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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

Sunday
Oct042009

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."

Thursday
Oct012009

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.
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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.
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Wednesday
Sep302009

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.
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Wednesday
Sep302009

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.
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Tuesday
Sep292009

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.
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Monday
Sep282009

Supply-Side Corruption

The 2008 Bribe Payers Index (BPI) from Transparency International attempts to measure how much corruption the major economies export to other countries. TI hired Gallup International to survey 2,742 executives from 26 countries (at least 100 interviews per country) between 5 August and 29 October 2008. The executives came from Argentina, Brazil, Chile, Czech Republic, Egypt, France, Germany, Ghana, Hungary, India, Indonesia, Japan, Malaysia, Mexico, Morocco, Nigeria, Pakistan, the Philippines, Poland, Russia, Senegal, Singapore, South Africa, South Korea, the United Kingdom and the United States.

Interviewees were given a list of 22 countries. They were asked to score each country on a 5-point scale (from 1=never, to 5=almost always) by answering the question: “How often do firms headquartered in (country name) engage in bribery in [your home] country?” The 22 "exporting"countries selected for evaluation represented 54 percent of the world's total trade and foreign direct investment flows in 2006.

What's measured is the perception of companies headquartered in the "exporting" countries to pay bribes when doing business abroad. Companies from Belgium and Canada came out on top as the cleanest; those from China and Russia were last.

Here's the complete 2008 BPI ranking:

1 Belgium
1 Canada
3 Netherlands
3 Switzerland
5 Germany
5 United Kingdom
5 Japan
8 Australia
9 France
9 Singapore
9 United States
12 Spain
13 Hong Kong
14 South Africa
14 South Korea
14 Taiwan
17 Italy
17 Brazil
19 India
20 Mexico
21 China
22 Russia
The survey also evaluated 19 business segments to determine which were most likely to use illegal payments to influence government decisions. Worst ranked were public works contracts and construction, real estate and property development, oil and gas, heavy manufacturing, and mining. The cleanest were information technology, fisheries, and banking and finance.

Among other things, the survey raises questions about the lack of enforcement parity among the major economies. The BRIC countries plus Mexico sit at the bottom of the survey -- their companies are perceived as most likely to use bribery abroad to win work. Yet those countries don't prosecute overseas graft. For American companies, that's bad news. The growing economic power of India and China especially will make the level playing field more elusive than ever.
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Sunday
Sep272009

The Statecraft Of Enforcement

Should the Foreign Corrupt Practices Act be used to punish nations that don't behave the way the United States wants them to? Michael Jacobson (left) from the Washington Institute thinks so. In the September 24 issue of Policy Watch, he proposes targeted enforcement of the FCPA against non-U.S. companies that do business with Iran (U.S. companies aren't allowed there under current law). The purpose is to sanction the country and its leaders on the nuclear issue.

Jacobson's thinking goes like this: Tehran deserves punishment. The U.N. can't do it because China and Russia won't get behind effective sanctions. But the FCPA reaches all foreign companies that have securities registered in the U.S. Some of those foreign companies are doing business with Iran. That country's leaders are corrupt and most deals they do probably violate the FCPA's anti-bribery provisions. Therefore, the Justice Department and Securities and Exchange Commission should target FCPA enforcement against foreign companies doing business with the regime. That will discourage trade with Iran and ultimately inflict real damage on the leadership there. While unilateral U.S. action will work, Jacobson says, the best scenario is for other OECD countries to adopt the same approach under their respective anti-corruption laws.

Is this a serious idea?

Well, the Washington Institute where Michael Jacobson works is a serious think tank. On its board of advisers are five former Secretaries of State -- Warren Christopher, Lawrence Eagleburger, Alexander Haig, Henry Kissinger and George Shultz. Among the other board members are Martin Peretz, editor in chief of the New Republic, Richard Perle, a former Assistant Secretary of Defense, James Woolsey, a former director of the CIA, and Mort Zuckerman, publisher of U.S. News and World Report. That's a lot of horsepower.

Jacobson's bio says he specializes in counterterrorism and intelligence -- particularly "sanctions and financial measures to combat national security threats." Before joining the Washington Institute, he was a senior advisor in the Treasury Department's Office of Terrorism and Financial Intelligence and counsel on the 9-11 Commission. He also worked for the FBI, first as an intelligence analyst, then as assistant general counsel. He holds "a bachelor's degree in psychology from Brandeis University, a master's degree in international relations from Tufts University, and a law degree from Boston College Law School."

So yes, this looks like a serious proposal. But is it a good idea?

We're against corruption and the spread of nuclear weapons. Who isn't? And we know dealing with Iran is frustrating; carrots don't work and there aren't many sticks to reach for. Still, the cost of using the FCPA as a sanction would be high, and it probably wouldn't work.

Today the Foreign Corrupt Practices Act is admired around the world. Called "one of Congress's finer moments" by the Wall Street Journal, it's a hopeful statute that stands for ethics in business and government. Once politicized, however, it'll be just another symbol of heavy-handed and overreaching American diplomacy that's resented overseas. At home, injecting the DOJ and SEC so deep into U.S. foreign policy would compromise their integrity as crime-fighting agencies, with implications far beyond FCPA enforcement.

What's more, using the FCPA to sanction Iran (or any country) is likely to backfire. Targeted enforcement might keep clean money out. But as we heard from Andy Spalding earlier this year, that would open the door for investors from countries "not committed to effectively enforcing anti-bribery measures," like Russia and China, making it even easier for crooked leaders to skim funds from military and civilian projects. End result: more corruption and no less nuclear development.

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RIP William Safire. From Time magazine: "Not for Safire the clodden metaphors, arch constructions, one-sentence paragraphs and dreary wonkery that are the stock in trade of too many modern American columnists. He was of that generation of inky-fingered wretches who remembered that it is not a sin for journalism to entertain — indeed, that one way you can get across a point about which you feel passionately is to make people smile while they are absorbing it."
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Thursday
Sep242009

Stuck In The Middle

Evan Osnos's latest Letter from China in the New Yorker (here) describes what he calls the gift-imperative -- the constant cultural pressure to give gifts and accept them in business and professional settings. Our most harrowing encounter with the gift-imperative happened not in China but in Southeast Asia. During the festive season one year, a small flatbed drove up to our place in Singapore, loaded with a huge gift basket -- about five feet tall and packed with pricey bottles and tins -- cognac, caviar and other treats you might see in the window at Harrods. A few minutes later, however, the truck left, still carrying the basket.

The gift-giver, it turned out, was an opposing party in a dispute we were working on. We knew he didn't expect any quid pro quo -- he was trying to show that he understood the dispute was not personal. We also knew that our rejecting the gift would cause him to lose face. But accepting it was impossible. The clash of cultures was awkward, damaging, and typical of the problems Western and local employees face every day in Asia.

Evan Osnos is speaking as a reporter in China but his experience is universal:

The problem comes up all the time: American reporters are trained to avoid hand-outs from the people we’re interviewing. Chinese interviewees are trained to be equally vigilant in extending their hospitality. Thus, when a local propaganda-bureau official insists on taking you out to dinner, you have to fake a trip to the toilet halfway through the entree, just to pay the bill before the official can pay it. I have honed a polite but firm spiel for moments like that: “It’s company policy, I’m sorry…. I will be fired and pilloried if I accept that, I hope you can understand,” and so on. Over the years, it has been effective for deflecting all manner of swag: leather portfolios, pens, briefcases, watches, digital organizers, etc. . . . Once, I was given a folksy sea-shell-encrusted wall-hanging from a Party official in the seaside city of Haikou. (When something is too personal to give back, it ends up with my Chinese colleagues and friends. A driver I know, who works for a foreign news organization, is so well-attired in freebie t-shirts and baseball hats that he looks like a sponsored athlete.)
If not accepting gifts is difficult in Asia, not giving them is even harder. A lack of generosity embarrasses everyone. But the Foreign Corrupt Practices Act is clear. It prohibits the giving of anything of value to a foreign official for the purpose of obtaining or retaining business. So to be safe, most companies that are serious about compliance ban just about all overseas gift-giving to both public and private parties.

That fix sounds easy enough. And at the corporate level it works fine. But on a personal level the collision of the gift-imperative with the compliance requirement is one of the most complex and difficult by-products of the FCPA. Expat and local employees are forced to make choices every day that aren't clear or easy, no matter what the law and their company policies might say. How do we know? There are a string of enforcement actions and ongoing investigations to prove it.

[Editor's note: Evan Osnos's article confuses conflict-of-interest policies with FCPA prohibitions. But his description of the gift-imperative is spot on.]
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Wednesday
Sep232009

Found In Translation

As posted yesterday on the wrageblog here, the Foreign Corrupt Practices Act is now available in Spanish, Russian, Chinese and Arabic. The translations come from the U.S. Department of Commerce through a project headed by Senior Counsel Kathryn Nickerson. As the wrageblog pointed out, "Although the translations are marked 'unofficial' we’re told they’re accurate and that they read well. This is a great service to the compliance community." We agree.

Kudos to Kathryn Nickerson and the DOC.

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Too much love, Jefferson says. Federal Judge Tim Ellis this week denied former Congressman William Jefferson's request for a new trial. A copy of Judge Ellis' order can be downloaded here.

Jefferson argued that the jury should have heard evidence about an intimate relationship between an FBI agent working on Jefferson's case and Lori Mody. She was the government's informant who secretly taped her conversations with Jefferson about bribing Nigeria's vice president. Ellis, however, said disclosure to the jury wasn’t necessary because the government didn’t enter into evidence any of her statements about the contents of meetings that were not secretly recorded by the FBI. Mody herself didn't testify at the trial.

Four days before jury selection began, lead FBI agent Timothy Thibault disclosed that agent John Guandolo, who was the undercover driver for Lori Mody, had been involved in a sexual relationship with her during the FBI's investigation. Judge Ellis ruled that evidence of the relationship was not relevant to any issues at the trial and therefore would not have been admissible.

Presumably Jefferson will raise the issue again on appeal. He's saying evidence of the relationship goes to the credibility of the FBI and witnesses it interviewed. Whatever happens, there was at least the appearance of impropriety . . . .

Separately, some are asking whether Jefferson was convicted of violating the Foreign Corrupt Practices Act or acquitted. It's a good question. Here's what happened:

The jury acquitted him on Count 11 of the indictment -- the only substantive FCPA charge he faced. The jury convicted Jefferson on Count 1 of the indictment. It alleged three separate illegal conspiracies -- to solicit bribes, deprive citizens of honest services, and violate the FCPA. The jury's verdict form did not require it to specify which of the three illegal conspiracies the panel believed he engaged in. So Jefferson's conviction on Count 1 may or may not have included the jury's finding that he conspired to violate the FCPA. There's no way to tell without polling the jury and, as far as we know, that didn't happen.

So a guilty verdict will be recorded for Count 1 of the indictment. That means all three conspiracies alleged are presumed to be proven, including the FCPA-related charge.

Read prior posts about William Jefferson here.
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Tuesday
Sep222009

The Fugitive Files, Part III

When Suleiman A. Nassar was indicted in 1994 for violating the Foreign Corrupt Practices Act, he was a regional vice president of Lockheed International living near Geneva, Switzerland. His territory for Lockheed included Egypt, and in the late 1980s he landed a nice sale there -- three C-130 military cargo planes worth $79 million. But he won the business, the Justice Department said, by bribing a member of the Egyptian parliament with a million dollars. The DOJ indicted him, along with a co-worker and Lockheed itself.

Before issuing the indictment, the Justice Department spoke with Nassar, a Syrian-born, naturalized U.S. citizen. He assured prosecutors he would appear voluntarily in Atlanta, where the case would be filed. They in turn agreed not to have him arrested in Europe, which would have triggered a long extradition process. It was a gentlemanly arrangement but Nassar had other intentions. He never showed up in Atlanta and instead did his best to vanish.

He fled to his birthplace, Syria, a country with no extradition treaty or law-enforcement agreements with the U.S. Prosecutors said later they were "disappointed and frustrated" by Nassar's escape. But they didn't give up.

They tracked him to Damascus after Swiss police noticed that his wife was receiving mail from an address there. But how to get him back? As the prosecutors said, the relationship between America and Syria was, at best, "notoriously tenuous."

One thing the Justice Department could do was make his life difficult. When he sold two condos in Washington, D.C., prosecutors used the Federal Debt Collection Procedures Act ( 28 U.S.C. § 3001, et seq.) to block the international transfer of the sale proceeds. Then they used the ancient All Writs Act (28 U.S.C. § 1651)* to freeze Nassar’s worldwide assets -- including pension payments that eventually amounted to about $750,000. Prosecutors even threatened to freeze an inheritance his wife was about to receive, on the grounds that she might use the money to help her husband evade arrest.

The Syrians, meanwhile, did their part too. They arrested Nassar in late September 1994 under an Interpol warrant circulated by the U.S. They held him in jail until he made bail two months later. Once released, he stayed in Damascus -- the local police had impounded his passport -- and nothing further happened. The Americans couldn't extradite him, the Syrians wouldn't keep him locked up, and everyone assumed the case was stuck. But they were wrong.

In January 1995, Lockheed pleaded guilty to violating the Foreign Corrupt Practices Act. That generated global headlines, leading the Syrian government to take a new interest in their now-notorious FCPA fugitive. In March 1995, DOJ prosecutors were meeting with the Syrian justice minister. He chose that moment to deliver some dramatic news: Nassar had just been arrested "on charges of violating the Foreign Corrupt Practices Act, and that under the doctrine of extraterritoriality, the Syrian Government intended to try him in Damascus." As U.S. prosecutors said later, it wasn't exactly the trial they had in mind.

But by then Nassar was exhausted and scared. The global freeze on his family's assets, two arrests, a looming Syrian criminal trial, the prospect of years in a local prison -- he'd had enough. According to the DOJ's account, in July 1995 their man was "released from Adra Prison in Syria and escorted to the Damascus Airport where he boarded a plane for Frankfurt, Germany. There he was met by Special Agent Chris Amato of the Defense Criminal Investigation Service, taken to Atlanta, and placed under arrest."

Nassar agreed to plead guilty to violating the FCPA. By prior arrangement, he was sentenced to 18 months in prison and fined $125,000, to be paid from his frozen funds before they were released. His co-worker Allen Love pleaded guilty to lying to investigators and was fined $20,000. Lockheed's guilty plea to conspiracy to violate the FCPA's antibribery provisions resulted in penalties of $24.8 million.

A final note: Suleiman A. Nassar -- who almost became the first person to be tried outside the United States for violating the Foreign Corrupt Practices Act -- was the first person ever imprisoned in the U.S. for an FCPA offense.

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This post is adapted in part from an article called "The International Fugitive," by Martin J. Weinstein and Daniel A. Caldwell of the U.S. Attorneys' Office for the Northern District of Georgia. The article appeared in the USA Bulletin for December 1996, Volume 44, Number 6, which can be downloaded here.

Parts I and II of the Fugitive Files can be found here and here.

We're grateful to Cody Worthington, whose outstanding research was the basis for our series on FCPA fugitives.
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*The All Writs Act (28 U.S.C. § 1651) provides: (a) The Supreme Court and all courts established by Act of Congress may issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law. (b) An alternative writ or rule nisi may be issued by a justice or judge of a court which has jurisdiction.
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Monday
Sep212009

The Flesh-And-Blood Bond

The Chinese Communist Party's latest anti-corruption initiative will force officials to declare their assets and those of close family members. The new rules were announced at the close of the annual meeting of the party's watchdog, the Central Commission for Discipline Inspection. Extending disclosure to family members, the state news agency Xinhua said, is aimed at spouses and children who have left China.

Xinhua said "around 4,000 corrupt officials fled the country with at least $50 billion between 1978 and 2003, according to a Ministry of Commerce report." The China Daily (here), which usually reflects government policy, said: "Crooked officials often take bribes through companies run by the family in order to relocate their 'dirty' money." See our post, China's Runaway Bribe-Takers.

The government reported that "more than 880,000 officials were punished for misconduct between July 2003 and December last year." Among them were the former party chief for Shanghai, Chen Liangyu. He was sentenced to 18 years in prison for bribery and abuse of power in 2008. Zheng Xiaoyu, ex-director of the State Food and Drug Administration, was executed in 2007 for taking bribes and dereliction of duty.

The Central Commission said the ongoing corruption problems "damage the Party's flesh-and-blood bond with the people and seriously affect the solidity of the Party's ruling status."
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Sunday
Sep202009

Dmitry Anatolyevich Has A Dream

The U.K. Guardian reported last week (here) that Russian President Medvedev (left) invoked the memory of Martin Luther King when he announced his intention to clean up corruption. "We are not used to saying 'we have a dream' in my country . . . but this is my political vision." He then told the Guardian's David Hearst and other journalists that corrupt officials are running Russia. "They have the power. Corruption has a systemic nature, deep historic roots. We should squeeze it out. The battle isn't easy but it has to be fought. I don't think we can achieve tangible results in one year or two. If I am a realist we could get good results in 15."

The Guardian noted that Mr. Medvedev hasn't explained how he'll tackle corruption. "Calls for reform have been frequently made before and to little effect," the paper said. "Most commentators seeing the president's performance were deeply skeptical about his ability to deliver."

The Guardian is right -- the country's history of reform isn't encouraging. Eric Hoffer once called Russia "a country that cannot change." Those are bleak assessments to be sure. Still, we're not ready to write off Mr. Medvedev and his dream just yet.

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Something's fishy. Corruption news from Singapore? There isn't much. The country is among the world's cleanest, ranking 4th on the Corruption Perception Index (only Denmark, New Zealand and Sweden are ranked higher, all sharing the top spot).

But the Straits Times reported a bribery story that has lots of local flavor:

SINGAPORE, September 16 -- Top chefs from several popular Chinese restaurants -- including those from five-star hotels here -- have been hauled up in connection with an ongoing corruption probe.

The investigations involve whether the chefs were taking kickbacks to buy seafood products such as shark's fins from a [local] supplier.

Sources told the Straits Times that the Corrupt Practices Investigation Bureau (CPIB) called up more than 20 chefs for interviews earlier this month. . . . Among those called up was one from Four Seasons Hotel. . . .

Industry sources said the supplier at the heart of the investigations . . . deals mainly in abalone and sea cucumber.

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Words we like. From George Orwell's 1946 essay, Politics and the English Language:
I am going to translate a passage of good English into modern English of the worst sort. Here is a well-known verse from Ecclesiastes:

"I returned and saw under the sun, that the race is not to the swift, nor the battle to the strong, neither yet bread to the wise, nor yet riches to men of understanding, nor yet favour to men of skill; but time and chance happeneth to them all."

Here it is in modern English:

"Objective considerations of contemporary phenomena compel the conclusion that success or failure in competitive activities exhibits no tendency to be commensurate with innate capacity, but that a considerable element of the unpredictable must invariably be taken into account."

This is a parody, but not a very gross one.
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