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Richard Bistrong Contributing Editor 

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FCPA Blog Daily News


Bourke Denied New Trial

Frederic Bourke's attempt to overturn his conviction and obtain a new trial has failed. He was found guilty in July of conspiring to violate the Foreign Corrupt Practices Act under 18 U.S.C. § 371 and making false statements in violation of 18 U.S.C. § 1001. He faces up to five years in prison for each count. Sentencing is now scheduled for November 10 (see our post here).

In his motion for acquittal or a new trial, Bourke argued, among other things, that the jury instructions were wrong in a number of ways, including the mens rea element, the local law defense, a good-faith defense, and his possible conviction based on negligent acts.

During his trial, prosecutors said Bourke had "stuck his head in the sand." The jury thought so too. As the foreman said after the verdict: "It was Kozeny, it was Azerbaijan, it was a foreign country. We thought [Bourke] knew [about the bribery] and definitely could have known. He’s an investor. It’s his job to know.”

In his post-trial motion, Bourke argued that Judge Shira Scheindlin made a mistake by allowing the jury to convict him of conspiracy if all he did was stick his head in the sand. She issued an instruction on the theory of conscious avoidance even though the government's evidence of his actual knowledge was thin, Bourke said. That created a strong possibility the jury was mislead into believing it could convict him simply because he had "not tried hard enough to learn the truth."

But Judge Scheindlin said her instruction was correct. In fact the jury could convict him if he stuck his head in the sand to avoid knowing facts he should have known. The test was not Bourke's actual knowledge of Kozeny's bribes, but his efforts to avoid acquiring that actual knowledge. "The conscious avoidance doctrine provides that a defendant's knowledge of a fact required to prove the defendant's guilt may be found when the jury is persuaded that the defendant consciously avoided learning that fact while aware of high probability of its existence," she said, quoting United States v. Svoboda, 347 F.3d 471, 477 (2d Cir. 2003).

She explained further why there's no head-in-the-sand defense under the FCPA's antibribery provisions, or a conspiracy charge based on that part of the FCPA:

"In addition, the FCPA explicitly permits a finding of knowledge on a conscious avoidance theory. It provides that '[w]hen 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 the person actually believes that such circumstance does not exist.' 15 U.S.C. § 78dd-2(h)(3)(B). Because the defendant must be found to possess the same intent as that required for the substantive offense, the conscious avoidance instruction was particularly appropriate in this case."

Bourke's lawyers plan to appeal his conviction.

Download a copy of Judge Shira A. Scheindlin's October 13, 2009 opinion and order in U.S. v. Victor Kozeny and Frederic Bourke, Jr. (United States District Court for the Southern District of New York, Case No.: 05-Cr 518) here.

Download the complete jury charge in U.S. v. Victor Kozeny and Frederic Bourke, Jr. here.

Read all our posts about the prosecution of Frederic Bourke here.


Bourke Injured, Sentencing Delayed

Frederic Bourke's sentencing has been rescheduled to November 10, 2009 at 2:30 pm. Judge Shira Scheindlin in the federal district court in Manhattan ordered the four week delay last week. Bourke underwent surgery almost two weeks ago to repair a "ruptured distal biceps tendon in his left arm." The cause of the injury, which happened on September 22, isn't specified in the court record.

Bourke, 63, was convicted in July of conspiring to violate the Foreign Corrupt Practices Act and the Travel Act, and lying to FBI agents. The jury said he invested in Viktor Kozeny's 1998 scheme to take over Azerbaijan's state oil company despite knowing Kozeny planned to bribe Azeri leaders. Then he lied to federal agents during their investigation. Bourke faces up to ten years in prison. Kozeny, meanwhile, is a fugitive living in the Bahamas.

Without the surgery, according to his doctor, Bourke, who's left-handed, risked permanent loss of mobility in his left arm, including turning a doorknob or looking at his wristwatch. After the surgery, his arm will be in a splint for six weeks at a ninety degree angle. He'll then need physical therapy twice a week for about three months. His doctor is David S. Ruch, MD, a professor at Duke University and director of its hand, upper extremity and microvascular surgery fellowship program.

According to, "The people most likely to get a biceps tendon rupture are strength athletes, bodybuilders and heavy manual workers. Generally, males over the age of 35 years. . . . After the injury there is usually localized pain at the front of the elbow, with bruising and swelling. The biceps muscle may retract up the upper arm crating a prominent bump, known as the 'Popeye' sign. This is often visibly different to the other biceps when contracting the muscle."

The government agreed to postpone Bourke's sentencing until his splint is removed. Judge Scheindlin signed the rescheduling order last Wednesday, two days after receiving a request from Bourke's lead trial lawyer, Harold Haddon, accompanied by a letter to the judge from Bourke's doctor.

Bourke's attorneys have asked for a new trial and are also appealing his conviction. He's now free on bail.

Download a copy of Judge Scheindlin's handwritten order here.


A Record Of Reform

In September 1977, the U.S. House of Representatives finished debating a bill designated as H.R. 3815. Its working title was the Unlawful Corporate Payments Act of 1977, or UCPA. The bill was a response to a huge scandal. As the record of the House debate explained:

"More than 400 corporations have admitted making questionable or illegal payments. The companies, most of them voluntarily, have reported paying out well in excess of $300 million in corporate funds to foreign government officials, politicians, and political parties. These corporations have included some of the largest and most widely held public companies in the United States; over 117 of them rank in the top Fortune 500 industries. The abuses disclosed run the gamut from bribery of high foreign officials in order to secure some type of favorable action by a foreign government to so-called facilitating payments that allegedly were made to ensure that government functionaries discharge certain ministrial [sic] or clerical duties. Sectors of industry typically involved are: drugs and health care; oil and gas production and services; food products; aerospace, airlines and air services; and chemicals."

But did the scandal really matter? Should Americans have cared about bribery abroad? The House of Representatives thought so. It listed about a dozen reasons in this little statement of purpose that's also part of the legislative record:

The payment of bribes to influence the acts or decisions of foreign officials, foreign political parties or candidates for foreign political office is unethical. It is counter to the moral expectations and values of the American public. But not only is it unethical, it is bad business as well. It erodes public confidence in the integrity of the free market system. It short-circuits the marketplace by directing business to those companies too inefficient to compete in terms of price, quality or service, or too lazy to engage in honest salesmanship, or too intent upon unloading marginal products. In short, it rewards corruption instead of efficiency and puts pressure on ethical enterprises to lower their standards or risk losing business. Bribery of foreign officials by some American companies casts a shadow on all U.S. companies. The exposure of such activity can damage a company's image, lead to costly lawsuits, cause the cancellation of contracts, and result in the appropriation of valuable assets overseas.
After 32 years, there's nothing there that's out of date. Bribery is still -- and always has been -- the wrong way around. It spreads weakness everywhere. Like cheating in sports, it produces no winners and lots of losers -- the players involved, their teams, the team owners, the league, the sponsors and fans. It's all bad. That's why the bill to enact the UCPA was important in September 1977. And why the law it became -- the Foreign Corrupt Practices Act -- is important today.

Download a copy of House Report No. 95-640 (September 28, 1977) here.


Charity Without Fear

The question most asked by our readers during the past year was this: What does the Foreign Corrupt Practices Act say about charitable contributions? It comes up so often because all American and U.S. public companies are subject to the FCPA's antibribery provisions, and most have citizenship programs overseas that involve supporting public and private charitable causes. So they need to be sure their donations are FCPA compliant. That's not always easy to figure out. The FCPA itself doesn't mention charitable giving, and the DOJ and SEC have never issued any formal guidelines about it.

When the question first came up around here, we turned to Pete from D.C. (above), a compliance professional who's logged a lot of miles. He helped us with a post that first appeared nearly two years ago. With a few updates we've included, here's what it said:

No good deed goes unpunished, or so the saying goes. That sure came true for Schering-Plough. From February 1999 to March 2002, the New Jersey-based maker of Afrin, Claritin, Coricidin and Cipro, among other leading drugs, violated the Foreign Corrupt Practices Act through overseas charitable giving.

According to the Securities and Exchange Commission's June 2004 complaint, the company's subsidiary in Poland made improper payments to a charitable organization called the Chudow Castle Foundation. The Foundation was headed by an individual who was the director of the Silesian Health Fund during the relevant time. The health fund was a Polish governmental body that, among other things, provided money for the purchase of pharmaceutical products and influenced the purchase of those products by other entities, such as hospitals, through the allocation of health fund resources.

The SEC said Schering-Plough Poland paid 315,800 zlotys (approximately $76,000 at the time of the payments) to the Chudow Castle Foundation to induce its director to influence the health fund's purchase of Schering-Plough's pharmaceutical products. The SEC also said that none of the payments to the Foundation were accurately reflected on the subsidiary's books and records and that Schering-Plough's system of internal accounting controls was inadequate to prevent or detect the improper payments.

As a result, Schering-Plough paid a $500,000 civil penalty and consented to an SEC order requiring it to avoid violating Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934. It also had to retain an independent consultant to review its policies and procedures regarding compliance with the Foreign Corrupt Practices Act and implement any changes recommended by the consultant.

Schering-Plough's case, as far as we know, remains the only FCPA enforcement action based entirely on charitable giving. We're talking about it now because it raised important compliance concerns that still linger. For example, how much due diligence is expected of companies with respect to their overseas charitable donations?

At an FCPA conference a couple of years ago, an audience member posed that question to Mark Mendelsohn, the head of the Department of Justice's group that prosecutes FCPA cases. He said each donation has to be considered on its merits, but there are always common-sense guidelines that help determine if donations could violate the FCPA. Is there a nexus between the charity and any government entity from which the company is seeking a decision? If the governmental decision-maker holds a position at the charity, that's a red flag. Is the donation consistent with the company's overall pattern of charitable contributions? For Schering-Plough, the SEC said that "[d]uring 2000 and 2001, the payments constituted approximately 40% and 20%, respectively, of S-P Poland's total promotional donations budget. Moreover, the Foundation was the only recipient of such donations that received multiple payments, making the four payments in 2000 and seven payments in 2001 highly unusual." If one donation or a series of them is more than the company has made to any other charity in the past five years, that's a red flag too.

Beyond the points made by Mark Mendelsohn, there are other smell tests for charitable donations. Who initiated the request for payment to the charity? The key to most bribery charges appears to be the personal benefit to the government official, or the quid pro quo expected of him or her. If a government official hinted at or begged for a payment to the charity, that's another red flag. Will there be a tax deduction for the donation? In most countries, one important result of any gift to charity is tax relief. Therefore, not seeking the tax benefit can become yet another red flag.

And one final point. All due diligence concerning charitable payments -- the asking and answering of the questions posed above -- should be well documented. Nothing will aid in defending against a potential FCPA charge more than a stack of contemporaneously-generated papers backing the story that the payment really was meant to be a charitable contribution and not a bribe. Don't be shy about it. Create real-time documents that demonstrate awareness of potential FCPA issues and measures taken to manage and mitigate the risk. That, after all, is what compliance is really about.

Schering-Plough Corporation trades on the New York Stock Exchange under the symbol SGP.

View the SEC's Litigation Release No. 18740 (June 9, 2004) here.

Download the SEC's civil complaint in Securities and Exchange Commission v. Schering-Plough Corporation (D.D.C. 2004) here.


Bourke's Big Day

Frederic Bourke, the wealthy entrepreneur convicted in July of conspiring to violate the Foreign Corrupt Practices Act and the Travel Act, and lying to FBI agents, is scheduled to be sentenced on Tuesday, October 13. At his trial, a federal jury in Manhattan found that he invested in Czech-born promoter Viktor Kozeny's unsuccessful attempt in 1998 to gain control of Azerbaijan's state oil company, Socar, despite knowing Kozeny planned to bribe Azeri leaders.

Bourke, 63, the co-founder of handbag-maker Dooney & Bourke, faces up to five years in prison on each count. The judge has already said she'll impose less than the 10-year sentence prosecutors have asked for. Even so, any jail time will complete Bourke's fall from his "charmed life," as the American Lawyer's Andrew Longstreth calls it, to convicted felon.

In an October 9 feature in the American Lawyer (available at here), Longstreth dives deep into the lives of Kozeny and Bourke and their run-in with the FCPA.

Here's an excerpt:

It's strange that Kozeny―the alleged mastermind behind the bribery scheme―is living in the Bahamas, while Bourke, an investor who merely knew of the bribes is preparing for a possible prison term. But what makes this story even stranger is that the government's FCPA investigation can be traced back to a civil suit filed by American investors against Kozeny in which Bourke was a witness for the plaintiffs. Kozeny's lawyers raised the bribes as a defense, and then alerted federal prosecutors about the bribes in the belief that Kozeny would not be charged with FCPA crimes. They were wrong. And Bourke is paying for it.

Before his disastrous investment with Kozeny, Ricky Bourke lived a charmed life. He grew up in the suburbs of Detroit, attended the University of Michigan, and married Eleanor Clay Ford, whose mother was Henry Ford's only granddaughter. Although Bourke married into money, he has made plenty on his own. In the seventies he teamed up with Peter Dooney, a talented designer at Coach, Inc., to start a leather goods manufacturing company called Dooney & Bourke, which originally sold belts and suspenders, but later became best known for its stylish handbags. (In 1996 Liz Claiborne, Inc., bought the company for an undisclosed amount.) In the nineties, Bourke became one of the first major investors in genome science.

By the time he reached his fifties, Bourke had collected all the material trophies of success: multiple homes, a private plane, and a yacht. But according to the prosecution's theory at his trial, Bourke wasn't satisfied. He wanted to be a billionaire. . . .

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


Keeping Courts Clean

Compliance programs don't always (or even usually) cover how overseas counsel are hired, supervised and paid. But they should. A year ago, the Supreme Court denied cert in U.S. v. Kay, leaving in place the Justice Department's expansive view of the FCPA's business nexus element (the meaning of "assist in obtaining or retaining business"). That cleared the way for prosecutors to target bribes to foreign judges and court workers in all kinds of foreign cases.

We liked what Larry Buterman had to say earlier this week about FCPA enforcement actions in the U.N. oil for food cases (here). And we noticed he co-wrote an article in September about overseas judicial corruption. So we asked his advice. Here -- in his own words -- is what he told us:

As American and other companies subject to the FCPA expand into foreign markets, they become increasingly susceptible to the risk of foreign litigation. The reality is that in many countries, payments to judges and judicial officials are standard litigation practices. Organizations must recognize that foreign judges and judicial officials are "foreign officials" for purposes of the FCPA -- especially given the broad interpretation the U.S. government has adopted for that term.

Thus, organizations must be vigilant to ensure that all those who litigate on their behalves in foreign countries do not make any payments to judges and judicial officials.

The U.S. government has already shown its willingness to expand the reach of the FCPA in order to root out all types of foreign corruption. The FCPA appears to be the most promising legal tool at its disposal to combat bribery in foreign courts. Given the prevalence of judicial corruption overseas, it may only be a matter of time before the DOJ's prosecutors turn their attention to the problem.

Common sense dictates that foreign local counsel be treated by companies the same way they treat any suppliers, agents or distributors with respect to the FCPA.

A copy of "Foreign Judicial Corruption and Liability for Local Counsel," co-authored by Howard B. Epstein and Lawrence E. Buterman and originally published in the New York Law Journal (September 9, 2009) can be downloaded here.

View our series about judicial corruption here.


Grease For Oil

Larry Buterman (left) from Chadbourne & Parke's New York office sent us an article he published in the Bloomberg Law Reports. It explains why the Justice Department's enforcement actions in the U.N. oil for food cases don't allege antibribery offenses under the Foreign Corrupt Practices Act. The reason: the kickbacks typically went directly to the Iraqi government and not to foreign officials. "[B]y their express terms," he says, "the FCPA's antibribery provisions apply only to payments made to those connected to the government. Payments to a government itself, in contrast, are not covered by the FCPA." (Also see our post here.)

The oil for food program probably helped a lot of average Iraqis. But it also funded the pre-war regime in a systematic, unaccountable and illegal way. Buterman says, "According to a United Nations' Independent Inquiry Committee, between 1999 and 2003, over 2,200 separate companies abused the [program] by making improper payments, totaling over $1.5 billion, to the Iraqi government in order to obtain goods contracts." The entities charged with violations have settled, taken deferred prosecution agreements, and paid about $170 million in fines, penalties and disgorgements. "And," he says, "given the DOJ's July 31, 2009 announcement that it plans to seek extradition of Ousama Naaman—a Canadian national charged with violating the FCPA in connection with the OFFP—it appears the government's vigorous enforcement efforts in the area are continuing."

We turned to footnote 3 in the article for the following list of OFFP-related enforcement actions by the DOJ and SEC (we've added last week's case involving AGCO Corporation). The Netherlands, Denmark, and the U.K have also punished companies for violating the U.N. Iraqi sanctions.

Here's the DOJ / SEC list (with related cases grouped together and linked to our original posts):

U.S. v. AGCO Limited, No. 09-cr-00249 (D.D.C. 2009); U.S. Sec. & Exch. Comm'n v. AGCO Corporation, No. 09-cv-01865 (D.D.C. 2009) (here)

U.S. v. Novo Nordisk A/S, No. 09-cr-00126 (D.D.C. 2009); U.S. Sec. & Exch. Comm'n v. Novo Nordisk A/S, No. 09-cv-00862 (D.D.C. 2009) (here)

U.S. v. Naaman, No. 08-cr-00246 (D.D.C. 2008); U.S. v. CNH Frances S.A., No. 08-cr-00379 (D.D.C. 2008) (here)

U.S. v. CNH Italia S.p.A., No. 08-cr-00378 (D.D.C. 2008); U.S. v. Iveco S.p.A., No. 08-cr-00377 (D.D.C. 2008); U.S. Sec. & Exch. Comm'n v. Fiat S.p.A., No. 08-cv-02211 (D.D.C. 2008) (here)

U.S. v. Volvo Constr. Equip., AB, No. 08-cr-00069 (D.D.C. 2008); U.S. v. Renault Trucks SAS, No. 08-cr-00068 (D.D.C. 2008); U.S. Sec. & Exch. Comm'n v. AB Volvo, No. 08-cv-00473 (D.D.C. 2008) (here)

U.S. Sec. & Exch. Comm'n v. Flowserve Corp., No. 08-cv-00294 (D.D.C. 2008) (here)

U.S. Sec. & Exch. Comm'n v. Akzo Nobel, N.V., No. 07-cv-02293 (D.D.C. 2007) (here)

U.S. Sec. & Exch. Comm'n v. Chevron Corp., No. 07-cv-10299 (S.D.N.Y 2007) (here)

U.S. v. Ingersoll-Rand Italiana S.p.A., No. 07-cr-00294 (D.D.C. 2007); U.S. Sec. & Exch. Comm'n v. Ingersoll-Rand Co. Ltd., No. 07-cv-01955 (D.D.C. 2007) (here)

U.S. v. York Int'l Corp., No. 07-cr-00253 (D.D.C. 2007); U.S. Sec. & Exch. Comm'n v. York Int'l Corp., No. 07-cv-01750 (D.D.C. 2007) (here)

U.S. Sec. & Exch. Comm'n v. El Paso Corp., 07-cv-00899 (S.D.N.Y. 2007) (here)

U.S. Sec. & Exch. Comm'n v. Textron Inc., No. 07-cv-01505 (D.D.C. 2007) (here)

A copy of "Enforcement Without a Violation: FCPA Lessons From the Government's Investigation Into the Oil for Food Program," by Lawrence E. Buterman, originally published in the Vol. 1, No. 3 edition of the Bloomberg Law Reports—White Collar Crime, can be downloaded here.

RIP Craig Johnson. A founder of both Venture Law Group and, more recently, Virtual Law Partners, Craig was an inspirational figure in Silicon Valley and far beyond. He was many things -- great lawyer, venture capitalist and entrepreneur. With Guy Kawasaki and Rich Karlgaard he co-founded the influential Garage Technology Ventures. We knew him as a warm and engaging colleague, a man with the courage to think for himself; to many others he was a generous, good-humored mentor, unstinting with his encouragement. Our sympathies to his wife, RoseAnn Rotandaro, and his entire family.


Wages And War


Corruption, of all things, may be the deciding factor in Washington's debate about troop deployment and military strategy in Afghanistan. The Christian Science Monitor said last week: "The concern is that the Afghan government has become so rotted with corruption that it cannot consolidate the gains the U.S. military makes. In other words, the U.S. will never be able to leave Afghanistan unless there’s at least a minimally effective government to help in the near term and then take over in the future."

The 77,000-member Afghan police force illustrates the problem. Writing in this month's Atlantic (here), Anup Kaphle said:

Talk with any taxi driver or farmer in Lashkar Gah, and you’ll hear stories about police shakedowns. One farmer from the nearby town of Gereshk, who was transporting his wheat harvest to Lashkar Gah, said that a police officer had taken 1,000 Afghanis ($20) from him the previous week. “They will search your pockets and take money and valuables from you,” he said, “and you can’t say anything because you know you will have to deal with them again the next day.”

Echoing Kaphle's reporting, the Christian Science Monitor said:

Law and order in the country has collapsed as many police use their posts primarily as a platform for bribe-taking. Even before the election, President Karzai had lost broad public support in Afghanistan because of his government’s inability – or unwillingness – to stifle corruption. Indeed, it is corruption, not insecurity, that most angers Afghans.

Kaphle cites low pay as a cause of police corruption. He says their monthly wages are about $110. That's a lot higher than the average Afghan income of $25. But it's also "nearly two and a half times less than that earned by the Afghan National Army."

Those looking at countries like Afghanistan often assume low pay equals more local graft. Conversely, people living, for example, in Hong Kong, Singapore and Israel, credit high civil-service pay with reducing corruption. It's simple, they say: government employees won't risk their cushy jobs and pensions by taking bribes.

Oddly, however, there's no consistent data linking low wages with increased corruption. Researchers have been frustrated for years by what one called "puzzling empirical evidence on the relationship between corruption and bureaucratic wages." That is, in countries with high corruption rates, paying bureaucrats more doesn't always reduce corruption. That means other factors must be at work -- tribal or ethnic alliances and rivalries, education, civil rights, press freedom, relationships between local and national leaders, and so on. But no one has found a dependable way to measure those ingredients or quantify how they influence corruption.

That knowledge gap can be a problem for policy-makers. G. Pascal Zachary, author of the memoir Married to Africa, made that point this summer in the Wilson Quarterly (here). He said:

Are nations poor because their governments are cor­rupt, or does a nation’s poverty corrupt its officials? Traditional scholars of econ­omic development hold that once a nation achieves a sufficient level of prosperity, corruption naturally withers as the incentives to cheat diminish. But in recent years, the continuing poverty in countries in Africa, Latin America, and the former Soviet bloc spurred revisions to that way of thinking . . . International donors, such as the World Bank, and activist groups, such as the ­corruption-­monitoring organization Transparency International, promote the idea that if only governments in poor coun­tries were honest, their citizens would be much ­wealthier.

But the debate, he said, suffers from "a paucity of data, especially case studies."


Enforcement Report For Q3 '09

During the third quarter, we counted Foreign Corrupt Practices Act enforcement actions involving nine individuals and five corporations. Among the developments: Three FCPA-related trials were completed, all ending badly for the defendants (Bourke, Jefferson and Green). For the first time, the SEC asserted control-person liability in an FCPA case (Faggioli and Huff). And the Justice Department used a California anti-corruption law as the basis for a federal Travel Act charge in an FCPA prosecution (CCI).

Here's what happened:

AGCO Corporation (September 30, 2009) Criminal and civil enforcement actions resolved. To settle charges that it paid kickbacks to the pre-war Iraqi regime under the U.N. oil for food program, agricultural equipment-maker AGCO Corporation agreed with the Justice Department to pay a criminal fine of $1.6 million and enter into a three-year deferred prosecution agreement. Its U.K. subsidiary was charged in a one- count criminal information with conspiracy to commit wire fraud and to violate the books and records provisions of the FCPA.

In its settlement of civil charges with the Securities and Exchange Commission, AGCO Corporation agreed to disgorge $13,907,393 in profits and $2,000,000 in pre-judgment interest, and pay a civil penalty of $2,400,000. The SEC charged the company with failing to maintain an adequate system of internal controls to detect and prevent the corrupt payments and failing to properly record the payments.

Gerald and Patricia Green (September 14, 2009) Convicted of conspiracy to violate the FCPA and violating the FCPA.
The Hollywood film executives were found guilty by a federal jury in LA of violating the FCPA by bribing a Thai official in exchange for contracts to manage and operate Thailand's yearly film festival.

Gerald Green, 77, and Patricia Green, 52, were convicted of conspiring to violate the FCPA and U.S. money laundering laws, nine counts of violating the FCPA, and seven counts of money laundering. Patricia Green was found guilty of two counts of falsely subscribing to a U.S. income tax return.

The conspiracy and FCPA charges each carry a statutory maximum penalty of five years in prison. Each of the money laundering counts carries a statutory maximum penalty of 20 years in prison. The tax charges against Patricia Green each carry a statutory maximum penalty of three years in prison. The Greens are scheduled to be sentenced by United States District Judge George H. Wu on December 17, 2009.

Leo Winston Smith (September 3, 2009) Guilty plea to a two-count indictment. The former director of sales and marketing for Pacific Consolidated Industries (PCI), admitted that he bribed an official from the U.K. Ministry of Defense (MOD) in return for equipment orders. Smith, 73, pleaded guilty in the U.S. federal district court for central California to conspiracy to violate the FCPA (18 U.S.C. §371) and corruptly obstructing and impeding the due administration of the internal revenue laws (26 U.S.C. §7212(a)).

Sentencing is scheduled for December 18, 2009. He faces a maximum five years in prison on the FCPA conspiracy charge and three years on the tax charge, and a fine of about $255,000.

Oscar H. Meza (August 28, 2009) Resolved civil enforcement action. Meza, the former sales director in Asia for Faro Technologies, Inc., was charged by the SEC with violating the FCPA's antibribery provisions (Section 30A of the Securities Exchange Act of 1934 [15 U.S.C. §78dd-1]), the books and records and internal control provisions (Section 13(b)(5) ofthe Exchange Act and Exchange Act Rule 13b21 [15 U.S.C. § 78m(b)(5) and 17 C.F.R. § 240.13b2-1]), and with aiding and abetting Faro's violations of the anti-bribery, books and records, and internal controls provisions. The complaint alleged that he "authorized bribery payments to employees of Chinese state-owned companies in order to obtain contracts, and that in order to conceal the bribes Meza instructed that account entries be altered."

Meza paid a $30,000 civil penalty and $26,707 in disgorgement and prejudgment interest.

William Jefferson (August 5, 2009) Convicted of conspiracy to violate the FCPA. The former nine-term congressman from Louisiana was found guilty by a federal jury in Alexandria, Virginia of 11 of 16 corruption charges. In addition to the conspiracy charge, he was also found guilty of soliciting and taking bribes, depriving citizens of honest services, money laundering and racketeering, and conspiracy to solicit bribes. He was acquitted of a substantive charge of violating the FCPA.

Jefferson's case started in 2005 when the FBI raided his congressional office. He then became the first elected U.S. official to be charged under the Foreign Corrupt Practices Act. The indictment alleged among other things that he conspired to bribe the then Nigerian vice president, Atiku Abubakar, to steer telecommunications contracts to companies controlled by Jefferson's family.

Nature's Sunshine Products Inc. (NSP), Douglas Faggioli, and Craig D. Huff (July 31, 2009) Civil enforcement actions resolved. The SEC filed a settled enforcement action against NSP, its CEO Faggioli, 54, and its former CFO Huff, 53. The charges related to cash payments made in 2000 and 2001 by the Brazilian subsidiary of NSP, a manufacturer of nutritional and personal care products, to import unregistered products into Brazil and the subsequent falsification of its books and records to conceal the payments. NSP was required to pay a civil penalty of $600,000; Faggioli and Huff each paid $25,000.

The SEC's civil complaint alleged thatNSP's Brazilian subsidiary made a series of cash payments to customs officials to import product into that country and then purchased false documentation to conceal the nature of the payments. The conduct violated the FCPA, and the antifraud, issuer reporting, books and records and internal controls provisions of the federal securities laws. The complaint also alleged that Faggioli and Huff, in their capacities as control persons, violated the books and records and internal controls provisions of the securities laws in connection with the Brazilian cash payments. NSP also failed to disclose the payments to Brazilian customs agents in its filings with the SEC.

Control Components Inc. (July 31, 2009) Criminal enforcement action resolved. Valve-maker CCI of Rancho Santa Margarita, California pleaded guilty to violating the anti-bribery provisions of the FCPA (15 U.S.C. §78dd-2) and the Travel Act (18 U.S. C. §1952). It bribed foreign officials in a decade-long scheme to secure contracts in about 36 countries. CCI's plea agreement imposes a criminal fine of $18.2 million, a compliance monitor for three years, and a three-year term of organizational probation.

CCI designs and manufactures service control valves for use in the nuclear, oil and gas, and power generation industries. Its website is here. It's owned by British-based IMI plc, which trades on the London Stock Exchange under the symbol IMI.L.

The corrupt payments were made to foreign officials at state-owned entities including Jiangsu Nuclear Power Corp. (China), Guohua Electric Power (China), China Petroleum Materials and Equipment Corp., PetroChina, Dongfang Electric Corporation (China), China National Offshore Oil Corporation, Korea Hydro and Nuclear Power, Petronas (Malaysia) and National Petroleum Construction Company (United Arab Emirates).

Ousama Naaman
(July 31, 2009) Arrested in Frankfurt, Germany. The Canadian citizen had been indicted in August 2008 for his alleged role in an eight-year conspiracy to defraud the United Nations Oil for Food Program (OFFP) and to bribe Iraqi government officials in connection with the sale of a chemical additive used in refining leaded fuel. Naaman, 60, of Abu Dhabi, United Arab Emirates, was charged with one count of conspiracy to commit wire fraud and to violate the FCPA and two counts of violating the FCPA. The Justice Department is trying to extradite him from Germany to the United States to stand trial. He faces a maximum prison sentence of 15 years.

Helmerich & Payne Inc. (July 30, 2009) Criminal and civil enforcement actions resolved. The Oklahoma-based oil and gas driller paid a $1 million criminal penalty to the Justice Department and entered into a two-year deferred prosecution agreement to settle FCPA violations related to improper payments to government officials in Argentina and Venezuela. It was also required to disgorge to the Securities and Exchange Commission $320,604 plus prejudgment interest of $55,077.22 for books and records and internal controls violations.

Avery Dennison Corporation (July 28, 2009) Civil enforcement action resolved. Label-maker Avery Dennison resolved civil and administrative charges brought by the SEC in the United States District Court for the Central District of California. Avery was charged with violating the FCPA's books and records and internal controls provisions. In the administrative action, the SEC ordered the company to disgorge $273,213 and $45,257 in prejudgment interest. In the federal civil action, Avery agreed to a final judgment requiring it to pay a civil penalty of $200,000.

From 2002 through 2005, the Reflectives Division of Avery (China) Co. Ltd. paid or authorized the payment of kickbacks, sightseeing trips, and gifts to Chinese government officials amounting to about $30,000. In one transaction, Avery China secured a sale to a state-owned end user by agreeing to pay a Chinese official a kickback of nearly $25,000 through a distributor. Avery China earned $273,213 in profit from the transaction, which it inaccurately booked as a sale to the distributor rather than to the end user.

Frederic Bourke (July 10, 2009) Convicted of conspiring to violate the FCPA, violating the Travel Act, and lying to FBI agents.

Bourke, 63, is co-founder of well-known handbag brand Dooney & Bourke. A federal jury in Manhattan found that he invested in Czech-born promoter Viktor Kozeny's unsuccessful attempt in 1998 to gain control of Azerbaijan's state oil company, Socar, despite knowing Kozeny planned to bribe Azeri leaders. Kozeny has also been charged in the case but is a fugitive living in the Bahamas. Bourke was acquitted of money-laundering charges.

Sentencing is scheduled for Oct. 13, 2009. Bourke faces a maximum penalty of five years in prison and a maximum fine of $250,000 or twice the gross gain or loss resulting from the alleged violations on each of the two counts on which he was convicted.

Click on the party names for the original posts, with links to charging documents, plea agreements, and news and litigation releases.

View our enforcement report for Q2 '09 here.

View our enforcement report for Q1 '09 here.

View our 2008 enforcement index here.


SFO To Request Prosecution Of BAE

The U.K.'s Serious Fraud Office announced today that it intends to seek the Attorney General's consent to prosecute BAE Systems for offenses relating to overseas corruption. The agency said it will submit its request to the Attorney General "when the SFO considers it is ready to proceed." The SFO's statement (available here) said its decision "follows the investigation carried out by the SFO into business activities of BAE Systems in Africa and Eastern Europe."

The Times said the contracts investigated by the SFO involved "sales of aircraft in South Africa and the Czech Republic, purchases of two frigates in Romania, and radar equipment for air traffic control in Tanzania."

On September 5, the U.K. Mail reported that BAE -- the U.K.'s biggest defense contractor -- had been given until the end of the month by the Serious Fraud Office "to avoid a criminal trial for paying bribes." The BBC said today that the SFO "has been in long negotiations with BAE but these broke down after the sides could not agree on what the firm would admit or the fine it should pay. . . the SFO wanted to strike a deal that would involve BAE pleading guilty to charges of corruption and agreeing to pay a substantial sum in compensation -- between £500 million and £1 billion -- however no deal was done."

BAE's sales to Saudi Arabia will not be part of the request for a prosecution. The SFO dropped an investigation in December 2006 into allegations the company bribed members of the Saudi Arabian government in exchange for the sale of Typhoon jet fighters. The SFO said it had to stop the investigation after Saudi Arabia threatened to end anti-terrorism cooperation with the British government.

The U.S. Justice Department, meanwhile, is reportedly still investigating BAE's payments of about $2 billion to Saudi Prince Bandar bin Sultan. He was formerly ambassador to the United States and some of the payments allegedly passed through U.S. bank accounts he controlled.

Attorney General Baroness Scotland has final approval over BAE's prosecution. The case, according to the BBC, would be brought under the 2001 Prevention of Corruption Act and be decided by a judge without a jury. "It will take several weeks to prepare the papers for the Attorney General," BBC's report said, "and it is possible that the sides could still reach an agreement in that time."

BAE has 32,000 employees in the U.K. and about 105,000 worldwide. "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," member of parliament Sir Menzies Campbell reportedly told Sky News. "These developments have a considerable impact on all of these projects." He said a decision to prosecute BAE could also give "protective" U.S. politicians an excuse to stop British firms getting contracts on the other side of the Atlantic.


AGCO Resolves Iraq Bribe Charges

Agricultural equipment-maker AGCO Corporation will pay nearly $20 million in criminal and civil penalties to resolve charges related to kickbacks it paid under the U.N. oil for food program. Under its plea deal with the Justice Department, the Duluth, Ga.-based firm will pay a criminal penalty of $1.6 million and enter into a three-year deferred prosecution agreement. The DOJ charged its U.K. subsidiary, AGCO Limited, in a one- count criminal information with conspiracy (18 U.S.C. § 371) to commit wire fraud (18 U.S.C. § 1343) and to violate the books and records provisions of the Foreign Corrupt Practices Act by falsifying accounts of parent AGCO Corporation, an issuer ( 15 U.S.C. §§ 78m(b)(2)(A), 78m(b)(5), and 78ff(a)).

In settling civil charges brought by the Securities and Exchange Commission, AGCO Corporation will disgorge $13,907,393 in profits and $2 million in pre-judgment interest. It will also pay a civil penalty of $2.4 million. The SEC charged the company with failing to maintain an adequate system of internal controls to detect and prevent the corrupt payments and failing to properly record the payments (Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934).

AGCO is also paying a fine of $630,000 to the Danish State Prosecutor for Serious Economic Crimes to resolve criminal charges against its Danish subsidiary.

From 2000 through 2003, wholly-owned subsidiaries in Denmark, the U.K. and France paid about $5.9 million in kickbacks to the Iraqi regime and officials there in connection with sales of equipment under the oil for food program. The illegal payments were made through an agent and falsely recorded as “after sales service fees.” The U.K. subsidiary maintained and used a second set of accounts to track the payments. The SEC said,

The [second] accrual account was created by AGCO Ltd.’s marketing staff with virtually no oversight from AGCO Ltd.’s finance department. No one questioned the existence of the dual accounts. No one questioned why the Ministry Accrual account contained approximately ten percent of the contract value despite the fact that there was no contract in place requiring that such ten percent be paid to the ministry or anyone else. Unlike other payments to the agent, the Ministry Accrual payments were made by bank guarantee and in French francs or Euros instead of U.S. dollars. Marketing and finance employees in the U.K., Denmark, and France were all instrumental in the scheme. . . .
AGCO's cooperation with U.S. authorities was evident. Among other things, in its deferred prosecution agreement it undertook to give the DOJ and other agencies all information it has about the illegal conduct and individuals involved, including the material from its internal investigations. The company didn't reserve the right to assert any claims of attorney-client or work-product privilege. In return, the DOJ didn't charge the U.S. parent company but only its U.K. subsidiary, and didn't bring substantive criminal FCPA or wire fraud charges, but instead used only the federal conspiracy statute. That should preserve AGCO Corporation's eligibility to do business with the U.S. government and bid for World Bank and IMF-funded projects.

AGCO operates worldwide and has annual revenues of about $8 billion. It manufacturers and sells tractors, combines, hay tools, sprayers, and forage and tillage equipment through its Challenger, Fendt, Massey Ferguson and Valtra brands.

AGCO Corporation trades on the New York Stock Exchange under the symbol AGCO.

Download the DOJ's September 30, 2009 release here.

Download the criminal information in U.S. v. AGCO Limited here.

Download AGCO Corporation's September 29, 2009 plea agreement with the Justice Department here.

View the SEC's Litigation Release No. 21229 dated September 30, 2009 in Securities & Exchange Commission v. AGCO Corporation, Civil Action No. 1:09-CV-01865 (D.D.C.)(RMU) here.

Download the SEC's civil complaint against AGCO Corporation here.


Breakthrough In Britain

British firm Mabey & Johnson Ltd was sentenced last week by an English court for overseas corruption and violations of the U.N.'s oil-for-food program. The bridge-building specialist will pay £6.6 million in criminal fines and related assessments. It pleaded guilty in July to bribing officials in Jamaica and Ghana to win public contracts, and paying more than £123,000 to the pre-war Iraqi regime in violation of U.N. sanctions. As part of its sentence, the privately-held company is also required to retain and pay for an SFO-approved monitor to review its internal compliance program.

The SFO's director Richard Alderman said: “This is a landmark outcome. The first conviction in this country of a company for overseas corruption and for breaking the U.N. Iraq sanctions and, satisfyingly, achieved quickly. . . . I urge other companies who might see some parallels for them, to come and talk to us and have the matter dealt with quickly and fairly."

Mabey & Johnson self-disclosed its illegal overseas conduct to the SFO in 2008. It said the bribery occurred between 1993 and 2001. In Jamaica and Ghana, the prosecution said, Mabey & Johnson "knew that its agents were involved in corrupt relationships with public officials with influence over M&J’s affairs in those jurisdictions. M&J accept that they agreed with their agents to pay bribes directly to public servants in those jurisdictions. Those bribes were deducted from the overall commission due to the agents."

The company's guilty plea has led to the resignation of Jamaica's junior minister of transport and works after he was linked to the corrupt business practices.

In its submission to the sentencing court, the SFO's statement about Mabey & Johnson included this message on the nature of public bribery:

The SFO is committed to the interests of the victims of overseas corporate corruption. Overseas corruption is not a “victimless crime." As the present case demonstrates only too well, the victims are all or any of the proper interests of the governments of the countries where such practices are carried out, the integrity of their civil services and public officials, and - more generally - the peoples of those countries, particularly the poorer and poorest sectors of those populations.
The Serious Fraud Office was lambasted after its 2006 decision to drop the investigation of BAE Systems for bribery. It said then it had no choice because Saudi Arabia threatened not to buy Typhoon aircraft or continue sharing anti-terrorism intelligence. The High Court in London called the episode an outrage, an abject surrender to threats, and a capitulation. On the government's appeal to the House of Lords, five law lords decided the SFO's action was legal but "extremely distasteful." Former SFO director Robert Wardle left his post in April 2008.

View the Serious Fraud Office's September 25, 2009 release regarding the sentencing of Mabey & Johnson here.

Download the text of the prosecution's opening statements for (a) the corruption offenses in relation to Jamaica and Ghana and (b) breaching U.N. sanctions in the oil-for-food program here.