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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

Tuesday
Jul142009

The Rule Of Brutality

Evan Osnos' Letter from China in last week's New Yorker included this excerpt from a piece circulating in China (in Chinese only) about the violence in Xinjiang. It's attributed to Zhong Dajun, described as a prominent economic consultant and former editor at the China Economic Times:

This problem arises from the corruption of the government. The Xinjiang incident gives the Chinese government a clear lesson, and gives muddleheaded officials a sharp warning slap! All problems are related to government corruption. In recent years, if the government had done a number of things better, society would never have built up so much dissatisfaction. The savagery of society and the greediness of government are proportional to each other. All of the blame should not go only to those separatists overseas . . . but also to those bureaucrats who are still dreaming in a nest of corruption. Sleep lightly. After all, who should pay the blood debt to the people?
* * *
This week, China's Xinhua news agency reported here the release of "three new disciplinary regulations to prevent and fight corruption." The report said the Chinese Communist Party's Central Committee announced the regulations "to promote officials' accountability and state-owned enterprise leaders' integrity, and strengthen inspection inside the Party, aiming to curb corruption and improve government competence."

More regulations? They're not the answer unless they can somehow propel a cultural shift among the CCP cadre. President Hu Jintao has warned several times publicly that corruption is the greatest threat to the Party's legitimacy.

* * *
Some words we can believe in by President Obama about corruption and poverty, the rule of law and freedom, from his speech Saturday in Accra, Ghana:

Repression can take many forms, and too many nations, even those that have elections, are plagued by problems that condemn their people to poverty. No country is going to create wealth if its leaders exploit the economy to enrich themselves . . . or if police can be bought off by drug traffickers. No business wants to invest in a place where the government skims 20 percent off the top . . . or the head of the port authority is corrupt. No person wants to live in a society where the rule of law gives way to the rule of brutality and bribery. That is not democracy, that is tyranny, even if occasionally you sprinkle an election in there. And now is the time for that style of governance to end.

In the 21st century, capable, reliable and transparent institutions are the key to success -- strong parliaments; honest police forces; independent judges . . . an independent press; a vibrant private sector; a civil society. Those are the things that give life to democracy, because that is what matters in people's everyday lives.
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Monday
Jul132009

Knowing What You Don't Know

Prosecutors told the jury during Frederic Bourke's trial that instead of doing adequate due diligence for his investment in Viktor Kozeny's Azerbaijan privatization scheme, he'd "stuck his head in the sand." It may not sound like legal jargon but the "head-in-the-sand" phrase pops up often in criminal law and appears prominently in the Foreign Corrupt Practices Act's legislative history.

The Congressional Research Service said this in its report to Congress about enactment of the FCPA and its 1988 and 1998 amendments:

The "knowing" requirement . . . is intended to encompass the "conscious disregard" and "willful blindness" standards, including a conscious purpose to avoid learning the truth. The Conferees agreed that "simple negligence" or "mere foolishness" should not be the basis for liability.
However, the Conferees also agreed that the so-called "head-in-the-sand" problem-- variously described in the pertinent authorities as "conscious disregard," "willful blindness" or "deliberate ignorance"--should be covered so that management officials could not take refuge from the Act's prohibitions by their unwarranted obliviousness to any action (or inaction), language or other "signaling device" that should reasonably alert them of the "high probability" of an FCPA violation. *
Bourke, let's remember, was tried and convicted not under the FCPA itself but the general conspiracy statute (18 U.S.C. § 371—Conspiracy to Defraud the United States).** But he conspired to violate the FCPA's antibribery provisions, where offenses have to be "knowing," so any prosecution for an FCPA conspiracy would have to meet the same requirement.***

We haven't seen the instructions the judge issued to the jury about the law in Bourke's case. Most federal jury instructions, however, cover two kinds of "knowing:" what the defendant actually knows and what he or she should know under the circumstances. A typical jury instruction about the second kind of "knowing" would look like this:

In deciding whether [defendant] acted knowingly, you may infer that [defendant] had knowledge of a fact if you find that he/she deliberately closed his/her eyes to a fact that otherwise would have been obvious to him/her. In order to infer knowledge, you must find that two things have been established.

First, that [defendant] was aware of a high probability of [the fact in question].

Second, that [defendant] consciously and deliberately avoided learning of that fact. That is to say, [defendant] willfully made himself/herself blind to that fact.

It is entirely up to you to determine whether he/she deliberately closed his/her eyes to the fact and, if so, what inference, if any, should be drawn. However, it is important to bear in mind that mere negligence or mistake in failing to learn the fact is not sufficient. There must be a deliberate effort to remain ignorant of the fact.

From the Pattern Criminal Jury Instructions for the First Circuit at §2.14 (here). ****

Bourke didn't testify at his trial but he had always said he didn't know about Kozeny's bribes. That might have been true. But it didn't protect him because prosecutors could prove beyond a reasonable doubt that if he didn't know, it was because he didn't want to. So, legally speaking, he did know.

Head-in-the-sand accusations under the FCPA have long concerned managers, executives and board members. For them the verdict on Bourke brings a special warning. How much due diligence is enough? Relationships with overseas partners and agents are always troubling. Where's the line between adequate inquiry and conscious disregard or willful blindness? There's no easy answer. We say: More red flags, more due diligence. But how much more is always someone's judgment call -- and it had better be right.

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


________________

* The complete version of House Conference Report No. 100-576 for the 1988 Amendments included this unusually rich passage about "knowing:"

The "head-in-the-sand" problem is not unique to [the FCPA] and occurs in a variety of contexts, perhaps the most common being the situation where a person acquires property under "suspicious" circumstances and is charged with "knowledge" that it is stolen. Courts and commentators have considered such behavior to be "distinct from, but equally culpable as actual knowledge." See G. Williams, Criminal Law: The General Part, sec. 57 at 157 (2d ed. 1961). (emphasis added) Federal case law has discussed the carefully-drawn elements that comprise the "head-in-the-sand" state of mind in other contexts.

The Conferees agree with the reasoning found in such decisions as United States v. Jewel, 532 F.2d 679 (9th Cir. 1976); United States v. Bright, 517 F.2d 584 (2d Cir. 1975); United States v. Jacobs, 470 F.2d 270, 287 n.37 (2d Cir.), cert. denied sub nom. Lavelle v. United States, 414 U.S. 821 (1973). See also H. Rept. No. 96-1396, 96th Cong., 1st Sess. 35 (1980). The knowledge requirement is not equivalent to "recklessness." It requires an awareness of a high probability of the existence of the circumstance.

** 18 U.S.C. § 371. Conspiracy to commit offense or to defraud United States

If two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy, each shall be fined under this title or imprisoned not more than five years, or both. . .

*** The anti-bribery provisions contain the following definition of "knowing" at §78dd-2 and §78dd-3:

(A) A person’s state of mind is “knowing” with respect to conduct, a circumstance, or a result if--

(i) such person is aware that such person is engaging in such conduct, that such circumstance exists, or that such result is substantially certain to occur; or

(ii) such person has a firm belief that such circumstance exists or that such result is substantially certain to occur.

(B) When knowledge of the existence of a particular circumstance is required for an offense, such knowledge is established if a person is aware of a high probability of the existence of such circumstance, unless the person actually believes that such circumstance does not exist.

**** The Seventh Circuit's suggested instruction, as another example, similarly says:

4.06 “Knowingly” - Definition

When the word “knowingly” [the phrase “the defendant knew”] is used in these instructions, it means that the defendant realized what he was doing and was aware of the nature of his conduct, and did not act through ignorance, mistake or accident. [Knowledge may be proved by the defendant's conduct, and by all the facts and circumstances surrounding the case.] [You may infer knowledge from a combination of suspicion and indifference to the truth. If you find that a person had a strong suspicion that things were not what they seemed or that someone had withheld some important facts, yet shut his eyes for fear of what he would learn, you may conclude that he acted knowingly, as I have used that word. {You may not conclude that the defendant had knowledge if he was merely negligent in not discovering the truth.}]
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Sunday
Jul122009

Bourke's Verdict: Only In America

Here's what struck us. That nowhere else would Frederic Bourke have been prosecuted on the facts of his case. A few other countries have taken small steps to fight overseas corruption -- Germany, the U.K., Japan. But Friday's verdict showed again that no country comes close to America's ferocity in punishing bribery abroad. We're not arguing now if that's good or bad. We're just wondering how Bourke came to be convicted of two felonies.


His crime? Investing in a deal in a far-off country where he knew or should have known that bribes would be paid. Prosecutors said he stuck his head in the sand. He didn't pay any bribes himself and in the end he didn't benefit from them. The bribes didn't work and he and the other investors lost their money. But he stuck his head in the sand and the price for that, he learned Friday, is up to five years in prison, and another five for lying to the FBI about what went on.

All criminal defendants try to portray themselves as victims. In Bourke's case it was true. He was prosecuted for conspiracy but his alleged co-conspirator, Viktor Kozeny, wasn't in the courtroom -- he's a fugitive living in the Bahamas. The State of New York indicted him years ago for stealing $182 million from his investors, including $8 million from Bourke.


After he realized Kozeny had stolen his money, the story goes, Bourke blew the whistle -- complaining first to the president of Azerbaijan and then to law enforcement agencies in the U.S. They believed him. Kozeny was charged in New York with fraud. But the DOJ indicted Bourke anyway. They said he was knowingly part of Kozeny's bribe-tainted deal, and losing his money didn't excuse his crime.

The jurors said they felt sympathy for Bourke. But on the charges against him they didn't split hairs. Most juries in white collar criminal cases don't. 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.” Simple, logical, workman-like. Very American.

In retrospect, Friday's verdict was no surprise. Whether Bourke grasped it or not, his prospects were bleak from the moment of his indictment. Most FCPA-related defendants before him had plea-bargained to reduce their jail time. Of the few who'd gone to trial since 1991, none had been acquitted. None.

Still, the Justice Department had gambled some. It stretched the law in a new way to reach Bourke. He hadn't paid any bribes, after all. What he did was invest in a too-good-to-be-true deal and then stick his head in the sand, prosecutors said, hoping for a windfall in that far-off land. Instead he lost his money and fell into the pit of the toughest overseas anti-corruption regime the world has ever seen.

For Frederic Bourke, it's a crushing result. For the rest of us, it's a warning that becoming a criminal can be frighteningly easy. Almost accidental.

Coming up: The "knowing" standard.

Read all our posts about U.S. v. Kozeny and the prosecution of Frederic Bourke here.
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Friday
Jul102009

Bourke Convicted

Frederic Bourke was convicted on Friday of conspiring to violate the Foreign Corrupt Practices Act and the Travel Act, and lying to FBI agents. He was acquitted of money laundering. The judge has already said she will impose less than the 10-year maximum sentence prosecutors have asked for.

Bourke, 63, is co-founder of well-known handbag brand Dooney & Bourke. The jury 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.

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.

Bourke, formerly married to a member of the Ford family, met Kozeny when the two were neighbors in Aspen, Colorado. His trial in federal court in Manhattan was overseen by Judge Shira Scheindlin. Her rulings generally gave Bourke latitude to present his defense and also restricted the prosecution.

Bloomberg's David Glovin was in the courtroom for the month-long trial. After the verdict he said:

Testimony at times appeared to come from a novel. Witnesses told of plane flights into Azerbaijan with millions of dollars stuffed into suitcases, of shakedowns in government offices, and of dealings with Chechen mobsters that provided protection to Kozeny’s operation. Kozeny said his investors might control about half of the Azeri economy if they captured Socar. Others believed their investment might grow tenfold, witnesses said.
Glovin reported that the jury foreman, David Murphy, 52, "said the panel believed Bourke learned of the bribes after investing and then should have gotten out. By then Kozeny was known as the 'Pirate of Prague' for allegedly stealing money from investors in his native Czech Republic. 'It was Kozeny, it was Azerbaijan, it was a foreign country,' Murphy, an electrician, said in an interview after the verdict. 'We thought he knew and definitely could have known. He’s an investor. It’s his job to know.'”

Bourke's lawyer John Cline said his client is likely to appeal.

The DOJ's July 10, 2009 release is here.

Read David Glovin's reports on the trial here.

Read all our posts about U.S. v. Kozeny and the prosecution of Frederic Bourke here.
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Thursday
Jul092009

Spending Siemens' Money

Last week the World Bank announced that Siemens will pay $100 million over the next 15 years to settle corruption charges involving a project in Russia. The money is supposed to go to anti-corruption groups, for compliance training and education programs, as well as helping governments recover assets stolen by crooked leaders.

What would we do with the money?

Simple: Cut red tape. As the World Bank's own International Finance Corporation has said, "Cumbersome entry procedures are associated with more corruption, particularly in developing countries. Each procedure is a point of contact—an opportunity to extract a bribe. Analysis shows that burdensome entry regulations do not increase the quality of products, make work safer or reduce pollution. Instead, they constrain private investment; push more people into the informal economy; increase consumer prices; and fuel corruption."

Translation: Nothing good comes from too many regulations. Bureaucrats use them to shake down the public. And usually the poorest people are most victimized.

What can be done? The U.N.'s 2008 report, Tackling Corruption, Transforming Lives, describes low-cost tools that work. Here are two of them:

Case No. 1. In the 1990s, the Hyderabad (India) Metropolitan Water Supply and Sewerage Board consolidated applications for new connections – previously a major source of corruption. Customers can now skip their local district office and go directly to the Board’s headquarters, to a "Single Window Cell." The Board posts the fee schedule in its office and in the press. Customers rarely leave without an "application token number," the equivalent of a receipt for acceptance of the application.

Case No. 2. In Korea, the Seoul Metropolitan Government uses a public online application system for licenses and other permits. Launched in 1999, OPEN -- the Online Procedure Enhancement for Civil Applications -- covers 54 common procedures. Officials responsible for corruption-prone areas, such as permit or approval procedures, now have to upload reports and documents to enable citizens to monitor the progress of their applications.

We've said before that support for similar initiatives around the world would be a nice adjunct to corporate compliance programs. Opportunities abound. Even Russia's leaders get it. Minister of Mass Communications Igor Shchegolev said in a recent article posted on FutureGov, “An e-government will rid our citizens of the need to visit different offices. I certainly hope it gets somewhere -- for one thing, I can’t think of a surer way to stifle corruption than to increase the number of rules-based computer interactions between citizens and government."

The World Bank said Siemens has "agreed to co-operate to change industry practices, clean up procurement practices and engage in collective action with the World Bank Group to fight fraud and corruption." Supporting transparency programs that really help people by cutting red tape would be a good place to start.
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Wednesday
Jul082009

Those Are Fighting Words

Whoa. Did that guy just say the Foreign Corrupt Practices Act causes corruption and hurts poor people? What kind of person would talk that way? Doesn't he know how the FCPA spreads American business ethics to the four corners of the planet? That the law he's attacking is in the same category as mom and apple pie?

But here's the thing. The guy doing the attacking (OK, the scholarly analysis) has made a good case for his thesis. He's Andy Spalding -- a well-mannered and generous lawyer on a year-long Fulbright Research Grant in Mumbai, India. We heard from him earlier this week:

Dear FCPA Blog,

I am a lawyer from D.C. currently studying the impact of the FCPA on emerging markets. I am working on a law review article that develops some of my thoughts, and I would love to hear your (and your readers') reaction.

My paper picks up an idea that economists have been batting around for about fifteen years -- that FCPA enforcement doesn't just deter bribery, but actually deters investment in countries where bribery is perceived to be more common. I argue that we should therefore understand FCPA enforcement as de facto economic sanctions, and that these sanctions have most often targeted emerging markets. This raises a number of ethical, economic, and foreign policy problems, as I discuss.

You might find the chapter on legislative history interesting (as might your readers). There is a lot of material there that, as far as I know, has not been developed in the law review literature and that might be helpful in briefs and such. I invite anyone to use it.

Best regards,
Andy Spalding
The paper itself is all that he says it is, and more. He looked at the 125 enforcement actions since the FCPA's inception (his count). Only nine, or 7%, involved developed countries, whereas more than "two-thirds of all FCPA violations – 85 instances, or 68% of the total – have occurred in emerging markets, as defined today by Standard & Poor’s." And he found that as FCPA enforcement goes up, foreign investment from the U.S. and other compliance-minded countries goes down.

His conclusions: The FCPA scares clean money away from the most corrupt nations, opening the door to investments by "capital-rich countries that are not committed to effectively enforcing anti-bribery measures." Think China in Africa, Latin America, and Central Asia, for example. So the patterns of FCPA enforcement, he says, amount to undeclared economic sanctions against developing countries, which in turn send them deeper into corruption and poverty. "The FCPA is thus revealed to be a large-scale study in the law of unintended consequences," he says.

That's right. The paper is a real mind-bender. Download it from SSRN here and let us know what you think. We'll be coming back to this topic sometime soon.

By the way, in footnote 199, the author levels a rather serious charge against The FCPA Blog. He calls our posts on respondeat superior "balanced and sophisticated." We forgive you, Andy.
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Tuesday
Jul072009

A Russian Crusader Dies

One of Russia's leading anti-corruption journalists died last week from head wounds received two months ago in an attack outside his home. Vyacheslav Yaroshenko, 63, ran the paper Korruptsia i Prestupnost (Corruption and Crime) in Rostov-on-Don. The local media had reported that he either was in a brawl or fell down the stairs. He's pictured left.

A colleague from Yaroshenko's newspaper said it "has eight pages, seven of them were dedicated to corruption in the law enforcement agencies." He didn't "have the slightest doubt" Yaroshenko was attacked for his work. Korruptsiya i Prestupnost had been publishing articles on corruption in the Rostov regional government, police, and the prosecutor's office.

The New York-based Committee to Protect Journalists (CPJ) said in a June 29, 2009 statement that Yaroshenko was found unconscious with a head wound in the entrance of his apartment building early on the morning of April 30. Police did not investigate what happened to Yaroshenko in April, but said they had immediately ruled out criminality.

The CPJ said, "We call on Russian federal authorities to open an independent, thorough, and transparent investigation into the circumstances of the editor's death. The possibility that Yaroshenko may have been targeted because of his newspaper's coverage of alleged corruption in Rostov law enforcement agencies calls for the assignment of outside, independent investigators to this case."

Russia is the third deadliest country in the world for journalists and the ninth worst in solving reporters' killings, according to the CPJ. It wrote to President Obama two weeks ago to urge him to raise the issue of "impunity in violent crimes against the press" in his meetings this week with Russian President Dmitry Medvedev in Moscow.

* * *
From William Jefferson's Trial. We asked two days ago if the government will introduce evidence that the former congressman violated the Foreign Corrupt Practices Act as alleged in the indictment. The answer is yes.

The Times Picayune reports here that prosecutors played tapes Monday in which "Jefferson said that Vice President Atiku Abubakar of Nigeria had agreed to grease the skids for a telecommunications venture the congressman was promoting in Nigeria in exchange for a piece of the action." The report from Bruce Alpert said written transcripts of the tapes were provided to jurors but not to the news media and others.

The taped conversation about Abubakar took place during a car ride Jefferson went on with Lori Mody, the government's confidential witness. An undercover FBI agent drove. Mody wore a wire then and to several other meetings with Jefferson. His lawyers said before the trial that he wasn't really planning to pay any bribes but he made the statements about Abubakar to keep Mody happy.

Read all our posts about William Jefferson here.

* * *
From Frederic Bourke's Trial. The arguments are finished. David Glovin has a nice account here of the prosecution's close delivered Monday. "Connecticut entrepreneur Frederic Bourke stuck 'his head in the sand' to avoid learning whether his partner [Viktor Kozeny] paid bribes to government leaders in Azerbaijan in a 1998 deal to buy the state oil company, a prosecutor charged."

The Litigation Daily's report from Andrew Longstreth is here. He says,

The task [of delivering the closing for the government] fell to assistant U.S. attorney Iris Lan. Lan explained to the jury--which consists of eight women and six men--that in the 1990s Bourke had become close with his Aspen, Colo., neighbor Viktor Kozeny, a Czech national whom Fortune magazine dubbed one of the "Pirates of Prague" in 1996 for his investment activities in his native country as it was transitioning from communism to capitalism. Lan told the jury that Bourke was eager to participate in a plan with Kozeny to invest in Azerbaijan because of his previous success in Czechoslovakia. "This is a story about a few rich men who wanted to become even richer," said Lan.
And Adam Klasfeld at the Courthouse News Service said,
Lan's daylong summation involved extensive use of PowerPoint. Lan projected large portions of court records onto a screen, generously excerpting transcripts of government witness testimony. She flashed images of charts, letters, emails and photographs that prosecutors submitted as evidence.
Bourke's lawyer John Cline closed for the defense. David Glovin says jurors will be instructed that they can convict Bourke on two theories. Either that he learned about the bribes after asking two of the government's witnesses about the payments. Or that he “consciously avoided” learning about the bribes by not asking questions about them. Cline said in his close, “It just doesn’t make sense." The government is simply “throwing something up against the wall and hoping some of it will stick.”

The prosecution has already rebutted. After instructions, the case goes to the jury. A verdict by Friday? Maybe.

Read David Glovin's reports on the trial here.

Read all our posts about U.S. v. Kozeny and the prosecution of Frederic Bourke here.
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Monday
Jul062009

Be The One Millionth Caller . . .

China's new nationwide anti-corruption hotline mentioned earlier is off to a good start. Too good, in fact. During the first week more than 11,000 calls jammed the phones. The China Daily said only one in five calls connected to the hotline because its ten operators were overwhelmed. Six thousand more online submissions crashed the website.

The site was designed to handle 1,000 visitors at a time; the government now plans to double the bandwidth. Callers to the phone line could also leave voicemails; 457 whistleblowers did that on the first day. The hotline is now available from 22 of China's 31 provinces and will be expanded to cover the entire country.

The 24-hour number is (0086-10) 12309 and the web address is www.12309.gov.cn.

An annual report from the Supreme People's Procuratorate released in March this year said 41,179 government workers were investigated in 33,546 cases in 2008, resulting in 33,953 prosecutions. Caveat: We report China's anti-corruption stats but we don't vouch for them.

Whatever the numbers, public participation in the country's clean-up campaign is something new and important. Why now? Earlier this year, President Hu Jintao again warned leaders that corruption within the ruling Communist Party is the greatest threat to its legitimacy.

Although the new hotline is intended for complaints about public graft, we're wondering if any Western investors will also find themselves snared through whistleblower tips?

* * *
The weird drama of the political off-season has inspired some terrific prose. This is from Slate's Bruce Reed:

Like [South Carolina Gov. Mark] Sanford's fatal press conference, [Gov. Sarah] Palin's bitter statement reads like a cry for help – an all-caps plea for someone to rescue her from the messy business of running Alaska. She passes up running for re-election because she doesn't need a title "to HELP people," then says she'll pack it in altogether rather than "milk" her lame duck status by traveling to the Lower 48. Like Sanford, Palin snuck away to visit a distant land and fell in love with a siren she cannot bring home or leave behind. Her fatal attraction was the national spotlight.
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Sunday
Jul052009

In Jefferson's Case, What Gives?

Here's the question: Is William Jefferson still on trial for violating the Foreign Corrupt Practices Act? His indictment included an FCPA count and the cash found in his freezer was supposed to be evidence of an antibribery offense. But the ex-congressman's trial has been going on for a few weeks now and we haven't heard anything about the FCPA. So we're wondering if it's still part of the case.

The FCPA allegations against Jefferson were based on things he said to the feds' confidential witness -- called "CW" in the indictment. That's Lori Mody, a Virginia businesswoman who invested in his deals. According to the government, she soon realized he was crooked and decided to blow the whistle. She went to the FBI and they convinced her to wear a wire to her next meeting with Jefferson and some that followed.

When the trial came around, she was all set to be the government's star witness. Her job, the way we understand it, was to tell her story and narrate the secret tapes she'd made, which in turn would corroborate her testimony. But then she changed her mind and said she wouldn't testify after all. The prosecutors went ahead without her. They played excerpts from her tapes to the jury and an FBI agent provided "authentication" testimony.

The indictment had said that in July 2005 she and Jefferson talked about his plan to bribe "Nigerian Official A." That was about three months after Mody started wearing a wire. But if her tapes didn't record their specific chats about Nigerian Official A, the government might have no way to tell that part of the story without her live testimony.

According to a Louisiana news site, there are problems with most of the tapes:

Jefferson could not be heard on a majority of the tapes played in the courtroom. Clanging and chatter in the restaurants drowned out most of his responses, which he also mumbled. Jurors were given headphones and transcripts of the discussions.
The government had made big deal about the FCPA count before the trial started. The FBI had given Mody $100,000 in marked bills to pass to Jefferson after he allegedly told her about his plan to bribe Nigerian Official A. The money was supposed to be a down payment to the foreign official. It was that cash -- $90,000 of it at least -- that the FBI later found in Jefferson's freezer. (So what? his lawyers said before the trial. If the cash was still in the freezer, it proved he didn't use it to bribe anyone.)

We aren't in the courtroom and haven't heard the tapes or seen any transcripts. We could have missed reports about the prosecution's FCPA-related evidence. But there's another possibility. That Lori Mody's absence blew some serious holes in the government's case, and one of those holes is where the FCPA count used to be.
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Wednesday
Jul012009

More Caribbean Controversy

Tiny Antigua -- the adopted home of Sir Allen Stanford -- isn't the only Caribbean hide-away that's in the news these days for the wrong reasons. There's also its even-tinier neighbor, the Turks and Caicos Islands.

In April, a U.K. report alleged systematic corruption among Turks and Caicos' leading politicians and their friends. Based on the report, the British government announced plans to suspend the territory's political institutions and impose direct rule. It was supposed to happen two weeks ago but a last-ditch lawsuit filed in London to block the move will be decided first, maybe as early as this week.

Turks and Caicos is a British Overseas Territory whose citizens have U.K. passports. Its total population is only around 30,000 but every year 300,000 tourists show up on its beaches. And it's a favorite among privacy-seeking celebrities, said to include Keith Richards, Bruce Willis, Christie Brinkley and Donna Karan, among others.

The London court case was filed by the territory's former prime minister, Michael Misick, who resigned when the U.K. corruption report came out. He says Britain's plan to suspend the constitution and the right to trial by jury would violate the residents' human rights. Misick himself, according to investigators, made millions of dollars since his election in 2003, partly by selling crown-owned real estate and pocketing the money. One of the key witnesses against him has been his estranged wife, the American actress LisaRaye McCoy.

Some locals, however, are accusing the U.K. of grand hypocrisy. The current premier of Turks and Caicos told the Financial Times that because of the expenses scandal in the U.K. parliament, British politicians “no longer have the moral authority to lecture other countries on corruption.” Former premier Misick said, “We have a saying on the island – it is like the pot calling the kettle black. How can you want to dissolve our parliament when you have these problems at home?”

Most politicians in London, according to the Financial Times, dismiss the idea that the MP-expenses scandal has lowered Britain's standing in the world and ability to govern the Turks and Caicos. The MPs themselves are mostly saying they've been victimized by a bad system. But a British diplomat said, “There’s no question that it feels a touch more uncomfortable, whether you are a minister or official, to talk about the importance of good governance or tackling corruption.”

* * *
From Frederic Bourke's Trial. Bourke rested his defense on Tuesday without taking the stand. Closing arguments will be on Monday, July 6, then the case goes to the jury.

This week Bourke’s lawyers kept hammering away at earlier testimony from Hans Bodmer, Viktory Kozeny's former Swiss lawyer. He said he told Bourke about Kozeny's plan to bribe Azeri officials. According to Bloomberg's courthouse-reporter David Glovin here, "Eric Vincent, a lawyer who in 1998 worked for investor Omega Advisors Inc., [on Monday] became at least the third defense witness to challenge Bodmer’s testimony. Vincent said Bodmer never told him Azeri officials were part of the Socar deal, as Bodmer claimed."

Glovin reports that "Bourke denies knowing of the bribes and says Kozeny stole more than $180 million from him and other investors. Azerbaijan, a nation in the Caspian Sea region, never sold [state-oil-company] Socar, wiping out the investment. Bourke, who was once married to a member of the family that owned Ford Motor Co., put up $8 million, including cash from . . . his friend ex-U.S. Senator George Mitchell." Two weeks ago Mitchell testified in the case for four hours. He backed Bourke, saying he trusts him and that they never discussed any bribery.

Bourke's final witness was his "life partner" Megan Harvey. She also said she never heard Bourke talk about any bribery connected with the deal. They knew about Azeri officials investing, she said, but she and Bourke had been told "the Azeris had paid for their stake and that their lawyers had said it was legal." Prosecutors didn’t cross-examine her.

Bourke faces up to 30 years in jail for conspiring to violate the Foreign Corrupt Practices Act, money laundering and lying to federal investigators.

Read David Glovin's reports on the trial here.

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

We wish our U.S.-based readers a great Independence Day weekend. We'll be back on Monday.
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Tuesday
Jun302009

Enforcement Report For Q2 '09

During the second quarter there were, by our count, eleven Foreign Corrupt Practices Act enforcement actions. They involved four companies -- three firms resolved criminal or civil charges, or both, and one disclosed an investigation -- and 13 individuals who were either indicted, put on trial, pleaded guilty or sentenced. Here's the rundown:

Joseph T. Lukas (June 29, 2009) Guilty plea to a two-count criminal indictment.

Lukas, 60, a partner in Nexus Technologies Inc. until 2005, was indicted in September 2008 on one count of conspiracy to bribe Vietnamese public officials in violation of the Foreign Corrupt Practices Act and one substantive count of violating the FCPA. He admitted in his guilty plea that from 1999 to 2005, he and other Nexus employees agreed to pay, and knowingly paid, bribes to Vietnamese government officials in exchange for contracts with the officials' agencies. At his sentencing scheduled for April 2010, he faces up to 10 years in prison and a possible $350,000 fine.

The 2008 indictment also charged Nexus and alleged co-conspirators Nam Nguyen, Kim Nguyen and An Nguyen, all U.S. citizens, with similar violations. Their cases are still pending.

William Jefferson (June 9, 2009) The start of his federal criminal trial in Alexandria, Virginia.

It's the first time a former member of congress has been prosecuted under the Foreign Corrupt Practices Act. Jefferson, 62, faces up to 20 years in prison. He's accused of violating the FCPA by arranging bribes to African officials to win contracts for his family's companies, and with soliciting and accepting bribes, wire fraud, money laundering and obstruction of justice. He lost an election last year for a 10th term in the House of Representatives from a district that includes New Orleans.

Frederic Bourke (June 1, 2009) The start of his federal criminal trial in Manhattan.

The co-founder of luxury handbag brand Dooney & Bourke is accused of investing in a deal in Azerbaijan in 1998 that he knew involved paying bribes to officials there. He faces up to 30 years in jail for conspiring to violate the FCPA, money laundering and lying to federal investigators. Bourke says he didn't know about the bribery. His co-defendant Viktor Kozeny is a fugitive in the Bahamas.

United Industrial Corporation (UIC) (May 29, 2009) Civil enforcement action resolved.

The Securities and Exchange Commission filed a settled enforcement action against UIC, an aerospace and defense systems contractor. UIC agreed to pay $337,679.42 in disgorgement and prejudgment interest. (See also Thomas Wurzel below.)

Thomas Wurzel (May 29, 2009) Civil enforcement action resolved.

The SEC filed a settled enforcement action against Thomas Wurzel, the former president of UIC's one-time subsidiary, ACL Technologies, Inc.. He agreed to pay a $35,000 civil penalty. The SEC said Wurzel authorized illegal payments to Egyptian Air Force officials in 2001 and 2002 through an agent in return for business related to a military aircraft depot in Cairo.

Wurzel and UIC were charged with violating the antibribery, books and records and internal controls provisions of the Foreign Corrupt Practices Act; Wurzel also faced aiding and abetting violations.

Novo Nordisk A/S (May 11, 2009) Criminal and civil enforcement actions resolved.

Denmark-based Novo Nordisk agreed to pay a $9 million criminal penalty and enter into a deferred prosecution agreement with the DOJ for illegal kickbacks paid to the former Iraqi government under the U.N. oil-for-food program. It also agreed to pay $3,025,066 in civil penalties and $6,005,079 in disgorgement of profits, including pre-judgment interest, to the SEC.

The DOJ charged Novo with one count of conspiracy to commit wire fraud and to violate the books and records provisions of the FCPA. In the civil enforcement action, the SEC charged Novo with violating the FCPA's books and records and internal controls provisions.

Sun Microsystems (May 7, 2009) Investigation disclosed.

Sun said in an SEC filing that it may have violated the FCPA. It didn't reveal where the payments might have occurred or how much the bribes amounted to. But it said the potential offenses, which it has reported to U.S. and other authorities, "could possibly have a material effect on our business."

Juan Diaz and Antonio Perez (April 27, 2009) Guilty pleas to a one-count criminal information.

Diaz and Perez, both 51 of Miami, pleaded guilty to a one-count criminal information. They were charged with conspiracy to violate the FCPA by making corrupt payments to officials from Telecommunications D'Haiti. Diaz paid and concealed $1,028,851 in bribes while acting as an intermediary for three private telecommunications companies. Perez arranged bribes of $674,193 to the Haitian officials while he worked as a controller at one of the companies from March 1998 to January 2002.

Stuart Carson, Hong (Rose) Carson, Paul Cosgrove, David Edmonds, Flavio Ricotti, and Han Yong Kim (April 9, 2009) Indicted by a federal grand jury.

The six former executives of Control Components Inc., an Orange County, Calif.-based valve company, were charged with conspiracy to violate the FCPA and the Travel Act, violating the FCPA, and as to Hong (Rose) Carson, one count of obstruction. It was the biggest multi-party indictment of individuals yet under the FCPA.

Earlier this year, two other former executives from Control Components admitted paying bribes to foreign officials and have been cooperating with authorities. Richard Morlok, 55, the former finance director, and Mario Covino, 44, the company's former director of worldwide factory sales, pleaded guilty to one count of conspiracy to violate the FCPA. They're sentencing is set for July 20, 2009.

Shu Quan-Sheng (April 7, 2009) Sentenced to prison.

The Virginia-based physicist who sold controlled space-launch technology to China by bribing government officials there was sentenced to 51 months in prison. Shu, 68, a native of China and naturalized U.S. citizen, pleaded guilty in November 2008 to one count of violating the FCPA and two counts of violating the Arms Export Control Act. Shu had already forfeited $386,740 to the federal government before being sentenced to prison.

Latin Node Inc. (April 7, 2009) Criminal enforcement action resolved.

The former privately held Florida telecommunications company pleaded guilty to a one-count criminal information and agreed to pay a fine of $2 million over the next three years. It was charged with violating the FCPA's antibribery provisions by making improper payments in Honduras and Yemen.
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Click on the party names for the original posts, with links to the charging documents, plea agreements, and news and litigation releases.

View our enforcement report for Q1 '09 here.

View our 2008 enforcement index here.
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Monday
Jun292009

Guilty Plea In Vietnam Bribery Case

A former executive of a Philadelphia-based export company pleaded guilty Monday to being part of a conspiracy to bribe Vietnamese government officials in violation of the Foreign Corrupt Practices Act.

Joseph T. Lukas, 60, a resident of New Jersey, was a partner in Nexus Technologies Inc. until 2005. He admitted that from 1999 to 2005, he and other Nexus employees agreed to pay, and knowingly paid, bribes to Vietnamese government officials in exchange for contracts with the officials' agencies. The bribes were falsely described in the company's books as "commissions."

Lukas now faces up to 10 years in prison and a possible $350,000 fine. His sentencing is scheduled for April 6, 2010.

He was arrested in September 2008, a day after being indicted by a federal grand jury in Philadelphia on one count of conspiracy to bribe Vietnamese public officials in violation of the Foreign Corrupt Practices Act and one substantive count of violating the FCPA. The indictment also charged the company and alleged co-conspirators Nam Nguyen, Kim Nguyen and An Nguyen, all U.S. citizens, with similar violations. Those cases are still pending.

According to the indictment, Nexus, a privately-held Delaware company with offices in Philadelphia, New Jersey and Vietnam, sold third-party underwater mapping and bomb containment equipment, helicopter parts, chemical detectors, satellite communication parts and air tracking systems to the government of Vietnam.

The indictment charged that the defendants paid at least $150,000 to officials at Vietnam’s Ministries of Transport, Industry and Public Safety to secure supply contracts. It said Nam Nguyen negotiated contracts and bribes with Vietnamese government officials while Lukas negotiated with vendors in the United States. Kim and An Nguyen allegedly arranged for the transfer of funds at Nam Nguyen’s direction.

The company's website (in English and Vietnamese) says:

Nexus specializes in supplying equipment and consulting / system integrating services for five high-growth, state-funded industries:

* Petroleum
* Power Generation, Transmission and Distribution
* Civil Aviation
* Marine & Sea Ports
* Other Heavy Industries

Doing business in Asia requires relationships, trust, and the time to build them. Nexus is proud to have established, through its consistent presence and reliable performance, trusted relationships with customers.

The three other individual defendants in the case and Nexus are presumed innocent until and unless proven guilty at trial beyond a reasonable doubt.

View the DOJ's June 29, 2009 release here.
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