen's FCPA Mystery

The Texas billionaire with a Caribbean knighthood and a passion for cricket was charged by U.S. prosecutors on Friday with running a "massive ponzi scheme" through his bank in Antigua. Allen Stanford, 59, faces 21 charges that could send him to prison for 250 years, including mail and wire fraud, money laundering, and conspiracy to mislead the Securities and Exchange Commission.

Included in the federal criminal indictment unsealed Friday and the SEC's amended civil complaint are allegations that Stanford paid $100,000 in bribes* to Leroy King, the former head of Antigua's banking watchdog, the Financial Services Regulatory Commission. In return, prosecutors say, King, 63, staged phony audits of Stanford's bank, lied to the SEC about how the bank was being run, and leaked confidential information to Stanford about the SEC's investigation. In other words, Stanford knowingly made corrupt payments to a foreign official to obtain or retain business or gain an unfair advantage.

Wait a minute. That sounds exactly like a violation of the Foreign Corrupt Practices Act. So why wasn't Stanford charged under the FCPA? The Justice Department isn't saying. But a few reasons come to mind.

#1. The prosecution's case works better without an FCPA count. Stanford isn't the only one charged. Indicted with him are Laura Pendergest-Holt, Gilberto Lopez and Mark Kuhrt, all officers in his bank. And there's Leroy King himself, Stanford's alleged mole in Antigua's banking regulator.

They're all charged with one count of conspiracy to commit mail, wire and securities fraud; seven counts of wire fraud; ten counts of mail fraud; and one count of conspiracy to commit money laundering. The indictment also charges Stanford, Pendergest-Holt, and King with conspiracy to obstruct an SEC proceeding.

(Facing the same charges through a separate indictment is another company officer, James Davis. And an employee, Bruce Perraud, is separately accused of destroying records related to a federal investigation.)

It makes sense for the government to put Stanford, Pendergest-Holt and King on trial together. They're all part of the same alleged plot to mislead the SEC and derail its investigation. But if Stanford had been charged with violating the FCPA, King could probably demand a separate trial. He can't be charged under the FCPA for taking bribes, and would likely argue he doesn't belong in a trial that includes an FCPA count against someone else.

The government says King's role in the alleged conspiracy was crucial.** So splitting him from the others would leave an empty chair at the defense table and a big hole in the prosecution's case against Stanford. Having him in the courtroom will complete the picture and help the jury get it.

#2. Leroy King is an American. According to the SEC's complaint, he's a citizen of the United States as well as Antigua and Barbuda, West Indies. Can an American citizen be a "foreign official" under the FCPA? If not, then there's no FCPA violation.

The law itself doesn't exclude the possibility of an American being a "foreign official." In fact, there's nothing there about nationality.***

Still, if Stanford were charged under the FCPA because of his alleged payments to King, it would be the first time, we think, where the "foreign official" in an enforcement action is an American with dual citizenship. Do Stanford's prosecutors want to be first to tackle an oddity like that? We doubt it. Foreign means foreign, Stanford might argue, and it doesn't mean American. The dictionary supports that argument, and in the FCPA's legislative history, it's unlikely anyone was talking about Americans as "foreign officials."

Bottom line: The DOJ wants to put Stanford and the others behind bars, not press for a funky new FCPA precedent that could result in years of appeals all the way to the Supreme Court.

#3. Prosecutors don't need the FCPA in this case. With Stanford already facing up to 25o years in prison, would another 5 years on an FCPA count really matter? So why risk sending the co-conspirators into separate trials and injecting the American foreign official controversy into an otherwise clean prosecution? Besides, the government doesn't need the FCPA count to introduce evidence about the alleged bribery. Arrangements between Stanford and King are at the heart of the case already so relevance won't be an issue.

King, by the way, is apparently in Antigua. U.S authorities plan to extradite him.

View the DOJ's June 19, 2009 release here.

Download the June 18, 2009 indictment in US v. Robert Allen Stanford aka Sir Allen Stanford et al here.

View the SEC's Litigation Release No. 21092 / June 19, 2009 in SEC v. Stanford International Bank, Ltd., et al., Civil Action No. 3:09-cv-0298 (N.D. Texas, February 17, 2009) here.

Download the SEC's Second Amended Complaint in SEC v. Stanford International Bank, Ltd., et al. here.

View the Houston Chronicle's excellent full coverage of Stanford from Mary Flood, Tom Fowler and Jennifer Dlouhy here.

View our post Sir Allen And The FCPA.

_____________

* The SEC complaint says, "In addition to the cash payments, Stanford gave to King and his wife significant non-cash benefits, including: (i) use of Stanford’s fleet of private jets to travel throughout the United States and the Caribbean; (ii) use of an SIB [Stanford International Bank] corporate car; and (iii) 2004 Super Bowl tickets for King and a companion. Stanford subsequently hired King’s Super Bowl companion as a human resources project manager in Houston."

** The SEC said, "[Leroy King] facilitated the Ponzi scheme by ensuring that the FSRC [Financial Services Regulatory Commission] conducted sham audits and examinations of SIB's [Stanford International Bank's] books and records. In exchange for bribes paid to him over a period of several years, King made sure that the FSRC did not examine SIB's investment portfolio. King also provided Stanford with access to the FSRC's confidential regulatory files on him, including the SEC's requests for information from FSRC in its investigation. King went so far as to allow Stanford to essentially dictate the FSRC's responses to the SEC on those information requests. King made false assurances that there was no cause for concern about Stanford International Bank. He collaborated with Stanford to withhold significant information being requested by the SEC."

*** The FCPA says, The term “foreign official” means any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization.
.

Thursday
Jun182009

The Friday Round Up

Reports from the BBC and the Straits Times say the Chinese Communist Party (CCP) is trying once again to get rid of secret accounts held by local officials. Known as "little coffers," the money is skimmed from public funds. The CCP directed party and government officials to disclose the accounts or face severe punishment. China often imposes the death penalty in major corruption cases.

"The illegal phenomenon has resulted in inaccuracy in accounting, disturbance in market order, losses in state income and property and corruption," the party said in a document titled "Directions on Deepening the Crackdown of Small Exchequers."

The "little coffers" have become a big problem lately as government budgets at all levels have grown, increasing opportunities to skim funds. The BBC said "audit reports have often found money that has been spent on apartments, cars and trips abroad for staff, and sometimes disappeared in outright embezzlement."

* * *
Bourke's Big Gun. Bloomberg's David Glovin leads his latest dispatch from the federal courthouse in Manhattan with this: George Mitchell, the ex-Democratic Senate majority leader and President Barack Obama’s envoy to the Middle East, is set to testify [Friday] as part of Connecticut entrepreneur Frederic Bourke’s defense to charges that he helped bribe government leaders in Azerbaijan.

Glovin says Mitchell’s name has come up throughout the trial. He writes, "On the recommendation of Bourke, Mitchell put up $200,000 and became a director of a U.S. company formed by Kozeny. Mitchell, a Maine Democrat who left Congress in 1995, was friends with Bourke, who has a home in Maine."

Read David Glovin's reports on the trial for Bloomberg here.

Read all our posts about U.S. v. Kozeny and the prosecution of Frederic Bourke here.

* * *
Jefferson's #%@&!. The BLT's Jordan Weissmann filed this report yesterday from William Jefferson's trial in Alexandria, Virginia:

Jurors listened to a profanity-laced phone call in which Jefferson said he and iGate CEO Vernon Jackson would "end up in the goddamned pokey" if they angered one of the company's chief investors. During the call, Jackson had suggested replacing Virginia businesswoman Lori Mody, with whom he had a strained relationship. Jackson said he had found a new backer willing to step into her place. Jefferson called the idea "crazy," adding, "Lori's going to be filing suits."
Read all our posts about William Jefferson here.

* * *
We never get tired of spending time with E.B. White. He's so cheerful, without being chirpy and irritating. Like this passage from his 1971 essay, "The Winter of the Great Snows:"

"For a while, the barnyard fence was buried under a magnificent drift. This delighted the geese, who promptly walked to freedom on their orange-colored snowshoes. They then took off into the air, snowshoes and all, freedom having gone to their heads, and visited the trout pond, where they spent an enjoyable morning on the ice. On several occasions this winter, we had to shovel a path for the geese, to make it possible for them to get from their pen in the barn to their favorite loitering spot in the barn cellar. Imagine a man's shoveling a path for a goose! So the goose can loiter!"

From the Essays of E.B. White.
.

Wednesday
Jun172009

Witnesses Hit Bourke And Jefferson

From Frederic Bourke's Trial. Outstanding coverage on the testimony this week of Hans Bodmer, Viktor Kozeny's Swiss lawyer, from the Courthouse News Service here and Bloomberg's David Glovin here.

From Glovin's account:

Bodmer, who is testifying for prosecutors in exchange for leniency and admits knowing of the bribery scheme, testified yesterday that he told Bourke about the payments. . . .

[S]peaking methodically through a thick German accent, [he] told jurors he was surprised when Bourke asked him about the “arrangement” [to pay Azeri officials bribes] because it was a “sensitive matter.” After getting permission from Kozeny, Bodmer said he outlined the scheme. Justice Department lawyer Robertson Park asked Bodmer how Bourke responded.

“No specific response,” Bodmer testified.

And from the Courthouse News Service, which described Bodmer as "the gaunt-faced but handsome witness,"
After receiving permission from Kozeny to reveal the details, Bodmer said he took Bourke on a 15- to 20-minute walk outside the hotel [in Baku, Azerbaijan], fearing that the lobby and the rooms may have been bugged. Bodmer testified that at the time he suspected that Bourke already knew about the scheme.
Frederic Bourke is on trial in Manhattan federal court on charges that he invested $8 million with Viktor Kozeny, knowing about the plan to bribe Azeri leaders in a bid to buy the state oil company. Bourke, 63, denies that he knew about Kozeny's bribery, and says he is among the victims who lost a total of $350 million in the scheme.

Bourke is co-founder of luxury handbag brand Dooney & Bourke. He faces up to 30 years in prison if convicted on all counts, including conspiring to violate the Foreign Corrupt Practices Act, money laundering, and lying to federal investigators. Kozeny, a Czech national who was also charged with violating the FCPA, is a fugitive living in the Bahamas.

Read David Glovin's reports on the trial for Bloomberg here.

Read all our posts about U.S. v. Kozeny and the prosecution of Frederic Bourke here.

* * *
From William Jefferson's Trial. The AP's Matthew Barakat reports on the testimony of the government's first witness here. Vernon Jackson, a Kentucky businessman who already pleaded guilty in the case and was sentenced to 87 months in prison, said he paid hundreds of thousands of dollars in "consulting fees" to Jefferson's wife that were nothing but thinly veiled bribes. Barakat writes,

Jackson is also one of the trial's most important witnesses. Out of numerous bribery schemes that prosecutors allege Jefferson orchestrated, the one involving Jackson was the most advanced and involved the largest payments. . . . He stands to receive a reduction in his sentence in exchange for his testimony against Jefferson.
Jefferson, 62, served nine terms in congress from Louisiana before losing his seat last year. He is charged with soliciting bribes, racketeering, money laundering and violating the Foreign Corrupt Practices Act. Testimony in his trial in federal court in Alexandria, Virginia started this week. He faces up to 20 years in jail.

Jackson sought business help from Jefferson to land army contracts for his company, iGate. Although the relationship was legitimate at first, Jackson said, Jefferson later told Jackson to hire his wife, Andrea, as a consultant. Jackson said he agreed to pay her $90,000 a year in consulting fees, plus a percentage of profits, but she didn't do any work. "I was paying [Jefferson] to use his office on behalf of iGate," Jackson said.

Read all our posts about William Jefferson here.

Tuesday
Jun162009

All Good For Sun?

In May, a month after it agreed to be acquired by Oracle for $7.4 billion, Sun Microsystems said it may have violated the Foreign Corrupt Practices Act and that the violations could have a material effect on its business. It launched an internal investigation and shared the results with the Justice Department and the Securities and Exchange Commission. See our post here.

Now it looks like it was all a false alarm. Sun's latest SEC filing, a Definitive Merger Proxy dated June 8, 2009 (Schedule 14A), says this:

Section 4.13. Compliance with Applicable Law.

(a) The Company and each of its Subsidiaries is and, since June 30, 2006 has been, in compliance in all material respects with all Applicable Laws and Orders. Neither the Company nor any of its Subsidiaries has received any written notice since June 30, 2006 (i) of any administrative, civil or criminal investigation or audit by any Governmental Authority relating to the Company or any of its Subsidiaries or (ii) from any Governmental Authority alleging that the Company or any of its Subsidiaries are not in compliance with any Applicable Law or Order in any material respect.

And a little later in the merger document, Sun represents to Oracle that without exception it has "complied with the U.S. Foreign Corrupt Practices Act of 1977 and other applicable anti-corruption laws." (see Section 4.24)

So, no FCPA violations and no notice from the DOJ or SEC of any investigations. A clean slate.

Not many internal FCPA investigations end this way. More often -- usually, in fact -- they start because of apparently reliable signs of compliance trouble. Most investigations then end up confirming that yes, violations occurred -- usually beyond the scope of initial concerns. Sun's outcome, therefore, isn't typical.

What happened here? Sun isn't saying. But the timing may not have been accidental. Did anonymous whistleblowers opposed to Oracle's acquisition file false complaints? It's happened before. Did people upset about potential disturbances in Sun's pivotal and hallowed role in the open-source community try to torpedo the deal by tossing false allegations into the mix? Twisted, but possible.

Wherever the allegations came from, Sun made all the right moves. It responded fast with a proper internal investigation, self-reports to the feds, and full disclosure to the marketplace. After all that, it came up with nothing. Compliance program and corporate integrity intact. Great result. Time to move on.

Before we all scatter, though, one last question.

Could Sun's statements in its merger proxy be wrong? Just boilerplate reps saving the place in the text? Might Sun still have FCPA problems it isn't disclosing just yet? Not likely, considering the Lockheed Martin / Titan case.

Those companies planned to merge in 2003. During due diligence, Titan was found to have serious FCPA compliance issues. Before Lockheed Martin terminated the merger, Titan had already filed an 8-K disclosure document with the SEC that included a proxy form with the merger agreement attached to it. That merger agreement, like Sun's, contained an unqualified representation by Titan to Lockheed Martin affirming FCPA compliance. But the representation later proved to be untrue.

The SEC warned through a release that the 8-K was a "communication with shareholders" from Titan and that a reasonable investor could have relied on the untrue FCPA representation, resulting in liability for securities law violations. Presumably, that SEC release would have guided Sun's preparation and publication of its Definitive Merger Proxy, including the compliance reps quoted above.

See Securities Exchange Act of 1934 Release No. 51283 / March 1, 2005 Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934 and Commission Statement on potential Exchange Act Section 10(b) and Section 14(a) liability here.

Editor's Note: It's not all that clear whether Sun's reps are correct as written. Take a look at the AmLaw Daily's story suggesting Sun may have jumped the gun with its filing. We're waiting for clarification from Sun itself. And so, we imagine, are its shareholders.
.

Monday
Jun152009

Jefferson's Judge Keeps Things Moving

Opening arguments start today in the federal criminal trial of former congressman William Jefferson for corruption and violating the Foreign Corrupt Practices Act. During three days of jury selection last week, the tone from the bench was strictly no-nonsense. A Louisiana TV station carried this revealing report:

One potential juror who was interviewed told the court she believed “large sums of money in a freezer is odd.” Jefferson’s Defense Attorney Robert Trout, moved to strike that juror, but Judge T.S. Ellis denied the request, saying the juror’s opinion does not presume guilt or innocence.

Later Trout requested the judge to ask potential jurors if they’re addicted to websites like Facebook and Twitter or online blogs. The judge once again denied the request, saying “I think it’s a silly question, it’s like asking people, ‘do you use a phone?’”

Trout also requested that the judge ask potential jurors whether a congressman can be effective while on private business deals. Ellis denied the request, saying he is not going to start trying the case during jury selection. . . .

Who's that judge? He's Thomas Selby ("T.S.") Ellis III, 69, (Princeton BSE, Harvard JD), a former Naval aviator and hard-charging litigator from Hunton & Williams. He was nominated to the bench by Ronald Reagan and began serving in 1987. He assumed senior status in April 2007 but still hears cases in both the Eastern and Western Districts of Virginia. And he sometimes sits by designation on the United States Court of Appeals for the Fourth Circuit.

The government told Judge Ellis last week that its key witness, Lori Mody, isn't likely to testify unless she's needed for rebuttal. Her complaints to authorities first triggered the investigation into Jefferson. The $90,000 in marked bills found in his freezer came from her. She also made secret recordings of some of their conversations. Those tapes will still be admissible at the trial, along with evidence about the cash in the freezer.

Bruce Alpert at The Times Picayune polled a few former federal prosecutors. They think the government's case isn't airtight. Mody's absence hurts. And Jefferson wasn't always explicit in their taped conversations. His lawyers will also argue that his public role and private acts should be viewed separately. The cash in the freezer? Explaining it is Jefferson's biggest problem. Still, according to Alpert's unscientific results, the most likely outcome is a hung jury. His story is here.

Read all our posts about William Jefferson here.
.