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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
Nov232009

Anti-Corruption Lawyer Dies In Moscow Jail

A Russian lawyer who fought against the alleged $230 million looting of a foreign-owned investment fund by police officials, bankers, judges and lawyers has died in a Moscow jail after being held a year without trial. London-based Hermitage Capital Management said in a press release that Sergey Magnitskiy, 37, died on November 16. He was arrested in November 2008 shortly after giving formal testimony "naming officers of the Interior Ministry and their role in the seizure of Hermitage Fund" assets. The release said he was arrested by the same Interior Ministry officers named in his testimony.

Magnitskiy died in Moscow's Matrosskaya Tishina pre-trial detention center. During the past year, he was moved between four detention centers, the release said, and not allowed contact with his family. In September this year, he sent a 40-page complaint to the public prosecutor. It described his worsening health and lack of medical attention. The release said lawyers representing Magnitskiy were told by authorities he died of a rupture to the abdominal membrane. The VOA said,

Magnitsky developed problems with his pancreas and gall bladder as a result of what his American business associate, Jamison Firestone, described to VOA as filthy prison conditions. They included a tiny cell with two other people, no hot water, a shower once a week, and a kitchen above a hole in the floor that served as a toilet.

Hermitage Capital Management was once the largest foreign investor in the Russian stock market. Its Russian assets were allegedly looted after its U.S.-born chief executive, William F. Browder, was expelled from the country in 2005 by the Interior Ministry on what Browder claimed was a trumped-up tax charge.

In retaliation, Browder posted a video on YouTube in English and Russian accusing Russian authorities of complicity in the looting. 

Russia ranked 146 on the 2009 Corruption Perception Index, tied with Cameroon, Ecuador, Kenya, Sierra Leone, Timor-Leste, Ukraine, and Zimbabwe.

See our prior post about Hermitage here.

Sunday
Nov222009

"We've got to conduct ourselves like men"

If you haven't seen (or heard) last week's episode of Bill Moyers' Journal on PBS called LBJ's Path To War, it's something special. The hour-long program consists almost entirely of excerpts from President Johnson's recorded phone calls with advisors and congressional leaders. He's talking to them about the Vietnam problem.

The first call is from November 1963, when Johnson had just taken office after JFK's assassination. There were about 15,000 U.S. military advisors on the ground in South Vietnam. The last call we hear is from the end of 1965, when the build-up of combat forces had reached 184,000 and there was no end in sight.

It's eerie to listen as Johnson struggles to find a military strategy for Indochina that's politically acceptable back home. Several times you hear him fantasizing about a stronger and more legitimate government in Saigon, one that could provide an honorable exit by inviting U.S. troops to leave its soil. But as we all know, he never found a peace partner there -- only corruption and infighting. As Johnson slid deeper into war, he described himself as a victim trapped by events. There's no hint he ever saw himself as a leader who could shape history. But that's what he did.

Eavesdropping on the commander-in-chief from our time now -- and knowing how the catastrophe that Vietnam became destroyed his presidency and cost maybe a million lives, including 56,000 Americans -- is almost unbearably frustrating. Like Marty McFly in Back To The Future, you want to yell, "No, don't do that."

Bill Moyers, who was working for LBJ in the White House during those years, closes the program with thoughts about Afghanistan. Although the world is different, he says, we're once again "fighting in remote provinces against an enemy who can bleed us slowly and wait us out, because he will still be there when we are gone."

Afghanistan ranked 179 out of 180 on the 2009 Corruption Perception Index, and 7th worst on Foreign Policy's Failed States Index. So the idea of finding a stable and legitmate partner in any government there is another fantasy. That leaves today's commander-in-chief with the same two military options Johnson himself said he had: Go all the way in or get all the way out. Johnson did neither.

"We will never know what would have happened if Lyndon Johnson had said no to more war," Moyers says. "We know what happened because he said yes."

Read prior posts about Afghanistan here and here.

Thursday
Nov192009

Giving Thanks Once Again

During this season of Thanksgiving, the folks at Norway's Statoil ASA will be celebrating the end of the company's three-year deferred prosecution agreement -- and the Justice Department's public announcement about it here. In 2006, Statoil (which trades on the NYSE under the symbol STO) was charged with violating the anti-bribery and accounting provisions of the Foreign Corrupt Practices Act. It had paid more than $5 million through a middleman to an Iranian official for access to the South Pars natural gas field, one of the world’s largest. In settling with the DOJ, it agreed to pay a $10.5 million penalty and enter into the three-year deferred prosecution agreement. It also agreed with the SEC to pay $10.5 million in disgorgement and retain a monitor.

The case made waves in '06. Statoil's was the earliest criminal enforcement action against a foreign company. The financial penalties the DOJ and SEC imposed set that year's record for an FCPA case. And Statoil had already been punished in Norway for the bribery and fined about $3 million. The U.S. government evidently deemed that inadequate but, in an act of comity, allowed Statoil to deduct the Norwegian fine from the U.S. criminal penalty.

U.S. Attorney Prett Bharara got it right when he said yesterday: "This case shows that deferred prosecution agreements against corporations can work as an important middle ground between declining prosecution and obtaining the conviction of a corporation. The deferred prosecution agreement . . . helped restore the integrity of Statoil's operations and preserve its financial viability while at the same time ensuring that it improved what was obviously a failed compliance and anti-corruption program."

*   *   *

Frederic Bourke and William Jefferson will be thankful to be out on bail pending their appeals. The DOJ may have put too much zeal into Bourke's prosecution, and may have botched part of Jefferson's trial. But both men will have second chances on appeal. Bourke to argue that he never intended to break the law, and that being a criminal in the United States still requires some mens rea. And Jefferson that he was convicted for private acts under a law governing public acts, that he never had a chance to confront the main witness against him -- the government's informant, that her relationship with an FBI agent working on his investigation was evidence the jury should have heard, that the "honest services" statute he was convicted under is too vague to understand, and that the jury's verdict on the conspiracy count should have been tossed. 

*   *   *

We're thankful, as always, for the rule of law. Our system of justice isn't perfect. It can't be. But as we said a few weeks ago, when it works as it should, the guilty are usually punished and the innocent usually go free. And that's a rare blessing at any time and place. We're thankful too for the freedom we and others have to praise the system when it works and criticize it when it doesn't.

*   *   *

We're thankful so many people are at work right now trying to spread the rule of law around the world. People in governments, in NGOs, in universities and private institutions, and on their own. Wherever it goes, the rule of law helps people escape from fear and poverty.

*   *   *

We're thankful for everyone who supported the FCPA Blog during the past year -- our readers, sponsors, contributors, fellow bloggers, and kibitzers. They all help keep us honest and cheerful.

*   *   *

Finally, we give thanks for these words from Walden, written in 1854 by Henry David Thoreau, one of the most thankful and sanest Americans who ever lived:

At length the winter set in good earnest, just as I had finished plastering, and the wind began to howl around the house as if it had not had permission to do so till then. Night after night the geese came lumbering in the dark with a clangor and a whistling of wings, even after the ground was covered with snow, some to alight in Walden, and some flying low over the woods toward Fair Haven, bound for Mexico. . . . The snow had already covered the ground since the 25th of November, and surrounded me suddenly with the scenery of winter. I withdrew yet farther into my shell, and endeavored to keep a bright fire both within my house and within my breast.

Wednesday
Nov182009

Jefferson And Bourke Are Released On Bail

Surprising news from the federal courthouse in Alexandria, Virginia. William Jefferson, left, is free pending appeal of his conviction in August on 11 corruption counts. Last week U.S. District Court Judge T.S. Ellis III sentenced him to 13 years in prison. But the judged ruled on Wednesday that the former congressman can remain free during his appeal, which will likely take at least a year.

The Times Picayune said Judge Ellis didn't expect to be reversed on appeal. But he said "a key element of the case, whether Jefferson's effort to influence African leaders on behalf of business officials in return for payments and promised payments constituted official acts, had not been tested in the appellate courts." Jefferson has argued he was acting as a private citizen and not in his official capacity as a member of congress.

Judge Ellis also said he regretted not making the jury's verdict form more specific. Jefferson was acquitted on Count 11 of the indictment -- the only substantive Foreign Corrupt Practices Act charge he faced. But the jury convicted him on Count 1. It alleged three separate illegal conspiracies -- to solicit bribes, deprive citizens of honest services, and violate the FCPA. The verdict form didn't require the jury to specify which of the three illegal conspiracies it believed he engaged in. So Jefferson's conviction on Count 1 may or may not have included a finding that he conspired to violate the FCPA. See our post "Toss Jefferson's FCPA Conspiracy Count" here.

Meanwhile, Frederic Bourke is also free. He was allowed bail of $10 million until the Second Circuit decides his appeal --  probably in 12 to 15 months. He was convicted in July in federal court in Manhattan of conspiracy to violate the FCPA and lying to federal investigators.

Why are Bourke and Jefferson free while they appeal? Although their cases are very different, all decisions about release pending appeal are governed by 18 U.S.C. § 3143(b) here. The law requires jail unless the judge finds by clear and convincing evidence that the defendant isn't likely to flee or pose a danger to the community, didn't appeal for purposes of delay, and the appeal raises a "substantial question of law or fact likely to result" in reversal, a new trial, a sentence without jail time, or a reduced sentence that is less than time served plus the expected duration of the appeal.

Bourke's lawyers nicely described the application of the judicial guidelines in their October 16, 2009 memo supporting his release here. They said:

The government concedes that Bourke is not a danger to the community; it grudgingly acknowledges that he does not pose "a serious risk of flight,"and it tacitly accepts (by not addressing the point) that his appeal "is not for the purpose of delay." Thus, the government focuses, as it should, on whether Bourke's appeal raises a substantial question of law or fact likely to result in reversal or a new trial or, if Count One [conspiracy to violate the FCPA] alone is reversed, a sentence on Count Three [misstatement] that either does not include imprisonment or includes a reduced sentence "to a term of imprisonment less than . . . the expected duration of the appeal process." 18 U.S.C. § 3143(b)(1)(B)(iii), (iv).

Both Bourke and Jefferson have met the test for release pending appeal by clear and convincing evidence.

Wednesday
Nov182009

Dateline Washington

Here's a dispatch from Cody Worthington:

Dear FCPA Blog,

I attended the opening day of ACI's 22nd National Conference on the Foreign Corrupt Practices Act in D.C. yesterday [November 17].

Among the many people there were representatives of the DOJ and SEC. Mark Mendelsohn [left, DOJ Deputy Chief, Fraud Section, Criminal Division] said a new industry-wide FCPA probe of the pharmaceutical companies was underway (which we heard about last week from Assistant Attorney General Lanny A. Breuer). He also said he was "cautiously optimistic" that prosecutions in 2009 would exceed 2008. He pointed out that right now according to his statistics they stand at 9. Last year's total was 17. He said the DOJ has 130 cases open at the moment. He further predicted a large increase in FCPA cases over the next several years due to the recent worldwide recession.

Lanny Breuer gave a luncheon speech. He said how much the DOJ will miss Mark Mendelsohn, who's exploring other opportunities, and how they were searching for a replacement to fill his big shoes. He called Mark "an exceptional public servant and a visionary steward of the FCPA program." He also mentioned the pharmaceutical probe and said other industry-wide investigations will be forthcoming. [Full remarks here.]

Anyway, good stuff and many other great speakers.

I believe there were about 500 people in attendance. A lot of what I call "The Legends of the FCPA" including: Dan Newcomb, Homer Moyer, Roger Whitten, Martin Weinstien, Richard Dean, Lucinda Low, William "Billy" Jacobson, Tim Dickinson, and others. If there is ever an FCPA Hall of Fame, they are in on the first ballot.

_____________

Tuesday
Nov172009

M&A Surge Means More FCPA Action

Mergers and acquisitions are back. Seeking Alpha just said: "Over the past few weeks, there has been a resurgence in acquisition activity, fueling an already strong market rally. This news has spanned all regions of the economy ranging from the transportation sector (Burlington Northern being taken over by Berkshire Hathaway) to pharmaceuticals (Schering Plough being acquired by Merck). Most recently, in the consumer sector, Kraft announced its intention to take over confectionery giant Cadbury while Hewlett Packard announced plans to buy 3com."

When M&A numbers climb, so do Foreign Corrupt Practices Act enforcement actions. That's because all acquisitions involve due diligence, either before or after the deal is done. Due diligence is one way potential FCPA offenses are discovered. And once discovered, most are now self-reported to the Justice Department or the Securities and Exchange Commission. Directors protect themselves through disclosure. Beyond that, buyers in friendly M&A deals commonly insist that the target's compliance problems be reported and resolved before the closing.

In the past, M&A activity has led to some well-known FCPA enforcement actions. Cardinal Health's 2003 acquisition of Syncor produced FCPA precedents concerning an acquirer's pre-merger due diligence obligations and successor liability. Titan Corporation's FCPA violations were discovered after a Lockheed tender offer. Lockheed aborted the offer and in 2005 Titan paid a record $28.5 million for its FCPA settlement. More recently, M&A activity resulted in enforcement actions involving Delta Pine, Aibel, and Latin Node, among others. In May, Sun Microsystems self-disclosed an internal investigation into possible FCPA violations discovered during due diligence for Oracle's takeover bid. And last year, Halliburton's clumsy attempt to buy British firm Expro through a hostile takeover produced the most intrusive Justice Department FCPA Opinion Procedure Release on record.

The current M&A wave, combined with the DOJ's already sharpening focus on the FCPA, means there's lots more enforcement action on the way.

*     *     *

Where do FCPA cases come from? In remarks yesterday to the National Forum on the Foreign Corrupt Practices Act, Assistant Attorney General Lanny Breuer said this: "Although many of these cases come to us through voluntary disclosures, which we certainly encourage and will appropriately reward, I want to be clear: the majority of our cases do not come from voluntary disclosures. They are the result of pro-active investigations, whistleblower tips, newspaper stories, referrals from our law enforcement counterparts in foreign countries, and our Embassy personnel abroad, among other sources. I have personally traveled abroad and spoken with Embassy personnel about this issue."

A copy of Lanny Breuer's November 17, 2009 remarks can be downloaded here.

*    *   *

Presidential Proclamation 7750 allows the State Department to deny visas to foreign kleptocrats and their families. It was signed into law in 2004 and by 2006 it was being called a key tool in America's anti-corruption arsenal. (The FCPA reaches bribe payers but not bribe takers.) Yet we could say without exaggeration in a post last week that the U.S. press had completely ignored Proclamation 7750.

But that's now changed.

Harper's Magazine published an article by Ken Silverstein on November 16 about the son of Equatorial Guinea's ruler, Teodoro Nguema Obiang Mangue. The article began:

In 2004, George W. Bush issued Presidential Proclamation 7750, which barred corrupt foreign officials from entering the United States and ordered the State Department to compile a list of banned individuals. Three years later Congress approved a complementary measure that said the State Department should take special heed to bar officials when there was “credible evidence” to believe they were involved in the theft of natural resources revenues. Last July, the State Department issued a report noting that corruption eroded “confidence in democratic institutions” and that fighting it was a central tenet of American foreign policy. The report also stated that the Obama administration would “vigorously” enforce 7750, better known as the Anti-Kleptocracy Intiative, and give particularly close scrutiny to visa requests from individuals involved in corruption involving natural resources.

And somewhat improbably, the New York Times carried its own story on the same day by Ian Urbina about Teodoro Nguema Obiang that also featured the hitherto invisible Proclamation 7750.

After five years, what a difference a week makes.

Monday
Nov162009

Why Didn't Bourke Know?

There was an outstanding post last week over at the White Collar Crime Prof Blog (here). It was written by Matthew Reinhard, left, a litigator and FCPA practitioner based in the District of Columbia. Like us, he thinks Frederic Bourke's chances on appeal are pretty good. In the post, he talked about the mens rea element at the center of Bourke's trial. That issue culminated in Judge Scheindlin's "conscious avoidance" instruction to the jury, followed by post-trial comments from jury members indicating they didn't grasp the judge's meaning. The jury foreman was quoted in the New York Law Journal as saying about Bourke: "We thought he knew and he definitely should have known."

Hey, Reinhard said, that's not "conscious avoidance." He explained:

The Government did not create the "conscious avoidance" standard out of whole cloth. Indeed, it is defined within the FCPA’s broader knowledge standard, which states that "when knowledge of the existence of a particular circumstance is required for an offense, such knowledge is established if a person is aware of a high probability of the existence of such circumstance, unless he actually believes the circumstance does not exist." 15 U.S.C. § 78dd-1(f)(2)(B) (2004) (emphasis added). When the government indicated its intention to travel on this standard, Judge Scheindlin appropriately ruled that to prevail on such a theory the Government would need to prove that Bourke decided not to learn a key fact, not that he was merely negligent in failing to learn it. To a lay-person (and perhaps even to many lawyers) that may seem like a tough distinction to make, but it is also the bright line that separates civil liability from criminal activity.

We let Matt know how much we liked his post. And we asked if he thought any other issues on appeal might work for Bourke. He said:

Judge Scheindlin issued a series of important rulings surrounding the "local law" defense contained in the FCPA. The court rejected Bourke's argument that the payments were permissible under local Azeri law because they were the product of extortion, concluding that the initial payments were not lawful, only that the Azeri law in question allowed a person to avoid prosecution for payments obtained through extortion. The court concluded that the affirmative defense was not available to Bourke where, as here, local prosecution was avoided due to a "technicality" or a local law that otherwise relieved a person of criminal liability. It will be interesting to see if Bourke's lawyers press this issue further on appeal.

Jury verdicts, Matt wrote, are notoriously difficult to overturn. But we're letting ourselves be a little excited at the prospect, however slim, that in a year or so the influential Second Circuit might make new white-collar criminal law in an FCPA-related case. 

Sunday
Nov152009

Guilty Plea In (Old) Panama Bribes Case

A Virginia man pleaded guilty on Friday, November 13th to being part of an overseas bribery conspiracy that began in 1996 and ended in 2003. Charles Paul Edward Jumet, 53, was charged in federal court in Richmond, Virginia under a two-count criminal information. He admitted conspiring with others to violate the Foreign Corrupt Practices Act by making corrupt payments to government officials in Panama and giving a false statement to the FBI about how he paid some of the bribe money.

Jumet, an American citizen, was an officer of Ports Engineering Consultants Corporation (PECC), an affiliate of Virignia Beach-based Overman Associates. In December 1997, the Panamanian government awarded PECC a no-bid, 20-year contract to maintain lighthouses and buoys along Panama’s waterway. In exchange, Jumet and others authorized corrupt payments to Panamanian officials. By 2003, he and his co-conspirators had paid more than $200,000 to the former administrator and deputy administrator of Panama’s National Maritime Ports Authority and to a former, high-ranking elected official of Panama.

The bribery plot started in 1996 and was first uncovered by the U.S. Department of Homeland Security in 2004. The FBI later joined the investigation.

As in Frederic Bourke's case, the DOJ charged Jumet not with a substantive FCPA offense but under the conspiracy statute, 18 U.S.C. § 371. For conspiracy, the statute of limitations can reach back to criminal behavior more than five years old if the conspiracy ended within the past five years. Here's what the U.S. Attorneys Criminal Resource Manual says

Conspiracy is a continuing offense. For statutes such as 18 U.S.C. § 371, which require an overt act in furtherance of the conspiracy, the statute of limitations begins to run on the date of the last overt act. See Fiswick v. United States, 329 U.S. 211 (1946); United States v. Butler, 792 F.2d 1528 (11th Cir. 1986).

Jumet is scheduled to be sentenced February 12, 2010. The FCPA conspiracy count carries a maximum penalty of five years in prison and a fine of the greater of $250,000 or twice the gross gain or loss from the scheme. The false statement count carries a maximum penalty of five years in prison and a fine of $250,000.

A copy of the DOJ's November 13, 2009 release is here.

Download the November 10, 2009 criminal information in U.S. v. Charles Paul Edward Jumet  here.

Download the DOJ's statement of facts here.

Download the plea agreement here.

Our thanks to Matthew Reinhard and Cody Worthington for helping us with this post.

Friday
Nov132009

Jefferson Sentenced To 13 Years

Former nine-term congressman William Jefferson, 63, was sentenced on Friday to 13 years in prison. He was found guilty on 11 of 16 corruption charges, including one count of conspiracy to violate the Foreign Corrupt Practices Act. He was acquitted of the single substantive FCPA charge he faced.

Judge T.S. Ellis handed down the sentence in federal court in Alexandria, Virginia, where Jefferson had stood trial for six weeks in July and August. Prosecutors had asked that Jefferson be jailed for 27 to 33 years; Jefferson's lawyers wanted a sentence of less than 10 years. Next week the judge will decide when Jefferson must report to prison and whether he can remain free on bail pending his appeal.

Jefferson made FCPA history when he became the first and only U.S. public official to be charged under the law since it was enacted in 1977. But his case will always be remembered for the $90,000 in cash found in his freezer. The money was part of $100,000 given to him by a government informant. Prosecutors said Jefferson planned to use it to bribe Nigeria's then vice president, Atiku Abubakar.

But as we said before the trial began, "The money so spectacularly found in the freezer -- it was in the freezer; it was not in the bank account of a foreign official." Although the cash seemed to prove Jefferson's innocence on the substantive FCPA charge, it was also perfect evidence to prove his bad intentions. Honest money doesn't go into a congressman's kitchen freezer. So when Jefferson took the cash, and when the FBI found it hidden with the frozen food in veggie-burger boxes, prosecutors had to put the FCPA in the case even if it didn't belong there (see our post here). Without it, the cash may have become irrelevant and been excluded from the trial.

The Times Picayune said, "Jefferson's lawyers, who are owed more than $5.7 million by Jefferson, according to documents submitted in his and wife Andrea's recent bankruptcy filing, have 10 business days to file an appeal." The paper said an appeal is likely to challenge Judge Ellis' rulings about the definition of Jefferson's "official acts" and the judge's decision not to tell the jury that an FBI agent on the case had a sexual relationship with the government's informant when she was recording her conversations with Jefferson.

William Jefferson was born into back-woods poverty. He overcame impossibly long odds to graduate from Harvard Law School and become the first African-American elected to Congress from Louisiana since Reconstruction. Now he's disgraced, bankrupt, and heading for jail -- where he may live until his 76th birthday. It's a very sad turn in a life of wondrous achievement.

Read all our posts about William Jefferson here.

Thursday
Nov122009

He Said, We Said

On November 12, 2009, there was a lot of tough talk from the DOJ's Lanny Breuer (left). The new chief of the criminal division warned pharmaceutical companies and executives about their exposure under the Foreign Corrupt Practices Act. He said, "Our focus and resolve in the FCPA area will not abate, and we will be intensely focused on rooting out foreign bribery in your industry. That will mean investigation and, if warranted, prosecution of corporations to be sure, but also investigation and prosecution of senior executives."

He was speaking at an annual pharma compliance confab in Washington. A copy of his remarks can be downloaded here.

On September 3, 2009, the FCPA Blog said:

Will drug makers be the target of the next industry-wide Foreign Corrupt Practices Act investigation, following in the footsteps of the oil and gas services companies and orthopedic device makers? It's possible. Their sales practices are in the news a lot these days. And amid the healthcare debate, drug-company behavior anywhere invites attention in Washington and beyond.

Remember the orthopedic device makers? Like Pfizer this week and Eli Lilly earlier this year, they resolved enforcement actions based on illegal domestic sales practices. Soon after, most of them disclosed that the DOJ and SEC were looking into their overseas marketing methods for any FCPA offenses. Those investigations are ongoing. . . .

*   *   *

Thanks to everyone who made the jump with us here to our new site. Some readers let us know what needed fixing, which was helpful. We're especially grateful for our webmaster's hard work and patience.

Thursday
Nov122009

Novak Pleads Guilty

A former consultant for a subsidiary of Houston-based Willbros Group Inc. pleaded guilty on November 12 to paying $6 million in bribes to officials who worked in the Nigerian government, in government-owned companies, and in a political party there. Paul G. Novak, 43, pleaded guilty in federal court in Houston to one count of conspiracy to violate the Foreign Corrupt Practices Act and one substantive count of violating the FCPA. He's scheduled to be sentenced on February 19, 2010.

The bribes were intended to help Willbros win and keep contracts for the Eastern Gas Gathering System (EGGS) Project, worth about $387 million. The project was a natural gas pipeline system in the Niger Delta.

Novak, along with alleged co-conspirators James Kenneth Tillery, Jason Steph, Jim Bob Brown and three employees from a German construction company based in Mannheim, Germany, agreed to make the corrupt payments to, among others, government officials from the Nigerian National Petroleum Corporation, the National Petroleum Investment Management Services, a senior official in the executive branch of the federal government of Nigeria, members of a Nigerian political party and officials from the Shell Petroleum Development Company of Nigeria Ltd.

To fund the bribes, Steph and others used a Willbros' subsidiary, Willbros West Africa Inc. (WWA), to enter into agreements with two consulting companies Novak represented. Without providing any services, the consulting companies would invoice WWA and be paid from Willbros' bank account in Houston to accounts in Lebanon. Novak then used money from the Lebanese accounts to bribe the Nigerian officials.

In addition to Novak, two Willbros employees have pleaded guilty in the case and Willbros has entered into a deferred prosecution agreement:

On September 14, 2006, Jim Bob Brown, a former Willbros executive, pleaded guilty to one count of conspiracy to violate the FCPA, for his role in making corrupt payments to Nigerian government officials to obtain and retain the EGGS contract and for making corrupt payments in Ecuador. Brown's sentencing is currently scheduled for January 28, 2010.

On November 5, 2007, Jason Steph, also a former Willbros executive, pleaded guilty to one count of conspiracy to violate the FCPA, for making corrupt payments to Nigerian government officials to obtain and retain the EGGS contract. Steph's sentencing is also scheduled for January 28, 2010. See our post here.

On May 14, 2008, Willbros Group Inc. and Willbros International Inc. entered into a deferred prosecution agreement and agreed to pay a $22 million criminal penalty, for the illegal payments to government officials in Nigeria and Ecuador. See our post here.

James K. Tillery was charged, along with Novak, for his alleged role in the bribery scheme in an indictment unsealed on December 19, 2008. According to the indictment, Tillery was a Willbros employee and executive from the 1980s through January 2005. He remains a fugitive. See our post here.

Download the DOJ's November 12, 2009 release here.

Thursday
Nov122009

Frederic Bourke's Big Bet

While we're watching the teletype (left) for news about William Jefferson's sentencing Friday morning (see our post here), let's talk about Mr. Bourke. He was sentenced Tuesday to a year and a day in jail and fined a million dollars for conspiring to violate the FCPA and lying to FBI agents. People in the courtroom said when he was convicted, Bourke was shocked. So apparently he never expected the jury to find him guilty. But when he was sentenced, he was happy and relieved. So he must have been expecting a lot worse. And that probably means the DOJ never offered him a deal with so little jail time.

Why was Bourke shocked by the verdict? Because he had good facts and good law and good lawyers. He didn't pay any bribes himself; he was one of Viktor Kozeny's victims; he'd blown the whistle on Kozeny's fraud and testified to a state grand jury that indicted Kozeny; he thought he'd have the local law defense (he didn't; Judge Scheindlin ruled against it); George Mitchell was his friend, co-investor and character witness; he had smart, active lawyers, and so on. So let's face it. As a defendant, Bourke had a lot going for him. That's why he was shocked by the verdict.

But should he have been? We don't think so. Defendants haven't done well with juries in FCPA-related cases. There hasn't been a full acquittal -- Mr. Jefferson's split decision notwithstanding -- since 1991. Why? For two main reasons.

Before we get to reason number one, we acknowledge that there are lots of legal arguments you can raise about the words of the FCPA -- about the business nexus element, the meaning of "foreign official," and others. And those are good arguments on paper. But judges haven't wanted to hear much about them. In the Kay and Murphy case, for example, the Fifth Circuit even warned against defendants who try "splitting hairs" (they were talking about the meaning of "obtaining or retaining business"). So that's reason number one why defendants don't do well in court. Judges don't welcome a lot of legal argument about the FCPA. Bourke's trial also illustrated the point. Judge Scheindlin didn't allow the local law defense. That surprised us and it dented Bourke's chances of acquittal.

Reason number two: Juries hate graft. That's what we said when the Greens were convicted in September. There's no other conclusion to draw from the trial record in FCPA-related prosecutions stretching back eighteen years. We'll say it again: FCPA cases are about bribes to corrupt foreign officials. They're about sophisticated and often wealthy people looking for shortcuts, hoping to subvert foreign governments for personal or corporate gain. Wheeling and dealing in exotic places. Flashing cash and pulling strings. That's how the prosecutors tell it and juries lap it up. So even if the government's evidence isn't rock solid on all the elements of an FCPA offense, the jury will still get the picture that people who should know better stepped over the line. And they'll convict.

Coming back to Bourke, we'd have to say he took a big risk going to trial, even though he had a lot going for him. But he was fortunate. Judge Scheindlin was on the bench. She said he was at least partly a victim so she gave him a break on the jail time. That's how justice should work (and why no one is sorry the federal sentencing guidelines aren't compulsory anymore).

One more thing. Bourke still has an appeal to the Second Circuit. Defendants who plea bargain can't appeal but those who go to trial can. That's a reason to go to trial, although it can't be nice to sit in a jail cell hoping your appeal will work (they rarely do). Still, Bourke's chances with the Second Circuit aren't too bad.

Our conclusion: If the government never offered Bourke less than a year in prison as part of a plea deal, he came out ahead by going to trial. And he may do even better after his appeal. But his decision to go to trial in the first place was against the odds. And he ended up lucky.