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


More On Graft Is Good, Sometimes

Last week we heard from Washington, D.C. lawyer and former aid worker Stephanie Connor. She disagreed with some comments Andy Spalding, left, has made in this space. Andy's a lawyer on a year-long Fulbright Research Grant in Mumbai, India.

He's questioned whether bribery is always bad and enforcement of the Foreign Corrupt Practices Act always good. (His concepts were discussed without attribution to him in a recent WSJ Law Blog post "Is the FCPA Standing in the Way of Haiti’s Recovery?" here.)

Here's his response:

Hi Stephanie,

First, nice to meet you and thanks for your comments. They have forced me to examine my assumptions in some unexpectedly difficult ways.

I understand the crux of your comment to be that we should not treat the FCPA as if it were primarily designed as a poverty reduction tool. I agree.

Rather, the statute is primarily designed to be a bribery reduction tool, and we should not evaluate its success in the first instance by the extent to which it reduces poverty. But to say that it is not designed to be a poverty reduction tool is very different from saying that we should enforce it without regard to its impact on poverty.

As strongly as I agree with the former statement, I disagree with the latter. Indeed, many believed in 1977 and still believe today that proper enforcement of the FCPA will have the collateral effect of mitigating poverty -- through reducing corruption, we will eventually improve economic productivity. I am among those who subscribe to this theory, when thinking about the very long term.

But what if FCPA enforcement has the more immediate effect, quite unwittingly, of exacerbating already severe social problems, including but not limited to poverty? Should we take notice? Should we modify our approach to enforcement? Can the FCPA be enforced in such a way that it can deter bribery without deterring investment in developing countries? I certainly believe that it can, and that it should. Is there a reason why it should not?

I would truly love to hear your response.

All the best,
Andy Spalding

Views from other readers are also welcome.

Editor's Note: For the record, Andy has never said graft is good. Our over-zealous headline writers came up with that phrase. Andy himself says: " I certainly don't believe that 'graft is good' . . . I do believe, though, that our efforts to reduce bribery can, quite unintentionally, sometimes produce bad results.  But fortunately, we need not choose between enforcing the FCPA or not.  Rather, we should develop an approach to enforcement that is more sensitive to the reality of collateral damage in economically desperate countries, one that punishes bribery without punishing the citizens, for example, of Haiti."


Four Guilty Pleas In Vietnam Bribe Case

The Justice Department said Philadelphia-based export company Nexus Technologies Inc. and three employees pleaded guilty today to bribing Vietnamese officials.

Nexus pleaded guilty to conspiracy, and to violating the Foreign Corrupt Practices Act, and the Travel Act in connection with commercial bribes and money laundering. Nam Nguyen, 54, of Houston and Vietnam, the president and owner of Nexus, and sibling An Nguyen, 34, of Philadelphia, each pleaded guilty to conspiracy, a substantive FCPA violation, a violation of the Travel Act, and money laundering. Kim Nguyen, 41, another sibling, pleaded guilty to conspiracy, a substantive FCPA violation, and money laundering.

They were arrested in September 2008, along with Joseph T. Lukas, 60, a partner in Nexus until 2005. He pleaded guilty in June 2009 to conspiracy and to violating the FCPA. The DOJ said he admitted in his plea that from 1999 to 2005, he and others at Nexus bribed Vietnamese 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.

Nexus and the Nguyens admitted that from 1999 to 2008 they paid bribes of more than $250,000 to Vietnamese government officials in exchange for contracts. Nexus sold third-party underwater mapping and bomb containment equipment, helicopter parts, chemical detectors, satellite communication parts and air tracking systems.

The DOJ said Nexus acknowledged as part of its guilty plea that "it operated primarily through criminal means and agreed to cease operations."

Sentencing is scheduled for July 13, 2010. Nexus still faces a maximum fine of $27 million. Nam and An Nguyen each face a maximum sentence of 35 years in prison. Kim Nguyen faces a maximum sentence of 30 years in prison.

The government hasn't released the plea agreements for Nexus and the Nguyens; the plea agreement in U.S. v. Lukas remains under court seal.

A copy of the Justice Department's March 16, 2010 release can be viewed here.

Download a copy of the October 29, 2009 superseding indictment in U.S. v. Nexus Technologies, Inc. et al here.


Two Sentencing Delays, Two Reasons

Photo by walknbostonSentencing for Gerald and Patricia Green was delayed again. Their next hearing is scheduled for April 1, 2010 at 8:00 am.

And Albert "Jack" Stanley's sentencing was rescheduled until May 26, 2010.

The reasons for the delays?

In the Greens' case, Judge George H. Wu in Los Angeles may be reluctant to adopt the government's view that Gerald Green, 76, should spend 20 or more years in prison. The judge has asked for memoranda analyzing sentences in prior cases. The Greens were convicted by a jury of FCPA and related offenses in September 2009.

After Jack Stanley's guilty plea in September 2008, the former KBR CEO was sentenced to seven years in prison. But the sentence is subject to review based on his cooperation with the government. His plea agreement is here.

Stanley's ex-company, KBR, resolved FCPA offenses in February 2009. And as reported, two other companies involved in the case are now discussing settlement with the DOJ -- Technip and ENI. Stanley's testimony about their roles could be important, so his sentencing isn't likely to happen until their enforcement actions are resolved. 

Stanley admitted he helped the four-party TSKJ consortium bribe Nigerian officials. In addition to KBR, Technip, and ENI, the fourth member was Japan's JGC Corporation (once known as Japan Gasoline Co., Ltd.). It hasn't disclosed any FCPA-related investigation or potential enforcement action resulting from its role in the consortium.


ENI Reserves €250 Million For FCPA Settlement

A category in our post Where The Money Is listed big-dollar FCPA enforcement actions in the pipeline. One was French company Technip, which had just disclosed a €245 million ($330 million) provision for its role in the TSKJ Nigeria joint venture. That's the same case KBR and Halliburton settled last year for $579 million.

We weren't the only ones reading Technip's news. So was Italian energy giant ENI SpA. It was also part of the TSKJ joint venture through a subsidiary it later sold.

ENI's 2009 Annual Report (released March 11, 2010) said:

In a press release of February 12, 2010, the French company Technip announced, as a result of the circumstances that its discussions with U.S. authorities have intensified over the last weeks, the recognition of a provision for an amount of €245 million reflecting the estimated cost of resolution with such Authorities. The decision was made according to the status of ongoing discussions with DOJ and SEC that allowed Technip to estimate a global resolution of all potential claims against the company arising from the investigation.

As to ENIi, the contacts with the U.S. authorities have been intensified recently. Based on the ongoing status of the discussions, the Company has been able to estimate the cost of a global resolution of all potential claims arising from the investigation with the U.S. authorities, similarly to Technip. As a result of this, a provision of €250,000,000 has been accrued, also considering the contractual obligations assumed by ENI to indemnify Saipem as part of the divestment of Snamprogetti.

Discussions with the U.S. authorities are underway.

If Technip and ENI resolve their FCPA cases for around $300 million each, that means TSKJ's $180 million bribery in Nigeria will have resulted in U.S. financial penalties of more than $1.1 billion. Some in Nigeria will no doubt ask why the penalty money should end up in the U.S. Treasury and not their country.

ENI's ADRs trade on the New York Stock Exchange under the symbol E.

Download a copy of ENI's 2009 Annual Report released March 11, 2010 here.

Our thanks to a friend for sending the link to ENI's disclosure.


Guilty Plea By Former Haitian Telco Official

A former Haitian phone company official at the center of a major Foreign Corrupt Practices Act prosecution pleaded guilty Friday to a money-laundering conspiracy. 

The Justice Department said Robert Antoine, 62, of Miami and Haiti, the director of international affairs for state-owned Telecommunications D’Haiti from May 2001 to April 2003, accepted bribes from three U.S. telecommunications companies. To disguise the bribes, Antoine laundered them through intermediary companies, including J.D. Locator Services. 

Antoine was indicted on money-laundering charges in December 2009. Bribe takers cannot be prosecuted under the FCPA.

Juan Diaz, the president of J.D. Locator, pleaded guilty in May 2009 to conspiracy to violate the FCPA and money laundering. He admitted he paid and concealed $1,028,851 in bribes while acting as an intermediary for three private telecommunications companies.

Antoine said in his plea that a portion of the J.D. Locator funds were also laundered by Jean Fourcand of Fourcand Enterprises, who pleaded guilty last month to money laundering.

Antonio Perez, 51, of Miami, the former controller of one of the U.S. telcos, pleaded guilty in April 2009 to a one-count information charging him with conspiring to bribe officials at Telecommunications D'Haiti. Perez arranged bribes of $674,193 to the Haitian officials while he worked at the company from March 1998 to January 2002.

Diaz and Perez are waiting to be sentenced.

Antoine said during his guilty plea that $800,000 was given to him by a U.S. telecommunications company of which Joel Esquenazi was the president and director, Carlos Rodriguez was the executive vice president, and Antonio Perez was the controller.

Esquenazi and Rodriguez, as well as Jean Rene Duperval, who was director of international relations of Telecommunications D’Haiti from June 2003 to April 2004, and Duperval’s sister, Marguerite Grandison, were indicted along with Antoine in December 2009. (As the DOJ says, an indictment is merely an accusation, and defendants are presumed innocent until proven guilty beyond a reasonable doubt.)

Following his guilty plea, Antoine faces up to 20 years in prison and a fine of the greater of $250,000 or twice the value of the property involved in the transaction. He already agreed to a forfeiture order of $1,580,771. He's scheduled to be sentenced on May 27, 2010.

Download a copy of the indictment in US v. Esquenazi et al here.


Veraz Announces Expected Settlement

VOiP provider Veraz Networks said in an earnings release Thursday that it has reached agreement with the Securities and Exchange Commission to settle Foreign Corrupt Practices Act violations. It said it would pay a civil penalty of $300,000 and agree to entry of an injunction "prohibiting violations of the non-fraud provisions" of the FCPA. It also said the settlement still needs final approval by the SEC and the court. A copy of Veraz's March 11, 2010 release is here.

San Jose, California-based Veraz Networks trades on NASDAQ under the symbol VRAZ.

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 to the SEC. The SEC also requested documents related to Vietnam.

Because of the ongoing investigations, the company 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.

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A copy of Veraz's November 16, 2009 Form 10-Q is here. The company's disclosure in that filing regarding the Foreign Corrupt Practices Act said:

On April 3, 2008, the Company received a letter from the SEC informing it that the SEC was conducting a confidential inquiry, or SEC Inquiry, and requesting that the Company voluntarily produce documents in connection with the SEC Inquiry. On April 5, 2008, the Company’s Board of Directors appointed a special committee, or Special Committee, consisting entirely of independent directors to cooperate with the SEC in connection with the SEC Inquiry and to oversee an independent investigation into the matters raised by the SEC Inquiry. . . .

On July 17, 2008, Independent Counsel reported their findings to representatives of the SEC and, on July 21, 2008, provided to the SEC copies of certain documents collected by Independent Counsel during the course of its independent investigation. The Company provided all the requested documents to SEC.

As a result of the SEC Inquiry, the Company was not able to file timely its quarterly report on Form 10-Q for the first quarter ended March 31, 2008 and, on May 21, 2008, the Company received a notification letter from NASDAQ stating that its common stock may be subject to delisting in accordance the NASDAQ rules.

The Company’s management attended a hearing on July 24, 2008 to request that NASDAQ grant the Company’s request for an extension of time in which to comply with the NASDAQ listing standards. On July 29, 2008, the Company filed its quarterly report on Form 10-Q for the quarter ended March 31, 2008 and now believes it is in compliance with all SEC filing requirements. Additionally, on August 6, 2008, the Company received notification from NASDAQ informing the Company that the NASDAQ hearing panel had determined to continue listing the Company’s common stock on the NASDAQ.

During the course of the SEC inquiry, the Company became aware of allegations of misconduct relating to the Company’s business practices in the Asia Pacific region that, if true, may constitute violations of the U.S. Foreign Corrupt Practices Act, or FCPA. These potential FCPA violations include alleged misconduct related to a Chinese customer and an Indonesian customer. In addition, the Special Committee was informed and made the Company aware of allegations of possible fraud perpetrated against the Company and violations of the Company’s Code of Conduct and Ethics, or Policy. The allegations of possible fraud and violations of the Policy involve payments from a reseller to certain non-management employees (whose employment has since been terminated) and other potentially inappropriate commercial relationships between non-management employees and a reseller.

On January 27, 2009, the Company received a subpoena from the SEC requesting documents related to the Company’s business practices in Vietnam. In connection with such SEC investigation, the Company produced documents and provided testimony relevant to the SEC’s investigation and is continuing to cooperate with the SEC in its investigation. In November 2009, the Staff of the SEC contacted the Company concerning some of the transactions described above and the Company is cooperating with the Staff.

At the current time, the Company cannot determine the probability of or quantify the amount of any fines or penalties associated with the SEC matters discussed above.

There were no expenses incurred related to SEC investigation in the three and nine months ended September 30, 2009. During the three and nine months ended September 30, 2008, the Company had incurred SEC investigation expenses of $0.2 million and $2.3 million, respectively. To date, the Company has incurred expenses related to the SEC investigation of approximately $2.5 million.


What, Then, Is A Bribe?

A reader called our attention to an extraordinary statement made in February by Richard Alderman, left, director of the U.K.'s Serious Fraud Office. His subject was how Britain's new bribery bill will work.

He was asked about transferring a majority interest in a profitable subsidiary of a (presumably) U.K. company to the family of the president of a developing country. The transfer was a condition of continuing to do business there.

Here's what he said:

While we cannot compromise overall ethical standards, there needs to be considerable sensitivity as to how those standards play out . . .

And so, what does this mean? Let me give you an example.

I was approached by the Board of a corporate that is involved in one of these [developing] countries. They had a 100% subsidiary. This was becoming very profitable and so they received an approach from the Government. They were told that if they wanted to continue to do business in the country then they would need to transfer a 51% interest in the subsidiary to the family of the President. That gave rise to all sorts of worries for them for obvious reasons. One of these was whether or not the SFO would take the view that payment in this way was a bribe. They were concerned we might investigate and prosecute.

I assured them that I would have no intention of doing that whatsoever. I said I recognised the very great difficulty of the moral and ethical position that they were in. This was something they would have to resolve. What I could do though was to give them comfort that whatever they did, we would be sensitive to the circumstances here and would not seek to take any action, even if technically the transfer of the interest in the subsidiary constituted a bribe.

They found that very helpful.

Under the Foreign Corrupt Practices Act, the transfer to the president's family would likely be illegal.

Director Alderman's full remarks can be found here.


Not-So-Great Expectations, Please

We like hearing from readers. Here's a note from Washington, D.C. lawyer Stephanie Connor, left:

Dear FCPA Blog,

I'm grateful for the insights this blog, and its many contributors, have provided throughout the years. This includes the admirable work of Andy Spalding, Art Carden and Lisa Verdon – academics who cast doubt upon the ultimate utility of the FCPA as a means of combating corruption and reducing poverty in the developing world. As a lawyer and a former aid worker, I don’t always agree.

While I believe anti-corruption enforcement is necessary, I am troubled by the tenor of the recent dialogue surrounding that enforcement. This has nothing to do with the quality of the analyses that Spalding, Carden and Verdon are providing, and everything to do with the fact that expectations for what the FCPA can and should accomplish have grown completely out of hand.

The works of Spalding, Carden, and Verdon are important. Poverty reduction strategies need to be evaluated, measured, and critically assessed. But the FCPA is not a poverty reduction strategy. We cannot mistake supply-side anti-corruption enforcement for the wider effort to reduce corruption in the developing world -– a project that will require significant advancements in health, education, and the rule of law, for starters. The FCPA simply aims to ensure that U.S. actors do not provide monetary lifelines to the autocrats and oligarchs who will be threatened by the advancement of their people. It will not solve the underlying problems of poverty.

Holding the FCPA up as the magic bullet for poverty reduction is unfair to those who have foregone lucrative opportunities in order to comply with the law. By framing the anti-corruption effort as a means of vanquishing poverty, we risk handing an early victory to opponents of the Act. When the FCPA is inevitably unsuccessful, the enthusiasm for anti-corruption may dissipate, the resources for FCPA enforcement may quietly disappear, and those companies that have sacrificed so much to act within the confines and spirit of the law would be left at an even greater disadvantage. 

I admire the business people and aid workers who refuse to pay bribes. They often make that choice because they realize that paying one official will lead to a torrent of other requests. The FCPA supports them. The law allows them to tell a soldier with a greedy glint in his eye that they would pay him but cannot do so without risking their company and their job. This is much easier than telling him that they could pay him but just don’t feel like it. 

A successful anti-corruption effort will take more than a few years, or even a few dozen years, of enforcement. Maintaining that effort over a prolonged period requires that we also manage our expectations. It should be enough that the FCPA reduces some high-level corruption. We need not, and should not, ask it to do more.

Best Regards,

Stephanie Connor

The views expressed in this post belong to the author and do not necessarily reflect the views of her employer.


Shot-Show Prosecution May Expand

As reported Friday, one of the 22 shot-show defendants, Daniel Alvirez, is expected to plead guilty soon to charges of conspiracy to violate the Foreign Corrupt Practices Act. The government's two-count superseding information alleged that he plotted to bribe defense officials in Africa and the Republic of Georgia.

What to expect now? We asked someone familiar with the evidence, who requested anonymity. Here's what he or she told us:

The government's video and audio tapes are of good quality and the confidential informant, Richard Bistrong, should be an effective witness despite some baggage. Overall, the cases appear to be strong and supported by ample evidence.

There are indications of more foreign bribery involving the military-equipment industry; the allegations in the first 16 indictments (available here) and the superseding information may be the tip of the iceberg. 

The Justice Department is seeking to build bigger cases against some current defendants. It may also indict other individuals.

Investigators could also be looking at involvement by some well-known industry leaders -- an Indian military-equipment supplier, three U.S. public companies, and two large private security contractors among them.

Countries and governments involved may include not just Georgia (mentioned in the superseding information) but also Peru, Mexico, Saudi Arabia, Guatemala, the Philippines, Colombia, and others. Representatives from some of the countries could be targeted by the Justice Department.


Guilty Plea Expected In Shot-Show Case

One of the 22 shot-show defendants is expected to plead guilty soon to charges of conspiracy to violate the Foreign Corrupt Practices Act by plotting to bribe defense officials in Africa and the Republic of Georgia.

Prosecutors on Friday filed a two-count superseding information against Daniel Alvirez, the former president of Arkansas-based ALS Technologies Inc. It manufacturers ammunition and other military equipment.

Washington, D.C. lawyer Michael Volkov said his client Alvirez will plead guilty soon. "I can confirm that," he told Reuters.

The superseding information alleges that Alvirez, 32, conspired with Lee Allen Tolleson and others to bribe Georgian defense officials to win contracts to sell ammunition and rations. Tolleson, 25, was the director of acquisitions and logistics at ALS Technologies.

Alvirez and the other shot-show defendants were originally charged with conspiracy to violate the FCPA, conspiracy to engage in money laundering, and committing substantive FCPA violations. The 16 indictments covering the 22 defendants alleged that they plotted with an undercover FBI agent to bribe the minister of defense of an African country. The superseding information also alleges that Alvirez and others plotted to bribe Georgian officials through an Israeli sales agent.

One of the shot-show defendants is Ofer Paz, 50, the president and chief executive officer of Paz Logistics, an Israeli company that acts as sales agent for companies in the law enforcement and military products industries

Alvirez may face up to five years in prison for each of the two conspiracy counts. He could have faced up to 20 years in jail on the money-laundering charge that was dropped in the superseding information, and five years in prison for each substantive FCPA offense he originally faced.

As we've said, when the government indicts en masse as in this case, defendants who offer early cooperation usually make out best. They often receive lighter sentences, depending in part on their level of cooperation with prosecutors. See our post here.

Download a copy of the March 5, 2010 superseding information in U.S. v. Daniel Alvirez here.

The original 16 indictments in the case can be downloaded from our post here.


To Readers, Leaders, and Hosts

Georgetown Law: Eric E. Hotung International Law BuildingThanks to those who helped with our post Where The Money Is. One reader mentioned two more pending investigations likely to result in big-money enforcement actions: Panalpina and Alcoa. Panalpina's compliance problems have been in the news for nearly three years, and Alcoa's for two. Settlements soon? Could be.

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We also want to thank the folks at the Georgetown Journal of International Law for the invitation to their 2010 Symposium: Combating Global Corruption. It's happening March 22nd from 8am to 5pm at the Hart Auditorium at Georgetown Law (600 New Jersey Avenue, NW, Washington, D.C. 20001). Admission is free. Panel topics include Origins of International Anticorruption: Policy Formation, Enforcement by U.S. Government Agencies, Quasi-Enforcement Agencies and Alternative Enforcement Channels, and East Asia: A Case Study. Mike Koehler (the FCPA Professor) and Elizabeth Spahn are among the panelists. Download the brochure here.

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And finally, we're grateful to our hosts this week who arranged the visit to the National Museum of the Marine Corps at Quantico, Virginia (here). There wasn't much discussion inside; it's hard to talk with that lump in your throat. The museum is unforgettable and the sacrifice it represents is beyond description.


Debarment For BAE? 

A report posted yesterday in Defense News said the U.S. State Department has placed a "temporary administrative hold" on weapons export licenses "by BAE Systems or companies using BAE Systems' products."

The story said the State Department's action "applies to BAE Systems, Inc. as well as BAE Systems PLC while the department studies the guilty plea and determines whether to take additional action against the company."

BAE pleaded guilty Monday to conspiring to defraud the United States by impairing and impeding its lawful functions, to make false statements about its Foreign Corrupt Practices Act compliance program, and to violate the Arms Export Control Act and International Traffic in Arms Regulations. It was sentenced to pay a $400 million criminal fine.

U.S. law permits the federal government to ban exports by companies convicted of FCPA and related offenses.

The first debarment notice posted on the State Department's website Monday was withdrawn and a second notice was changed at least once and then also withdrawn. Defense News quoted a Washington trade lawyer as saying:

One notice Monday, another one Tuesday, and now they're both down. Which is it, guys? What State has done sends a terrible message. It makes it seem like State does not have a handle on what it wants to do - or that it's being manipulated by outside interests.

On Wednesday, the State Department said it was "still determining whether to debar BAE Systems, which would limit the company's ability to export products with U.S.-made content." But a BAE spokesperson told Defense News the company is "interpreting the current absence of a State Department notice about the hold to indicate that there is none in place."