Richard L. Cassin Publisher and Editor

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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


Disclosing Compliance

Smith and Wesson, the most prominent company implicated in the Shot-Show prosecutions, disclosed last week that it's being investigated by the DOJ and SEC for FCPA violations. The company said it has already spent $3.2 million in connection with the case.

The disclosure was fairly typical -- some reasons for the government's investigation, the uncertain outcome for the company, and no details about how Smith and Wesson tries to comply with the FCPA. That's too bad.

We'd like to hear more about compliance. But for now, companies and their lawyers think that information doesn't belong in SEC disclosure material. They're partly right. Once an employee pleads guilty to an FCPA offense (the usual outcome of an indictment), the company becomes strictly liable under respondeat superior. It has no defense, so information about its compliance program becomes largely irrelevant.

There's also an assumption that because a compliance program didn't prevent an FCPA offense, the program is worthless. That's wrong. Overseas bribery can happen in any company, even one with an "effective" compliance program.

Here's an idea. Instead of holding companies strictly liable for their employees' FCPA offenses, let them assert a good-faith defense. When accused of an FCPA violation, encourage companies to talk about the strengths of their compliance programs and how they tried to keep their employees on the right side of the law. Give them a chance to redeem their corporate citizenship without being pressured into a deal with the DOJ and SEC. That, in turn, will give them a powerful reason to have a robust compliance program and to disclose details about it, even before they're in trouble.

Investors, customers, suppliers, NGOs, lawmakers, and the general public want to know what companies are doing to avoid overseas corruption. We think Smith and Wesson had good intentions. In its disclosure the company said: "We have always taken, and continue to take seriously, our obligation as an industry leader to foster a responsible and ethical culture, which includes adherence to laws and industry regulations in the United States and abroad." 

Still, we'd like to know more about what S&W and other companies do to comply with the FCPA. Fixing respondeat superior will encourage them to tell us.


Here's Smith and Wesson's full FCPA disclosure from its latest annual report:

Foreign Corrupt Practices Act (FCPA)

On January 19, 2010, the U.S. Department of Justice (“DOJ”) unsealed indictments of 22 individuals from the law enforcement and military equipment industries, one of whom was our Vice President−Sales, International & U.S. Law Enforcement. We were not charged in the indictment. We also were served with a Grand Jury subpoena for the production of documents. We have always taken, and continue to take seriously, our obligation as an industry leader to foster a responsible and ethical culture, which includes adherence to laws and industry regulations in the United States and abroad. Although we are cooperating fully with the DOJ in this matter and have undertaken a comprehensive review of company policies and procedures, the DOJ may determine that we have violated FCPA laws. We cannot predict when this investigation will be completed or its outcome. There could be additional indictments of our company, our officers, or our employees. If the DOJ determines that we violated FCPA laws, or if our employee is convicted of FCPA violations, we may face sanctions, including significant civil and criminal penalties. In addition, we could be prevented from bidding on domestic military and government contracts, and could risk debarment by the U.S. Department of State. We also face increased legal expenses and could see an increase in the cost of doing international business. We could also see private civil litigation arising as a result of the outcome of the investigation. In addition, responding to the investigation may divert the time and attention of our management from normal business operations. Regardless of the outcome of the investigation, the publicity surrounding the investigation and the potential risks associated with the investigation could negatively impact the perception of our company by investors, customers, and others.

SEC Investigation

Subsequent to the end of fiscal 2010, we received a letter from the staff of the SEC giving notice that the SEC is conducting a non−public, fact−finding inquiry to determine whether there have been any violations of the federal securities laws. It appears this civil inquiry was triggered in part by the DOJ investigation into potential FCPA violations. We have always taken, and continue to take seriously, our obligation as an industry leader to foster a responsible and ethical culture, which includes adherence to laws and industry regulations in the United States and abroad. Although we are cooperating fully with the SEC in this matter, the SEC may determine that we have violated federal securities laws. We cannot predict when this inquiry will be completed or its outcome. If the SEC determines that we have violated federal securities laws, we may face injunctive relief, disgorgement of ill−gotten gains, and sanctions, including fines and penalties, or may be forced to take corrective actions that could increase our costs or otherwise adversely affect our business,
results of operations, and liquidity. We also face increased legal expenses and could see an increase in the cost of doing business. We could also see private civil litigation arising as a result of the outcome of this inquiry. In addition, responding to the inquiry may divert the time and attention of our management from normal business operations. Regardless of the outcome of the inquiry, the publicity surrounding the inquiry and the potential risks associated with the inquiry could negatively impact the perception of our company by
investors, customers, and others.


North Of The Border

The Canadian government appears to have jointed the World Cup of overseas antibribery enforcement. In May, authorities arrested a Canadian citizen in Ottawa under the Corruption of Foreign Public Officials Act.

Nazir Karigar, 63, was charged with one count of corruption. His company, a Canadian firm, allegedly bribed an Indian government official to win a multi-million dollar contract for the supply of a security system.

The Canadian government said its investigation of Karigar began in June 2007 when it was tipped about the alleged graft.

Canada ratified the United Nations Convention against Corruption in 2007. In April 2008, the Royal Canadian Mounted Police (RCMP) Crime Branch set up teams to investigate international corruption cases. The Ottawa-based team focuses on "allegations of international corruption in accordance with the Criminal Code and the Corruption of Foreign Public Officials Act (CFPOA)," according to its press materials.

The RCMP said it would provide no further information about the case against Nazir Karigar. He was arraigned this week in Ottawa and will appear in court again on July 28.

This is apparently only the second Canadian prosecution of overseas bribery and the first against an individual. In 2005, Hydro Kleen pleaded guilty to bribing U.S. immigration officials and paid a $25,000 fine.

The Canadian government said it won't release the name of the Indian government official allegedly involved in the Karigar case or how much money was supposedly paid in bribes.

Download a copy of the RCMP release about Nazir Karigar here.


Enforcement Report For Q2 '10

The first quarter of 2010 was the busiest ever for FCPA-related enforcement. This past quarter was one of the quietest for new enforcement actions, with just one from the DOJ and three from the SEC.

There were some sentencings -- including the longest prison term ever for an FCPA-related offense -- a few sentencing delays, a guilty plea, and some odds and ends. But during most of the quarter the DOJ was MIA and the SEC barely popped its head out.

Here's what happened:

DOJ / SEC Enforcement Actions

Bobby J. Elkin, Jr., Baxter J. Myers, Thomas G. Reynolds, and Tommy L. Williams (April 29) The SEC brought a civil enforcement action against the former employees of Dimon, Inc., now Alliance One International, Inc. Defendants Myers and Reynolds agreed to pay civil penalties of $40,000 each. All four defendants also consented to the entry of final judgments permanently enjoining them from violating the anti-bribery provisions of the FCPA (Section 30A of the Securities Exchange Act of 1934) and aiding and abetting violations of Sections 13(b)(2)(A) and 13(b)(2)(B).

Technip S.A. (June 28) The Paris-based engineering and construction firm resolved FCPA-related charges resulting from bribes to Nigerian officials through the KBR-related TSKJ joint venture. It agreed to pay the DOJ a $240 million criminal penalty. It also settled a civil complaint filed by the SEC by disgorging $98 million in profits. It was charged in a two-count criminal information with one count of conspiracy and one count of violating the FCPA. Its two-year deferred prosecution agreement with the DOJ requires Technip to retain an independent compliance monitor and cooperate in ongoing investigations.

Veraz Networks, Inc. (June 29) paid $300,000 to settle charges brought by the SEC that it violated the books and records and internal controls provisions of the Foreign Corrupt Practices Act (FCPA) by making illegal payments to foreign officials in China and Vietnam.


Charles Paul Edward Jumet (April 19), 53, was sentenced to 87 months in prison and fined $15,000. Prosecutors said it's the longest sentence ever in an FCPA-related case. He pleaded guilty in November 2009 to being part of a decade-long bribery conspiracy in Panama. A two-count criminal information charged him with conspiring to violate the FCPA and giving a false statement to the FBI about how he paid some of the bribe money.

Robert Antoine (June 2), 62, of Miami and Haiti, a former employee of Haiti’s state-owned national telecommunications company, was sentenced to 48 months in prison for being part of a bribery and money-laundering scheme. He pleaded guilty in March this year to conspiracy to commit money laundering. He was also ordered by a federal judge in Miami to pay $1,852,209 in restitution and to forfeit $1,580,771, and serve three years of supervised release following his prison term.

John Webster Warwick (June 25), 64, was sentenced to 37 months in prison for his role in a conspiracy to pay bribes to former Panamanian government officials to secure maritime contracts. He also received two years of supervised release following his prison term and forfeited $331,000 in proceeds of the crime. The DOJ did not explain why his sentence was five years shorter than his co-defendant, Charles Jumet (see above).

Guilty Plea

Ousama M. Naaman (June 25), 61, a dual citizen of Canada and Lebanon, pleaded guilty to conspiracy and to violating the Foreign Corrupt Practices Act. Innospec's former agent in Iraq was charged in a June 24, 2010 superseding information with engaging in an eight-year conspiracy to defraud the United Nations oil-for-food program and bribing Iraqi officials. No sentencing date was set.


Wojciech Chodan (April 21), 71, a U.K. citizen, was ordered extradited from Britain to the U.S. by a London court. He was indicted in February 2009 by a federal grand jury in Houston for helping KBR and its partners bribe Nigerian officials. His fellow countryman Jeffery Tesler, a London lawyer indicted at the same time, also lost his extradition hearing in March this year. With appeals, their extraditions may not be final for at least a year.

Sentencing Delays

Gerald and Patricia Green (April 29 and June 7) Their sentencing was delayed and then removed from the court's calendar. The judge in Los Angeles federal court is examining evidence about Mr. Green's medical condition and sentences in similar cases.

Albert "Jack" Stanley (mid June), 66, had final sentencing delayed until at least September 23, 2010. The former chairman and CEO of KBR pleaded guilty in September 2008 to a two-count criminal information charging him with conspiracy to violate the Foreign Corrupt Practices Act and to commit mail and wire fraud. He's free on unsecured bail of $100,000 pending final sentencing, which has been rescheduled a half dozen times. He was sentenced to 84 months in prison and a restitution payment of $10.8 million. The jail term is subject to review based on his cooperation with the government in related prosecutions (see Chodan and Tesler above).


Sojitz (May 27) The DOJ intervened in the second civil suit brought by Aluminium Bahrain BSC -- known as Alba -- against a raw material supplier and broker. It asked for a stay in Alba's suit against Japanese trading company Sojitz Corp. More than two years ago, the Justice Department obtained a stay in Alba's civil suit against Alcoa, Inc. The DOJ said discovery in the cases could interfere with the government's own investigation into potential criminal wrongdoing including possible violations of the Foreign Corrupt Practices Act by Alcoa, Sojitz and other parties.

New Charging Document

Shot-show prosecution (April 19) The government filed a superseding indictment in the prosecution of the 22 shot-show defendants, charging them under a consolidated grand jury indictment with 44 counts, including conspiracy to violate the FCPA, substantive FCPA offenses, conspiracy to commit money laundering, and aiding and abetting.

In the Pipeline

Panalpina (April 29) The Swiss logistics giant said it expects settlement "in the near future" with the DOJ and SEC of FCPA-related charges. The case dates back to at least early February 2007. The DOJ noted then in connection with Vetco's FCPA settlement that bribes in Nigeria "were paid through a major international freight forwarding and customs clearance company to employees of the Nigerian Customs Service . . .”

Civil Suit  Private parties have no right of action under the FCPA. Only the DOJ and SEC can enforce it. Plaintiffs bring FCPA-related claims under RICO (18 U.S.C. § 1962(c)), conspiracy to violate RICO (18 U.S.C. § 1962(d)), fraud, civil conspiracy, breach of fiduciary duties, and others.

Parker Drilling's directors (early June) were sued in a derivative action in Harris County, Texas after the company's detailed disclosure about a DOJ / SEC investigation of compliance problems in Nigeria and Kazakhstan.


The Morris Weissman Story

On August 6, 2003, Morris Weissman, the former CEO and chairman of American Bank Note Holographics, Inc., was found guilty by a federal jury in Manhattan. After a five week trial and a day and a half of deliberations, Wiessman, who was then 62, was convicted of a massive accounting fraud in the 1998 IPO of his company's stock.

He'd lied about the company's performance, inflating the numbers to pump up the IPO price, and lied to the auditors to hide it. The IPO raised $115 million. When the fraud was discovered, the stock plunged 80% in two days -- from $16 to $1.80 -- wiping out more than $100 million in shareholder valued.

The high flyer from Palm Beach was found guilty on four counts of conspiracy, securities fraud, falsifying corporate books and records (an FCPA accounting offense), and lying to independent auditors. He faced up to 30 years in prison, a fine of $1 million or more, and mandatory restitution.

One of Weissman's co-conspirators, Joshua Cantor, had previously pleaded guilty for his role in the fraud and for bribing foreign officials. We talked about Cantor last week. As we said, the company's business was producing currencies, travelers and other checks, credit cards, and holograms for use on security-sensitive surfaces.

Sentencing for Weissman was set for November 13, 2003. Meanwhile, he was freed on $250,000 bail.

Fast forward to 2010. Weissman, now nearing 70 and living in New York, is still free on personal recognizance bond. He's arguing against a long prison term, citing his service to society, his age and medical problems (vascular and cardio-vascular disease), his relatively small role in the crimes, and the amount of damage caused (his former company was acquired by a bigger company a couple of years ago).

The prosecutors see it differently. They want a long sentence. Weissman had the same medical conditions when he committed the crimes, he was the ringleader, they assert, and based on the number of victims and their losses (1,778 authorized claimants who lost around $79 million), the federal guidelines say he could be locked up for life. So 30 years is still the right number.

In their latest argument filed a year ago, prosecutors said:

The government acknowledges that the defendant's life is not defined by his crimes alone. The government does not contest the defendant's claim that he possesses certain positive attributes, has a loving family and caring circle of friends, and has contributed to society in certain ways. However, the government would also note that, in comparison with many defendants that appear before this Court, the defendant has had significant advantages and opportunities in life. The defendant graduated from college and law school, worked as an attorney for several years, and was employed by a number of real estates finance firms. In addition, the defendant has held high level positions at American Banknote Corporation and its predecessor since 1975. The defendant's business and social circles have included Presidents, Senators, and high level corporate executives.

In addition to a long jail sentence, prosecutors want a restitution order against Weissman of $64 million. (They say shareholders lost $79 million and recovered $14 million through a class action suit.)

Judge Barbara S. Jones last fixed sentencing for July 1, 2009. It didn't happen then and she hasn't set a new date.

Download the government's June 2, 2009 sentencing memorandum in U.S. v. Morris Weissman, in the U.S. District Court for the Southern District of New York (Foley Square), Criminal Case #: 1:01-cr-00529-BSJ-1, part 1 here and part 2 here


Special thanks to several readers who asked about Morris Weissman, and to a reader who provided some documents used to prepare this post.


Veraz Settles With SEC

San Jose, California-based VOiP company Veraz Networks, Inc. paid $300,000 to settle charges brought by the SEC that it violated the books and records and internal controls provisions of the Foreign Corrupt Practices Act (FCPA) by making illegal payments to foreign officials in China and Vietnam.

The SEC said the company hired a consultant in China who in 2007 and 2008 gave gifts and offered improper payments worth about $40,000 to officials at a government-controlled telco to win business for Veraz. Also in 2007 and 2008, a Veraz employee made improper payments to the CEO of a government-controlled company in Vietnam to win.

Veraz had disclosed the $300,000 settlement with the SEC in March. It said then that because of the ongoing compliance investigations, it had to delay filing its quarterly reports for March and May 2008. That resulted in NASDAQ warning Veraz "that its common stock may be subject to delisting." NASDAQ ultimately granted an extension for the filings, which were made in July 2008, allowing Veraz's common stock to continue to be listed.

The company said in November 2009 that it had spent $2.5 million to investigate and handle the FCPA compliance issues. The SEC began investigating the company in early 2008. Veraz then launched an internal investigation and discovered potential FCPA violations in China and Indonesia, which it self-reported. The SEC then requested documents related to Vietnam.

The SEC said without elaborating that it had help in its investigation from the U.S. Department of Homeland Security.

Veraz Networks trades on NASDAQ under the symbol VRAZ.

View the SEC's Litigation Release No. 21581 (June 29, 2010) in Securities and Exchange Commission v. Veraz Networks, Inc., Case No. CV-10-2849 (PVT) (N.D. Cal. filed June 29, 2010) here.

View the SEC's civil complaint against Veraz here.


Asian Values, FCPA Risks

By Michael S. Diamant

Few FCPA compliance challenges are as vexing as the provision of everyday business courtesies, like gifts, meals, drinks, travel, and entertainment. Because the FCPA has no de minimis threshold, even minor expenditures could implicate the statute’s anti-bribery and accounting provisions. Although they are a necessary and common facet of international business, such benefits have led to enforcement actions against companies like Lucent Technologies, Avery Dennison, and UTStarcom.

Multinational companies that do business in China confront this challenge daily. The Chinese business environment particularly amplifies this risk for two reasons. First, the Chinese government owns a huge percentage of its domestic economy.  It is thought to own more than 70% of the country’s productive wealth, and it is the majority shareholder of 31% of publicly listed Chinese companies.

This has profound implications for FCPA compliance due to how the law is currently enforced: In their prosecution of companies like Schnitzer Steel, the U.S. regulators have taken an expansive view of the meaning of “foreign official.” The statute defines “foreign official” as an “any officer or employee of a foreign government or any department, agency, or instrumentality thereof.” According to the U.S. authorities, this includes for-profit businesses, like steel mills, that are only partially owned or controlled by a foreign government.

Therefore, China’s broad ownership of its publicly listed companies qualifies a huge percent of Chinese businesspeople as “foreign officials” according to U.S. regulators.  When you discuss a prospective deal over dinner or a drink with a Chinese business executive, you might be giving a thing of value to a foreign official!

Second, Chinese business culture typically values the provision of things of value to build relationships. This development of business connections, termed guanxi, is especially important for multinational companies trying to develop business in China and make inroads into that country’s booming economy. Further, the failure to reciprocate courtesies that have been provided by your business counterparties in the past may be seen as rude and could hamper business. The risk of offending on one hand may be balanced against the risk of violating the FCPA on the other.

Over the years, we have advised numerous multinational companies on how to handle this conundrum.  This month we published an article in the Virginia Law & Business Review that gathers some of our accumulated wisdom on the issue, both by performing a legal analysis of the FCPA’s anti-bribery provisions to determine why certain business courtesies are permissible while others are not and by providing some internal compliance suggestions to manage this risk with regard to a company’s Chinese operations. We hope readers of the FCPA Blog find it helpful. It can be downloaded here.

Michael Diamant is a member of the white collar defense and investigations practice group in the Washington, D.C. office of Gibson, Dunn & Crutcher. His practice focuses on white collar criminal defense, internal investigations, and corporate compliance. He has conducted internal investigations in eleven countries on four continents regarding possible FCPA violations and assisted clients in complying with government subpoenas and negotiating settlements with enforcement agencies.


Technip in $338 Million KBR - Related Settlement

Paris-based Technip S.A., an engineering and construction firm that's part of the oil and gas services industry, has resolved FCPA-related charges with the DOJ. It agreed to pay a $240 million criminal penalty and enter into a deferred prosecution agreement. It also settled a civil complaint filed by the SEC by paying $98 million in disgorgement of profits.

Technip, Kellogg Brown & Root (KBR), ENI of Italy, and JGC of Japan were equal partners in the TSKJ joint venture. The JV operated through three special purpose corporations formed and based in Madeira, Portugal. Between 1995 and 2004, the joint venture won contracts worth $6 billion to build massive LNG facilities on Nigeria's Bonny Island.

The DOJ said Technip authorized the joint venture to hire two agents -- London lawyer Jeffrey Tesler and a Japanese trading company -- to pay bribes to a range of Nigerian government officials. A senior executive of Technip, with KBR’s former CEO Albert "Jack" Stanley and others, met with top-level Nigerian officials "in the executive branch" to work out the logistics of the bribery. The joint venture, according to the U.S. agencies,  paid about "$132 million to a Gibraltar corporation controlled by Tesler and more than $50 million to the Japanese trading company.

Technip was charged in a two-count criminal information with one count of conspiracy and one count of violating the FCPA. The case was filed in the U.S. District Court for the Southern District of Texas.

The two-year deferred prosecution agreement requires Technip to retain an independent compliance monitor and cooperate in ongoing investigations.

In February 2009, Houston-based global engineering firm KBR pleaded guilty to a five-count criminal information, with one conspiracy count and four substantive counts of violating the Foreign Corrupt Practices Act, for its role in the TSKJ joint venture. And with its former parent, Halliburton, it settled civil charges with the SEC. KBR's criminal fine was $402 million and with Halliburton it agreed to pay the SEC $177 million in disgorgement.

KBR's former boss Jack Stanley pleaded guilty in September 2008 to conspiring to violate the FCPA. He was sentenced to seven years in prison. His sentence is subject to court review based on his cooperation in the related prosecutions.

Jeffrey Tesler and Wojciech Chodan, both U.K. citizens, were indicted in February 2009 by a federal grand jury in Houston. They were charged with helping KBR and its partners arrange the bribes to the Nigerian officials. Earlier this year, judges in London ruled that both should be extradited to the U.S. to face trial. Their appeals could take up to a year.

Technip said in February this year it had reserved €245 million for an exceptional charge related to a potential settlement of Foreign Corrupt Practices Act offenses with the Justice Department and Securities and Exchange Commission for its role in the TSKJ joint venture. A month later, Italy's ENI disclosed a provision for €250 million, "reflecting the estimated cost of resolution" with U.S. prosecutors for the Nigeria bribe case. ENI's settlement is still pending.

Technip’s American Depository Shares traded on the New York Stock Exchange from 2001 until 2007.

The DOJ said that with Technip's settlement, "a total of $917 million in criminal and civil penalties have been obtained to date as a result of the ongoing Department of Justice and SEC investigations of the scheme to bribe Nigerian government officials in order to win" the Bonny Island contracts.

View the DOJ's June 28, 2010 release here.

View the SEC's Litigation Release No. 21578 and Accounting and Auditing Enforcement Release No. 3147 (both dated June 28, 2010) in Securities and Exchange Commission v. Technip, Case No. 4:10-cv-02289, S.D. Tex. (Houston) here.

Download a copy of the SEC's civil complaint against Technip here.


Naaman's Guilty Plea

Ousama M. Naaman, a dual citizen of Canada and Lebanon, pleaded pleaded guilty Friday in Washington, D.C. to conspiracy and to violating the Foreign Corrupt Practices Act. He was charged in a June 24, 2010 superseding information with engaging in an eight-year conspiracy to defraud the United Nations oil-for-food program and bribing Iraqi officials.

Naaman, 61, of Abu Dhabi, United Arab Emirates, was indicted in August 2008. He was originally charged with one count of conspiracy to commit wire fraud and to violate the Foreign Corrupt Practices Act and two counts of violating the FCPA. The superseding two-count information dropped the wire fraud conspiracy charge.

He now faces up to ten years in prison. No date has been set for sentencing.

For about a decade he acted as an agent of U.S.-based Innospec Inc. In March this year, the specialty chemical-maker reached a $40 million global settlement of more than a dozen criminal charges in the U.S. and U.K., including FCPA and U.N. oil for food program offenses, and violations of the U.S. embargo against Cuba.

The SEC's complaint against Innospec referred to an email apparently from Naaman to the company's management in October 2005. It said Iraqi officials were demanding a 2% kickback on sales. The e-mail stated: “We are sharing most of our profits with Iraqi officials. Otherwise, our business will stop and we will lose the market. We have to change our strategy and do more compensation to get the rewards.” Innospec's Business Director authorized over $195,000 in bribes, and in another e-mail discussing the wording of the invoice, said: "The fewer words the better!”

With his plea, Naaman admitted paying or promising to pay more than $3 million to officials at Iraq's Ministry of Oil and the Trade Bank of Iraq to win business for Innospec. The company makes and markets the anti-knock compound tetraethyl lead (TEL) used in leaded gasoline. Demand for TEL dropped in most Western countries after enactment of the U.S. Clean Air Act. But Innospec's management encouraged bribery to boost sales in other markets, mainly in developing countries.

Naaman was arrested on July 30, 2009 in Frankfurt, Germany. The Justice Department extradited him to the United States. In the superseding information, he was charged in Count One under 18 U.S.C. §371 with conspiracy to defraud the U.N. oil-for-food program and to violate both the antibribery and books and records provisions of the FCPA. In Count Two, he was charged under 15 U.S.C. §78dd-l with violating the FCPA and under 18 U.S.C. §2 as an aider and abettor.

A copy of the June 24, 2010 superseding information in U.S. v. Ousama M. Naaman can be downloaded here.


Prison Term In Panama Bribes Case

John Webster Warwick, a Virginia Beach, Va., resident, was sentenced Friday to 37 months in prison for his role in a conspiracy to pay bribes to former Panamanian government officials to secure maritime contracts.

U.S. District Court Judge Henry E. Hudson also sentenced Warwick to two years of supervised release following his prison term. Warwick also forfeited $331,000 in proceeds of the crime.

Warwick, 64, pleaded guilty in February to a one-count indictment charging him with conspiring to make corrupt payments to foreign government officials for the purpose of securing business for Ports Engineering Consultants Corporation (PECC) in violation of the Foreign Corrupt Practices Act (FCPA). A copy of his plea agreement can be downloaded here.

In April this year, Warwick's co-defendant in the case, Charles Jumet, was sentenced to 87 months in prison and fined $15,000. It was the longest sentence ever in an FCPA-related case. Jumet, 53, pleaded guilty in November last year to being part of the overseas bribery conspiracy that began in 1996. The Justice Department hasn't commented on the fifty-month difference in the sentences handed out to Jumet and Warwick. Jumet, however, was also charged with lying to federal investigators. A copy of his plea agreement can be downloaded here.

Warwick and Jumet admitted conspiring to make secret payments to Panamanian government officials for awarding contracts to PECC to maintain lighthouses and buoys. In December 1997, the Panamanian government awarded PECC a no-bid 20-year concession. Warwick, Jumet and others then arranged bribes to the officials of "more than $200,000," according to the DOJ.

A copy of the DOJ's June 25, 2010 release can be downloaded here.


Storm Damage

Bloomberg's David Glovin has written of the terrible harm caused to corporate executives indicted on federal criminal charges and the scars left on those whose cases are later dropped.

The numbers are surprising. From 2006 to 2008, Glovin says, U.S. prosecutors dismissed charges against 42 such defendants -- more than twice the 20 dismissals in the prior three years, according to the Federal Justice Statistics Resource Center.

Glovin covered the FCPA-related prosecutions in U.S. v. Kozeny. One defendant indicted, then dropped from the case, was David Pinkerton of AIG. Glovin writes:

Pinkerton had just left his 8- year-old twins at his in-laws’ home in Morristown, New Jersey, when he learned he was no longer a suspected felon.
Pinkerton’s lawyer called to say that the U.S. prosecutors who had charged the former American International Group Inc. managing director with bribery -- which could have led to a decade in prison -- had dropped the case. . . .

The relief was so great that day in July 2008 that the 6- foot-2-inch-tall (1.88-meter-tall) executive, who had fought the stress of the 31-month-long ordeal with intense gym workouts, broke down and cried.

We've said before that the power of prosecutors to wield the sword of Caesar is a heavy burden. Used correctly, it enforces the rule of law for the good of the many. Use wrongly, it destroys innocent people -- not just the accused, but their families, employees and others, and the damage is permanent.

Pinkerton said: “Somebody made an allegation that I did something improper, and everything got thrown under the bus. One day, 100 people around the world want to talk to you. The next, your BlackBerry goes silent and you have three friends."

He was lucky to still have three friends.

David Glovin's article can be found here.

* * *

The whirlwind. From our porch last evening, we watched and listened as the storm blew through our corner of central Virginia. The wind whistled and trees bent and creaked, but only a bit and for just a few minutes. Then it rained lightly for a half hour. We went to bed thinking nothing more about the little storm.

But this morning, when we drove the fifteen miles to Charlottesville proper, it was another story. Trees down everywhere, power lines dangling, and roads impassible. We climbed over the limbs to reach our downtown workspace but the power was out. So we went home.

We like to think we're in control of things. But that's never really true on the grander scale of events.


The Russian Untouchables

Hermitage Capital Management was the biggest foreign investor in Russia. Then in 2005, it all went wrong. CEO William Browder was banned from the country on what he says was a pretext. Two years later, 50 police officers from the Moscow Interior Ministry raided Hermitage's offices and those of its lawyers. The police took corporate documents and seals. Those same instruments were allegedly used in 2008 to fraudulently obtain $230 million that the Hermitage Fund companies had paid in taxes two years earlier.

In a YouTube video posted last year, Browder accused officials of complicity in the looting of his fund's assets. He also wrote about the November 16, 2009 death of his lawyer, Sergei Magnitsky, in a Moscow pre-trial detention center. The story appeared last December in Foreign Policy Magazine.

Magnitsky was one of the few lawyers connected with Hermitage who didn't leave Russia or go into hiding. Instead, after discovering the apparent massive tax fraud, he fought. That landed him in jail. Eleven months later, after being deinied family visits and medical care, he died in custody at age 37. His jailers first said he ruptured his abdominal membrane; then they said it was a heart attack. Officials refused his family's requests for an independent autopsy.

Browder said:

The more Sergei complained, the more the pressure increased. He was moved to cells where sewage would spew up from the hole in the floor that served as the toilet. He was put in cells with no glass in the windows to protect the inmates from the frigid Russian weather. The prison authorities denied him any opportunity to shower, or simply access hot water. Worst of all they denied him any visits from his wife or mother, or even the possibility to speak to his two young children on the telephone for the 11 months he was in detention, which must have been truly heartbreaking for a man so committed to his family.

Now collegues and friends of Magnitsky have produced a video about his death. We heard directly from one of them. They believe they're in danger and we won't disclose identities. But the man who contacted us explained the idea behind the video:

Information about the officers [who accused and arrested Sergei] started coming in shortly after Sergei's death from all over the place. Much of the information came from people I had never heard of but who had had bad run-ins with the same officers. So a group of people who knew Sergei got the idea of doing a movie like Browder had done for Hermitage a year earlier. . .  We had people on the streets of Moscow photographing apartment buildings, we had people checking documents to see if info was genuine. . . .

Then when the first two movies were finished we realized that there was just far too much info for movies and we needed to create a website to tell the whole story and to put all the documents related to Sergei's case, the budget thefts he discovered, and the officer's illicit wealth and past crimes on-line where everyone could see them.

As for just who all these people [who helped create the video] are, I can't name names. I promised everyone who contributed to this effort that I would not name the people helping. At some point some of these people may choose to come forward.

The English version of the video is here, the Russian version is here, and the "Russian Untouchables" website is here.


The Strange Case Of Joshua Cantor

In July 2001, the president of American Bank Note Holographics pleaded guilty to a four-count federal criminal information. It charged him with conspiracy to defraud the U.S., a books-and-records violation, making false statements to auditors, and conspiracy to violate the FCPA. The charges arose from bribes paid on behalf of American Bank Note in Saudi Arabia.

Joshua Cantor was scheduled to be sentenced in 2003. Bail was set at $250,000 and he was ordered to surrender his "travel documents and other international travel papers."

Cantor wasn't sentenced in 2003. According to the court docket (available here), sentencing was postponed a couple of times. The last date the court set was December 6, 2006. Sentencing didn't happen then, however, and no new date was ever set. So nearly nine years after pleading guilty to four bribery-related felonies, Cantor is out on bail without a sentencing date.

What's life been like for him? Apparently normal. He travels a lot. Since 2003, the court has approved trips to Puerto Rico and Israel (twice each), Brazil, Canada, the British Virgin Islands, Spain, the Dominican Republic and Barbados. Presumably the trips are for business.

Meanwhile, according to the court docket, most of which is sealed, the case has been dormant for two years, with no new activity reported to the public.

What's up with this case? Has Cantor slipped through the cracks in the federal criminal justice system? Or does his special treatment mean he's somehow helping the government? Is he a cooperating witness in related bribery investigations?

There have been persistent rumors that Securency, the polymer banknote-maker half owned by the Reserve Bank of Australia, paid bribes and offered favors to win contracts in Asia, Africa and Latin America. Last month we heard unconfirmed reports about Australian federal police visiting Washington to meet with the DOJ's FCPA team. Was a chat with Joshua Cantor, who's from the same industry as Securency, on the agenda?

U.S. v. Cantor was filed on July 17, 2001 in the U.S. District Court, United States District Court for the Southern District of New York (Foley Square), Criminal Docket #: 1:01-cr-00687-BSJ-1. The case is currently assigned to Judge Barbara S. Jones.