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Harry Cassin Publisher and Editor

Andy Spalding Senior Editor

Jessica Tillipman Senior Editor

Richard L. Cassin Editor at Large

Elizabeth K. Spahn Editor Emeritus 

Cody Worthington Contributing Editor

Julie DiMauro Contributing Editor

Thomas Fox Contributing Editor

Marc Alain Bohn Contributing Editor

Bill Waite Contributing Editor

Shruti J. Shah Contributing Editor

Russell A. Stamets Contributing Editor

Richard Bistrong Contributing Editor 

Eric Carlson Contributing Editor

Bill Steinman Contributing Editor

Aarti Maharaj Contributing Editor


FCPA Blog Daily News

Sunday
May312009

Bourke's Trial Is The FCPA's Big Show

There have only been a few Foreign Corrupt Practices Act trials over the years, so Frederic Bourke's is unusual to start with. What's more, this case has plenty of special ingredients. Bourke, 63, is rich. He lives in the tony towns of Greenwich and Aspen. And he's famous -- or at least his name is famous. He co-founded the popular handbag brand Dooney & Bourke.

Prosecutors say he invested in a deal in Azerbaijan that he knew was tainted by bribery. He says he's not a crook but a victim of fraud perpetrated by mastermind Viktor Kozeny. Now he's facing what amounts to a life sentence in prison.

There's Kozeny himself -- a colorful and talkative fugitive. He's accused not only of bribery but also of stealing more than $180 million from his investors, including $8 million from Bourke. His chair will be empty but Kozeny will still be the most important person at the trial.

And there are the government's three "cooperating witnesses." Thomas Farrell, a director of one of Kozeny's companies, his Swiss lawyer Hans Bodmer, and Clayton Lewis, who steered $100 million of investment money his way. They've all pleaded guilty in related federal criminal cases and will be sentenced after they testify against Bourke -- a sure-fire recipe for all sorts of mixed-motives and mischief at the trial.

So there's no question about it. Frederic Bourke's turn in Judge Shira Scheindlin's courtroom will be the most watched FCPA trial ever.

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Setting the stage for the Monday kick off in Manhattan is Bloomberg's David Glovin. His latest article about the case is another stunner. Among the revelations: the U.S. Attorney apparently has a tape "on which Bourke may have admitted he knew of wrongdoing by Kozeny."

Glovin also revealed that Kozeny has won an order from a Bahamas judge requiring the government there to pay him $2 million. It's to cover his legal fees for successfully challenging extradition. The U.S. wanted to bring back the Czech-born fugitive to face charges with Bourke. But the Bahamas court said the FCPA counts were not provable or prosecutable under local law. See our post here.

Here's how Glovin's story starts:

Viktor Kozeny, the central figure in an international bribery case over an Azerbaijan oil deal, plans to monitor the June 1 trial of Greenwich resident Frederic Bourke, one of his investors, from his Caribbean beachfront estate, 1,100 miles from the Manhattan courtroom.
Kozeny, the admitted ringleader of a plot to bribe leaders in Azerbaijan in the 1998 deal, won't be in Manhattan federal court as prosecutors offer evidence against Bourke. Since 2005, when he and Bourke were indicted by the U.S. government, Kozeny has avoided extradition. Now he says he hopes the trial will clear his name. . .

U.S. District Judge Shira Scheindlin will preside over the trial, which will center on a failed deal involving the state-owned oil company of Azerbaijan. The republic, which borders the Caspian Sea, has 7 billion barrels of proved oil reserves . . .

Read David Glovin's story here.

Read all posts about U.S. v. Kozeny and the prosecution of Frederic Bourke here.
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Thursday
May282009

China's Runaway Bribe-Takers

One defense strategy adopted by some of the Chinese officials accused of corruption is to leave the country. More than 800 have bolted, according to the government, and around 300 have returned. Journalists say the number of international fugitives is a lot higher—at least 1,000 and probably more.

Why run? Simple. China imposes the death penalty in big corruption cases, so going just about anywhere else makes sense. And because of its wide use of capital punishment, few countries have extradition treaties with China, including the U.S. That means accused officials who make it out usually face little chance of being sent home.

The Chinese government seems unsure how to react to the phenomenon of its fleeing crooks. Earlier this month, two former managers of the Bank of China and their wives were sentenced by a federal jury in Las Vegas on charges of racketeering, money laundering, international transportation of stolen property and passport fraud. The DOJ's release is here. After the sentencing, China's government sounded pleased that the culprits were caught and punished, and relieved that the U.S. had handled everything.

"The corrupt officials must face the full force of law wherever they flee," said Tong Jianming, spokesman for the Supreme People's Procuratorate in a government release. He said Chinese authorities helped the Justice Department collect evidence in China. "The unprecedented case will serve as a great deterrent to corrupt officials," he said. "It has sent a clear signal that the U.S. is no longer a safe haven for them."

One of the officials in the Las Vegas case, Xu Chaofan aka Hui Yat Fai, was sentenced to 25 years in prison. The other, Xu Guojun aka Hui Kit Shun, received 22 years prison. Their wives were sentenced to 8 years in jail. All four were ordered to pay $482 million in restitution. And the U.S. government started denaturalization proceedings against the wives.

Newsweek reported last year that decisions by Chinese officials to run away aren't always spontaneous. "In particular," it said, "Chinese Netizens are buzzing about 'naked officials': apparatchiks who connive to earn permanent resident status overseas by gradually stashing relatives and assets abroad. Once the noose begins to tighten back home, the unencumbered (or 'naked') bureaucrats flee the country."

One notorious "naked official," Newseek said, is Yang Xianghong, a mid-level cadre from Zhejiang province who left for a 12-day European trip on September 19, 2008 and never returned. "Citing a bad back, Yang told colleagues he needed surgery in France -- where his daughter lives -- and refused to meet with party watchdogs who flew to see him. Yang was booted from the party on November 14 and charged by provincial authorities with 'seriously damag[ing] the party's image and the country's reputation.'"

Last August, Canada repatriated to China Deng Xinzhi, suspected in a $2.94 million swindle back home. China says the U.S. has also sent back "a few corrupt officials." Most of the "naked officials" are alleged to be in Los Angeles, New York and San Francisco.

The Singapore Straits Times reported last week that China is adopting a new "soft approach" to convince fugitives to return home. Prosecutors, it said, have been promising a lighter sentence instead of the death penalty. The Supreme People's Procuratorate, according to the paper, said this "coaxing" method is working, with a dozen officials lured back for justice in the last three years.

The example cited was that of a former Yunnan provincial official, Hu Xing. He ran to Singapore in 2007 after accepting bribes worth about $5.86 million. But according to the Straits Times, he was "cajoled to return to China and received a life sentence instead of possible execution through lethal injection."
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Wednesday
May272009

Court Rulings Protect Bourke's Rights

Judge Shira Scheindlin has now decided most of the pending pre-trial issues in the Foreign Corrupt Practices Act prosecution of Frederic Bourke. Her rulings generally restrict the government's use of other-acts-type evidence, while allowing Bourke latitude to tell his story. He's charged with investing in Viktor Kozeny's 1998 attempt to take over Azerbaijan's state oil company -- despite knowing Kozeny planned to bribe Azeri officials to get the deal done.

Bourke's trial starts Monday in Manhattan. He faces up to 35 years in prison on the FCPA charges, money laundering and lying to federal investigators. Kozeny himself is a fugitive living in the Bahamas.

Here are some of the rulings from hearings held last week and Tuesday:

  • The judge excluded evidence relating to prostitutes and injections, saying it's too prejudicial to Bourke. Prosecutors had planned to show that Bourke, 62, thought his partner in their luxury handbag business was secretly trying to inject him with a "harmful substance." Prosecutors had also wanted to show how Kozeny and Bourke picked up two prostitutes in Russia in 1997, traveled with them aboard Kozeny's private plane to Baku, Azerbaijan, then back to Moscow. See our post The Bourke Files: Poison And Prostitutes.
  • Bourke can present a forensic accountant as part of his effort to interpret Kozeny's financial transactions for the jury. He's maintained that he invested with Kozeny only after lawyers advised him the deal didn't violate any laws. But soon after investing, he said, he suspected illegal behavior and became a whistleblower. He testified before a state grand jury as one of Kozeny's victims. In 2003, New York prosecutors charged Kozeny with fraud for keeping $182 million of his investors' money. See our post Lies Kickbacks And Other Crimes.
  • Kozeny's Swiss lawyer Hans Bodmer can be cross-examined by the defense about his former clients. He created the corporate entities and trust accounts Kozeny used to make his investments in Azerbaijan. Bodmer was indicted by a New York federal grand jury in August 2003 on single counts of conspiracy to violate the FCPA and to launder money. He eventually pleaded guilty to the money-laundering charge. Bourke's lawyers have argued that Bodmer also helped Kozeny pay kickbacks to Clayton Lewis and defraud other investors. See Lies Kickbacks And Other Crimes.
  • Prosecutors can offer a witness to testify about Azeri corruption in general (that would be Rajan Menon) and about Kozeny in particular. The government wants to show that Bourke should have been on notice of the likelihood of bribery and wouldn't have invested in a place like Azerbaijan unless he knew the fix was in. See our post Bourke v. The Professor.
Three government witnesses -- Thomas Farrell, Clayton Lewis and Hans Bodmer -- have all pleaded guilty to federal felony offenses related to the case. They'll be sentenced after they testify against Bourke. Until then, they're under the supervision of the U.S. Probation and Pretrial Services System. Among other things, that agency -- part of the U.S. federal courts -- prepares all pre-sentencing reports.

The "credibility, motive and bias" of the three cooperating witnesses will be an issue at the trial, Judge Scheindlin said. She ordered Pretrial Services to deliver their files on Farrell, Lewis and Bodmer to her courtroom "forthwith." She presumably wants the files on hand to make sure the prosecution has disclosed to Bourke everything pertinent about the three convicted witnesses and the circumstances of their testimony.

Judge Scheindlin has allotted six weeks for the trial.

We're grateful for the substantial help we've had from a friend in New York City for this and other posts about U.S. v. Kozeny.

Read all our posts about U.S. v. Kozeny and the prosecution of Frederic Bourke here.
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Tuesday
May262009

Resignation And Reform In Russia

Most Russians think the battle against corruption is already lost. More than half believe graft is an "unavoidable and permanent fact of life." And 58% say it's impossible to fight against it. The numbers come from a survey released last month by the All-Russia Public Opinion Research Center, reported by RIA Novosti here.

The poll found that 44% of Russians consider the greed and immorality of officials to be the main causes of corruption. And 49% think it would be easier for them to cope with legal and other problems if officials stopped taking bribes.

RIA Novosti said the poll involved 1,600 people in 140 Russian towns and cities on April 4-5 this year.

The poll's findings are reflected by Russia's worsening position on Transparency International's Corruption Perception Index. In 2004 it ranked 90th; it fell to 121st in 2006; and last year it sank to 147th, tied with Bangladesh, Kenya and Syria. The CPI rates countries according to how much corruption is perceived to exist among public officials and politicians. It's a composite index -- a poll of polls -- drawing on corruption-related data from expert and business surveys by at least three third-party sources for each country.

Despite the gloom among the populace, Russia's president Dmitry Medvedev is still targeting public sleaze. He wants to change the culture. "We must create incentives for legally acceptable behavior through the help of regulatory documents, the media, and as a result of work by civil society institutions," he said recently. "And corruption must be not only illegal, it must become improper. This is probably the most difficult thing."

Medvedev, 43, has been Russia's president for just over a year. He campaigned as a reformer and on the first anniversary of his inauguration vowed to take personal control of the government's anti-corruption efforts.

Part of his plan requires public officials to declare their income and assets. That includes the prime minister and his cabinet, military officers, customs officials, judges and police. Medvedev's tax declaration published on the Kremlin's official website put his 2008 income at 4.14 million rubles ($141,000). He held about 2.8 million rubles ($90,000) in nine bank accounts. His wife Svetlana has about 135,000 rubles ($4,350) in various bank accounts. Together they own a 3,000 sq ft apartment in Moscow and a small undeveloped lot.

See the Kremlin's April 6, 2009 release here (with links to further disclosures).
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Monday
May252009

Ribadu Talks About Corruption

By the fourth and final year of Nuhu Ribadu's time as chief graft-buster in Nigeria, his Economic and Financial Crimes Commission had secured convictions in over 275 cases. "It was modest but revolutionary," he said last week, "especially since the convictions were from cases against high‐ranking officials such as the leadership of the Nigeria Police, a number of state governors, ministers, legislators and top bureaucrats."

Ribadu was making enemies, of course. Lots of them. He was fired in 2007. Then came two assassination attempts. So he fled to Britain, where he's now a visiting fellow at St. Anthony’s College, Oxford.

Testifying last week in Washington before the House Financial Services Committee, he asked Congress to expand the Foreign Corrupt Practices Act -- "to bite both givers and takers of bribes." He argued for eliminating safe havens and secret bank accounts. He pressed for public programs to promote investigative journalism and transparency. Above all, he said, international cooperation is the key. "In a globalized and networked world, we all need to believe that the fight against corruption must assume a transborder dimension."

Ribadu cited these examples of the problem:

  • The African Union has reported that corruption drains the region of some $140 billion a year, which is about 25% of the continent's official GDP.
  • In Nigeria, one leader, General Sani Abacha, is believed to have taken for himself between $5–6 billion and invested most of it in the western world.
  • Joshua Dariye, Governor of Nigeria's Plateau State, was found by the London Metropolitan Police to operate 25 bank accounts in the U.K. He used various fronts to buy expensive real estate in a number of western countries.
  • D.S.P. Alamieyeseigha, governor of oil rich Bayelsa State, had four properties in London valued at about £10 million, plus another in Cape Town valued at $1.2 million. £1 million cash was found in his bedroom at his apartment in London. £2 million was restrained at the Royal Bank of Scotland in London and over $240 million in Nigeria. This is in addition to bank accounts traced to Cyprus, Denmark, USA and the Bahamas.
  • Between 1960 and 1999, Nigerian officials had stolen or wasted more than $440 billion. That is six times the Marshall Plan, the total sum needed to rebuild a devastated Europe in the aftermath of the Second World War.
  • An estimated $20 billion leaves Africa annually through the illicit export of money extorted from development loan contracts. The money is deposited in overseas banks by a network of politicians, civil servants and businessmen. This figure is now roughly equal to the entire amount of aid from the U.S. to Sub‐Saharan Africa every year.
What's the human cost of all the sleaze? This outflow, Ribadu said, is not just abstract numbers: it translates to the concrete reality of kids who cannot be put in schools, who will never learn to read, because there are no classrooms; mothers who die in childbirth because the money for maternity care never made it to the hospitals; tens of thousands who die because there are no drugs or vaccines in hospitals; no roads to move produce from farms to markets or enable a thriving economy; no jobs for young school graduates or even ordinary workers; and no security for anyone because the money has been stolen and shipped out.

Download a copy of Nuhu Ribadu's May 19, 2009 testimony before the House Financial Services Committee, "Capital Loss and Corruption: The Example of Nigeria Testimony" here.

The Washington Post ran a nice interview with Ribadu on Sunday here.

Special thanks to a friend of The FCPA Blog for helping assemble this post.
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Thursday
May212009

The Quiet Revolution

Here's some news you don't hear every day -- in fact, no one's heard it for the last 367 years: Britain's House of Lords this week suspended two of its members because of corruption. It's the first time a Lord has been barred since 1642.

Lord Taylor of Blackburn, a peer since 1978, and Lord Truscott, who joined the upper house five years ago, agreed to put a loophole in a new tax law in exchange for a promise of cash payments. The bribers, it turned out, were undercover reporters from The Sunday Times. Two others, Lord Moonie and Lord Snape, were also investigated. Both were cleared. But as a result of evidence found during the investigation, they were invited to apologize for "inappropriate attitudes" toward the rules.

The House of Lords Sub-Committee on Interests said Lord Truscott "was advertising his power and willingness to influence parliament in order for substantial financial inducement." He called that verdict "outrageous and slanderous." Lord Taylor said he knew the journalists were running a sting operation and that he made "increasingly extravagant and outlandish claims in an effort to flush out the truth." The ethics committee rejected his defense. Prosecutors said they don't plan to bring criminal charges.

Neither of the Lords actually took any cash. But the internal ethics panel found that they violated their Code of Conduct. It requires members to "always act on their personal honor." The suspensions will last six months -- until the start of Parliament's next session in November; Lords can be permanently removed only by the Queen and she's not expected to take any action.

Over in the House of Commons, meanwhile, the odorous expense-account scandal cost the speaker, Michael Martin, his job, following a no confidence vote. It's also been awhile since the First Commoner of the Land was treated that way -- about 300 years.

The expense account abuses were discovered through the persistence of an American reporter, Heather Brooke. She kept asking for the information under the U.K.'s freedom of information act until she finally received it.

The Daily Telegraph, though, broke the story and has run with it. The staid broadsheet even launched a glitzy website dedicated to the scandal, complete with links for best excuses ("The garden came with the house. It was in a totally derelict state and had not been touched in 30 years...") and the 20 most bizarre claims (ginger crinkle biscuits, 67p; ice cube tray, £1.50).

The Guardian's Alastair Harper said that with scandals now raging in both Houses of Parliament, he and other Britons are having to "ration our disgust" between them. About the Lords' debacle, he said:

For my money, it is Lord Taylor who has become the perfect villain. There he was, trying to look terribly confused over the proceedings, feeling rather persecuted, cocking his head in embarrassed befuddlement like a dim beagle. If you've heard of Junior Soprano you'll know the role – the old mafia don, caught 20 years too late, pretending he was too simple, too frail to have been capable of all these awful things the FBI are accusing him of. At the same time he made the ludicrous argument that he knew exactly what the journalists were up to and was turning the tables on them. In order to, well, make himself look exactly like a corrupt peer. And no one can deny that he played the role to perfection, saying all the things a corrupt peer would do right up until when the story came out. What a masterplan.
And the AP's Gregory Katz said: Few imagined that every lawmaker was scrupulously honest and frugal with the public purse, but the flagrant greed of many has provoked public demands for wholesale change. Some in Parliament are calling it the "Quiet Revolution" - a surge of anger forcing lawmakers to consider relinquishing power they've had for centuries.

We're living in amazing times.
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Wednesday
May202009

Bourke v. The Professor

When it's a bit of a snoozer around here, we know what to do -- take a peek at the docket in U.S. v. Kozeny. There's plenty happening there these days. And the latest is a pleading from Frederic Bourke's lawyers that argues why the man to the left, Rajan Menon, PhD, should be barred from testifying as an expert witness for the prosecution at Bourke's trial.

Dr. Menon is the Monroe J. Rathbone Professor of International Relations at Lehigh University. His bio is here. He's a serious scholar -- big thinker, prodigious author, polished speaker, and renowned expert on the Caspian Region. There's no doubt, in other words, that the jury would find his testimony fascinating. And that, according to Bourke's legal team, is exactly why the judge should keep the professor out of the courtroom.

Although Viktor Kozeny, for whom the case is named, is on the lamb in the Bahamas, his co-defendant Bourke will go on trial in New York on June 1. Federal prosecutors say Bourke violated the Foreign Corrupt Practices Act by investing in Kozeny's attempted take-over of Azerbaijan's state oil company, Socar, despite knowing Kozeny planned to bribe Azeri officials to get the deal done. Bourke, 62, faces up to 35 years in prison on the FCPA charges, money laundering and lying to federal investigators.

Coming back to Professor Menon, the feds say his testimony, among other things, would cover:

  • the political careers of Azerbaijan's rulers, Heydar and Ilham Aliyev;
  • American and other foreign policy interests in Azerbaijan;
  • geopolitical and economic concerns in American policy toward Azerbaijan, particularly its oil resources and its conflict with Armenia; and
  • the problems of instability . . . and deprivation of human rights and civil liberties in Azerbaijan.
Interesting stuff for sure. But as Bourke's lawyers argue, what have those topics got to do with the charges against their client?

Nothing, according to the defense, except to put Bourke in a bad light and confuse the heck out of the jury. Indeed, they argue, several subjects have no conceivable purpose other than to inflame and prejudice the jury by painting the ruling Azeri regime as oppressive and abusive, and suggesting that anybody who sought to deal with them—such as Mr. Bourke—must himself be a bad actor.

The government's idea might be to show that Bourke should have been on notice of the likelihood of bribery. And that he wouldn't have invested in a place like Azerbaijan unless he knew the fix was in. Even then, the defense says, evidence showing the ruling Azeri regime as a "a tinpot dictatorship that abuses its citizens, harasses its neighbors, and stands against the interests of the United States" carries too much risk of ruining Bourke's right to a fair trial.

And anyway, they argue, generalized evidence of corruption is irrelevant. It only matters if the prosecution can also show that Bourke actually knew about the same evidence when he was deciding to invest with Kozeny. The real issues, they remind the court, are whether Bourke acted "corruptly" and "willfully." If the government's expert testimony doesn't shed light on those elements of his alleged FCPA offense, there's no point in hearing it.

Now it's up to Judge Shira Scheindlin to decide who's right, and whether to give Professor Menon a chance to talk to the jury inside her Manhattan courtroom.

Download a copy of the May 18, 2009 Memorandum of Law in Support of Bourke's Motion In Limine to Exclude the Testimony of Rajan Menon here.

Read all our posts about U.S. v. Kozeny and the prosecution of Frederic Bourke here.
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Tuesday
May192009

Halliburton And KBR In Class Action

Plaintiffs lawyers have filed a state derivative class action suit against some of the officers and directors of Halliburton and its one-time subsidiary, KBR. The suit in Houston alleges all sorts of malfeasance -- including the Nigerian bribery that led to the companies' $579 million settlements of Foreign Corrupt Practices Act offenses in February this year. As the AmLaw's Litigation Daily put it, the defendants are accused of "everything from overbilling to human trafficking to covering up a gang rape."

There's no private right of action under the FCPA so private litigants seeking relief have to resort to other causes of action -- such as common law fraud, RICO, securities law violations or, as in this case, breach of fiduciary duties.

Why did the plaintiffs file their suit in state court? We're not sure, but a case decided last year could be part of the reason. In Glazer Capital Management v. Magistri, the Ninth Circuit raised the bar for federal class-action plaintiffs in FCPA-related litigation. The complaint against some of the officers of InVision Technologies under securities laws, the court said, didn't plead facts "that would either directly or indirectly give rise to a strong inference of scienter on the part of those officers responsible for making the false statements" about FCPA compliance in its disclosures. See our post, More Hurdles For Private Litigants.

The plaintiffs here allege that some of Halliburton's and KBR's officers and directors -- including former Chevron Corp. CEO Kenneth Derr and Robert Crandall, the former chairman of American Airlines -- breached their fiduciary duty to provide oversight, unleashing a corporate “reign of terror.” The complaint says: Under defendants’ watch, and supposedly under their control and supervision, the companies were permitted to engage in conduct so notorious that the name "Halliburton" has become virtually synonymous with "corruption.”

The named plaintiff in the suit is the Policemen and Firemen Retirement System of the City of Detroit pension fund.

Download a copy of the May 14, 2009 complaint in Policemen and Firemen Retirement System of the City of Detroit v. Cornelison here.
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Monday
May182009

Second Chances And More

What a difference a year or so makes. In December 2007, Lucent Technologies Inc. -- which became part of Alcatel SA in November 2006 -- settled Foreign Corrupt Practices Act charges. It had illegally paid millions of dollars for Chinese officials to take more than 300 trips to the U.S., Europe and elsewhere. They were supposed to be business missions but ended up being junkets -- "sightseeing, entertainment and leisure." Lucent paid $2.5 million to resolve the offenses.

But last month, Alcatel-Lucent signed agreements in Washington, D.C. worth $1.7 billion with China Mobile and China Telecom. The company said the agreements are the first of many that will help Chinese companies roll out 3G technology.

We've said before that we believe in corporate redemption and second chances. It looks like Alcatel-Lucent is making the most of its freshly cleaned slate. The winners will be its stakeholders, Chinese partners, and the Chinese people who'll benefit from upgraded technology. (And we like its nifty 3D logo, above.)

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Corruption in Iraq is so bad that it's blocking the country's recovery. The New York Times' Sam Dagher wrote a great story about it (here). Here's how he started:

Iraq’s main anticorruption watchdog has no shortage of cases, as its new report makes clear: embezzlement of $80 million; tampering with government tea imports; the theft of 50 Italian-made Beretta pistols; procuring forged Ph.D.’s; and scores of other crimes.

The real problem is the difficulty of prosecuting people for corruption, which is so widespread that it has become one of the main obstacles to stability and progress in Iraq, according to Iraqi and American officials. Among the barriers, the officials say, are laws that give ministers the right to pardon offenders, as well as partisan and sectarian interference, pressure, infighting, vendettas, blackmail and death threats.

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The expense-account scandal in the British Parliament sure is . . . grubby. Petty corruption always looks that way. And that goes for FCPA-compliant "facilitating payments" too.

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Mahatma Gandhi's 1948 message about graft in India is universal:

Corruption will go when the large number of persons given unworthily to it realize that the nation does not exist for them to exploit but that they exist to serve the nation. This requires morals, and extreme vigilance on the part of those who are free of the taint. Indifference will be criminal…
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Our friends at Trace International sent us "Toxic Transactions: Bribery, Extortion and the High Price of Bad Business," their hour-long anti-bribery training video. The interviews with current and former prosecutors and others make one thing clear -- those who pay bribes are likely to be caught and punished, with jail a real possibility. So compliance is the only option that makes sense. Great message. Congratulations to Alexandra Wrage and Trace. Clips from the video can be seen here.

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The FCPA has been around for more than 30 years now and, as Trace's video shows, people are getting better at talking about it. That includes those from government, private practice and corporations. So the subject seems a lot less mysterious than it used to and more accessible. That's good news. It's also a gentle plug for the books at the right -- Bribery Abroad and the newly released Bribery Everywhere (both are in stock and can be ordered now). Anyway, we're glad people are more comfortable these days talking about the FCPA in a way that's less formal and not so legalistic.
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Sunday
May172009

Guilty Pleas In Haiti Bribery Case

Two Florida men have admitted bribing employees of Haiti's state-owned telephone company in return for better rates for Miami-based communications firms.

Juan Diaz, 51, of Miami, pleaded guilty Friday to a one-count criminal information. He was charged with violating the Foreign Corrupt Practices Act by conspiring to make corrupt payments to officials from Telecommunications D'Haiti. He paid and concealed $1,028,851 in bribes while acting as an intermediary for three private telecommunications companies.

Antonio Perez, 51, of Miami, the former controller of one of the U.S. telecos, pleaded guilty on April 27, 2009, to a one-count information charging him with conspiring to bribe officials at Telecommunications D'Haiti. Perez arranged bribes of $674,193 to the Haitian officials while he worked at the company from March 1998 to January 2002.

The government said Diaz and Perez admitted they conspired to make "side payments" through a shell company belonging to Diaz. The bribes went to Telecommunications D'Haiti's ex-director general and ex-director of international relations.

Diaz and Perez each face up to five years in prison and a fine of the greater of $250,000 or twice the gross gain produced by their bribes. The government said its investigation is ongoing.

The Justice Department hasn't released the names of the U.S. companies involved in the case. In late April, Latin Node Inc., another privately held Florida corporation in the telecommunications business, pleaded guilty to violating the Foreign Corrupt Practices Act in connection with improper payments in Honduras and Yemen. Latinode agreed to pay a $2 million fine and to cooperate with investigators in the U.S. and other countries.

Download a copy of the DOJ's May 15, 2009 release here.

Download a copy of the April 22, 2009 criminal information against Juan Diaz here.

Download a copy of the April 22, 2009 criminal information against Antonio Perez here.
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Thursday
May142009

Graft Allegations Against MAN

Prosecutors in Munich think German truck-maker MAN AG paid bribes to customers between 2002 and 2005 of around €14 million to boost sales. According to recent reports (here), some of the alleged payments inside and outside Germany were concealed by being routed through bank accounts of relatives and friends of MAN employees.

MAN is Germany's second largest truck, bus and diesel-engine manufacturer behind Daimler AG. It reported sales in 2008 of €14.9 billion and has 51,000 employees worldwide. MAN is listed on the German DAX and its largest shareholder is Volkswagen.

Prosecutors said they're investigating "well over 100" people alleged to be involved -- including both marketing staff at MAN and customers suspected of having taken bribes. Reports said about 300 police personnel across Germany are now involved in the investigation. So far, two people have been arrested but one was released.

MAN itself has reacted to the allegations -- which are sensitive in Germany following resolution late last year of Siemens' global corruption scandal -- by announcing its own internal investigation. It said in press releases last week (here and here) that it has hired "an external auditing firm to fully clear up suspicion of improper commission payments alongside its own auditing department." MAN said it has already fired some employees found to be involved in the graft and will share all of its findings with prosecutors. It said it may also sue ex-employees found to have violated the law.

Prosecutors apparently started their investigation after a tip from tax authorities. Reports said MAN's top management hasn't yet been implicated.

In a public statement, MAN said: Compulsory conduct guidelines and clear rules that have been further developed in recent years apply to all employees at MAN. They forbid MAN Group employees from conferring benefits of any kind with the aim of obtaining orders or unfair advantages for MAN or other persons. In addition, MAN’s compliance system includes a compliance officer and a steering committee tasked with enforcing the rules, a compliance hotline and two external ombudspersons who employees can also contact anonymously.

U.S. authorities may not have jurisdiction over MAN under the Foreign Corrupt Practices Act. Unlike Siemens, the company has no securities traded on a U.S. exchange and doesn't have any large U.S. operations.

Our thanks to the readers who sent us links to the stories about MAN.

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Some final words about Memorial Day. They're from Oliver Wendell Holmes, Jr., from a talk delivered May 30, 1884 at Keene, New Hampshire (here). In 1861, during his senior year at Harvard, Holmes enlisted in the army. He saw action during the Civil War and was wounded three times -- at Ball's Bluff, Antietam, and Fredericksburg:

Such hearts—ah me, how many!—were stilled twenty years ago; and to us who remain behind is left this day of memories. Every year—in the full tide of spring, at the height of the symphony of flowers and love and life—there comes a pause, and through the silence we hear the lonely pipe of death. Year after year lovers wandering under the apple boughs and through the clover and deep grass are surprised with sudden tears as they see black veiled figures stealing through the morning to a soldier's grave. Year after year the comrades of the dead follow, with public honor, procession and commemorative flags and funeral march—honor and grief from us who stand almost alone, and have seen the best and noblest of our generation pass away.

But grief is not the end of all. I seem to hear the funeral march become a pæan. I see beyond the forest the moving barriers of a hidden column. Our dead brothers still live for us, and bid us think of life, not death—of life to which in their youth they lent the passion and glory of the spring. As I listen, the great chorus of life and joy begins again, and amid the awful orchestra of seen and unseen powers and destinies of good and evil our trumpets sound once more a note of daring, hope, and will.
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Wednesday
May132009

FCPA Defendants Want Less Paper, More Facts

Four former executives of Control Components Inc. indicted under the Foreign Corrupt Practices Act in early April have accused the Justice Department of playing "a game of hide and seek" with its evidence against them. Stuart Carson, his wife Hong "Rose" Carson, Paul Cosgrove and David Edmonds said in a court filing this week that the government has identified only 30 of the 236 illegal payments alleged in the indictment -- not enough for them to plan their defense. That's unfair and unconstitutional, they said.

The former executives were charged with two others in a nine-year conspiracy to win contracts by bribing officials at foreign state-owned companies (see our post here). The indictment alleged bribery "in over thirty countries" with "approximately 236 payments" totaling "approximately $6.85 million" to secure a series of projects that "resulted in net profits to [their employer, CCI] of approximately $46.5 million." In addition to cash, the government said the bribes consisted of "overseas holidays," "extravagant vacations," "lavish sales events," and "expensive gifts."

Prosecutors have turned over to the defendants 33,000 pages of discovery (with more on the way), including 5,000 emails. That sounds like a lot. But Carson and the others said it hardly helps them. The problem, they said, is that the 5,000 pages of emails refer to hundreds of payments to third parties – many more than the 236 payments mentioned in the indictment. If the government's production is a pile of needles, they said, then the relevant ones are apparently mixed in with thousands of look-a-like -- but wholly irrelevant -- needles. That means the defendants must still try to "divine which payments or transactions the government contends are illegal."

During the nine years of the alleged conspiracy, the defendants said, CCI generated over a billion dollars in revenue through transactions involving thousands of different customers and dozens of commissioned sales agents across the globe. So unless the government provides a "simple and straightforward bill of particulars," the defendants will be forced "to travel the world investigating thousands of transactions that occurred over a decade, any one of which might -- or might not -- be at issue in this case. There simply is no legitimate justification for such a result."

What can the government do? According to the defendants, prosecutors have almost certainly prepared a spreadsheet or other summary identifying the payments used to calculate the dollar amounts referred to in the indictment. While it would only "take seconds for the government to print out this summary," the court filing said, the defendants might "never be able to recreate the same list of transactions, no matter how much time and energy they invest in pretrial preparations."

The government, for its part, said it isn't obligated to spoon feed the defendants an advance copy of its case-in-chief or freeze its proof long before trial, preventing further investigation and pretrial preparations.

Stuart Carson, his wife Rose and the others described their predicament this way:

In a case where the government has alleged that the Defendants are facing what are – for all practical purposes – life sentences if they are convicted, the Court should not permit the warped outcome suggested by the prosecution, especially where the government is so clearly in possession of the requested particulars and will bear no burden in sharing the information with the Defendants.
The U.S. district court will decide who's right after a May 18 hearing. The trial itself is scheduled to start June 2, 2009 -- a date that's sure to slip.

Download a copy of the defendants' May 11, 2009 reply in support of defendants' joint motion for bill of particulars here.
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