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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

Monday
Nov242008

Can Someone Explain The Phone?

 

Hi,

 

Nice blog article recently [here] about Bulgaria and Romania! Having extensive experience dealing over there, I could not resist sharing this with you. I took the attached photo when I visited one of our customers..... This was the front door entrance. I did not feel comfortable.

Keep up the good work,

---------------------------------------------------------
 
Tonnis J. Poppema
Director of Compliance
Hasbro International Holdings B.V.
Amsterdam, The Netherlands

 

Sunday
Nov232008

In The Master's Defense

As we've said, nothing magnifies the impact of the Foreign Corrupt Practices Act on corporations more than respondeat superior. Latin for "let the master answer," it's the legal doctrine holding companies vicariously liable for crimes committed by employees acting within the scope of their employment. Under it, once an employee admits to an offense or is found guilty, the company is automatically guilty too. Case closed. That gives prosecutors enormous unchecked leverage over corporate defendants.

And that's why we don't know of anything more important to the FCPA these days than the pending case challenging respondeat superior. United States v. Ionia Management, S.A. was argued Friday in the U.S. Court of Appeals for the Second Circuit. But as the Wall Street Journal reports, the three-judge panel (Calabresi, Livingston, McLaughlin) didn't seem too impressed with the appellant's arguments.

Andrew Weissmann, the former Enron prosecutor and current Jenner & Block partner who co-wrote the excellent amicus brief, told the panel that a misreading of a 99-year old Supreme Court case, New York Central v. U.S., has made it too easy to impute criminal liability to corporations. The Journal reported this exchange:

Judge Guido Calabresi called Weissmann’s argument an “interesting” one, saying it appealed to the judges as academics. “Whether we should do something about this as judges is a different matter,” the judge said.
Other than the Justice Department, who benefits from respondeat superior? As the amicus brief puts it, the law imposes vicarious criminal liability on organizations for nearly all criminal acts of employees -- even low-level personnel "acting against explicit instructions and in the face of the most robust corporate compliance program." That sort of hair-trigger liability probably has no added deterrent effect on companies. And the catastrophic consequences of any potential conviction forces them to resolve threatened criminal litigation, without even the possibility of mounting a defense.

That's not how our criminal justice system is supposed to work. Sure, corporate wrongdoers deserve to be punished. Rogue companies bent on breaking the law have to be stopped. But an accused corporation should always have the chance to show a judge or jury that it acted in good faith -- that its overall intention was to comply with the law and not to break it.

Allowing corporations to defend themselves would bring a needed measure of justice. It would also give organizations the strongest possible incentive to maintain an effective compliance program.

It's time to fix respondeat superior -- either in court or in Congress.
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Friday
Nov212008

Aibel Pleads Guilty

Aibel Group Ltd. of the United Kingdom pleaded guilty yesterday to violating the antibribery provisions of the Foreign Corrupt Practices Act and failing to comply with the terms of its prior deferred prosecution agreement. It admitted making previously undisclosed illegal payments to Nigerian customs officials through its freight forwarder in return for preferential treatment.

From 2002 to 2005, Aibel arranged at least 378 corrupt payments to Nigerian officials totaling about $2.1 million. The payments were coordinated largely through an affiliate's office in Houston and were paid through a freight forwarding company. Aibel's work in Nigeria involved a deepwater oil drilling operation known as the Bonga Project, for which the company provided engineering, procurement and subsea construction equipment.

At a hearing yesterday in the Southern District of Texas, Aibel pleaded guilty to single conspiracy and substantive counts of violating the FCPA. Aibel also admitted that it had not complied with a deferred prosecution agreement it had entered into with the Justice Department in February 2007 regarding the same underlying conduct. As part of the plea agreement, it will pay a $4.2 million criminal fine and serve two years on organizational probation. Among other things, it is required to report periodically its progress in implementing antibribery compliance measures.

Aibel is owned by Herkules Private Equity Fund and Ferd Capital, both of Norway. They acquired the company in June 2007 from a private equity group led by Candover, 3i and JPMorgan Partners, which bought Vetco Gray UK Ltd. and its affiliate Aibel in July 2004 from ABB Oil & Gas. When its current Norwegian owners acquired Aibel, it was already subject to the January 2007 deferred prosecution agreement. The new owners were required by the DOJ to ensure the company's compliance with the terms of the deferred prosecution agreement after the acquisition.

The Justice Department's release didn't name the "major international freight forwarding and customs clearance company" Aibel used to make the illegal payments. But it explained that this is the third time since July 2004 that entities affiliated with Aibel have pleaded guilty to violating the FCPA. On July 6, 2004, Vetco Gray UK Ltd. pleaded guilty to violating the FCPA's antibribery provisions by paying more than $1 million in bribes to officials of the National Petroleum Investment Management Services, a Nigerian government agency. And in February 2007, three wholly-owned subsidiaries of Vetco pleaded guilty to violating the antibribery provisions of the FCPA. As part of the February 2007 plea, the Vetco companies agreed to pay a combined $26 million criminal fine. Although Aibel, which was then also wholly-owned by Vetco, was not fined, it was required to enter into a deferred prosecution agreement whereby it accepted responsibility for similar conduct by its employees. It admtted Friday that it was not in compliance with the deferred prosecution agreement.

The DOJ said in February 2007 that Vetco's bribes in Nigeria were paid to customs officials through a "major international freight forwarding and customs clearance company," the same description used in the DOJ's release yesterday. Since February 2007, about a dozen leading oil and gas-related companies have received letters from the DOJ and SEC asking for details about their relationship with Swiss logistics giant, Panalpina. Companies that have said they received requests include Shell, Schlumberger, Tidewater, Nabors Industries, Transocean, GlobalSantaFe Corp., Noble Corp., Pride International and Global Industries.

Panalpina said in its 2008 half-yearly report (available here) that it would divest its domestic operations in Nigeria to a local investment group and retain no ownership or operating interest. It completed the transaction earlier this month. It also said it was cooperating with an investigation by the DOJ and SEC and that its U.S. subsidiary had been instructed to produce documents and other information about services to certain customers in Nigeria, Kazakhstan and Saudi Arabia.

Regarding yesterday's plea, the DOJ said Aibel self-disclosed the current FCPA violations as well as those in February 2007 and agreed to take significant remedial steps.

View the DOJ's November 21, 2008 release here.

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Thursday
Nov202008

That Friday Feeling

The deep-thinking Kevin LaCroix at the D&O Diary had a post last week called On Blogging. Concerning the use of technology, he had this to say:

It is easy to set up a blog. About two minutes on Blogger.com is enough to get started. But to get a blog set up the way you want and to deal with all of the problems that inevitably arise, a willingness to futz around with technology is indispensable. Fee-based services such as LexBlog reduce – but do not eliminate – the need to directly confront the technological beast. I would not recommend blogging to anyone who is uncomfortable troubleshooting technological issues.
We thought of Kevin's warning many times during the past few days after our blog's template suddenly scrambled itself and much of our information vanished. Through pure serendipity, everything was eventually restored. But because both the cause of the problem and the solution were so accidental, we can't say we learned a thing, except that Kevin LaCroix is right again.

* * *

We received an email this week that made us laugh:

Hello -

Recognizing that filling a 4-hr block later today for a post-conference workshop on "Overcoming FCPA Compliance Challenges in the Middle East Gulf Countries" may be difficult, I'm doing a last minute scramble for extra material. Of course, being a religious reader of the blog, I've used a few of your posts to frame my notes, in particular on Opinion Release 08-01 (01/15/08) and on potential for a Saudi local law exception in the BAE scandal (11/27/07). I would like to use your posts where necessary, with full credit being given to fcpablog.com of course.

Please let me know if you have any objections.

Thanks, and great job on the blog.

* * *

Speaking of conferences, some readers have asked about our next workshops in Asia. The brochure with the schedule can now be downloaded here.

* * *

Stock market behavior is always fascinating and about as easy to understand as blogging technology. While we can grasp somewhat the idea of panic selling and panic buying (i.e., fear and greed), we're surprised that so many investors would decide to bet against Warren Buffett at this point in history. Based on the man's past performance, does that bet really seem prudent?

* * *

One part of Thanksgiving we always look forward to is the Wall Street Journal's annual publication (since 1961) of Vermont Royster's essay, "And the Fair Land / Let's give thanks for America." Mr. Royster, who died in 1996, left behind some wonderful work. Here's how "And the Fair Land" opens:

Anyone whose labors take him into the far reaches of the country, as ours lately have done, is bound to mark how the years have made the land grow fruitful.

This is indeed a big country, a rich country, in a way no array of figures can measure and so in a way past belief of those who have not seen it. Even those who journey through its Northeastern complex, into the Southern lands, across the central plains and to its Western slopes can only glimpse a measure of the bounty of America.

And a traveler cannot but be struck on his journey by the thought that this country, one day, can be even greater. America, though many know it not, is one of the great underdeveloped countries of the world; what it reaches for exceeds by far what it has grasped.

The entire essay is available from the Journal here.

* * *

Enjoy the weekend.

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Wednesday
Nov192008

The Briefing Book

The President Elect and his transition team aren't spending hours each day pondering the Foreign Corrupt Practices Act. But there is one FCPA matter that should be on their radar -- the investigation of BAE Systems. Why? Because that case -- whatever the outcome -- is a chance for the United States to demonstrate its commitment to the rule of law and the fight against global public corruption. The new administration can also show its in situ allies in the war on terror that, unlike the British, the U.S. won't give in to political blackmail.

Some allegations in the case are these: U.K. military-equipment-maker BAE secretly paid $2 billion to Saudi Prince Bandar bin Sultan bin Abdul Aziz Al Saud in return for inside help selling Typhoon jet fighters to the Saudi government; the money moved irregularly from American banks to accounts in Switzerland; and the prince, who was Saudi Arabia's ambassador to Washington from 1983 to 2005, shared the largess he received during those years with other Saudi officials.

According to reports, Prince Bandar has never denied what happened, only that neither he nor BAE broke any laws -- notwithstanding British prohibitions on international public bribery, Swiss money laundering concerns, and the application of the Foreign Corrupt Practices Act. BAE denies all allegations of corruption.

The U.K.'s Serious Fraud Office launched an investigation. But in December 2006 -- just as the SFO was getting close to evidence it needed about the money transfers through Switzerland -- the Blair government told it to stand down. In High Court hearings in London this year to determine if the SFO broke any laws by dropping the investigation, witnesses said Saudi Arabia had threatened to end all anti-terrorism cooperation with the U.K. unless the Blair government pulled the plug. According to one report on the hearings,

Investigators said they were given to understand there would be another 7/7 and the loss of British lives on British streets if they carried on delving into the payments. The government argued . . . that these threats were so grave and put Britain's security in such imminent threat that the head of the Serious Fraud Office had no option but to shut down his investigation immediately.
On April 10, 2008, the High Court's Lord Justice Moses and Mr. Justice Sullivan tried to reclaim for Britain the simple idea that no man or woman is above the law, an idea that shapes and preserves every great and not-so-great democracy on the planet. "No one," their scathing 46-page ruling against the government said, "within this country or outside, is entitled to interfere with the course of our justice."

The victory for the rule of law was short lived. In July, the House of Lords (to which the government had appealed) ruled that the Serious Fraud Office didn't do anything illegal. All five law lords hearing the case agreed that although the SFO "was confronted by an ugly and obviously unwelcome threat," its decision to stop investigating BAE was justified because it reasonably believed the Saudi threats were putting British lives at risk.

In Washington, meanwhile, the Justice Department had started its own investigation. It wanted to know whether BAE and Prince Bandar had violated the Foreign Corrupt Practices Act and anti-money laundering laws. In November 2007, the DOJ reportedly obtained Swiss banking records and evidence from a U.K. businessman who was part of the deal. The U.K. press said Peter Gardiner had boxes of invoices allegedly detailing payments from BAE to members of the Saudi royal family. Gardiner, the reports said, was flown by FBI agents to Washington in August 2007 to give testimony there, traveling via Paris to avoid British attention. And in May this year, U.S. authorities detained BAE's chief executive Mike Turner and director Nigel Rudd at U.S. airports. Before letting them leave, investigators copied information from their laptops, PDAs, cell phones and papers.

BAE's reaction? "A severe lack of cooperation," according Joshua Hochberg, the former head of the DOJ's group responsible for Foreign Corrupt Practices Act prosecutions. As we said some months ago, instead of making peace with the DOJ, BAE is flipping the feds an awfully rude gesture. (A report out today in law.com says BAE is now trying to repair the damage with the DOJ and the two parties are talking.)

And the reaction from the rest of the world? Last month the OECD said it is "disappointed and seriously concerned with the unsatisfactory implementation of the [OECD Anti-bribery] Convention by the UK. . . . The Working Group also strongly regrets the uncertainty about the UK's commitment to establish an effective corporate liability regime in accordance with the Convention . . . ."

On the U.K. government's decision to stop the investigation of BAE, the editors of the Wall Street Journal said this: "[Former Prime Minister] Blair has eloquently argued on other occasions that bringing democratic institutions to the Middle East is a vital part of fighting Islamic terrorism. In stopping the BAE case, his administration missed a perfect opportunity to show the Saudis that one of the foremost of these institutions is the rule of law -- and that neither justice nor human lives should be toyed with for expediency's sake."

The lawyers who have retaken the White House have another "perfect opportunity" to show the majesty and importance of the rule of law. We can't think of a better reason for the FCPA to be in the President Elect's Briefing Book than that.

View our prior posts about BAE here.

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Tuesday
Nov182008

Bulgaria Hits Bottom

Corruption is strangling its economy and robbing people of hope for prosperity and freer lives. As foreigners pull the plug on investments there and its stock market falls -- for 20 consecutive trading sessions now, down 82% overall -- Bulgaria continues to be under the world's anti-corruption spotlight.

The European Union, which it joined in January last year, recently suspended aid, fearing that hundreds of millions of Euros were likely to end up in the hands of criminals.

Meanwhile, Bulgarians trying to expose the graft or fight against it are running for their lives. Like the founder of Frog News, Ognian Stefanov, who started the anti-corruption web site a year ago. Leaving a restaurant in Sofia this past September, four men attacked him and, as the International Herald Tribune reported, methodically shattered his most sensitive bones with pipes and hammers, breaking his elbows and both legs in four places.

“Certain people just decide they can react anyway they choose,” said Mr. Stefanov, who needed eight hours of surgery and remembers that night as a blur of pain. “The saddest thing is that they can decide anything they want. They are untouchable here.”

The IHT has run an excellent series of stories on corruption in Bulgaria. It rounded up those reports Sunday in an editorial:

When the European Commission decided in September 2006 to admit Bulgaria and Romania into the European Union, nobody pretended they were really ready.

The thinking was that EU membership would keep them safely out of Russia's orbit. There were also hopes that joining the European political mainstream would accelerate their efforts to rein in organized crime and corruption. The latter was a fairly astounding miscalculation.

What actually happened, as Doreen Carvajal and Stephen Castle have reported in detail in the IHT, was that the prospect of billions in EU subsidies only encouraged the criminals to diversify from smuggling and extortion and to burrow into the political and judicial systems - the better to siphon off EU money. . . .

The IHT articles chronicled how those who tried to expose or combat the criminals in Bulgaria were regularly threatened, maimed or killed, and how these crimes routinely go unsolved. The result, the reporters were told, was that people have come to accept corruption as an unavoidable fact of life and have become apathetic about fighting it. . . .

As we said in July this year, Bulgaria's leaders need to make a choice: get rid of the sleaze or lose global credibility -- along with public international aid and legitimate foreign private investment. Sadly, the sleaze is still there and growing worse and, as always happens, it's driving out the honest money and well-meaning people.

Readers with recent experience in Bulgaria are welcome to comment.

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Monday
Nov172008

Rocket Scientist Pleads Guilty

A Virginia-based scientist who sold controlled space-launch technology to China by bribing government officials there has pleaded guilty to violating the Foreign Corrupt Practices Act. Shu Quan-Sheng (left), 68, a native of China, naturalized U.S. citizen and PhD physicist, also pleaded guilty to two counts of violating the Arms Export Control Act by delivering defense articles and services to the PRC without first obtaining the required export license or written approval from the State Department.

In 2006, Shu offered "percentage points" worth a total of $189,300 to officials at a research institute affiliated with the China Academy of Launch Vehicle Technology. He was trying to land a contract to develop a liquid hydrogen tank system for a heavy payload launch facility located on Hainan Island in the PRC. In January 2007, the $4 million hydrogen liquefier project was awarded to a French company that Shu represented.

For violating the Foreign Corrupt Practices Act, Shu faces up to five years in prison and a fine of $250,000 or twice the gross gain resulting from the FCPA offense. He also faces up to 10 years in prison and a $1,000,000 fine for each of the two violations of the Arms Export Control Act. His sentencing is scheduled for April 6, 2009.

Shu's company, AMAC International Inc., is based in Newport News, Virginia and also has an office in Beijing. According to its website, AMAC is "a high tech company operating at the cutting edge of technology." The site says because of its accomplishments "in Research & Development of Superconducting RF Power Technologies, Magnetic Levitation and Cryogenics in space, AMAC has been awarded more than $2,000,000 of innovative research grants from the US Department of Energy (DOE) and National Aeronautics & Space Administration (NASA)."

We noted in a prior post that Shu's arrest in September was similar to arrests earlier that month of U.S. citizens Nam Nguyen, Joseph Lukas, Kim Nguyen, and An Nguyen, along with their Philadelphia-based company, Nexus Technologies (see our post here). They were charged with one count of conspiracy to violate the Foreign Corrupt Practices Act and four substantive counts of violating the FCPA. They're accused of bribing government officials in Vietnam to secure contracts to supply high-tech items -- including third-party underwater mapping and bomb containment equipment, helicopter parts, chemical detectors, satellite communication parts and air tracking systems. That case doesn't yet involve charges under U.S. export laws.

View the Justice Department's November 17, 2008 release here.

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Sunday
Nov162008

The Paradox Of Corruption

The man on the left is David Hess, an Assistant Professor of Business Law & Business Ethics at the University of Michigan's Ross School of Business. He's on the blog today because he thinks and writes a lot about how to control corruption in international business. Among his articles are many dealing with ways to help corporations develop more ethical cultures -- through the use of sustainability reports, the Federal Sentencing Guidelines and deferred prosecution agreements, among others.

Prof Hess, a member of the Pennsylvania bar, has a law degree from the University of Iowa and a PhD in management from Penn. He recently bagged the Aspen Institute's 2008 Rising Star Faculty Pioneer award for his work on ethical behavior and sustainable economic development.

The following interview is from the University of Michigan Business School's site. Our thanks to the folks there for permission to republish it.

What are you thinking about?

Hess: I'm continuing my research on controlling corruption in international business. I'm looking at both government regulation and the use of voluntary initiatives by multinational corporations. This research includes not only bribe payments to public officials, but also private-to-private corruption, which involves corrupt payments between two corporations' agents.

Why is it interesting to you?

Hess: The topic interests me because corruption is such a harmful but enduring practice. Some people have stated that it's a paradox in that corruption is universally disapproved yet universally practiced. It's also important to remember that corruption in developing countries is harmful not to just economic development, but also to the realization of human rights and the attainment of sustainable development.

In the United States, the Department of Justice has stepped up enforcement of the Foreign Corrupt Practices Act in the last few years. However, most enforcement actions seem to be based on self-disclosure by the bribe-paying corporation and clearly only a very small percentage of those paying bribes are turning themselves in. The challenge is get to get more corporations to prevent the payment of bribes by their agents in the first place, and, if someone does pay a bribe, to disclose those actions. The recent case of the German company Siemens shows why this is such a difficult challenge. Siemens -- a conglomerate operating throughout the world and employing close to 500,000 people -- apparently had corruption thoroughly engrained in its culture. One report indicated that the company's own internal investigators identified over $2 billion in suspicious payments over the past several years. Apparently, these practices were so common that individuals at all levels of the organization either no longer questioned their appropriateness or felt powerless to oppose them.

Overall, we need to provide incentives for corporations to self-regulate, help them develop effective compliance programs that allow self-regulation to work, and find ways to help corporations like Siemens reform themselves. The legal, managerial, and ethical issues involved create many interesting and important research questions.

What implications do you see for industry?

Hess: Corporate officers recognize the business case for ending corruption. They see the costs that corruption imposes on operations and the damage it can do the company's reputation. Thus, there is a strong business case to end bribe payments. However, they also see their competitors paying bribes to win contracts. This makes it very difficult to ensure that employees refuse to pay when bribes are requested by customers and clients. It also means that collective action is required. All corporations must be committed to combating corruption and working together to solve this problem. Ending corruption is both pro-business / economic development and pro-human rights / sustainable development. Unfortunately, due to these collective action problems, breaking the cycle of corruption is a significant challenge and requires novel solutions.

############

An example of Prof Hess' work is this July 2008 Working Paper called The Three Pillars of Corporate Social Reporting as New Governance Regulation: Disclosure, Dialogue and Development.

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Thursday
Nov132008

Congressman's FCPA Trial Draws Near

Rep. William J. Jefferson (D-La.) moved closer this week to becoming the first member of the United States House of Representatives to be tried for violating the Foreign Corrupt Practices Act. A unanimous three-judge panel of the Fourth Circuit Court of Appeals on Wednesday tossed out Rep. Jefferson's claims that evidence heard by a federal grand jury violated the constitution's speech or debate clause. The appeals panel agreed with U.S. District Judge T.S. (Tim) Ellis III, who said Jefferson's arguments would expand legislative immunity so much that prosecuting a congressman for a crime would become virtually impossible.

The constitution's speech or debate clause (Article I, Section 6, Clause 1) creates a limited privilege for information relating to work by legislators. It prohibits their arrest during attendance at the Congress, "and in going to and from the same, and for any Speech or Debate in either House, they shall not be questioned in any other Place." Rep. Jefferson had argued that testimony by his former staff members to the grand jury was based on his work in Congress and therefore protected. The Fourth Circuit panel, however, said references to legislative action in the testimony were incidental and not central to the indictment against him. A copy of the Fourth Circuit's opinion is available here (thanks to Greg Morin for sending it to us).

Rep. Jefferson can now ask the Fourth Circuit to hear an appeal en banc, and he can seek review by the Supreme Court. His trial was scheduled to begin in December but has been delayed. He was indicted in June last year by a federal grand jury for violating the antibribery provisions of the Foreign Corrupt Practices Act. He's also charged with soliciting and accepting bribes, wire fraud, money laundering and obstruction of justice. He faces a maximum of 235 years in prison if convicted on all 16 counts.

Rep. Jefferson, 61, has held his seat since 1991 in Louisiana's 2nd District, which includes much of New Orleans. Despite being indicted last year, he won this year's primary runoff and is favored to win re-election on Dec. 6.

Prosecutors allege that in August 2005, Rep. Jefferson hid $90,000 in the freezer at his Washington home. It was part of $100,000 provided by the government's cooperating witness and intended to be used to bribe a Nigerian official. "The cash was separated into $10,000 increments, wrapped in aluminum foil, and concealed inside various frozen food containers," according to prosecutors. The purpose of the alleged bribe was to induce the Nigerian official to steer business from Nigeria's dominant government-controlled telecommunications company to firms in which Rep. Jefferson's family members had interests.

His alleged co-conspirators were Vernon L. Jackson, a Louisville, Ky., businessman, and Brett M. Pfeffer, a former Jefferson congressional staff member. Jackson was sentenced to 87 months in prison after pleading guilty to conspiracy to commit bribery and paying bribes to a public official. Pfeffer was sentenced to 96 months in prison after pleading guilty to conspiracy to commit bribery and aiding and abetting the solicitation of bribes by a member of Congress.

Before being indicted, Rep. Jefferson had compiled an outstanding record. He was the first African-American elected to Congress from Louisiana since Reconstruction. He graduated from Southern University A&M College and Harvard Law School, and he also holds an LLM in tax from Georgetown. As a state senator, he was twice named Legislator of the Year by the Alliance for Good Government.

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Wednesday
Nov122008

Bourke Raises Vindictive Prosecution

Frederic Bourke wants to know if the U.S. is prosecuting him for violating the Foreign Corrupt Practices Act because he was a whistleblower who interfered in the strategic relationship between the United States and Azerbaijan.

Bourke's lawyer -- the high-profile Dan Webb -- has asked U.S. District Judge Shira A. Scheindlin to review internal prosecution documents prepared before Bourke was charged. "The documents may show whether prosecutors brought the case to punish Bourke for disclosing a crime involving the Socar deal and interfering in the U.S.'s relationship with Azerbaijan a decade ago," Webb said. Bourke's showing that he's the target of a vindictive prosecution could result in a dismissal of the charges against him.

These are among the details in a current story carried by the Bloomberg wire and written by David Glovin. Last month Glovin wrote a fascinating profile and interview of Bourke's co-defendant, Victor Kozeny, who's in the Bahamas fighting extradition. Bourke is accused of helping Kozeny pay bribes to government officials in Azerbaijan in a failed attempt to take over the state oil company known as Socar. Bourke's trial is scheduled to start in March next year.

At a hearing last week in U.S. v. Kozeny, 05-cr-518, U.S. District Court, Southern District of New York (Manhattan), defense attorney Webb said Bourke wants to explore "the possibility that somebody decided to silence him. Why did a whistleblower get indicted?''

Bourke invested and lost $8 million with Kozeny. His lawyers have said in court filings that Bourke suspected in late 1998 that Kozeny was stealing from investors. Bourke then began collecting evidence to prove the fraud. Bloomberg reports: "Bourke took the evidence to state and federal prosecutors in New York and met with Azerbaijan's then-president, Heidar Aliyev, to expose Kozeny's wrongdoing, the court papers say. . . Webb said Bourke's actions may have interfered with the U.S.'s strategic relationship with the oil-rich nation. Bourke wants to know if the U.S. is punishing him for speaking out, Webb said."

Assistant U.S. Attorney Harry Chernoff urged Judge Scheindlin to deny Bourke's request that she review the documents, saying there is no evidence to support his claim and that Bourke is engaged in "a fishing expedition." Scheindlin hasn't yet made a ruling.

Webb also asked Judge Scheindlin to order prosecutors to search for records in the Central Intelligence Agency and the U.S. State Department that may support other defense claims. In addition, he wants the judge to force the U.S. National Security Agency to turn over recorded intercepts of conversations involving Kozeny, Bourke or others in Azerbaijan, if they exist.

In August this year, a Washington-based non-profit watchdog group that defends whistleblowers alleged that James Wolfensohn, the former head of the World Bank, helped Kozeny by quashing staff concerns and writing letters on Kozeny's behalf. Wolfensohn has said the report by the Government Accountability Project (GAP) is wrong.

An earlier Bloomberg story, also by David Glovin and co-reported by Christopher Swann, said Bourke's lawyers provided documents to GAP and that Bourke funded the Kozeny-World Bank report. GAP says Kozeny's scheme in Azerbaijan came to light "in 1999, when U.S. investor and whistleblower Frederic Bourke came forward and exposed the fact that at least one major investor had been defrauded . . . ." Kozeny has denied taking money illegally from investors and criticized GAP for its work on Bourke's behalf.

New York State prosecutors brought a case against Kozeny in 2003 for stealing $180 million from U.S. investors. Bourke, who wasn't charged in that case, testified before the grand jury against Kozeny and said he was a victim of the fraud. In 2005, the U.S. government accused Bourke of joining the bribery plot. Kozeny, who has spent the last nine years in the Bahamas, is also wanted by authorities in the Czech Republic, where he's accused of stripping Czech companies of $1.1 billion.

A special thanks to Bloomberg's David Glovin for his excellent coverage of this story.

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Tuesday
Nov112008

Outing Secret Account Holders

In July this year, we posted about the U.S. Senate's investigation into how Swiss bank UBS AG hid around $18 billion for 19,000 Americans that went unreported to the IRS. We mentioned that the Senate's 115-page report cited a memo from LGT Bank, run by the royal family of Liechtenstein, describing the use of secret offshore accounts for bribery in the U.S. and elsewhere.

The Senate report didn't specifically refer to potential Foreign Corrupt Practices Act violations, but we thought the Justice Department might turn some attention to foreign-bank clients who could be involved in the alleged bribery. To do that, though, the DOJ would first need to crack European bank secrecy laws that protect the identity of account holders.

Now comes a report that the DOJ may be succeeding. The Washington Post said this week that Swiss authorities have revealed the identities of "about 70 UBS clients for use by Justice Department investigators." The DOJ has also obtained names of an additional 30 or so American holders of undeclared UBS accounts from other parties, the Post said. And Reuters reported that 250 U.S. customers of UBS were given 30 days to appeal against Switzerland's plan to hand over their details to U.S. investigators.

Yesterday, however, Swiss authorities and UBS denied disclosing information about Americans suspected of tax evasion. The Swiss said cooperation between Washington and Bern was ongoing, without giving any details. UBS also said it had not given any information to U.S. authorities.

Assuming the Washington Post is right, the Swiss disclosures follow an earlier leak to the IRS of confidential information by a former employee at LGT Bank in Lichtenstein. The IRS used the information to begin enforcement proceedings earlier this year against about 100 U.S. taxpayers, some of whom were named in the Senate report. The U.S. government, the Post said, has been offering whistleblowers up to 30 percent of any money they help the IRS recover. IRS Commissioner Douglas Shulman said the strategy is working: "[W]e've got a lot of names that we're combing through and will be pursuing aggressively." He advised anyone using secret accounts to make voluntary disclosures to the IRS right away.

(Even President-Elect Obama has weighed in. He labeled UBS as one of the banks who helped "tax cheats," and he co-sponsored a Senate bill last year to crack down on offshore tax havens. The Stop Tax Haven Abuse Act listed 34 jurisdictions, including Switzerland, as potential tax-evasion countries.)

Foreign account holders should also be worried about a report that Liechtenstein and Washington have agreed to exchange confidential bank information in connection with tax-related investigations. Liechtenstein's bank secrecy laws had been seen as stronger than Switzerland's. But tax scandals during the past year traced back to clients at Lichtenstein banks have forced the country and its ruling family to start cooperating with tax fraud investigations.

None of this confirms that the DOJ is looking for FCPA violators among holders of undeclared foreign bank accounts, or that it will find any if it is looking for them. But as we said in June, the story is worth watching.

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Monday
Nov102008

The FCPA Goes To Court

For such a high-profile federal law, the Foreign Corrupt Practices Act doesn't make it to court much. In fact, most years go by without a single trial involving the FCPA. That's because typical defendants would rather cut a deal with prosecutors instead of risking a guilty verdict that might carry a five-year jail term. By some strange coincidence, however, there could soon be as many as three FCPA trials all happening at once. Not long ago, we'd have put the odds of seeing that at zero (which is why we don't gamble). The trials might not happen, but as of today there's a chance, at least, that some or all of them will go forward. Here's the situation:

U.S. v. Kozeny, Southern District of New York (Manhattan). The defendant is Frederic Bourke, 62, owner of the luxury handbag brand Dooney & Bourke. He was indicted in May 2005 with Victor Kozeny and David Pinkerton over an alleged plot to bribe officials from Azerbaijan. Kozeny is in the Bahamas fighting extradition and Pinkerton has been dismissed from the case, leaving Bourke to fight the FCPA charges on his own. He and the federal prosecutors are gearing up for trial. Last month Judge Shira A. Scheindlin issued an opinion and order refusing Bourke's request for a jury instruction on the FCPA's local law affirmative defense.

U.S. v. Green, Central District of California (Los Angeles). The defendants are Hollywood movie producers Gerald Green, 75, and his wife Patricia Green, 52. They were arrested in December 2007. They're accused of paying more than $1.8 million in bribes to a former governor of the Tourism Authority of Thailand in return for contracts worth more than $14 million. A superseding indictment last month added allegations that Mrs. Green filed two false tax returns in 2005 and 2006 that included deductions for "commissions" which she knew were "bribes to a foreign official for obtaining and retaining business." Their trial was first scheduled to begin in early 2008 and has been postponed a couple of times.

U.S. v. Jefferson, Eastern District of Virginia (Alexandria). The defendant is Rep. William Jefferson, 61, (D-La.), a Congressman since 1991 from a district that includes New Orleans. He was indicted in June 2007 by a federal grand jury for violating the anti-bribery provisions of the Foreign Corrupt Practices Act. He was also charged with soliciting and accepting bribes, wire fraud, money laundering and obstruction of justice. Prosecutors allege that in August 2005, Rep. Jefferson hid $90,000 in the freezer at his Washington home. It was part of $100,000 provided by the government's cooperating witness and intended to be used to bribe a Nigerian official. Rep. Jefferson had been scheduled to go on trial next month, but that's not likely to happen. He has asked the U.S. 4th Circuit Court of Appeals in Richmond, Va. to dismiss all charges except for one count of violating the FCPA and another of obstruction of justice. Last Tuesday, Rep. Jefferson won a primary runoff election in his district and is favored to win re-election on Dec. 6, according to CG Politics.

We'd like to report news from the trials if and when they begin. To do that, though, we'll need help. If anyone is willing and able to send us dispatches from time to time from the courtrooms (including news about the prelims now taking place), please drop us a note here. We can post reports with or without attribution, and we'll also take responsibility for editing. So news can be sent in raw form, of any length and frequency.

We could close now with something from a recruiting poster, like: Don't just read about FCPA history, be a part of it. Drop us a line today. And you know, that actually sounds pretty good. So consider it said.

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