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FCPA Blog Daily News


Defense Contractor, Ex-Exec Settle Charges

The Securities and Exchange Commission last week filed settled enforcement actions against United Industrial Corporation (UIC), an aerospace and defense systems contractor, and Thomas Wurzel, the former President of UIC's one-time subsidiary, ACL Technologies, Inc.

Wurzel agreed to pay a $35,000 civil penalty; UIC will pay $337,679.42 in disgorgement and prejudgment interest.

The SEC said Wurzel authorized illegal payments to Egyptian Air Force officials through an agent in return for business related to a military aircraft depot in Cairo. The bribes helped UIC's subsidiary ACL win a $5.3 mllion contract with profits of about $267,000. The illegal payments were covered up in ACL's books through false invoices and payments for “equipment and materials” and “marketing services.”

Wurzel and UIC were charged with violating the anti-bribery, books and records and internal controls provisions of the Foreign Corrupt Practices Act; Wurzel also faced aiding and abetting violations. Both defendants also agreed to cease and desist orders.

The SEC said it had jurisdiction because UIC's common shares were listed on the New York Stock Exchange when the offenses occurred in 2001 and 2002. Textron acquired UIC in December 2007.

The Justice Department hasn't announced any criminal enforcement actions against UIC or Wurzel.

The SEC's Litigation Release No. 21063 and Accounting and Auditing Enforcement Release No. 2980, dated May 29, 2009, in Securities and Commission v. Thomas Wurzel, Civil Action No. 09-Civ-01005 (RWR), United States District Court for the District of Columbia, can be viewed here.

A copy of the SEC's cease and desist order against UIC can be downloaded here.

A copy of the SEC's complaint against Thomas Wurzel can be downloaded here.

* * *
From Frederic Bourke's trial. Day four testimony by the government's witness Thomas Farrell, an American living in Russia who helped Kozeny with logistics. He recounted a meeting he, Kozeny and a Chechen had with Ilham Aliyev, then vice president of the state oil company, and Barat Nuriyev, the state property committee's deputy chairman:

made very clear very quickly that him and his boss were representing the president of Azerbaijan,” who was then Heidar Aliyev, Farrell testified. “He said it: ‘The family.’ And he also pointed over his shoulder. There was a portrait of the president.” . . . Kozeny offered to give Azeri leaders half the profits after he bought the state oil company at a steep discount and resold it to Westerners for billions of dollars. At a later meeting, Nuriyev demanded two-thirds of Kozeny’s profits from the sale of the oil company, known as Socar, Farrell said.

Bourke didn’t invest with Kozeny until months after the meeting with Nuriyev and denies knowing about the bribery scheme. He says Kozeny stole his $8 million investment.

Selective prosecution? Bourke’s defense lawyer Harold Haddon cross examined John Pulley, Kozeny’s security chief. Pulley admitted investing $410,000 with Kozeny. He wired money to Kozeny’s lawyer, Hans Bodmer, who routed his funds through a shell company Bodmer set up in the British Virgin Islands, just like Bourke. And Pulley, like Bourke, said he didn't know about the bribes. Pulley hasn't been charged in the case.

Read David Glovin's full report from the courtroom on the Bloomberg news wire here.

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


Jefferson On Trial, Soon

Former Congressman William J. Jefferson's trial for violating the Foreign Corrupt Practices Act and other federal laws will start on June 9 in Alexandria, Virginia. Judge Tim Ellis this week granted Jefferson a one-week delay. He's charged in a 16-count indictment with FCPA violations, soliciting and accepting bribes, wire fraud, money laundering and obstruction of justice. He could be sentenced to a maximum of 235 years in prison if convicted on all counts.

Jefferson's case is best known for allegations that he hid $90,000 in the freezer at his Washington home. The indictment said it was part of $100,000 provided in August 2005 by the government's cooperating witness. It was supposed to be used to bribe a Nigerian official to steer telephone service-related business to Jefferson's family members. "The cash was separated into $10,000 increments, wrapped in aluminum foil, and concealed inside various frozen food containers," according to prosecutors.

Jefferson's lawyers have said the money "was transmitted to Mr. Jefferson by the government's cooperating witness during the course of the FBI's sting operation so that he would pass it to a foreign government official," the then vice president of Nigeria. "But Mr. Jefferson did not do that. Instead, the marked funds were recovered in his home."

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.

Jefferson had argued last year that except for the two FCPA charges, the grand jury's 16-count indictment violated his rights by relying on evidence protected by the absolute privilege in the Constitution's Speech or Debate Clause (Article I, Section 6, Clause 1). In November, the Fourth Circuit Court of Appeals rejected his arguments. Last month, the Supreme Court refused to hear his appeal, clearing the way for the trial.

Jefferson, 62, lost an election last year for a 10th term in Congress. His district included New Orleans. Before being indicted, he had compiled an outstanding record of public service. 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.

He was raised in northeast Louisiana before he moved to New Orleans and rose to power. A great article by Gordon Russell in The Times-Picayune (one of our favorite papers) said this about his childhood:

Life in the Delta during the 1940s wasn't easy: Though the family owned a small farm, the Jefferson children had to pick cotton and the large family was crammed into a five-room house.

In town, racial oppression was rigid, and may have launched [Jefferson's older brother's] flight to Chicago. William Jefferson's recent book, "Dying Is the Easy Part" -- which is billed as fiction but reads like an autobiography -- features a chapter that centers on an older brother of the narrator.

The brother is insulted by a group of racist white men. One throws a pool ball at him but misses, breaking a mirror. Though he is handy with his fists, the brother knows fighting isn't an option, and he runs home.

Nonetheless, that night, deputies come to his house to arrest him. The sheriff tells his mother: "Your boy can't be fighting white boys in this parish. If he wants to fight with white boys, then, by God, he's gotta go up North."

His mother, defiant, refuses to turn over her son. "He's gotta go up North to keep somebody from whipping his ass?" she asks rhetorically. "He ain't going nowhere."

* * *
From Frederic Bourke's trial. Here's the lead from David Glovin's account of the jaw-dropping testimony on day three: Viktor Kozeny’s security chief told a jury how the Czech expatriate brought ex-Senator George Mitchell into a deal to buy Azerbaijan’s oil company, spent $96,000 on a dinner for six, and befriended powerful American investors. There's lots more here.

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

* * * New York-based writer and business strategist Aimee Barnes keeps an eye on China-related developments in her blog. She asked us about corruption and compliance and has now posted the results. Thanks, Aimee.


Another FCPA Derivative Suit Is Tossed

For the third time, Baker Hughes has beaten back a derivative suit based on its 2007 settlement of Foreign Corrupt Practices Act violations. It paid $44 million to resolve enforcement actions by the Justice Department and Securities and Exchange Commission related to bribery in Kazakhstan. Since then, plaintiffs have tried to sue in state court once and federal court twice. The latest federal suit in Houston was bounced on procedural grounds. Here's part of a nice report from Andrew Longstreth at AmLaw's Litigation Daily:

You would think that the recent explosion of Justice Department investigations of corporate bribery--which often end with a company admitting to some damaging facts and paying the government a fine--would be good news for plaintiffs lawyers. But in an early test of how Foreign Corrupt Practices Act charges will play in a derivative suit, they've bombed. Last week Houston federal district court judge Vanessa Gilmore adopted a magistrate's recommendation to dismiss a derivative suit against current and former officers and directors of Baker Hughes . . .

The suit had alleged that Baker Hughes directors and officers breached their fiduciary duty by failing to address potential FCPA problems. But the plaintiffs stumbled on a procedural hurdle: They didn't make a demand on the board to file the suit, arguing that it would have been futile. But Judge Gilmore confirmed Magistrate Judge Mary Milloy's finding that plaintiffs failed to show that the Baker board could not impartially evaluate their lawsuit.

In the earlier Baker Hughes federal case, the Fifth Circuit made it a lot harder for pension funds and other trusts to achieve the necessary "complete diversity" needed for federal jurisdiction. U.S. Magistrate Mary Milloy's April 14, 2008 Memorandum and Recommendation on Motion to Dismiss was adopted by Judge Gilmore. The case is called Sheet Metal Workers' National Pension Fund et al v. Chad Deaton et al. A copy of the magistrate's memo can be downloaded here.

And last year, the Ninth Circuit in Glazer Capital Management v. Magistri put another obstacle in the path of plaintiffs. The court raised the "scienter" bar for FCPA-related claims against officers and directors under the federal securities laws. See our post More Hurdles For Private Litigants.

In Texas last month, plaintiffs' lawyers filed a state derivative class action against some of the officers and directors of Halliburton and its one-time subsidiary, KBR. The suit alleges various misconduct -- including the Nigerian bribery that led to the companies' $579 million settlements of Foreign Corrupt Practices Act offenses earlier this year. We speculated that part of the reason the plaintiffs went to state instead of federal court was because of the Magistri holding (which isn't binding in the Fifth Circuit but could be influential). They may also have had the same "complete diversity" problems as the plaintiffs in the earlier Baker Hughes case.

* * *
From Frederic Bourke's trial. A packed Manhattan courtroom. The call to order. Opening statements in the biggest FCPA trial ever. It's about the tape already. The tape Bourke gave to prosecutors. He's talking to fellow investor Dick Friedman and their lawyers. Bourke is worried promoter Viktor Kozeny plans to bribe Azeri officials. From the trial, Bloomberg's David Glovin writes:

The “remarkable tape recording” will show Bourke knew of the bribes and still elected to invest $8 million, Justice Department lawyer Robertson Park told jurors.

“That tape is the best piece of evidence in the case of Mr. Bourke’s innocence,” defense attorney Saskia Jordan said in her opening. It will show Bourke took his concerns about Kozeny to his attorneys so that he wouldn’t break the law, she said.

Read Glovin's report of the opening day action on Bloomberg's newswire here.

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


The Book On Bourke's Judge

Last week we said Judge Shira Scheindlin's preliminary rulings would protect Frederic Bourke's right to a fair trial. That, it turns out, is something she's already known for. Another defendant, John "Junior" Gotti, the alleged New York City mobster, has had three trials in her courtroom since 2005. The charges related to an alleged plot to kidnap Curtis Sliwa, founder of the Guardian Angels, after he slammed the Gotti family on his radio show. All three trials ended in hung juries.

After Junior's third mistrial in 2006, his sister -- celebrity writer and former reality show star Victoria Gotti -- told the New York Daily News, "I will thank our good fortune every day for a judge like Shira Scheindlin. She is the difference between a fair trial and a railroad job. God bless her."

Who is Judge Scheindlin? She was born in 1946 in Washington, D.C. She's been on the U.S. District Court for the Southern District of New York since 1994, when Bill Clinton nominated her to a seat vacated by Louis Freeh, who left to head the FBI. She's a Michigan alum, BA 1967, Columbia MA 1969, and Cornell Law School JD 1975. The Almanac of the Federal Judiciary says: "Scheindlin is known for her intellectual acumen, demanding courtroom demeanor, aggressive interpretations of the law, and expertise in mass torts, electronic discovery, and complex litigation."

She once ruled that the NFL draft violated federal anti-trust law and unjustly blocked players from pursuing their careers. But in April 2004, Supreme Court-nominee Sonia Sotomayor at the Second U.S. Circuit Court of Appeals stayed her decision. Last month Judge Scheindlin decided that claims in a case called In Re South African Apartheid Litigation can proceed, despite objections from the State Department. Companies such as Ford, General Motors and IBM, she said, cannot be held liable for "breadth of harms" committed under apartheid. But claims can be tried where the aider and abettor knows that its actions "will substantially assist the perpetrator in the commission of a crime or tort in violation of the law of nations."

Her best-known decision is Zubulake v. UBS Warburg, a 2003 case that defined a party's obligations to produce electronically stored information. It was partly her whimsical prose that transformed what she called a "relatively routine employment discrimination dispute" into an e-discovery landmark. Here's how her opinion began:

Commenting on the importance of speaking clearly and listening closely, Phillip Roth memorably quipped, “The English language is a form of communication! . . . Words aren’t only bombs and bullets — no, they’re little gifts, containing meanings!” What is true in love is equally true at law: Lawyers and their clients need to communicate clearly and effectively with one another to ensure that litigation proceeds efficiently. When communication between counsel and client breaks down, conversation becomes “just crossfire,” and there are usually casualties.
We don't know how Frederic Bourke will feel at the end of his trial. But there's no doubt about how Junior Gotti felt when he learned last December that Judge Scheindlin would be hearing his case for a fourth time. The headline in the Daily News said: Junior Gotti giddy over 'fair' trial judge.

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


Bourke's Trial Is The FCPA's Big Show

There have only been a few Foreign Corrupt Practices Act trials over the years, so Frederic Bourke's is unusual to start with. What's more, this case has plenty of special ingredients. Bourke, 63, is rich. He lives in the tony towns of Greenwich and Aspen. And he's famous -- or at least his name is famous. He co-founded the popular handbag brand Dooney & Bourke.

Prosecutors say he invested in a deal in Azerbaijan that he knew was tainted by bribery. He says he's not a crook but a victim of fraud perpetrated by mastermind Viktor Kozeny. Now he's facing what amounts to a life sentence in prison.

There's Kozeny himself -- a colorful and talkative fugitive. He's accused not only of bribery but also of stealing more than $180 million from his investors, including $8 million from Bourke. His chair will be empty but Kozeny will still be the most important person at the trial.

And there are the government's three "cooperating witnesses." Thomas Farrell, a director of one of Kozeny's companies, his Swiss lawyer Hans Bodmer, and Clayton Lewis, who steered $100 million of investment money his way. They've all pleaded guilty in related federal criminal cases and will be sentenced after they testify against Bourke -- a sure-fire recipe for all sorts of mixed-motives and mischief at the trial.

So there's no question about it. Frederic Bourke's turn in Judge Shira Scheindlin's courtroom will be the most watched FCPA trial ever.

* * *
Setting the stage for the Monday kick off in Manhattan is Bloomberg's David Glovin. His latest article about the case is another stunner. Among the revelations: the U.S. Attorney apparently has a tape "on which Bourke may have admitted he knew of wrongdoing by Kozeny."

Glovin also revealed that Kozeny has won an order from a Bahamas judge requiring the government there to pay him $2 million. It's to cover his legal fees for successfully challenging extradition. The U.S. wanted to bring back the Czech-born fugitive to face charges with Bourke. But the Bahamas court said the FCPA counts were not provable or prosecutable under local law. See our post here.

Here's how Glovin's story starts:

Viktor Kozeny, the central figure in an international bribery case over an Azerbaijan oil deal, plans to monitor the June 1 trial of Greenwich resident Frederic Bourke, one of his investors, from his Caribbean beachfront estate, 1,100 miles from the Manhattan courtroom.
Kozeny, the admitted ringleader of a plot to bribe leaders in Azerbaijan in the 1998 deal, won't be in Manhattan federal court as prosecutors offer evidence against Bourke. Since 2005, when he and Bourke were indicted by the U.S. government, Kozeny has avoided extradition. Now he says he hopes the trial will clear his name. . .

U.S. District Judge Shira Scheindlin will preside over the trial, which will center on a failed deal involving the state-owned oil company of Azerbaijan. The republic, which borders the Caspian Sea, has 7 billion barrels of proved oil reserves . . .

Read David Glovin's story here.

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


China's Runaway Bribe-Takers

One defense strategy adopted by some of the Chinese officials accused of corruption is to leave the country. More than 800 have bolted, according to the government, and around 300 have returned. Journalists say the number of international fugitives is a lot higher—at least 1,000 and probably more.

Why run? Simple. China imposes the death penalty in big corruption cases, so going just about anywhere else makes sense. And because of its wide use of capital punishment, few countries have extradition treaties with China, including the U.S. That means accused officials who make it out usually face little chance of being sent home.

The Chinese government seems unsure how to react to the phenomenon of its fleeing crooks. Earlier this month, two former managers of the Bank of China and their wives were sentenced by a federal jury in Las Vegas on charges of racketeering, money laundering, international transportation of stolen property and passport fraud. The DOJ's release is here. After the sentencing, China's government sounded pleased that the culprits were caught and punished, and relieved that the U.S. had handled everything.

"The corrupt officials must face the full force of law wherever they flee," said Tong Jianming, spokesman for the Supreme People's Procuratorate in a government release. He said Chinese authorities helped the Justice Department collect evidence in China. "The unprecedented case will serve as a great deterrent to corrupt officials," he said. "It has sent a clear signal that the U.S. is no longer a safe haven for them."

One of the officials in the Las Vegas case, Xu Chaofan aka Hui Yat Fai, was sentenced to 25 years in prison. The other, Xu Guojun aka Hui Kit Shun, received 22 years prison. Their wives were sentenced to 8 years in jail. All four were ordered to pay $482 million in restitution. And the U.S. government started denaturalization proceedings against the wives.

Newsweek reported last year that decisions by Chinese officials to run away aren't always spontaneous. "In particular," it said, "Chinese Netizens are buzzing about 'naked officials': apparatchiks who connive to earn permanent resident status overseas by gradually stashing relatives and assets abroad. Once the noose begins to tighten back home, the unencumbered (or 'naked') bureaucrats flee the country."

One notorious "naked official," Newseek said, is Yang Xianghong, a mid-level cadre from Zhejiang province who left for a 12-day European trip on September 19, 2008 and never returned. "Citing a bad back, Yang told colleagues he needed surgery in France -- where his daughter lives -- and refused to meet with party watchdogs who flew to see him. Yang was booted from the party on November 14 and charged by provincial authorities with 'seriously damag[ing] the party's image and the country's reputation.'"

Last August, Canada repatriated to China Deng Xinzhi, suspected in a $2.94 million swindle back home. China says the U.S. has also sent back "a few corrupt officials." Most of the "naked officials" are alleged to be in Los Angeles, New York and San Francisco.

The Singapore Straits Times reported last week that China is adopting a new "soft approach" to convince fugitives to return home. Prosecutors, it said, have been promising a lighter sentence instead of the death penalty. The Supreme People's Procuratorate, according to the paper, said this "coaxing" method is working, with a dozen officials lured back for justice in the last three years.

The example cited was that of a former Yunnan provincial official, Hu Xing. He ran to Singapore in 2007 after accepting bribes worth about $5.86 million. But according to the Straits Times, he was "cajoled to return to China and received a life sentence instead of possible execution through lethal injection."


Court Rulings Protect Bourke's Rights

Judge Shira Scheindlin has now decided most of the pending pre-trial issues in the Foreign Corrupt Practices Act prosecution of Frederic Bourke. Her rulings generally restrict the government's use of other-acts-type evidence, while allowing Bourke latitude to tell his story. He's charged with investing in Viktor Kozeny's 1998 attempt to take over Azerbaijan's state oil company -- despite knowing Kozeny planned to bribe Azeri officials to get the deal done.

Bourke's trial starts Monday in Manhattan. He faces up to 35 years in prison on the FCPA charges, money laundering and lying to federal investigators. Kozeny himself is a fugitive living in the Bahamas.

Here are some of the rulings from hearings held last week and Tuesday:

  • The judge excluded evidence relating to prostitutes and injections, saying it's too prejudicial to Bourke. Prosecutors had planned to show that Bourke, 62, thought his partner in their luxury handbag business was secretly trying to inject him with a "harmful substance." Prosecutors had also wanted to show how Kozeny and Bourke picked up two prostitutes in Russia in 1997, traveled with them aboard Kozeny's private plane to Baku, Azerbaijan, then back to Moscow. See our post The Bourke Files: Poison And Prostitutes.
  • Bourke can present a forensic accountant as part of his effort to interpret Kozeny's financial transactions for the jury. He's maintained that he invested with Kozeny only after lawyers advised him the deal didn't violate any laws. But soon after investing, he said, he suspected illegal behavior and became a whistleblower. He testified before a state grand jury as one of Kozeny's victims. In 2003, New York prosecutors charged Kozeny with fraud for keeping $182 million of his investors' money. See our post Lies Kickbacks And Other Crimes.
  • Kozeny's Swiss lawyer Hans Bodmer can be cross-examined by the defense about his former clients. He created the corporate entities and trust accounts Kozeny used to make his investments in Azerbaijan. Bodmer was indicted by a New York federal grand jury in August 2003 on single counts of conspiracy to violate the FCPA and to launder money. He eventually pleaded guilty to the money-laundering charge. Bourke's lawyers have argued that Bodmer also helped Kozeny pay kickbacks to Clayton Lewis and defraud other investors. See Lies Kickbacks And Other Crimes.
  • Prosecutors can offer a witness to testify about Azeri corruption in general (that would be Rajan Menon) and about Kozeny in particular. The government wants to show that Bourke should have been on notice of the likelihood of bribery and wouldn't have invested in a place like Azerbaijan unless he knew the fix was in. See our post Bourke v. The Professor.
Three government witnesses -- Thomas Farrell, Clayton Lewis and Hans Bodmer -- have all pleaded guilty to federal felony offenses related to the case. They'll be sentenced after they testify against Bourke. Until then, they're under the supervision of the U.S. Probation and Pretrial Services System. Among other things, that agency -- part of the U.S. federal courts -- prepares all pre-sentencing reports.

The "credibility, motive and bias" of the three cooperating witnesses will be an issue at the trial, Judge Scheindlin said. She ordered Pretrial Services to deliver their files on Farrell, Lewis and Bodmer to her courtroom "forthwith." She presumably wants the files on hand to make sure the prosecution has disclosed to Bourke everything pertinent about the three convicted witnesses and the circumstances of their testimony.

Judge Scheindlin has allotted six weeks for the trial.

We're grateful for the substantial help we've had from a friend in New York City for this and other posts about U.S. v. Kozeny.

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


Resignation And Reform In Russia

Most Russians think the battle against corruption is already lost. More than half believe graft is an "unavoidable and permanent fact of life." And 58% say it's impossible to fight against it. The numbers come from a survey released last month by the All-Russia Public Opinion Research Center, reported by RIA Novosti here.

The poll found that 44% of Russians consider the greed and immorality of officials to be the main causes of corruption. And 49% think it would be easier for them to cope with legal and other problems if officials stopped taking bribes.

RIA Novosti said the poll involved 1,600 people in 140 Russian towns and cities on April 4-5 this year.

The poll's findings are reflected by Russia's worsening position on Transparency International's Corruption Perception Index. In 2004 it ranked 90th; it fell to 121st in 2006; and last year it sank to 147th, tied with Bangladesh, Kenya and Syria. The CPI rates countries according to how much corruption is perceived to exist among public officials and politicians. It's a composite index -- a poll of polls -- drawing on corruption-related data from expert and business surveys by at least three third-party sources for each country.

Despite the gloom among the populace, Russia's president Dmitry Medvedev is still targeting public sleaze. He wants to change the culture. "We must create incentives for legally acceptable behavior through the help of regulatory documents, the media, and as a result of work by civil society institutions," he said recently. "And corruption must be not only illegal, it must become improper. This is probably the most difficult thing."

Medvedev, 43, has been Russia's president for just over a year. He campaigned as a reformer and on the first anniversary of his inauguration vowed to take personal control of the government's anti-corruption efforts.

Part of his plan requires public officials to declare their income and assets. That includes the prime minister and his cabinet, military officers, customs officials, judges and police. Medvedev's tax declaration published on the Kremlin's official website put his 2008 income at 4.14 million rubles ($141,000). He held about 2.8 million rubles ($90,000) in nine bank accounts. His wife Svetlana has about 135,000 rubles ($4,350) in various bank accounts. Together they own a 3,000 sq ft apartment in Moscow and a small undeveloped lot.

See the Kremlin's April 6, 2009 release here (with links to further disclosures).


Ribadu Talks About Corruption

By the fourth and final year of Nuhu Ribadu's time as chief graft-buster in Nigeria, his Economic and Financial Crimes Commission had secured convictions in over 275 cases. "It was modest but revolutionary," he said last week, "especially since the convictions were from cases against high‐ranking officials such as the leadership of the Nigeria Police, a number of state governors, ministers, legislators and top bureaucrats."

Ribadu was making enemies, of course. Lots of them. He was fired in 2007. Then came two assassination attempts. So he fled to Britain, where he's now a visiting fellow at St. Anthony’s College, Oxford.

Testifying last week in Washington before the House Financial Services Committee, he asked Congress to expand the Foreign Corrupt Practices Act -- "to bite both givers and takers of bribes." He argued for eliminating safe havens and secret bank accounts. He pressed for public programs to promote investigative journalism and transparency. Above all, he said, international cooperation is the key. "In a globalized and networked world, we all need to believe that the fight against corruption must assume a transborder dimension."

Ribadu cited these examples of the problem:

  • The African Union has reported that corruption drains the region of some $140 billion a year, which is about 25% of the continent's official GDP.
  • In Nigeria, one leader, General Sani Abacha, is believed to have taken for himself between $5–6 billion and invested most of it in the western world.
  • Joshua Dariye, Governor of Nigeria's Plateau State, was found by the London Metropolitan Police to operate 25 bank accounts in the U.K. He used various fronts to buy expensive real estate in a number of western countries.
  • D.S.P. Alamieyeseigha, governor of oil rich Bayelsa State, had four properties in London valued at about £10 million, plus another in Cape Town valued at $1.2 million. £1 million cash was found in his bedroom at his apartment in London. £2 million was restrained at the Royal Bank of Scotland in London and over $240 million in Nigeria. This is in addition to bank accounts traced to Cyprus, Denmark, USA and the Bahamas.
  • Between 1960 and 1999, Nigerian officials had stolen or wasted more than $440 billion. That is six times the Marshall Plan, the total sum needed to rebuild a devastated Europe in the aftermath of the Second World War.
  • An estimated $20 billion leaves Africa annually through the illicit export of money extorted from development loan contracts. The money is deposited in overseas banks by a network of politicians, civil servants and businessmen. This figure is now roughly equal to the entire amount of aid from the U.S. to Sub‐Saharan Africa every year.
What's the human cost of all the sleaze? This outflow, Ribadu said, is not just abstract numbers: it translates to the concrete reality of kids who cannot be put in schools, who will never learn to read, because there are no classrooms; mothers who die in childbirth because the money for maternity care never made it to the hospitals; tens of thousands who die because there are no drugs or vaccines in hospitals; no roads to move produce from farms to markets or enable a thriving economy; no jobs for young school graduates or even ordinary workers; and no security for anyone because the money has been stolen and shipped out.

Download a copy of Nuhu Ribadu's May 19, 2009 testimony before the House Financial Services Committee, "Capital Loss and Corruption: The Example of Nigeria Testimony" here.

The Washington Post ran a nice interview with Ribadu on Sunday here.

Special thanks to a friend of The FCPA Blog for helping assemble this post.


The Quiet Revolution

Here's some news you don't hear every day -- in fact, no one's heard it for the last 367 years: Britain's House of Lords this week suspended two of its members because of corruption. It's the first time a Lord has been barred since 1642.

Lord Taylor of Blackburn, a peer since 1978, and Lord Truscott, who joined the upper house five years ago, agreed to put a loophole in a new tax law in exchange for a promise of cash payments. The bribers, it turned out, were undercover reporters from The Sunday Times. Two others, Lord Moonie and Lord Snape, were also investigated. Both were cleared. But as a result of evidence found during the investigation, they were invited to apologize for "inappropriate attitudes" toward the rules.

The House of Lords Sub-Committee on Interests said Lord Truscott "was advertising his power and willingness to influence parliament in order for substantial financial inducement." He called that verdict "outrageous and slanderous." Lord Taylor said he knew the journalists were running a sting operation and that he made "increasingly extravagant and outlandish claims in an effort to flush out the truth." The ethics committee rejected his defense. Prosecutors said they don't plan to bring criminal charges.

Neither of the Lords actually took any cash. But the internal ethics panel found that they violated their Code of Conduct. It requires members to "always act on their personal honor." The suspensions will last six months -- until the start of Parliament's next session in November; Lords can be permanently removed only by the Queen and she's not expected to take any action.

Over in the House of Commons, meanwhile, the odorous expense-account scandal cost the speaker, Michael Martin, his job, following a no confidence vote. It's also been awhile since the First Commoner of the Land was treated that way -- about 300 years.

The expense account abuses were discovered through the persistence of an American reporter, Heather Brooke. She kept asking for the information under the U.K.'s freedom of information act until she finally received it.

The Daily Telegraph, though, broke the story and has run with it. The staid broadsheet even launched a glitzy website dedicated to the scandal, complete with links for best excuses ("The garden came with the house. It was in a totally derelict state and had not been touched in 30 years...") and the 20 most bizarre claims (ginger crinkle biscuits, 67p; ice cube tray, £1.50).

The Guardian's Alastair Harper said that with scandals now raging in both Houses of Parliament, he and other Britons are having to "ration our disgust" between them. About the Lords' debacle, he said:

For my money, it is Lord Taylor who has become the perfect villain. There he was, trying to look terribly confused over the proceedings, feeling rather persecuted, cocking his head in embarrassed befuddlement like a dim beagle. If you've heard of Junior Soprano you'll know the role – the old mafia don, caught 20 years too late, pretending he was too simple, too frail to have been capable of all these awful things the FBI are accusing him of. At the same time he made the ludicrous argument that he knew exactly what the journalists were up to and was turning the tables on them. In order to, well, make himself look exactly like a corrupt peer. And no one can deny that he played the role to perfection, saying all the things a corrupt peer would do right up until when the story came out. What a masterplan.
And the AP's Gregory Katz said: Few imagined that every lawmaker was scrupulously honest and frugal with the public purse, but the flagrant greed of many has provoked public demands for wholesale change. Some in Parliament are calling it the "Quiet Revolution" - a surge of anger forcing lawmakers to consider relinquishing power they've had for centuries.

We're living in amazing times.


Bourke v. The Professor

When it's a bit of a snoozer around here, we know what to do -- take a peek at the docket in U.S. v. Kozeny. There's plenty happening there these days. And the latest is a pleading from Frederic Bourke's lawyers that argues why the man to the left, Rajan Menon, PhD, should be barred from testifying as an expert witness for the prosecution at Bourke's trial.

Dr. Menon is the Monroe J. Rathbone Professor of International Relations at Lehigh University. His bio is here. He's a serious scholar -- big thinker, prodigious author, polished speaker, and renowned expert on the Caspian Region. There's no doubt, in other words, that the jury would find his testimony fascinating. And that, according to Bourke's legal team, is exactly why the judge should keep the professor out of the courtroom.

Although Viktor Kozeny, for whom the case is named, is on the lamb in the Bahamas, his co-defendant Bourke will go on trial in New York on June 1. Federal prosecutors say Bourke violated the Foreign Corrupt Practices Act by investing in Kozeny's attempted take-over of Azerbaijan's state oil company, Socar, despite knowing Kozeny planned to bribe Azeri officials to get the deal done. Bourke, 62, faces up to 35 years in prison on the FCPA charges, money laundering and lying to federal investigators.

Coming back to Professor Menon, the feds say his testimony, among other things, would cover:

  • the political careers of Azerbaijan's rulers, Heydar and Ilham Aliyev;
  • American and other foreign policy interests in Azerbaijan;
  • geopolitical and economic concerns in American policy toward Azerbaijan, particularly its oil resources and its conflict with Armenia; and
  • the problems of instability . . . and deprivation of human rights and civil liberties in Azerbaijan.
Interesting stuff for sure. But as Bourke's lawyers argue, what have those topics got to do with the charges against their client?

Nothing, according to the defense, except to put Bourke in a bad light and confuse the heck out of the jury. Indeed, they argue, several subjects have no conceivable purpose other than to inflame and prejudice the jury by painting the ruling Azeri regime as oppressive and abusive, and suggesting that anybody who sought to deal with them—such as Mr. Bourke—must himself be a bad actor.

The government's idea might be to show that Bourke should have been on notice of the likelihood of bribery. And that he wouldn't have invested in a place like Azerbaijan unless he knew the fix was in. Even then, the defense says, evidence showing the ruling Azeri regime as a "a tinpot dictatorship that abuses its citizens, harasses its neighbors, and stands against the interests of the United States" carries too much risk of ruining Bourke's right to a fair trial.

And anyway, they argue, generalized evidence of corruption is irrelevant. It only matters if the prosecution can also show that Bourke actually knew about the same evidence when he was deciding to invest with Kozeny. The real issues, they remind the court, are whether Bourke acted "corruptly" and "willfully." If the government's expert testimony doesn't shed light on those elements of his alleged FCPA offense, there's no point in hearing it.

Now it's up to Judge Shira Scheindlin to decide who's right, and whether to give Professor Menon a chance to talk to the jury inside her Manhattan courtroom.

Download a copy of the May 18, 2009 Memorandum of Law in Support of Bourke's Motion In Limine to Exclude the Testimony of Rajan Menon here.

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


Halliburton And KBR In Class Action

Plaintiffs lawyers have filed a state derivative class action suit against some of the officers and directors of Halliburton and its one-time subsidiary, KBR. The suit in Houston alleges all sorts of malfeasance -- including the Nigerian bribery that led to the companies' $579 million settlements of Foreign Corrupt Practices Act offenses in February this year. As the AmLaw's Litigation Daily put it, the defendants are accused of "everything from overbilling to human trafficking to covering up a gang rape."

There's no private right of action under the FCPA so private litigants seeking relief have to resort to other causes of action -- such as common law fraud, RICO, securities law violations or, as in this case, breach of fiduciary duties.

Why did the plaintiffs file their suit in state court? We're not sure, but a case decided last year could be part of the reason. In Glazer Capital Management v. Magistri, the Ninth Circuit raised the bar for federal class-action plaintiffs in FCPA-related litigation. The complaint against some of the officers of InVision Technologies under securities laws, the court said, didn't plead facts "that would either directly or indirectly give rise to a strong inference of scienter on the part of those officers responsible for making the false statements" about FCPA compliance in its disclosures. See our post, More Hurdles For Private Litigants.

The plaintiffs here allege that some of Halliburton's and KBR's officers and directors -- including former Chevron Corp. CEO Kenneth Derr and Robert Crandall, the former chairman of American Airlines -- breached their fiduciary duty to provide oversight, unleashing a corporate “reign of terror.” The complaint says: Under defendants’ watch, and supposedly under their control and supervision, the companies were permitted to engage in conduct so notorious that the name "Halliburton" has become virtually synonymous with "corruption.”

The named plaintiff in the suit is the Policemen and Firemen Retirement System of the City of Detroit pension fund.

Download a copy of the May 14, 2009 complaint in Policemen and Firemen Retirement System of the City of Detroit v. Cornelison here.