The FCPA Blog

Included in our 2008 FCPA Enforcement Index among FCPA-related private litigation was a suit called Argo-Tech Corp v. Yamada Corp. We first mentioned it in May 2008 (here). Argo-Tech is a Cleveland, Ohio-based aviation fuel-related equipment manufacturer. It filed suit in the U.S. federal district court in Cleveland against Japan-based defense equipment trader Yamada Corp. and its U.S. subsidiary, claiming Yamada's involvement in a bribery case violated their contract, which therefore should be terminated. At the time of our first post about the case, we didn't have access to the pleadings. We've now seen the suit, and here are some details:

Argo-Tech alleges, among other things, that:

• The distributorship agreement requires Yamada to “ensure that its personnel fully understand the United States Foreign Corrupt Practices Act and any similar local laws as well as Argo-Tech’s policy against giving bribes, kickbacks or any benefits to customer personnel or anyone else (other than normal wages paid full-time sales employees), with respect to business with customers. [Yamada] agrees to obey the letter and spirit of such laws and policies and to provide regular acknowledgements of such compliance as requested. It will also take all steps necessary to ensure compliance by its owners, managers, employees, agents and affiliates and will cooperate fully in any investigation audit of such compliance conducted by or at the request of Argo-Tech. . . .”

• Yamada paid about $900,000 to the Japan - U.S. Center for Peace and Cultural Exchange in an attempt to have Yamada serve as a subcontractor in a project to remove poison gas shells left in Fukuoka Prefecture by the former Japanese military.

• The money came from a slush fund held in a number of bank accounts managed by Yamada’s U.S. subsidiary, Yamada International Corp.

• $400,000 of that money ended up in a bank account of Motonoba Miyazaki, a Yamada executive who has been arrested on suspicion of embezzlement and bribery.

• Japanese prosecutors are looking into the payment as part of their expanding investigation into Miyazaki and former Vice Defense Minister Takemasa Moriya, who has been arrested on suspicion of receiving bribes.

• In December 2007, General Electric suspended its agreements with Yamada as the representative for the sale of the C-X engine -- the next-generation cargo transport aircraft.
  

In reply, Yamada denied most of the allegations. It says in 1990 it helped Argo-Tech raise $150 million in financing and invested tens of millions of dollars in the company. In return, it says, it was given a 50-year contract to distribute Argo-Tech's products. The agreement doesn't expire until 2044. But, it says, in 2007 Eaton Corporation bought Argo-Tech and set out to consolidate distribution rights of Argo-Tech's products. When a former employee of Yamada was named in a bribery story, it says, "Eaton seized upon the allegations in an attempt to terminate the agreement . . . ."

Private parties such as Argo-Tech have no right of action under the Foreign Corrupt Practices Act (see our post here). Only the Justice Department and the Securities and Exchange Commission can enforce the FCPA. Private claims asserting facts that, if true, would violate the antibribery provisions are usually based on the Racketeer Influenced and Corrupt Organizations Act (RICO), common-law fraud, breach of fiduciary duty or, as in this case, breach of contract.

According to the docket, the case is still in discovery and the parties have not had settlement talks.

Download the complaint in Argo-Tech Corp v. Yamada Corp. here and Yamada's counter claim here.
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Eleven organizations were named in Foreign Corrupt Practices Act enforcement actions during 2008 by the Justice Department, the Securities and Exchange Commission, or both. All of the companies on our list resolved their enforcement actions, except privately-held Nexus Technologies Inc.

The twenty-six individuals we've listed were charged with new FCPA offenses this year, or they settled enforcement actions or had charges amended, reinstated or affirmed in rehearings or on appeal. In the case of David Kay and Douglas Murphy, the U.S. Supreme Court refused to review their FCPA convictions. In U.S. v. Kozeny the prosecution against Frederic Bourke is going ahead, while his co-defendant Victor Kozeny has stayed in the Bahamas fighting extradition to the United States and another co-defendant, David Pinkerton, was dismissed from the case.

During the year, parties acting as private litigants filed five suits in U.S. federal court alleging behavior by defendants that, if true, would likely violate the FCPA. Our list of private litigation doesn't include the FCPA-related class action lawsuits that Kevin LaCroix has written about at the D&O Diary (here).

The pace of FCPA enforcement during 2008 was uneven. There were no enforcement actions against individuals until April. And during the first four months of the year -- while Congress investigated how corporate compliance monitors are appointed and paid -- just a couple of actions against organizations were announced.

There are now around 50 pending FCPA investigations at the DOJ and SEC, according to most estimates, with some investigations involving up to a dozen companies from single-industry segments, such as oil and gas services and orthopedic device makers.

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Organizations (countries involved) / U.S. enforcement agencies / financial penalties including fines, disgorgement and interest:

• Fiat (Iraq, U.N. oil for food program) / DOJ, SEC / $17.7 million

• Siemens (Iraq, U.N. oil for food program) (Other violations related to Argentina, Bangladesh, Venezuela, Iraq, Israel, Nigeria, Vietnam, China, Russia, Mexico) / DOJ, SEC / $800 million

• Aibel (Nigeria) / DOJ / $4.2 million

• AGA Medical Corp. (China) / DOJ / $2 million

• Con-Way Inc. (Philippines) / SEC / $300,000

• Faro Technologies (China) / DOJ, SEC / $2.95 million

• Willbros Group (Bolivia, Ecuador, Nigeria) / DOJ, SEC / $32.3 million

• AB Volvo (Iraq, U.N. oil for food program) / DOJ, SEC / $19.6 million

• Flowserve Corp. (Iraq, U.N. oil for food program) / DOJ, SEC / $10.5 million

• Westinghouse Air Brake Technologies Corporation (India) (DOJ, SEC) $675,000

• Nexus Technologies Inc. (Vietnam) / DOJ / Pending

Individuals:

• Misao Hioki (Bridgestone) Two years in prison, $80,000 fine

• Paul G. Novak (Willbros) Trial pending

• James K. Tillery (Willbros) Trial pending

• Shu Quan-Sheng (rocket scientist / AMAC International Inc) Guilty plea, sentencing pending

• William J. Jefferson (former member, U.S. House of Representatives) Trial pending

• Frederic Bourke (U.S. v. Kozeny) Trial pending

• Gerald Green (Hollywood movie producer) Trial pending

• Patricia Green (Hollywood movie producer) Trial pending

• Richard John Novak (diploma mill syndicate) Three-years probation, three hundred hours of community service

• Christian Sapsizian (Alcatel) Thirty months in prison, three-years supervised release, forteiture of $261,500

• Jason Edward Steph (Willbros) Guilty plea, sentencing pending

• Gerald Jansen (Willbros) $30,000 civil penalty

• Lloyd Biggers (Willbros) No financial penalty

• Carlos Galvez (Willbros) $35,000 civil penalty

• David Kay (American Rice) Thirty-seven months in prison

• Douglas Murphy (American Rice) Sixty-three months in prison

• Nam Nguyen (Nexus Technologies Inc) Trial pending

• Joseph Lukas (Nexus Technologies Inc) Trial pending

• Kim Nguyen (Nexus Technologies Inc) Trial pending

• An Nguyen (Nexus Technologies Inc) Trial pending

• Albert “Jack” Stanley (KBR) Eighty-four months in prison (subject to reduction) and $11 million restitution

• Martin Eric Self (Pacific Consolidated Industries) Guilty plea, sentencing pending

• Roger Michael Young (ITXC Corporation) Five-years probation, three-months home confinement, three months in a community confinement center, $7,000 fine

• Yaw Osei Amoako (ITXC Corporation) Eighteen months in prison, two-years of supervised release, $7,500 fine

• Steven J. Ott (ITXC Corporation) Five-years probation, six months home confinement, six months in a community confinement center, $10,000 fine

• Ramendra Basu (The World Bank) Fifteen months in prison, two-years supervised released, fifty hours of community service

Private litigants:

• Supreme Fuels v. Harry Sargeant III et al

• Republic of Iraq v. ABB et al

• Grynberg v. BP et al

• Aluminum Bahrain BSC ("Alba") v. Alcoa et al

• Argo-Tech Corp v. Yamada Corp.

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If we've missed any names that should be included in the 2008 index, please let us know.
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