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Richard L. Cassin Publisher and Editor

Andy Spalding Senior Editor

Jessica Tillipman Senior Editor

Harry Cassin Managing 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
Dec282009

Are We Safer Yet?

In light of the Christmas Day attack on Northwest Flight 253 from Amsterdam to Detroit, let's go off topic with an item from the December edition of Foreign Policy magazine. The story is hard to believe but apparently true:

Since 2007, the U.S. State Department has been issuing high-tech "e-passports," which contain computer chips carrying biometric data to prevent forgery. Unfortunately, according to a March report from the Government Accountability Office (GAO), getting one of these supersecure passports under false pretenses isn't particularly difficult for anyone with even basic forgery skills.

A [Government Accountability Office] investigator managed to obtain four genuine U.S. passports using fake names and fraudulent documents. In one case, he used the Social Security number of a man who had died in 1965. In another, he used the Social Security number of a fictitious 5-year-old child created for a previous investigation, along with an ID showing that he was 53 years old. The investigator then used one of the fake passports to buy a plane ticket, obtain a boarding pass, and make it through a security checkpoint at a major U.S. airport. (When presented with the results of the GAO investigation, the State Department agreed that there was a "major vulnerability" in the passport issuance process and agreed to study the matter.)

From "The Top 10 Stories You Missed in 2009," Foreign Policy (December 2009) here.

*   *   *

Proceed to passport control. Here's an excerpt from our March 9, 2009 post:

The government [of Kenya] in 2002 had said it wanted to update the way it printed and tracked its passports. Everything would be new and high-tech. A French company was found for the job, at a price of €6 million. But the contract went instead to an unknown U.K. company called Anglo Leasing Finance, at a price of €30 million. There was no public tender and the story only leaked to the press because of a junior civil servant. [Government graft-buster John] Githongo grabbed the investigation. Two years later, he'd uncovered about twenty government contracts awarded to phantom overseas companies at inflated prices, signaling the presence of high-level corruption. And most of the tainted contracts related to Kenya's security apparatus -- passport controls, forensic labs, security vehicles and satellite services, among others.

Sunday
Dec272009

The Embarrassment Of Corporate Criminal Liability

Federal corporate prosecutions are never fair fights. Mindless companies are stripped of their right against self-incrimination and pummelled by respondeat superior into accepting plea deals. The government then uses evidence coerced from them to prosecute their employees. For fans of the Fifth Amendment and the presumption of innocence, it isn't pretty.

In an essay cited on the White Collar Crime Prof Blog here and available from SSRN here, Northwestern's Albert Alschuler, left, (BA and LLB Harvard) exposes the increasingly illogical practices behind corporate enforcement. 

Corporate defendants must produce incriminating documents even when the act of producing these documents would tend to incriminate them. Moreover, to ensure that corporations will not benefit from the privilege, the Supreme Court requires corporate officers to produce these records even when the act of production would incriminate them personally. The exception to the privilege for corporations swallows the rule applicable to individuals, and the tail wags the dog.

All corporate prosecutions are a weird fiction, he says --  there's “no soul to damn, no body to kick,” quoting Baron Thurlow, an 18th century Lord Chancellor of England. So, Prof Alschuler writes:

Innocent shareholders pay the fines, and innocent employees, creditors, customers, and communities sometimes feel the pinch too. The embarrassment of corporate criminal liability is that it punishes the innocent along with the guilty.

Because corporations are "mindless," the goal of punishing them should be to encourage compliance by their employees. That's not happening, he says, because of respondeat superior. It allows companies to be convicted for acts by single errant employees. And it doesn't recognize any defense based on good-faith attempts by the corporate body to obey the law.

Why is respondeat superior allowed to continue? Prof Alschuler says:

Neither John Ashcroft nor any other Attorney General in the past century has sought a narrowing of the respondeat superior standard of corporate liability. Although half the states employ narrower standards, Congress seems very unlikely to follow their lead. An alliance of Ralph Nader, the Justice Department, and most Members of Congress could be expected to resist any effort to deny prosecutors an important “tool” in the fight against corporate crime. Like the rest of the federal criminal justice system, the respondeat superior standard transforms prosecutors into czars while the politicians stand and say “yes, yes, yes.” This standard serves its real purpose marvelously.

That real purpose, Prof Alschuler says, is the power of prosecutors to impose whatever sanctions they like for whatever conduct they wish to punish.

Not everyone agrees that corporate prosecutions are harmful or ineffective. Sara Sun Beale from Duke law school addresses Prof Alschuler directly in her upcoming article, "A Response to the Critics of Corporate Criminal Liability." It's scheduled to appear in the American Criminal Law Review and is available now on SSRN here.

So the debate continues.

Albert Alschuler's essay, " Two Ways to Think About the Punishment of Corporations" (October 19, 2009), appears in the American Criminal Law Review and on SSRN here.

*   *   *

New Site. The Global Graft Report is open for business here. It picks up where the FCPA Blog leaves off -- with stories about public corruption and compliance that aren't about the FCPA or go beyond it.

Tuesday
Dec222009

Wonderful Things Happened

Christmas! 'Tis the season for kindling the fire of hospitality in the hall, the genial fire of charity in the heart.  -- Washington Irving

We're warmed by the generosity of those who support this project. Our readers let us know what they like, our sponsors provide financial and moral support, and many of you send hints, tips and ideas that eventually become posts.

Cody Worthington has been here since the beginning, lending a hand many times when we were stuck in deep snow. Marc Bohn, whom we haven't mentioned before, has been another stalwart -- with at least a dozen ideas and corrections (despite his own busy practice and publication schedule).  Among others who were an important part of the blog this year are Elizabeth Spahn, Rebecca Walker, and Andy Spalding.

We just heard from Andy. Writing from India, he said:

Dear FCPA Blog,

I hope this email finds you well. I thought you might be glad to know that the FCPA Blog has now become, among many other things, a social networking site! When I came to India to do my FCPA research I first went to the Blog and found the names of Mayur Joshi, CEO of Indiaforensic, and his then-colleague Pradeep Akkunoor. Mayur and Pradeep sponsored India's first FCPA conference back in 2007, which you generously covered on the Blog. As a result of these introductions, two wonderful things happened.

First, I discovered that Pradeep is now an MBA student at Sasin Business School in Bangkok, and he invited me out to the school to do a presentation on the FCPA, which I did on Dec. 4th. Then Mayur and I decided to organize our own conference in Pune, India, which was held on Dec. 18th. It was a tremendous success -- many of the biggest Indian companies attended, and we received ample coverage in the press. 

I wanted to thank you for making these connections possible. As you know, I am concerned about the sanctioning effect of the FCPA in developing countries, and I have come to believe that the most effective remedy is education. To the extent that we can raise awareness of the statute's provisions among potential business partners in historically bribery-prone countries, companies subject to the FCPA's jurisdiction will be less uneasy doing business there. And in my view, when that happens everybody wins. 

This effort would not be nearly as effective without a central repository of information on all things FCPA related, and in all seriousness, your blog is serving this purpose extraordinarily well.

Merry Christmas,

Andy Spalding

Now it's our turn to thank Andy and all of you for your countless gifts that simply couldn't be greater.

Monday
Dec212009

Did EU Rules Ruin BAE's Settlement?

The British press in September reported (here) that BAE Systems -- the U.K.'s biggest defense contractor -- had been given until the end of the month by the Serious Fraud Office to settle bribery charges related to sales in Africa and Eastern Europe or face prosecution. When the deadline passed with no settlement, the BBC reported the two sides couldn't agree, among other things, "on what BAE would admit." We may now know why they couldn't agree.

The Times said Friday BAE's admissions could lead to an EU ban:

Insiders told the Times that one of the major obstacles to a settlement is a European Union law on bribery that states that European governments must not give work to companies found guilty of corruption. The EU directive means that a criminal conviction could ruin BAE, which employs more than 100,000 people and is the biggest supplier to the British Armed Forces. Most experts believe that a financial settlement will be reached that will mean BAE admitting lesser charges not covered by the EU rules.

When BAE's settlement talks broke down in September and the SFO announced it would seek prosecution, British MP Sir Menzies Campbell hinted at the problem with the EU. He told Sky News: "The company is the principal contractor in the programs for the Eurofighter, the aircraft carriers and Joint Strike Fighter, and many other significant procurement projects. These developments have a considerable impact on all of these projects."

The Times and others say BAE may yet settle with the SFO. Both sides want to reach a compromise that may include a large fine but avoid criminal prosecution, saving BAE's business in Europe and elsewhere. 

A resolution like that would resemble settlements the U.S. Justice Department routinely reaches in Foreign Corrupt Practices Act enforcement actions. It uses plea arrangements and pre-trial agreements to avoid prosecuting corporations for antibribery offenses. That in turn allows them to continue doing business with the U.S. government and others.

Some commentators are critical of the American approach. But we've defended the practice:

[T]he DOJ is understandably reluctant to hit corporations head on. The Arthur Andersen prosecution in the aftermath of the Enron scandal demonstrated the catastrophic consequences that can result from a corporate felony charge. For Andersen it was an instant death sentence, even though the firm was later exonerated. That's why the DOJ has since adopted a softer approach to FCPA and other white collar offenses. It offers companies that want to cooperate alternatives in the form of negotiated settlements.

The Justice Deparatment, meanwhile, is reportedly still investigating BAE's payments of about $2 billion to Saudi Prince Bandar bin Sultan. The SFO dropped that investigation in 2006. But is the DOJ moving slowly because of the EU rules? Is there concern a typical Justice Department settlement might also lead to an EU ban on BAE? Is the DOJ having trouble harmonizing its practices with the SFO and the EU?

Lots more will be said and written about this in the coming weeks and months. Stay tuned.

Sunday
Dec202009

Bribery Allegations Against Sojitz

Aluminium Bahrain BSC -- known as Alba -- has filed a $31 million civil suit in federal court in Houston against Japanese trading company Sojitz Corp. and its U.S. subsidiary, Sojitz Corporation of America. The suit alleges that from 1993 to 2006, Sojitz paid $14.8 million in bribes to two of Alba's employees in exchange for access to metals at below-market prices. Alba is majority-owned by the government of Bahrain.

There's no private right of action under the Foreign Corrupt Practices Act. So Alba's claims against Sojitz are based on RICO (18 U.S.C. § 1962(c)), conspiracy to violate RICO (18 U.S.C. § 1962(d)), fraud, and civil conspiracy to defraud. The complaint alleges that Sojitz used bribes to buy underpriced product and then "resold the aluminum it bought from Alba at below-market rates to U.S. companies including Enron Corp."

In September, the Wall Street Journal reported the U.S. Justice Department's investigation into "payments that Bahraini prosecutors allege were made by units of Japanese commodities-trading giant Sojitz Group to employees of an aluminum producer in Bahrain." The DOJ has never commented on the story. See our post here.

This is the second civil action Alba has filed in U.S. courts with allegations about potential FCPA violations. In March 2008, Alba sued Alcoa Inc., its long-time raw materials supplier, for corruption and fraud. The suit in federal court in Pittsburg alleged that Alba paid $2 billion in overcharges during a 15-year period. The money, according to the suit, first went to overseas accounts controlled by Alcoa's agent and some was then used to bribe Alba's executives in return for supply contracts.

Just weeks after Alba sued Alcoa, the Justice Department intervened in the case. It asked the court for a stay while the government investigates possible criminal violations of the FCPA and other laws by Alcoa and its executives and agent. The DOJ said the stay was needed to protect potential witnesses against civil discovery. The stay the court granted is still in effect. The DOJ hasn't commented on the status of its criminal investigation. Alcoa denied wrongdoing and said it is cooperating. See our post here.

Will the DOJ also intervene in Alba's suit against Sojitz? It needed the stay in the Alcoa case, it said, because:

The public is "an unnamed party in every lawsuit." United States v. Reaves, 636 F.Supp. 1575, 1578 (E.D. Ky. 1986) Here, the Complaint alleges that the defendants arranged for Alcoa, a public corporation, through its affiliates and agents, to make payments in violation of the anti-bribery provisions of the FCPA, among other crimes. The proposed stay enables the government to investigate these charges without potential prejudice to its investigation resulting from civil discovery . . . This would thus enable the government to vindicate the paramount public interest in the enforcement of federal criminal laws and resolution of the federal criminal investigation, should the government's investigation reveal evidence that federal criminal laws were violated. . . .

Sojitz Corp.'s website says that as of September 2009, its business consists of 555 companies including 165 subsidiaries and affiliates in Japan and 390 overseas, with 17,147 employees. Sojitz's U.S. subsidiary is headquartered in New York. The parent company's ADRs trade in the over-the-counter pink sheets under the symbol SZHFF.PK.

Download a copy of the December 18, 2009 federal civil complaint in Aluminium Bahrain B.S.C v. Sojitz Corporation and Sojitz Corporation of America here

Thursday
Dec172009

Gov't Seeks Life Sentence For Gerald Green

The Justice Department wants Gerald Green sentenced to life in prison. In a December 14 court filing, prosecutors said although the pre-sentence report recommends a downward departure under the federal sentencing guidelines and a sentence of about 20 to 25 years, Green's sentence should instead be enhanced. He was the ring leader of the bribery plot, the DOJ said, and he "repeatedly and blatantly perjured himself" at his trial.

The government concludes the court filing by saying:

The [pre-sentence report] calculates defendant Gerald Green’s Total Offense Level as 38, his Criminal History Category as I, and his sentencing range as 235-293 months. With the inclusion of the additional role and obstruction enhancements recommended above, his Total Offense Level would be 44 and his sentencing range would be life in prison.

Hollywood film producers Gerald Green, 76, and his wife Patricia, 52, were scheduled to be sentenced by Judge George H. Wu in federal court in Los Angeles on December 17. But the government and the Greens agreed this week to postpone the sentencing until January 21, 2010. They said late delivery of the pre-sentence report on November 30 was the reason.

The Greens were convicted by a federal jury in September. The DOJ said evidence presented during their 2½-week trial showed that beginning in 2002 and continuing into 2007, the Greens conspired with others to bribe the former governor of the Tourism Authority of Thailand in order to land lucrative film festival contracts as well as other deals for the development of a Thai Privilege Card, and for a website, book, video, calendars, and public relations services. The Greens used different business entities, some with dummy addresses and telephone numbers, to hide how much they were receiving under the contracts.

At least $1.8 million from their take went to bribe the former governor. The DOJ said the Greens disguised the bribes as "sales commissions" and made the payments through bank accounts in Singapore, the United Kingdom and Jersey, some in the name of the former governor's daughter and a friend.

The jury found the Greens guilty of conspiring to violate the FCPA, nine counts of violating the FCPA, and seven counts of money laundering. Patricia Green was also found guilty of two counts of falsely subscribing to a U.S. income tax return. The conspiracy and FCPA charges each carry a maximum penalty of five years in prison, each of the money laundering counts carries a maximum penalty of 20 years in prison, and the tax charges against Patricia Green each carry a maximum penalty of three years in prison.

Download a copy of the government's December 14, 2009 response and objections to the pre-sentence report for Gerald Green here.

Wednesday
Dec162009

Another Indictment In Panama Bribes Case

A Virginia man yesterday became the second person charged with bribing former Panamanian government officials in exchange for maritime contracts. John W. Warwick, 63, was indicted by a federal grand jury in Richmond for conspiracy to violate the Foreign Corrupt Practices Act. He allegedly plotted with others to pay foreign officials to obtain business for Ports Engineering Consultants Corporation (PECC). The company was a Panama affiliate of Overman Associates, a Virginia Beach engineering firm.

Last month in the same case, Charles Paul Edward Jumet, 53, pleaded guilty to a two-count criminal information. He admitted conspiring to violate the FCPA by making corrupt payments to government officials in Panama on behalf of PECC and giving a false statement to the FBI about how he paid some of the bribe money. He's scheduled to be sentenced on February 12, 2010. See our post here.

Warwick's indictment alleges that he, Jumet and others conspired to make corrupt payments totaling more than $200,000 to the former administrator and deputy administrator of the Panama Maritime Authority and to "a former, high-ranking elected executive official" of Panama. In December 1997, Panama awarded PECC a no-bid, 20-year contract to maintain lighthouses and buoys. Warwick was the company's former president.

If convicted, Warwick faces a maximum of five years in prison and a fine of the greater of $250,000 or twice the gain or loss. The indictment seeks forfeiture of the proceeds Warwick and Overman Associates received from PECC's Panama contracts.

As the DOJ says, an indictment is merely an accusation and the defendants are presumed innocent until and unless proven guilty at trial beyond a reasonable doubt.

View the Justice Department's December 16, 2009 release here.

Download a copy of the December 15, 2009 indictment in U.S. v. Warwick here.

Tuesday
Dec152009

SFO Gives Self-Reporting Guidance

This is a guest post from D.C. lawyers Drew Harker and Keith Korenchuk.

__________________

Dear FCPA Blog,

The director of the U.K.'s Serious Fraud Office, Richard Alderman, recently clarified some of the SFO's positions on its new approach to overseas corruption in a December 7, 2009 open letter to our partner, Marcus Asner. A full copy of the letter can be downloaded here. Here's a summary:

Mr. Alderman’s letter answered five questions about the SFO’s enforcement policy.

1. What criteria will the SFO apply when deciding whether to treat a self-reported matter criminally or civilly?

  • The seriousness of the wrongdoing;
  • Whether the matter is an isolated incident or whether the company has uncovered other examples of this type of misconduct;
  • Whether the wrongdoing is systematic and part of the company’s established practice;
  • Whether the affected group within the company was warned that its processes were inadequate;
  • Whether the company reported the matter to the SFO within a reasonable time of discovering the incident; and
  • Whether the report provided to the SFO is detailed and complete.

2. What scope of investigation will satisfy the SFO and avoid the need for additional, SFO-directed investigation?

The SFO’s strong preference is that all investigative work on the facts surrounding the wrongdoing be carried out by the company’s professional advisors and not by the SFO itself. The SFO expects self-reporting companies to present the SFO with reports that allow the SFO (1) to determine whether the company has fully investigated the issues; and (2) to discuss remediation measures with the company. Mr. Alderman recognized that the cost of investigations can become unwieldy and suggested a rule of reason will apply, noting: “we are anxious not to put disproportionate cost on the corporates.”

3. Under what circumstances would monitors be appointed?

The SFO is taking a nuanced approach to monitoring. Mr. Alderman stated that the SFO’s goal with monitorships will be to balance assuring the public that the company is genuinely committed to anti-corruption measures while not imposing disproportionate burdens on the company. Specifically, Mr. Alderman noted the SFO will not appoint a monitor in cases where a company’s board proves that it is committed to enforcing an anti-corruption corporate culture.

In cases involving more serious violations of anti-corruption laws, the SFO will implement some “light touch,” on-going monitoring. In those cases, the SFO will expect a company to propose monitors in the first instance. Mr. Alderman further stated that the SFO will not impose a specific monitor against the wishes of a company’s board. Finally, the SFO will work with its international counterparts in assigning monitors in cases where the conduct at issue involves other jurisdictions.

4. What position will the SFO take on attorney-client privilege?

Mr. Alderman acknowledged that the concept of the waiver of attorney client privilege differs under U.K. and U.S. law. The SFO will not expect companies to provide documents reflecting legal advice the company received on how to conduct the investigation, the types of remediation to be discussed with the SFO or issues relating to conducting negotiations with the SFO. However, the SFO does expect to be provided a full factual report on the investigation, including any relevant interview notes from the investigation. Mr. Alderman stated that the SFO expects companies to waive any privilege with respect to these materials. The SFO is primarily interested in factual reports and suggests that legal advisors seeking to protect the companies’ privileges could separate the fact issues from legal advice when preparing the materials to share with the SFO.

As has been discussed following the issuance of the U.S. Justice Department's Filip Memo, even a requirement that lawyer-discovered facts be disclosed raises genuine concerns about preservation of the attorney-client privilege. The SFO appears to go even a step further, suggesting it will require the production of actual interview notes.

5. Will the SFO ever close a voluntary disclosure case without any actions?

In limited cases, the SFO could terminate its involvement in a matter (1) if special circumstances apply and the company offers to pay suitable remediation; or (2) if after the company self-reported to the SFO at an early stage of the investigation, the ultimate report on the investigation provided to the SFO does not support the initial suspicions of corruption. Mr. Alderman stated that due to the strong public interest in publicly announcing these settlements, it expects that these instances will be comparatively rare. Mr. Alderman did not explain what special circumstances would lead to SFO’s terminating its investigation, but he noted that the SFO has done this in “a few cases at present.”

________________

Monday
Dec142009

U.K. Bans Kenyans For Corruption

Britain has banned 20 Kenyans from entering the country. According to reports last week from the BBC and others, the names of those banned haven't been made public but they may include senior civil servants, politicians and businessmen. Britain's High Commissioner (ambassador) to Kenya, Rob Macaire, said the ban was necessary because Kenya has never convicted a senior official of corruption.

In November, the U.S. ambassador to Kenya, Michael Ranneberger, confirmed on his Twitter page that the U.S. government had denied a visa to Kenya's attorney general Amos Wako. It was the first time an American official had revealed a visa determination under Presidential Proclamation 7750, the executive order giving the State Department the power to exclude foreign kleptocrats, their families and friends. See our post here.

In July 2007, the U.K.'s Serious Fraud Office opened a criminal investigation into contracts between the Kenyan government and a U.K. business known as Anglo Leasing Finance. The contracts for passport controls and border security systems were awarded to phantom overseas companies at inflated prices that topped $100 million. Kenya refused to cooperate and in February this year the SFO ended its investigation, saying without support from the Kenyan government the case couldn't be prosecuted.

Attorney General Wako has denied being involved in corruption and blamed the lack of cooperation with the SFO on Kenya's judicial system. 

Kenya's former top anti-corruption officer, John Githongo, began investigating Anglo Leasing Finance after his appointment in 2002. He delivered his report to President Mwai Kibaki in November 2005. (A copy, later leaked to the public, can be downloaded here.) He received death threats and fled to England. From there, Githongo publicly blew the whistle on many of Kenya's top politicians. President Kibaki was forced to fire three ministers -- though he reappointed two of them a year and half later.

Sunday
Dec132009

MAN Group Fined €150.6 Million For Bribery

German truck maker MAN Group said on Friday that two subsidiaries will pay fines of €75.3 million each to German authorities to resolve corruption charges first disclosed in May this year (here). The fines were imposed against MAN Nutzfahrzeuge AG (the commercial vehicles division) and MAN Turbo AG (the compressors / turbines division) by the public prosecutors' office in the Munich District Court. The company announced at the same time a €20 million settlement with German authorities for unpaid taxes. MAN's releases about the settlements are here and here.

The company separately disclosed (here) that two executive board members of MAN Turbo had resigned "to clear the way for new management." Dr. Gerhard Reiff had been on the board since 2005 and Dr. Stephan Funke since 2007.

MAN's internal investigation uncovered suspicious payments of €51.6 million relating to around 80 transactions. The payments were found in a number of countries and most were through agents and other intermediaries. The company said it has fired 20 employees and is considering suing them for damages. It didn't disclose the countries involved or who may have received illegal payments in the form of "so-called referral commissions." The internal investigation involved "around 70 lawyers, auditors and tax experts . . . working since mid-May to analyze the suspicious payments made in the last ten years at all of MAN’s subgroups."

MAN is Germany's second largest truck, bus and diesel-engine manufacturer behind Daimler AG. It reported revenue in 2008 of €14.9 billion and has 51,000 employees worldwide.

The company said it launched a compliance initiative in July. It said it will disclose to prosecutors any future suspected bribery cases and cooperate with them, establish a revamped compliance office on January 1, 2010 reporting directly to the executive board, provide hands-on compliance training to all employees in sales, purchasing, and marketing jobs, use an IT system designed to reveal any suspicious payments, abolish "referral commissions," and impose due diligence requirements on all agents. MAN said it will also continue talks with various anti-corruption NGOs about joint projects.

The company is listed on the German DAX and its largest shareholder is Volkswagen. MAN AG's ADRs trade on the over-the-counter pink sheets under the symbol MAGOY.PK. It hasn't disclosed any investigations by the U.S. Justice Department or SEC.

Friday
Dec112009

SEC Charges Ex-Pride VP

The Securities and Exchange Commission accused Bobby Benton, a former vice president of offshore drill rig operator Pride International, of violating the Foreign Corrupt Practices Act. He allegedly bribed Mexican officials in 2004 and altered the company's accounts to hide the payments. The SEC's December 10 civil complaint (below) was filed in federal court in Houston.

The SEC accused Benton of authorizing a third party to pay off Mexican customs officials and concealing bribes to Mexican and Venezuelan officials between 2003 and 2005. Benton allegedly deleted references in the audits to about $384,000 in payments made by “the manager of the Venezuelan branch of a French subsidiary of Pride” to third-party companies. The SEC said the alleged bribes went to a Venezuelan state-owned oil company official to extend three drilling contracts.

Pride disclosed in SEC filings including its latest quarterly report (here) an internal investigation into the company's Latin America operations that began in February 2006. It said possible FCPA violations were found, including payments of less than $1 million to government officials in Venezuela and Mexico. 

Benton is accused of authorizing a $10,000 bribe in 2004 to ensure a Mexican customs official would overlook deficiencies in a Pride supply boat. He's also accused of redacting references to another $15,000 bribe paid by an agent of Pride's Mexican subsidiary to keep a Mexican customs official from delaying a drilling rig for customs violations, according to the complaint.

The SEC is seeking a civil penalty and disgorgement from Benton, as well as an injunction against future violations.

Pride's internal investigation also found evidence of illegal payments of less than $2.5 million from 2001 through 2006 directly or indirectly to government officials in Saudi Arabia, Kazakhstan, Brazil, India, Nigeria, Libya, Angola and the Republic of the Congo. The payments related to clearing rigs and equipment through customs, resolving customs disputes, immigration, tax, licensing and merchant marine issues. 

The company self-disclosed the results of its investigation. It said it is in talks with the DOJ and SEC "regarding a potential negotiated resolution of these matters, which could be settled during 2009 and which . . . could involve a significant payment by us." It said a settlement is likely to "include both criminal and civil sanctions." The DOJ hasn't yet announced any enforcement actions involving Benton or the company.

View the Securities and Exchange Commission's December 14, 2009 Litigation Release No. 21335 in SEC v. Bobby Benton here.

Download the civil complaint in SEC v. Bobby Benton, Civil Action No. 4:09-CV-03963 (S.D. Texas, December 11, 2009) here.

Thursday
Dec102009

The Real Price Of Petty Graft

Corruption may have been a cause of the night club fire last week in the Russian city of Perm that killed 113 people. Alexander Fridman, an entertainment producer there, told the Christian Science Monitor, “Fire inspectors found violations of the regulations a year ago, yet they didn’t come back to check whether corrections were made. Why was that? There were hundreds of people gathering at that club every night, yet they never closed it down. The basic lesson is that fire inspectors should not take bribes.”

Russia's red tape is terrible. The country ranked 182 out of 183 on the World Bank's 2010 Doing Business Index in the category of "Dealing with Construction Permits." It takes an average of 704 days to obtain the permits needed to build a warehouse in Russia; the OECD average is 157 days. Such extreme bureaucratic delays mean petty corruption is the only way to keep things moving.

The Christian Science Monitor said, "Amid Russia’s decaying infrastructure and often jury-rigged new construction, the potential for accidents [such as the nightclub fire] abound because laws are not enforced, experts say." A professor at Moscow's Institute of Architecture said most public buildings are hazards. “As long as we have this practice of paying bribes rather than making the needed improvements," he said, "nothing will change."

The story said 18,000 Russians die each year in fires, several times the rate in most developed countries. The U.S., with twice Russia's population, had 3,500 fire fatalities in 2008.

*   *   *

More on the indictment of Joel Esquenazi and Carlos Rodriguez (reported here). The two Florida residents were identified by the DOJ as the president and a former vice president respectively of "Company X." The company is Terra Telecommunications Corp., formed in Nevada on July 1, 1996 and domesticated in Florida in 2002. A copy of its Florida business registration can be downloaded here. Thanks to the U.S. readers who provided this information.

*   *   *

Women in Kabul marched against corruption. As reported by the LA Times and others, hundreds of women on Wednesday held a peaceful but noisy street protest. They want President Karzai to remove from his government anyone connected to corruption and the drug trade. "These women are being very brave," said the protest leader, her face hidden by a burka. "To be a woman in Afghanistan and an activist can mean death. We want justice for our loved ones!" The protest group called itself the Social Association of Afghan Justice Seekers. A spokesperson said "our people have gone into a nightmare of unbelieving" because of the disputed election and the fact that "the culture of impunity" still exists despite Karzai's vow to eliminate it.