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Richard L. Cassin Publisher and Editor

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Elizabeth K. Spahn Editor Emeritus

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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
Mar292009

KBR: Nigerians Tell Their Own Story

A new Nigeria-based publication called Next has just posted an article (here) naming some of the officials who took bribes from KBR and its TSKJ joint venture for the $6 billion Bonny Island LNG development project. The story by Dapo Olorunyomi and Mojeed Musiliku names three former presidents among the bribe takers, including Sani Abacha, Abdusalami Abubakar, and Olusegun Obasanjo.

The reporting appears to be based primarily on documents produced during U.S. and French investigations of KBR, TSKJ, Jack Stanley (KBR's former CEO) and Jeffrey Tesler, an alleged London-based KBR middleman. He was indicted earlier this year by U.S. authorities for violating the Foreign Corrupt Practices Act and is being extradited from the U.K.

KBR resolved FCPA charges with the Justice Department and Securities and Exchange Commission in February, agreeing to pay $579 million in penalties and disgorgement. Jack Stanley pleaded guilty last year to violating the FCPA and faces up to 7 years in prison and a fine of about $11 million. He and KBR admitted paying at least $182 million in bribes for contracts for the Bonny Island project.

Among the details in Next's story are these:

Having put the Train 1 and 2 contracts in the can, TSKJ turned its gaze on the Train 3 contract. For this, Stanley flew to Abuja again in the second quarter of 1997, with the sole mission of asking Mr. Abacha to recommend a trusted front man to collect his bribe.

Shortly after [Abacha] died on June 8, 1998, Mr.Tesler promptly erased him from the list of bribe beneficiaries, substituting him with the new helmsman, Abdulsalami Abubakar.

To keep the entire scheme on the rails, Stanley flew back to Abuja on February 28, 1999, asking Mr. Abubakar, to recommend a trusted front man to collect his bribe.

Another Nigeria-based publication, Vangard, last week carried an article (here) by Chudi Offodile, a former member of Nigeria's House of Representatives and Chairman of the House’s Public Petitions Committee from 2003 to 2005, where he was responsible for investigations. After spotting irregularities, he says his committee recommended dropping TSKJ and all its members from the Bonny Island project and other contracts in Nigeria. But, writes Offodile, he was continually stonewalled by high-level politicians.

He tells how his investigation got started and finally ended. He begins this way:

No one would have heard of the Nigeria LNG bribery scandal if not for Georges Krammer, former Director General of the French company, Technip [a TSKJ member]. Krammer was accused of paying 3 million euros in illegal commissions during investigations into Elf-Aquitane operations in Asia and Africa.

Krammer claimed the commissions were legal and in line with company's policy. Technip management disputed his claims and left him to face charges of misappropriating 3 million euros. Angered by this development, Krammer who had worked for Technip for 35 years, squealed. He went before Judge d’ Instruction Renaud Van Ruymbeke and told him how Technip’s commission payment system worked in Indonesia, Thailand and on the LNG Project in Nigeria.

Thus began the French investigation of the Nigeria LNG project with Renaud Van Ruymbeke in charge. The French investigation triggered off other investigations in Switzerland, the United States, and Nigeria. . . .

These two reports are unusual not only because of the details being disclosed. But also because both publications are reporting from inside Nigeria, in some cases about government officials still in power.
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Thursday
Mar262009

Proclamation 7750 Unwrapped

Last week, while we were looking into ways the U.S. fights foreign kleptocrats, we heard about Presidential Proclamation 7750. It was issued in 2004 and, by 2006, a high State Department official was calling it a "key tool" in America's anti-corruption arsenal. Yet except for a couple of mentions we found in the African press, Proclamation 7750 was -- and is -- practically invisible.

To find out why, and to learn more about how this anti-corruption tool works, we spoke this week with a couple of U.S. State Department officials. They can't be identified and wouldn't go on the record. But here's the background they provided.

The Foreign Corrupt Practices Act doesn't reach the kleptocrats -- it applies only to bribe-payers and not bribe-takers. And the truth, as the kleptocrats know, is that they're beyond the reach of practically all the laws of other countries. There just aren't that many big sticks to use against corrupt foreign officials.

That's why Presidential Proclamation 7750 is so important. It was issued a year after the G-8's 2003 commitment to deny safe havens to kleptocrats. It helped do that by suspending entry into the United States of past and present corrupt foreign officials and those who bribe them. It also barred their spouses, children, and dependents who benefited from the corruption.

The State Department can't publicly release the names of those denied entry under Proclamation 7750 -- U.S. law generally prohibits disclosure of visa-related information. And while the deterrent effect can't be measured, the idea is that whatever makes life more difficult or expensive for kleptocrats is a good thing. The Kenyan reformer John Githongo, for example, has advised the U.S. that denying the children of corrupt African leaders access to U.S. and U.K. universities is a big deal. The State Department says it welcomes that kind of input, and that's why Proclamation 7750 is only used against children who are college age and above.

The American press hasn't talked about Proclamation 7750, and that's too bad. It's probably because the names of the banned kleptocrats have to be kept secret, draining the entertainment value and pizzazz out of the story. But because quite a few corrupt foreign leaders believe they've been banned from the United States because of Proclamation 7750, and have complained back home about their treatment at the hands of U.S. authorities, the law is better known in developing countries, especially among those who might be targeted.

State Department officials regularly meet with anti-corruption NGOs. Any allegations leveled by NGOs are carefully evaluated along with other available evidence to determine that the individuals fall within the categories defined in the Proclamation. A decision to designate is vetted by several bureaus at the State Department and is approved by a high-level Department official. And despite the public's lack of awareness, the government thinks the program is working well. As when an NGO reported that corrupt officials in a developing country were engaged in systematic and illegal asset stripping of the country's natural resources. A State Department official said the NGO report led to further U.S. investigations and ultimately to some visa determinations under Proclamation 7750.

Sometimes leads come to the State Department from whistleblowers. They're typically anti-corruption investigators or officials in developing countries who've been effective in their roles -- and are therefore fired from their jobs, threatened, or blocked by corrupt judges or opponents. They might show up at a U.S. embassy, ready to talk. The information they bring is checked -- sources are vetted for reliability and evidence is weighed for credibility. Other sources are sought. "We don't want the United States to be used as a tool by political factions in other countries," an official said. "So we're very tough when we look at the evidence. Otherwise the program will lose credibility." For example, corroboration sometimes comes from bank documents showing secret transfers of illicit cash.

The visa bans are essentially lifetime actions, so the stakes are high. The program has plenty of support within the government -- in recent appropriations bills, for example, Congress directed the State Department to use Proclamation 7750 to ban from the U.S. foreign officials "involved in corruption relating to the extraction of natural resources in their countries." The State Department can even use Proclamation 7750 to ban foreign leaders who travel on diplomatic passports, except in limited cases where the U.S. is bound by treaty-based obligations.

This post is Part II of our series, Cornering The Kleptocrats. In Part III, we'll talk about a proposed way to pursue, prosecute and punish corrupt public officials.
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Wednesday
Mar252009

First Look: The U.K.'s Draft Antibribery Law

Britain's Justice Secretary, Jack Straw, unveiled a draft bill on March 25 that will completely overhaul the country's antibribery laws. He called the old laws anachronistic, inconsistent, unclear, and difficult for the public to understand and for prosecutors and the courts to apply. The new legislation, he said, will simplify and modernize the law, and help bring transparency and accountability to international business deals.

The draft bill creates a framework of two general offenses: one dealing with the giving, promising, and offering of a bribe, and another with agreeing to receive or accept a bribe. The other main provisions are:

• extra-territorial jurisdiction to prosecute bribery committed abroad by persons ordinarily resident in the U.K. as well as U.K. nationals, and U.K. corporate bodies,

• a maximum penalty of 10 years imprisonment for all new offenses and corporate offenses will carry an unlimited fine,

• a new corporate liability offense of negligently failing to prevent bribery,

• provision for the Secretary of State to authorize conduct that would constitute a bribery offense by the intelligence agencies, and

• setting aside Parliamentary Privilege to make evidence from proceedings in Parliament admissible in the prosecution of a member of either of the Houses of Parliament for a bribery offense or in related proceedings.

For those familiar with U.K. law, the bill replaces the offenses at common law and under the Public Bodies Corrupt Practices Act 1889, the Prevention of Corruption Act 1906 and the Prevention of Corruption Act 1916 (known collectively as the Prevention of Corruption Acts 1889 to 1916 and which would be repealed).

Our correspondent from Paris, Guillermo Christensen, who sent us the draft bill, thinks it will cause big changes in the compliance landscape. He said, "The inclusion of liability for organizations that are negligent in preventing bribery by their employees is going to require a major awakening of compliance efforts among U.K. companies and executives (and non-U.K. companies operating in the U.K. . . . even more interesting), who have been frequently quoted in industry surveys as seeing compliance as something that they do 'over there' in the USA."

Justice Secretary Straw also signaled a new tone in the U.K.'s enforcement strategy and its cooperation with international investigations. That follows criticism from the OECD and others about Britain's failure for the past decade to prosecute overseas public bribery. Three years ago, the Serious Fraud Office dropped an investigation into BAE's alleged £1 billion bribery of Saudi officials after the Blair government said the U.K.'s domestic security could be threatened. The U.S. Justice Department picked up the investigation, which is ongoing.

Straw said, "The UK is determined to work closely with its international partners to tackle bribery. We are already, for example, providing technical assistance to developing countries to promote better governance and making significant progress on tracing, recovering and repatriating money-laundered misappropriated assets. We are also supporting the implementation of the UN Convention against Corruption, the OECD Bribery Convention and the Council of Europe’s Criminal Law Convention on Corruption."

Download a copy of the U.K.'s draft bribery legislation released on March 25, 2009 here.

Jack Straw's comments quoted above appear in the foreword to the draft bill.
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Tuesday
Mar242009

Voices From Africa

Marc Ona Essangui is from Gabon -- a West African country with lots of oil, about a million and a half people, and just two presidents since independence from France in 1960. He's the local head of the Publish What You Pay coalition, an NGO operating in 70 countries "that helps citizens of resource-rich developing countries hold their governments accountable for the management of revenues from the oil, gas and mining industries."

Gabonese authorities last year stopped Ona Essangui, 45, from leaving the country on four separate occasions. In June he was prevented from traveling to a conference in New York of Revenue Watch Institute. A spokesperson from Gabon's Ministry of the Interior, Maryse Issembet Me, reportedly said leaders of NGOs are in the pay of Europeans and Americans. In an AFP story, she was quoted as saying, "NGOs get up to whatever they want. They are at the mercy of and act for the Europeans and the Americans . . . The decision of the interior ministry was perfectly normal."

In December last year, Ona Essangui and a co-worker, along with a civil servant and two journalists, were arrested and held for about ten days. He was charged with "possession of a document for dissemination for the purpose of propaganda" and with having "oral or written propaganda for incitement of rebellion against state authorities."

The document in question was an open letter to President Omar Bongo Ondimba that accused his government of mismanagement and corruption. The letter asked why Gabon, with its vast natural resources, doesn't enjoy a standard of prosperity and development equivalent to the Gulf countries in the Middle East.

Ona Essangui, who has been in a wheelchair since contracting polio when he was six, faces a jail term of up to five years and a fine of around $500.

Now, however, he's suing the government in a court in Libreville for damages resulting from his travel ban. His lawyer says the claim of about $103,000 is a matter of "enforcing respect for human rights . . . and fundamental freedoms," according to AFP.

Gabon ranked 96th on the 2008 Corruption Perception Index, tied with Benin, Guatemala, Jamaica, Kiribati and Mali. On the 2009 Index of Economic Freedom, where it ranks 118th, the commentary contains this warning: Gabon's economy is driven by oil, forestry, and minerals. In 2006, oil accounted for over 50 percent of GDP, over 60 percent of government revenues, and over 80 percent of exports. Despite a relatively high average income from oil revenue, most people live in poverty. With oil production declining as fields become exhausted, Gabon needs to diversify its economy.

Add Marc Ona Essangui's voice to the new generation of African reformers -- including John Githongo in Kenya and Nuhu Ribadu in Nigeria -- who are calling for change.
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Monday
Mar232009

Unfinished Business

We don't know how many of the 50 or so disclosed and pending Foreign Corrupt Practices Act investigations will be resolved this year. But here are some we're watching:

Alcoa. In February 2008, government-owned Aluminum Bahrain BSC (Alba) accused its long-time U.S. supplier of overcharging for raw materials during a 15-year period, and using some of the money to bribe Alba's executives for more contracts. Alcoa's conspiracy, Alba said in a federal civil complaint filed in Pittsburgh, "succeeded in exacting hundreds of millions of dollars in over payments, which continue to accumulate to this day. Among other things, Plaintiff seeks damages in excess of $1 billion, including punitive damages, for this massive, outrageous fraud."

The Justice Department quickly intervened, asking the court to stay all discovery. It said the facts of Alba's allegations, if true, might violate the FCPA and mail and wire fraud statutes. Therefore, the DOJ said, it wanted to conduct a criminal investigation into Alcoa and its executives. That investigation is pending and the civil suit is still on hold.

Aon. The giant Chicago-based insurance broker disclosed in November 2007 an internal investigation into possible violations of the FCPA and non-U.S. anti-corruption laws. It said it had self-reported the investigation to the Justice Department, the Securities and Exchange Commission and others, and that it had already agreed with U.S. prosecutors to toll any applicable statute of limitations. Meanwhile, in January this year, the U.K.'s Financial Services Authority (FSA) fined Aon's U.K. subsidiary £5.25 million for failing to recognize and control the risks of overseas payments being used as bribes. The fine was the largest the FSA had ever levied for financial crimes.

Avon. It said in October 2008 that it had launched an internal investigation into possible FCPA violations in China. The global beauty-products retailer didn't release details. The investigation may be linked to the payment to regulators of improper promotional expenses. China imposed restrictions on direct selling in the late 1990s that forced Avon to market its products through shops and boutiques. Two years ago, the company convinced China's regulators to allow its traditional door-to-door sales model. Avon's FCPA disclosure referred to "certain travel, entertainment and other expenses."

BAE. The case is about alleged secret payments of £1 billion to the former Saudi ambassador to the United States, Prince Bandar bin-Sultan. The payments were allegedly made when U.K.-based BAE was trying to sell jet fighters to the Saudi government. Britain's Serious Fraud Office opened, then closed, an examination into the allegations. But the DOJ is conducting its own investigation of possible violations of the FCPA and anti-money laundering laws. In May 2008, BAE's chief executive Mike Turner and director Nigel Rudd were detained at U.S. airports. Authorities apparently copied information from their laptop computers, cell phones, and papers before letting them leave.

The DOJ has also reportedly served subpoenas on other BAE employees in the U.S. And in November 2007, according to the U.K.'s Guardian, the DOJ obtained Swiss banking records and evidence from a U.K. businessman who was part of the deal. The paper reported that Peter Gardiner had boxes of invoices allegedly detailing payments made by BAE to members of the Saudi royal family. Gardiner was flown by FBI agents to Washington in August 2007 to give testimony there, the paper said.

BAE apparently stonewalled the U.S. investigation at first but has since begun cooperating.

Medical Device Makers. Their overseas sales practices probably came under scrutiny in early 2007. That's when Johnson & Johnson (which owns device-maker Depuy) said it voluntarily disclosed to the DOJ and SEC that "subsidiaries outside the United States are believed to have made improper payments in connection with the sale of medical devices in two small-market countries. " In September 2007, Depuy and four other device makers paid $310 million to settle charges they paid kickbacks to induce U.S. doctors to buy their products. Now the SEC and DOJ want to know whether the companies bribed overseas doctors employed by government-owned hospitals to use their products. Biomet Inc., Stryker Corp., Zimmer Holdings Inc., Smith & Nephew plc and Medtronic Inc. disclosed FCPA investigations during 2007 and Wright Medical reported a similar investigation in June 2008.

Panalpina. In February 2007, the Justice Department said in connection with the resolution of Vetco's FCPA case that bribes in Nigeria "were paid through a major international freight forwarding and customs clearance company to employees of the Nigerian Customs Service . . .” Since then about a dozen leading oil and gas-related companies received letters from the DOJ and SEC asking them to "detail their relationship with Panalpina . . ." Among those involved are Schlumberger, Shell, Tidewater, Nabors Industries, Transocean, GlobalSantaFe Corp., ENSCO, Cameron, Noble Corp., Pride International, Global Industries and Parker Drilling.

Swiss-based Panalpina said in its 2008 half-yearly report that it would divest its domestic operations in Nigeria to a local investment group and retain no ownership or operating interest. It completed the transaction in November. It also said it was cooperating with an investigation by the DOJ and SEC and that its U.S. subsidiary in Houston had been instructed to produce documents and other information about services to certain customers in Nigeria, Kazakhstan and Saudi Arabia.

* * *
And a long-standing prosecution that isn't mentioned much these days but should be watched is US v. Giffen. It's in the U.S. District Court for the Southern District of New York (Foley Square). American businessman James H. Giffen was arrested in New York in March 2003 for allegedly paying or offering $78 million in bribes to an advisor of Kazakhstan's president and its former oil and gas minister. He was charged with violating the FCPA, mail and wire fraud, false statements and money laundering.

When arrested, Giffen was carrying a Kazakhstan diplomatic passport. His lawyers have said he was acting in Kazakhstan with the full knowledge and approval of the U.S. government. Most of the court record is sealed, apparently because it contains classified documents. After nearly six years of little activity (raising speedy-trial issues, no doubt), there's more going on in the case now. A pre-trial conference was held this month and the next one is scheduled for June. Giffen is free on $10,000,000 bail.
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Sunday
Mar222009

Bourke's Defense Is Revealed, Then Sealed

Bloomberg's David Glovin filed a story Friday (here) reporting that Frederic Bourke will argue that he didn't violate the Foreign Corrupt Practices Act because there were no corrupt payments to foreign officials. Bourke, 62, was indicted in 2005 with Czech-born fugitive Viktor Kozeny, 45, for bribing government officials in Azerbaijan in a failed attempt to take over the state oil company known as Socar.

Bourke's trial on FCPA charges, money laundering and lying to federal investigators is scheduled to start June 1. He could be jailed up to 35 years if convicted on all counts. His co-defendant Kozeny has been a fugitive for about a decade. From the Bahamas, he's been fighting extradition to the United States. He's also wanted by the Czech Republic for allegedly looting a national pension fund.

Glovin learned details of Bourke's defense from a hearing transcript and other documents filed in the U.S. District Court in Manhattan. But after he obtained copies, Judge Shira Scheindlin sealed the documents from public view. Glovin reported, however, that at a December 24, 2008 hearing, Dan Webb, Bourke's lead trial lawyer at the time, said, “It is not clear if there was ever a bribery. Whether or not bribes actually got paid here, I am probably going to be refuting.”

Bourke invested and lost $8 million with Kozeny. The government alleged Kozeny's scheme to bribe Azeri leaders involved giving them vouchers that Azeri citizens could use to participate in privatizations. With $350 million from his investors, Kozeny was supposed to buy enough vouchers to gain control over Socar if it was privatized. U.S. prosecutors allege Kozeny and Bourke gave some of the vouchers to Azeri officials.

Now, though, according to Glovin's story, most of the vouchers can be accounted for. They're in the hands of Gerald O’Shaughnessy, another Kozeny investor who lives in Wichita, Kansas. O'Shaughnessy hasn't been charged in the case. "The documents tell of O’Shaughnessy’s years-long quest to recover the $350 million he and other investors gave Kozeny to buy vouchers," Glovin's story says. "According to the documents, O’Shaughnessy had gained control by 2003 of about three-quarters of the outstanding vouchers. He then sought to force the Azeris to buy them for $350 million so investors could recover their lost stakes, the documents show."

Leon G. Cooperman's Omega Advisors Inc. invested more than $100 million with Kozeny in 1998 for the Azeri privatization program. When the program fizzled, Omega and the other investors lost their entire investments. In 2004, Clayton Lewis, a former employee of Omega, pleaded guilty to conspiring to violate the FCPA in connection with the Kozeny investment. And in July 2007, Omega itself settled with the government, entering into a non-prosecution agreement with the DOJ and agreeing to a civil forfeiture of $500,000.

In addition to the federal FCPA indictment, New York state prosecutors charged Kozeny with fraud for keeping $182 million of his investors' money.

Bourke -- owner of the luxury handbag brand Dooney & Bourke -- said after his indictment in 2005 that he invested $8 million with Kozeny only after lawyers had advised him the deal was legal. Soon after, he said, he suspected illegal behavior. His lawyers said he traveled to Azerbaijan to warn then-President Heydar Aliyev about the scheme and he testified before a New York grand jury "as a victim of Kozeny's fraud."

Earlier this month, Bourke's lead trial counsel, Dan Webb, withdrew from the case. Bourke brought in new lawyers--Denver-based Harold A. Haddon and Saskia A. Jordan. In a March 6 letter to Judge Scheindlin, Webb said,

Mr. Bourke has requested that the Haddon firm serve as lead trial counsel in this matter and that I seek to withdraw my appearance. Going forward, I will cease to have any involvement in the case. At Mr. Bourke's request, my colleagues at Winston & Strawn will continue their involvement in the case through trial.

Harold Haddon's former clients include John and Patsy Ramsey and Kobe Bryant.

 

Last November, Webb raised the possibility that Bourke's prosecution was vindictive. He asked Judge Scheindlin then to review internal prosecution documents prepared before Bourke was charged. "The documents may show," Webb said, "whether prosecutors brought the case to punish Bourke for disclosing a crime involving the Socar deal and interfering in the U.S.'s relationship with Azerbaijan a decade ago."

A copy of the 2005 indictment against Kozeny and Bourke can be downloaded in two parts here and here.

A copy of Dan Webb's March 6, 2009 letter to Judge Scheindlin seeking to withdraw from the case can be downloaded here.

Read all posts about U.S. v. Kozeny and the prosecution of Frederic Bourke here.
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Thursday
Mar192009

Cornering The Kleptocrats, Part I

Only bribe-payers can be prosecuted under the Foreign Corrupt Practices Act; bribe-takers are excluded. Congress wrote the FCPA that way because it believed "the efforts expended in resolving the diplomatic, jurisdictional, and enforcement difficulties that would arise upon the prosecution of foreign officials was not worth the minimal deterrent value of such prosecutions." U.S. v. Castle, 925 F.2d 831 (5th Cir. 1991) (per curiam).

That inability to pursue, prosecute and punish corrupt foreign officials under the FCPA became a focus of the prior administration. In January 2004, President Bush took action by signing an extraordinary measure called Proclamation 7750. It suspended entry into the United States of past and present foreign officials whose corrupt practices have had "serious adverse effects on the international economic activity of U.S. businesses, U.S. foreign assistance goals, the security of the United States against transnational crime and terrorism, or the stability of democratic institutions and nations." Also barred from entry are the foreign officials' spouses, children, and dependents who benefited from the corruption.

It's left to the Secretary of State alone to implement and administer Proclamation 7750. The State Department hasn't revealed how it compiles the list of banned kleptocrats and family members or who's on it. Nor has anyone said how long the bans last, whether there's any kind of hearing or chance to present evidence, or how someone on the list might have their name removed.

All that secrecy has caused some discomfort and frustration, even among reformers outside the U.S. As one Kenyan commentary this week said,

We wish it were clear, however, just what the U.S. has done and why. Proclamation 7750 (better known as the Kleptocracy Initiative travel ban), issued by George W Bush in January 2004, has been used to prohibit corrupt officials from entering the U.S. At least 13 Kenyan public officials and their families are believed to have had travel restrictions placed on them under this directive. However, who they are and what they did remains a matter of conjecture. . . [W]hat use are anonymous corruption bans apart from exerting private pressure?
That's a good question. And we have questions of our own. Is Proclamation 7750 the right remedy against corrupt foreign officials? Are secret, extra-judicial actions by the State Department legitimate and useful weapons in the battle against international public corruption? Are there other and better ways to pursue, prosecute and punish kleptocrats?

Let's continue this discussion in Part II.
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Tuesday
Mar172009

Combating Caribbean Corruption

The U.K. government is in the process of assuming direct rule over its Caribbean dependency, the Turks and Caicos Islands. A U.K. Commission of Inquiry found "clear signs of political amorality and immaturity" in the government there. The BBC said chief minister Michael Misick is alleged to have "built up a multi-million dollar fortune since coming to power in 2003." He denies misusing public funds.

Turks and Caicos, a British Overseas Territory whose citizens have U.K. passports, consists of about 40 islands, eight of which are inhabited by a total population of around 30,000. The U.K.'s preliminary report said there was "information in abundance pointing to a high probability of systematic corruption or serious dishonesty" throughout the government. The CIA World Factbook says T&C is a transshipment point for South American narcotics destined for the U.S. and Europe.

The head of the U.K.'s Commission of Inquiry, Sir Robin Auld, hasn't said whether he'll recommend criminal investigations. His final report is due in April.

Reuters said today, "The U.K. will proceed with the seizure of power when a final report is published next month . . . . The decision is the latest effort by [British Prime Minister Gordon Brown], U.S. President Barack Obama and leaders in Germany and France to crack down on offshore financial centers. Turks & Caicos Premier Michael Misick called on the United Nations to intervene on the country’s behalf."

Antigua, another tiny Caribbean destination, was in the news last month. Texan Allen Stanford, accused by the Securities and Exchange Commission of an $8 billion investment fraud, headquartered his offshore bank there since 1996. As in Antigua, offshore financial services are an important part of the Turks and Caicos economy. That raises the same possibility of corrupt relationships between officials there and offshore operators. Whether past violations of the Foreign Corrupt Practices Act and other anti-corruption laws might be found by investigators after the British take direct control of the government is an open question.

Stay tuned.
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Monday
Mar162009

Paris Pulls The Plug On Enforcement

We're trying to stay calm today but it's not easy. We just learned why France -- the largest country by area in the European Union and second largest by population, possessor of the world's fifth biggest economy, a founding member of the European Union and the United Nations, a permanent member of the Security Council and member of the G8, NATO, and the Latin Union (whatever that is) -- why that France, isn't prosecuting any foreign public bribery. Here's the story. But be warned, it isn't pretty:

GRECO -- the Council of Europe's Group of States against Corruption -- was founded ten years ago to monitor compliance with the Council's anti-corruption standards. It does that by studying the members' existing laws and practices, publishing reports that evaluate their efforts, and recommending how they can improve their performance. We talked about it in a post in June 2008 (here).

We hadn't thought much about GRECO since then, until this email showed up over the weekend: Dear FCPA Blog -- My father just forwarded me an article in which I thought you might have an interest. It relates to recent French legislation limiting prosecutorial authority over French companies' acts of bribery overseas. Regards -- Pete from DC.

Regular readers will know that when Pete from DC speaks, we listen. And sure enough, Pete (and his dad) were right. The article they sent said GRECO has just issued a report critical of French anti-corruption laws. And the GRECO report itself says, "France has severely restricted its jurisdiction and its ability to prosecute cases with an international dimension, which, given the country's importance in the international economy and the scale of many of its companies, is very regrettable."

The problem, according to GRECO, is that anti-corruption offenses committed abroad can only be investigated by French authorities at the request of the foreign prosecutors and following a complaint from the victim or his or her beneficiaries, or an official report by the authorities of the country where the offense was committed. And for good measure, French law also prohibits the prosecution of French companies for bribing French officials overseas. Taken together, GRECO says, the laws amount to "exceptional guarantees" to French companies that they won't be prosecuted for bribery abroad. As we said, it isn't pretty.

Even the normally placid GRECO is slapping its forehead over this one. It said France's legal system is fairly effective in combating corruption, but it wondered "why, despite the economic weight of France and its close historical links with certain regions of the world considered to be rife with corruption [the former French colonies in Africa], it has not yet imposed any penalties for bribing foreign public officials."

This story first appeared in the EUobserver on March 13, 2009 here. Our thanks to Pete from DC (and his father) for sending it to us.

A copy of the Third Evaluation Round / Report on France, Adopted by GRECO at its 41st Plenary Meeting (Strasbourg, 16-19 February 2009) can be downloaded here.
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A key part of GRECO's report, Paragraph 90, says this:

It appears to the [GRECO Evaluation Team] that . . . France applies other limits to the application of the principle of jurisdiction based on nationality. [O]ffences committed abroad can only be prosecuted at the request of the state prosecution service and must be preceded by a complaint from the victim or his or her beneficiaries, or an official report by the authorities of the country where the offence was committed. In the absence of such a complaint or report, the French authorities are unable to prosecute the offence, and this was confirmed by the persons the team met and the legal theory supplied. The victim's complaint is unimportant in practice because according to legal theory in French law it is usually the foreign state that is concerned. An official report is therefore a precondition of criminal proceedings. The report must be issued by the foreign government, its prosecution service or an investigating judge. The police authorities have no competence in this matter. . . .

Certain persons confirmed that it is difficult to apply these provisions on jurisdiction, particularly when the perpetrator is a legal person. As indicated earlier (see paragraph 76), there have been no convictions so far for bribing foreign public officials, despite the fact that France is a major commercial and industrial power, which raises questions as to whether the obstacles in the way of recognising jurisdiction could possibly dissuade prosecutions. Legal theory has occasionally stressed that acts of corruption committed by French persons abroad cannot be prosecuted, thus offering French companies "exceptional guarantees". . .

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Sunday
Mar152009

The Case For More Compliance

The pressure these days to comply with the Foreign Corrupt Practices Act and other anti-corruption laws is coming from several directions at once. Last week we mentioned whistleblower hotlines as one example. But there are other reasons why it's harder than ever for companies to cheat and for bride-taking officials to hide their crimes. Here's a quick look at some of what's happening:

The internet. Hundreds of millions of people now have access to uncensored news, chat boards, social sites, blogs, email and short messaging, podcasts and the like. While plenty of the internet's so-called news is gossip, rumor and opinion, there are also some real scoops. Last year in China, for example, someone found a bag on the subway in Shanghai. In it were expense reports from a trip by 23 local officials who'd spent $94,000 of taxpayer money on a three-week USA "study tour. " The receipts showed that the real itinerary included Hawaiian beaches, a sex show in San Francisco, and casinos in Vegas. The finder published them anonymously, a few at a time, on the internet. As reported (here), the details spread "like wildfire across Chinese cyberspace."

The net isn't just for amateur sleuths. Powerful non-traditional news outlets have appeared online, backed by serious money and seasoned professionals. ProPublica is one of them. It's a privately funded, non-profit, independent newsroom led by Paul Steiger, the former managing editor of The Wall Street Journal. Its staff includes some of the best editors and investigative reporters in America. We've featured their work in posts about KBR's Jack Stanley (here) and Siemens (here).

A new virtual newsroom is called The Business of Bribes. It's a ten-week online project from Lowell Bergman and the Investigative Reporting Program at the UC Berkeley Graduate School of Journalism, along with PBS' Frontline. We mentioned Lowell Bergman in a 2007 post (here). He's a Pulitzer Prize-winning former producer of CBS' 60 Minutes. His new online project aims to go deeper into the investigation of international bribery -- how corrupt payments are hidden from sight, how public graft helps destabilize the developing world, and what the U.S. and other countries are doing to combat global corruption.

NGOs and public interest groups. They're able to exert enormous pressure on corporations and governments to be more accountable. Transparency International created the annual Corruption Perception Index, a handy measure of how well countries are doing in the fight against sleaze. You see the CPI everywhere now, and TI's message about it is always clear. Here, for example, is what TI said about crooked courts:

It is difficult to overstate the negative impact of a corrupt judiciary: it erodes the ability of the international community to tackle transnational crime and terrorism; it diminishes trade, economic growth and human development; and most importantly, it denies citizens impartial settlement of disputes with neighbors or the authorities. When the latter occurs, corrupt judiciaries fracture and divide communities by keeping alive the sense of injury created by unjust treatment and mediation.
Another NGO working to shine the light on corruption is Global Witness. It concentrates on graft linked to the exploitation of natural resources. In 2003, it was co-nominated for the Nobel Peace Prize for its work on conflict diamonds. Its latest report, Undue Diligence, names some major banks that it says have been complicit with corrupt regimes (Citigroup, Barclays, HSBC, Deutsche Bank). This is from the introduction of the 116-page report:
Now we are going to go on a journey, to the oil-producing countries of the Gulf of Guinea as well as to Central Asia, to witness the corrosive and devastating effects of banks being willing to do business with corrupt regimes. With each story, the effectiveness of the bank’s ethical standards, compliance with due diligence requirements, and regulatory action will be examined, as far as the available evidence permits. Many of the examples in this report raise serious questions about how well a bank really knew its customer, even if it had been able to tick the regulatory box to say it had done its due diligence; and about whether compliance with the letter of regulations that require identification of the customer is sufficient to prevent banks doing business that contributes to corruption.
Brave Officials. Perhaps inspired in part by the openness of the internet and the advocacy of the watchdog groups, younger people in developing countries are rejecting the old ways of bribery of corruption. In Nigeria, for example, Nuhu Ribadu, 49, was exposing government graft until he lost his job last year as head of the country's Economic and Financial Crimes Commission. In Kenya, John Githongo, 43, was permanent secretary for ethics and governance in the office of the president until one of his investigations took him too close to the president and his cronies. Githongo combines several modern anti-corruption roles -- journalist, founder and former head of Transparency International's Kenya office, and next-generation government official. We talked about him here. He and Ribadu are both in the U.K. now for their own safety. But it's a sure bet Africa and the world will be hearing more from them.

Add to the above the zeal of the United States, the OECD and others to enforce the anti-corruption laws, and you have a powerful case why companies everywhere should be improving their compliance efforts. Anyone who hasn't yet made it a priority to obey the letter and the spirit of anti-corruption legislation could well end up in tomorrow's spotlight -- for all the wrong reasons.
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Thursday
Mar122009

Wondering About Whistleblowers

Earlier this week, we mentioned the importance of whistleblower hotlines (here). How much are they used for bribery and corruption complaints? We haven't found any recent statistics. But we think the numbers must be significant (judging by the number of open investigations everywhere). Does that mean that while hotlines are operating, companies can't scale down compliance efforts, even during the financial crisis? After all, the complaints will keep coming and will still need to be handled, in good times and bad.

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Stats about whistleblower complaints probably wouldn't reveal how the hotlines have changed company cultures. We think the biggest shift could be for overseas employees. In lots of countries outside North America and Western Europe, local employees of foreign-based multinationals have traditionally felt powerless and voiceless within their wider organizations, and they've often been treated that way too. But the hotlines have changed that. Local employees can now make themselves heard. And they have good reasons to speak out when their foreign employers pay bribes to local officials -- including national pride and protecting themselves from being implicated.

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Off our topic, an excellent book is Angler: The Cheney Vice Presidency, by Barton Gellman. It's about the former veep's zen-like mastery of the Washington political process. Gellman reports for the Washington Post, which ran excerpts of the 2008 book in a series of articles here. The inside details are rich and a bit spooky. Like this:

Stealth is among Cheney's most effective tools. Man-size Mosler safes, used elsewhere in government for classified secrets, store the workaday business of the office of the vice president. Even talking points for reporters are sometimes stamped "Treated As: Top Secret/SCI." Experts in and out of government said Cheney's office appears to have invented that designation, which alludes to "sensitive compartmented information," the most closely guarded category of government secrets. By adding the words "treated as," they said, Cheney seeks to protect unclassified work as though its disclosure would cause "exceptionally grave damage to national security."
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Wednesday
Mar112009

On The Subject Of Resources

We've mentioned before Dan Newcomb's FCPA Digest, calling it the most definitive publicly-available catalog of FCPA prosecutions, enforcement actions and disclosed investigations. So it's great to see the release of the March 2009 version, available here.

This year, Philip Urofsky becomes editor-in-chief. He told us last week, "In this Digest, we entirely scrapped the previous Trends & Patterns, which had largely become a statistical update, and replaced it with a more analytical piece." The T&P section has always been a favorite of ours, and this year's new-and-improved version (available here) didn't disappoint.

About the prosecution of individuals, for example, it said:

More recently, there is a strong trend of actions against individuals being brought separately or even in advance of charges against their employers and then, in all likelihood, following classic prosecutorial strategy of working up the chain of command, using the individuals to build the government’s case against their superiors and eventually the company. In Willbros, the DOJ charged four employees over a two-year period, with two pleading in previous years (Steph and Brown) and an indictment being returned against two others (Tillery and Novak) in February 2008. Finally, in May 2008, Willbros Group and Willbros International agreed to a deferred prosecution agreement. Similarly, the DOJ entered into a plea agreement with the former CEO of KBR, Stanley, in 2008, well in advance of settling the matter with Halliburton/KBR in early 2009.
And concerning disgorgement, a topic we recently talked about here, it said:
A final trend and pattern worth noting is the SEC’s continued demand for disgorgement of ill-gotten profits in cases in which only books & records violations are charged, such as in the [oil for food] cases. Whether or not a false entry in a company’s books and records (or a failure to implement adequate internal controls) truly results in increased profits is open to question. To date, however, no FCPA defendant has publicly challenged the SEC on whether disgorgement is appropriate when the sole charge is false books and records. Prior to the ABB case in 2004, the SEC had never collected disgorgement in FCPA cases; since then it has sought it in virtually every case with only a few exceptions, such as Dow Chemical, Delta & Pine Land, Lucent, and Conway. In Tyco, the SEC collected $1 in ill-gotten gains (along with $50 million in penalties related to other violations). While this is an isolated example of the SEC seeking such nominal disgorgement, the case does underscore the overall policy of levying disgorgement sanctions in nearly all cases against issuers.
We spend a lot of time in the FCPA Digest. And whenever we turn to it, we're grateful for the hard work and generosity of founding-editor Dan Newcomb, Philip Urofsky and their entire team.
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