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Editors

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

Tuesday
Jun092009

Liberia's Graft-Busting Leader

We've never heard of an African head of state asking the U.S. to deny visas to individuals suspected of corruption. Until now, that is. It happened on Friday when Liberia's president, Ellen Johnson Sirleaf (left), "pleaded with the Government of the United States of America not to give U.S. visas or provide safe havens for Liberians who commit fraud and other acts of corruption in Liberia." Her request came during the groundbreaking for the new U.S. embassy in Monrovia.

There's a report from AllAfrica.com here and another on the president's own snazzy website here. For the record, the U.S. State Department is authorized to deny visas to foreign kleptocrats and their families through Presidential Proclamation 7750. See our post Proclamation 7750 Unwrapped.

President Johnson Sirleaf -- or "Ellen," as the African headline writers like to call her -- probably angered a lot of corrupt officials in Liberia and across the African continent with her remarks. She does that a lot. Which is why she went to jail once and was forced into exile several times. But as a champion of the rule of law and an anti-corruption crusader, she's never wavered.

Now 71, the one-time Citibanker became Liberia's minister of finance in 1979. After a military coup in 1980, she served as president of the Liberian Bank for Development and Investment and was an initial member of the World Bank's Council of African Advisors.

In 1985, her bio says, she ran for the Liberian senate. But speaking out against the Samuel Doe regime resulted first in house arrest and eventually in a ten-year jail sentence. After a few months in prison she managed to flee to the U.S. She was then appointed to the U.N. as an Assistant Secretary General. In 1997, she returned to Liberia to run for president, finishing second in a field of thirteen.

In 2003, after Charles Taylor was sent into exile, the transitional government appointed Johnson Sirleaf to chair the country's anti-corruption agency. Then in 2005, she won the presidency. Since her inaguration in January 2006, she's been working to restore the rule of law and rebuild confidence at home and abroad. America's decision to build a new embassy there is one sign she's succeeding.

Johnson Sirleaf holds a masters in public administration from Harvard's Kennedy School. Two years ago in Washington, after she spoke to a joint session of Congress, she was awarded the Presidential Medal of Freedom "in recognition for her tireless efforts to make Liberia a post-conflict success story."

* * *
From Frederic Bourke's Trial. The Litigation Daily's Andrew Longstreth dropped by the federal courthouse in Manhattan this week. His report is here. He heard some cross-examination on Monday of the government's key witness, Thomas Farrell, who worked for Viktor Kozeny in Azerbaijan. Farrell had testified on direct that he and Bourke talked about Kozeny's plan to bribe Azeri officials. Longstreth said:

Farrell, who sports a handlebar mustache and goatee, has some major credibility issues. For one, in 2003 he pled guilty to one count of violating the FCPA and to another count of conspiring to violate the FCPA. . . . But Farrell stood up to the pressure [of cross examination] pretty well. He seemed to connect with the jury, often looking directly at jurors. "Sir, I went into the discussions with the government knowing that I had to tell the truth about what happened," Farrell said at one point. "I didn't think I had to point fingers."
Farrell is facing a maximum of ten years in prison but said he's hoping for probation. "I have absolutely no control of that nor does the government," he testified.

Read all our posts about U.S. v. Kozeny and the prosecution of Frederic Bourke here.
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Monday
Jun082009

Big Day For The FCPA

History will be made with today's opening gavel in William Jefferson's federal trial. It will mark the first time a former member of congress has been prosecuted under the Foreign Corrupt Practices Act, and the only time the country has seen two FCPA trials staged simultaneously -- Jefferson's in Alexandria, Virginia and Frederic Bourke's in New York City.

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's trial started last week. He's accused of investing in a deal in Azerbaijan that he knew involved paying bribes to officials there. He faces up to 30 years in jail for violating the FCPA, money laundering and lying to federal investigators.

Jefferson's case caused a stir when it started in 2005. The FBI's raid on his congressional office was the first one ever. The Washington D.C. Circuit Court of Appeals said the raid was constitutional but the way the FBI reviewed Jefferson's documents wasn't. The tainted evidence can't be used at his trial. It was also the first time U.S. law enforcement agencies had raided the U.S. residence of an elected foreign official -- a home built in Maryland by Nigeria's then vice president, Atiku Abubakar, for his wife Jennifer Douglas.

For Jefferson and his family, these are terrible times. His brother Mose Jefferson, his sister Betty Jefferson, and his niece Angela Coleman, have all pleaded not guilty to federal corruption charges in Louisiana, where they helped run the family's political machine. On top of that, Jefferson's other sister, Brenda Jefferson Foster, has already pleaded guilty in the Louisiana case and will testify against her relatives. A judge has told the other indicted family members not to contact her. Their trial is scheduled to start in August.

Bruce Alpert at The Times-Picayune has a nice run-up to Jefferson's trial here.

Read all our posts about William Jefferson here.

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

* * *
Resources that work. The James Mintz Group's latest newsletter has a nifty FCPA map. It marks all the countries named in enforcement actions during the past 10 years. Industry segments are depicted, along with the size of the financial penalties imposed. It reveals in a glance compliance red flags around the globe. The newsletter (with the fold-out FCPA map at pages 3 and 4) can be downloaded here.
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Sunday
Jun072009

More Disclosure, Less Graft

CoST -- the Construction Sector Transparency Initiative --- has a simple aim: to disclose in real-time critical information about public-sector construction projects. Why? To prevent corruption, which can't live in the sunshine.

One of CoST's backers is the World Bank. Another is the U.K.'s Department for International Development, which provided a £4.4 million grant for a two-year pilot program that started in May 2008. It's being run by PricewaterhouseCoopers (UK), with help from the London-based civil society group Engineers Against Poverty, the U.K. Institute of Civil Engineers, and TIRI, an anti-corruption NGO. Some of the countries giving CoST a try are Vietnam, Tanzania, Zambia, the Philippines, Ethiopia and Malawi.

When governments enroll a project in CoST, important things happen. First, the sponsoring agency consents to a rigorous series of external audits. It also commits to disclose to the public information directed at some basic questions: how did the idea for the project originate and does it make sense ("do we need a bridge that doesn't go anywhere?"); who evaluated the project to make sure it can do what it's supposed to; and what's changed since the original tender, like the scope and price?

The idea is to let the public compare what was planned to what was delivered, and to ask hard questions at each stage. That accountability, CoST says, should "reduce wasted opportunities and expenditure." We agree.

It sounds a bit fuzzy but it's not. The CoST oversight team assembled for each project shows up with management go-bys -- templates, forms and schedules that identify the critical information to be disclosed, and how and when to do that. And CoST helps clients collect feedback and put it to use.

The way CoST sees it, public disclosure is one of the best anti-corruption tools. It's simple and cheap, and it produces lots of winners. Government sponsors, for example, have a better chance of getting what they pay for. Construction companies are more likely to keep their noses clean and reputations intact. They also enjoy a more level playing field. Civil society groups and the citizens they represent are happy to see more integrity in government. And lenders are reassured about the credit-worthiness of the project, knowing it's transparent.

CoST's website is here. Before visiting, though, be warned. The text sounds like a grant proposal, and probably is. Too bad, because the ideas behind CoST are good ones and deserve a warm-blooded presentation. Let's hope for a make-over sometime soon so the message isn't lost under all that jargon.

* * *
From Frederic Bourke's trial. In a story on Bloomberg's subscription news wire, David Glovin reports Friday's testimony, and it wasn't good for Bourke. Glovin's lead: Connecticut entrepreneur Frederic Bourke twice asked whether accused con man Viktor Kozeny should pay more in bribes so the government of Azerbaijan would sell its state oil company, a witness testified.

The witness, Thomas Farrell, was one of Kozeny's top aides in Azerbaijan. Bourke, he said, asked, "Has Viktor given them enough money?” Farrell said he responded, “I think so. They seem happy.”

Frederic Bourke, 63, co-founder of handbag-maker Dooney & Bourke, is on trial in federal court in Manhattan for violating the Foreign Corrupt Practices Act, money laundering and lying to federal investigators. Prosecutors allege he invested with Kozeny in a 1998 privatization deal in Azerbaijan, knowing Kozeny planned to bribe the country's leaders. Bourke faces 30 years in prison if convicted. Kozeny himself has also been charged but he's a fugitive living in the Bahamas. The trial is expected to last a month or more.

Read David Glovin's prior reports on the trial for Bloomberg here.

Read all our posts about U.S. v. Kozeny and the prosecution of Frederic Bourke here.
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Thursday
Jun042009

Defense Contractor, Ex-Exec Settle Charges

The Securities and Exchange Commission last week filed settled enforcement actions against United Industrial Corporation (UIC), an aerospace and defense systems contractor, and Thomas Wurzel, the former President of UIC's one-time subsidiary, ACL Technologies, Inc.

Wurzel agreed to pay a $35,000 civil penalty; UIC will pay $337,679.42 in disgorgement and prejudgment interest.

The SEC said Wurzel authorized illegal payments to Egyptian Air Force officials through an agent in return for business related to a military aircraft depot in Cairo. The bribes helped UIC's subsidiary ACL win a $5.3 mllion contract with profits of about $267,000. The illegal payments were covered up in ACL's books through false invoices and payments for “equipment and materials” and “marketing services.”

Wurzel and UIC were charged with violating the anti-bribery, books and records and internal controls provisions of the Foreign Corrupt Practices Act; Wurzel also faced aiding and abetting violations. Both defendants also agreed to cease and desist orders.

The SEC said it had jurisdiction because UIC's common shares were listed on the New York Stock Exchange when the offenses occurred in 2001 and 2002. Textron acquired UIC in December 2007.

The Justice Department hasn't announced any criminal enforcement actions against UIC or Wurzel.

The SEC's Litigation Release No. 21063 and Accounting and Auditing Enforcement Release No. 2980, dated May 29, 2009, in Securities and Commission v. Thomas Wurzel, Civil Action No. 09-Civ-01005 (RWR), United States District Court for the District of Columbia, can be viewed here.

A copy of the SEC's cease and desist order against UIC can be downloaded here.

A copy of the SEC's complaint against Thomas Wurzel can be downloaded here.

* * *
From Frederic Bourke's trial. Day four testimony by the government's witness Thomas Farrell, an American living in Russia who helped Kozeny with logistics. He recounted a meeting he, Kozeny and a Chechen had with Ilham Aliyev, then vice president of the state oil company, and Barat Nuriyev, the state property committee's deputy chairman:

“Nuriyev
made very clear very quickly that him and his boss were representing the president of Azerbaijan,” who was then Heidar Aliyev, Farrell testified. “He said it: ‘The family.’ And he also pointed over his shoulder. There was a portrait of the president.” . . . Kozeny offered to give Azeri leaders half the profits after he bought the state oil company at a steep discount and resold it to Westerners for billions of dollars. At a later meeting, Nuriyev demanded two-thirds of Kozeny’s profits from the sale of the oil company, known as Socar, Farrell said.

Bourke didn’t invest with Kozeny until months after the meeting with Nuriyev and denies knowing about the bribery scheme. He says Kozeny stole his $8 million investment.

Selective prosecution? Bourke’s defense lawyer Harold Haddon cross examined John Pulley, Kozeny’s security chief. Pulley admitted investing $410,000 with Kozeny. He wired money to Kozeny’s lawyer, Hans Bodmer, who routed his funds through a shell company Bodmer set up in the British Virgin Islands, just like Bourke. And Pulley, like Bourke, said he didn't know about the bribes. Pulley hasn't been charged in the case.

Read David Glovin's full report from the courtroom on the Bloomberg news wire here.

Read all our posts about U.S. v. Kozeny and the prosecution of Frederic Bourke here.
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Wednesday
Jun032009

Jefferson On Trial, Soon

Former Congressman William J. Jefferson's trial for violating the Foreign Corrupt Practices Act and other federal laws will start on June 9 in Alexandria, Virginia. Judge Tim Ellis this week granted Jefferson a one-week delay. He's charged in a 16-count indictment with FCPA violations, soliciting and accepting bribes, wire fraud, money laundering and obstruction of justice. He could be sentenced to a maximum of 235 years in prison if convicted on all counts.

Jefferson's case is best known for allegations that he hid $90,000 in the freezer at his Washington home. The indictment said it was part of $100,000 provided in August 2005 by the government's cooperating witness. It was supposed to be used to bribe a Nigerian official to steer telephone service-related business to Jefferson's family members. "The cash was separated into $10,000 increments, wrapped in aluminum foil, and concealed inside various frozen food containers," according to prosecutors.

Jefferson's lawyers have said the money "was transmitted to Mr. Jefferson by the government's cooperating witness during the course of the FBI's sting operation so that he would pass it to a foreign government official," the then vice president of Nigeria. "But Mr. Jefferson did not do that. Instead, the marked funds were recovered in his home."

His alleged co-conspirators were Vernon L. Jackson, a Louisville, Ky., businessman, and Brett M. Pfeffer, a former Jefferson congressional staff member. Jackson was sentenced to 87 months in prison after pleading guilty to conspiracy to commit bribery and paying bribes to a public official. Pfeffer was sentenced to 96 months in prison after pleading guilty to conspiracy to commit bribery and aiding and abetting the solicitation of bribes by a member of Congress.

Jefferson had argued last year that except for the two FCPA charges, the grand jury's 16-count indictment violated his rights by relying on evidence protected by the absolute privilege in the Constitution's Speech or Debate Clause (Article I, Section 6, Clause 1). In November, the Fourth Circuit Court of Appeals rejected his arguments. Last month, the Supreme Court refused to hear his appeal, clearing the way for the trial.

Jefferson, 62, lost an election last year for a 10th term in Congress. His district included New Orleans. Before being indicted, he had compiled an outstanding record of public service. He was the first African-American elected to Congress from Louisiana since Reconstruction. He graduated from Southern University A&M College and Harvard Law School, and he also holds an LLM in tax from Georgetown.

He was raised in northeast Louisiana before he moved to New Orleans and rose to power. A great article by Gordon Russell in The Times-Picayune (one of our favorite papers) said this about his childhood:

Life in the Delta during the 1940s wasn't easy: Though the family owned a small farm, the Jefferson children had to pick cotton and the large family was crammed into a five-room house.

In town, racial oppression was rigid, and may have launched [Jefferson's older brother's] flight to Chicago. William Jefferson's recent book, "Dying Is the Easy Part" -- which is billed as fiction but reads like an autobiography -- features a chapter that centers on an older brother of the narrator.

The brother is insulted by a group of racist white men. One throws a pool ball at him but misses, breaking a mirror. Though he is handy with his fists, the brother knows fighting isn't an option, and he runs home.

Nonetheless, that night, deputies come to his house to arrest him. The sheriff tells his mother: "Your boy can't be fighting white boys in this parish. If he wants to fight with white boys, then, by God, he's gotta go up North."

His mother, defiant, refuses to turn over her son. "He's gotta go up North to keep somebody from whipping his ass?" she asks rhetorically. "He ain't going nowhere."

* * *
From Frederic Bourke's trial. Here's the lead from David Glovin's account of the jaw-dropping testimony on day three: Viktor Kozeny’s security chief told a jury how the Czech expatriate brought ex-Senator George Mitchell into a deal to buy Azerbaijan’s oil company, spent $96,000 on a dinner for six, and befriended powerful American investors. There's lots more here.

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

* * *
aimeebarnes.com New York-based writer and business strategist Aimee Barnes keeps an eye on China-related developments in her blog. She asked us about corruption and compliance and has now posted the results. Thanks, Aimee.
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Tuesday
Jun022009

Another FCPA Derivative Suit Is Tossed

For the third time, Baker Hughes has beaten back a derivative suit based on its 2007 settlement of Foreign Corrupt Practices Act violations. It paid $44 million to resolve enforcement actions by the Justice Department and Securities and Exchange Commission related to bribery in Kazakhstan. Since then, plaintiffs have tried to sue in state court once and federal court twice. The latest federal suit in Houston was bounced on procedural grounds. Here's part of a nice report from Andrew Longstreth at AmLaw's Litigation Daily:

You would think that the recent explosion of Justice Department investigations of corporate bribery--which often end with a company admitting to some damaging facts and paying the government a fine--would be good news for plaintiffs lawyers. But in an early test of how Foreign Corrupt Practices Act charges will play in a derivative suit, they've bombed. Last week Houston federal district court judge Vanessa Gilmore adopted a magistrate's recommendation to dismiss a derivative suit against current and former officers and directors of Baker Hughes . . .

The suit had alleged that Baker Hughes directors and officers breached their fiduciary duty by failing to address potential FCPA problems. But the plaintiffs stumbled on a procedural hurdle: They didn't make a demand on the board to file the suit, arguing that it would have been futile. But Judge Gilmore confirmed Magistrate Judge Mary Milloy's finding that plaintiffs failed to show that the Baker board could not impartially evaluate their lawsuit.

In the earlier Baker Hughes federal case, the Fifth Circuit made it a lot harder for pension funds and other trusts to achieve the necessary "complete diversity" needed for federal jurisdiction. U.S. Magistrate Mary Milloy's April 14, 2008 Memorandum and Recommendation on Motion to Dismiss was adopted by Judge Gilmore. The case is called Sheet Metal Workers' National Pension Fund et al v. Chad Deaton et al. A copy of the magistrate's memo can be downloaded here.

And last year, the Ninth Circuit in Glazer Capital Management v. Magistri put another obstacle in the path of plaintiffs. The court raised the "scienter" bar for FCPA-related claims against officers and directors under the federal securities laws. See our post More Hurdles For Private Litigants.

In Texas last month, plaintiffs' lawyers filed a state derivative class action against some of the officers and directors of Halliburton and its one-time subsidiary, KBR. The suit alleges various misconduct -- including the Nigerian bribery that led to the companies' $579 million settlements of Foreign Corrupt Practices Act offenses earlier this year. We speculated that part of the reason the plaintiffs went to state instead of federal court was because of the Magistri holding (which isn't binding in the Fifth Circuit but could be influential). They may also have had the same "complete diversity" problems as the plaintiffs in the earlier Baker Hughes case.

* * *
From Frederic Bourke's trial. A packed Manhattan courtroom. The call to order. Opening statements in the biggest FCPA trial ever. It's about the tape already. The tape Bourke gave to prosecutors. He's talking to fellow investor Dick Friedman and their lawyers. Bourke is worried promoter Viktor Kozeny plans to bribe Azeri officials. From the trial, Bloomberg's David Glovin writes:

The “remarkable tape recording” will show Bourke knew of the bribes and still elected to invest $8 million, Justice Department lawyer Robertson Park told jurors.

“That tape is the best piece of evidence in the case of Mr. Bourke’s innocence,” defense attorney Saskia Jordan said in her opening. It will show Bourke took his concerns about Kozeny to his attorneys so that he wouldn’t break the law, she said.

Read Glovin's report of the opening day action on Bloomberg's newswire here.

Read all our posts about U.S. v. Kozeny and the prosecution of Frederic Bourke here.
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Monday
Jun012009

The Book On Bourke's Judge

Last week we said Judge Shira Scheindlin's preliminary rulings would protect Frederic Bourke's right to a fair trial. That, it turns out, is something she's already known for. Another defendant, John "Junior" Gotti, the alleged New York City mobster, has had three trials in her courtroom since 2005. The charges related to an alleged plot to kidnap Curtis Sliwa, founder of the Guardian Angels, after he slammed the Gotti family on his radio show. All three trials ended in hung juries.

After Junior's third mistrial in 2006, his sister -- celebrity writer and former reality show star Victoria Gotti -- told the New York Daily News, "I will thank our good fortune every day for a judge like Shira Scheindlin. She is the difference between a fair trial and a railroad job. God bless her."

Who is Judge Scheindlin? She was born in 1946 in Washington, D.C. She's been on the U.S. District Court for the Southern District of New York since 1994, when Bill Clinton nominated her to a seat vacated by Louis Freeh, who left to head the FBI. She's a Michigan alum, BA 1967, Columbia MA 1969, and Cornell Law School JD 1975. The Almanac of the Federal Judiciary says: "Scheindlin is known for her intellectual acumen, demanding courtroom demeanor, aggressive interpretations of the law, and expertise in mass torts, electronic discovery, and complex litigation."

She once ruled that the NFL draft violated federal anti-trust law and unjustly blocked players from pursuing their careers. But in April 2004, Supreme Court-nominee Sonia Sotomayor at the Second U.S. Circuit Court of Appeals stayed her decision. Last month Judge Scheindlin decided that claims in a case called In Re South African Apartheid Litigation can proceed, despite objections from the State Department. Companies such as Ford, General Motors and IBM, she said, cannot be held liable for "breadth of harms" committed under apartheid. But claims can be tried where the aider and abettor knows that its actions "will substantially assist the perpetrator in the commission of a crime or tort in violation of the law of nations."

Her best-known decision is Zubulake v. UBS Warburg, a 2003 case that defined a party's obligations to produce electronically stored information. It was partly her whimsical prose that transformed what she called a "relatively routine employment discrimination dispute" into an e-discovery landmark. Here's how her opinion began:

Commenting on the importance of speaking clearly and listening closely, Phillip Roth memorably quipped, “The English language is a form of communication! . . . Words aren’t only bombs and bullets — no, they’re little gifts, containing meanings!” What is true in love is equally true at law: Lawyers and their clients need to communicate clearly and effectively with one another to ensure that litigation proceeds efficiently. When communication between counsel and client breaks down, conversation becomes “just crossfire,” and there are usually casualties.
We don't know how Frederic Bourke will feel at the end of his trial. But there's no doubt about how Junior Gotti felt when he learned last December that Judge Scheindlin would be hearing his case for a fourth time. The headline in the Daily News said: Junior Gotti giddy over 'fair' trial judge.

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

* * *
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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