Judge To DOJ: Your Principal Witness Knows Almost Nothing

Here's what Judge Lynn Hughes, left, said when he ruled in favor of John O'Shea's motion to dismiss the substantive FCPA counts against him.

Charles Duross was there for the DOJ and Joel Androphy for O'Shea.

It happened on January 17 in the U.S. District Court in Houston.

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THE COURT: John O'Shea's Motion for Judgment of Acquittal will be granted.

The problem here is that the principal witness against Mr. O'Shea is [Fernando] Basurto, Jr., who knows almost nothing.

His answers were abstract and vague, generally relating gossip. And as I indicated, even hearsay testimony must be something other than a conclusion.

While the Government does not have to trace a particular dollar to a particular pocket of a particular official, it has to connect the payment to a particular official, that the funds made under his authority to a foreign official, who can be identified in some reasonable way, that is, with no reasonable doubt. . . .

We have considerable non-production on the part of the Government records and people. . . .

The immunity to Basurto, Sr. means he doesn't have to do anything and he can still take the Fifth on the grounds that he could be incriminating himself in explaining these payments because they were, in fact, transactions unrelated to the commission [sic] Nestor Moreno and ABB. He didn't, as part of his earning his immunity, produce his financial records. What we have is some records that Jr. produced, which are modest in their extent and inconclusive in their reach.

We don't know what the going rate for a country representative is. We know it varies and we know it varied even for the Basurtos. But what we do know is the Basurtos had other customers. They were collecting money from Microsoft and IBM and doing something with it. I am not suggesting that either of those companies was doing anything wrong, authorized the Basurtos to do something wrong for them. It's a fact that the Basurtos had a business. And being the country representative for a foreign company is sort of like being a public relations officer. Responsibilities are ill defined sometimes, but the Government has not produced evidence from which one could conclude beyond a reasonable doubt that their only business was paying bribes or the business they did for ABB was only paying bribes.

The money that is disbursed is sometimes tied as closely as three steps can be to Moreno. In two instances, the hair plugs and the tuition. But there are just disbursements to the Basurtos that disappear into the Basurto family. For instance, in Count 6, the account, $67,500 is paid on a collection of $30,000.That makes neither one of them explanatory. . . . 

Most of all, we don't have all of the Basurtos' records and the Basurtos are both cooperating.

We don't have their financial records. We don't have their cell phone records, we don't have all their other account records. I didn't count the number of bank accounts here, but there are five or six of them, and those are just Bank of America accounts and Wells Fargo Accounts. There are lots of other banks. And with Sorvill, there is $268,000 going into Sorvill and $29,000 coming out. That makes, as the Government says, the nature of that account undetermined rather than suspect.

Basurto and O'Shea, I hesitate to say used a code, talked deliberately obscurely instead of deliberately clearly, that's not evidence of committing a crime. People encrypt stuff all the time, every day.

They did before we got to the Internet. There is an equally logical explanation for the post-termination e-mails, and that is helping the Basurtos keep their contract.

Does the defendant want me to bring the jury in and instruct them or just go tell them?

MR. ANDROPHY: You can tell them. That would be fine, Your Honor.

THE COURT: Government?

MR. DUROSS: That would be fine, Your Honor. The Government would like an opportunity, if the Court would permit us to speak with the members of the jury.

THE COURT: I will, if they want to. I'm going to go talk to them for a minute and I'll tell them that you are in here. Do you want to talk to them?

MR. ANDROPHY: Yes, Your Honor.

THE COURT: Mr. Androphy, be nice to them.

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Final Countdown For O'Shea

Jury selection in John O'Shea's trial is scheduled to start on January 11.

The former ABB manager is being tried in federal court in Houston before Judge Lynn N. Hughes.

He's charged with one count of conspiracy to violate the FCPA, twelve substantive FCPA counts, four counts of international money laundering, and one count of falsifying records in a federal investigation. He also faces a forfeiture count.

The conspiracy and substantive FCPA counts each carry a penalty of up to five years in prison. The money laundering and falsification of records counts each carry a maximum penalty of twenty years in prison.

Last week, O'Shea lost his 'foreign official' challenge. He argued that alleged recipients of the bribes were employees of Comisión Federal de Electricidad (CFE), a Mexican state-owned enterprise. SOEs aren't government 'instrumentalities' under the FCPA, O'Shea said, so their employees aren't 'foreign officials.'

Judge Hughes didn't issue a written ruling. But he accepted as facts that under Mexican law electricity is a public service, CFE has a monopoly over it, a Mexican ministry sets requirements for CFE, the President of Mexico appoints the general director of CFE, and CFE's governing board includes ministry secretaries.

The judge in the Lindsey case also ruled that CFE was an 'instrumentality' under the FCPA and its people were 'foreign officials.'

After the ruling in O'Shea's case, prosecutors asked Judge Hughes for this jury instruction:

The term “foreign official” means any officer or employee of a foreign government or any department, agency, or instrumentality. An “instrumentality” of a foreign government includes state-owned or state-controlled companies.

Last year, O'Shea lost motions to dismiss based on the statute of limitations and on government misconduct for withholding evidence.

Fernando Basurto is expected to testify against O'Shea. He's a Mexican citizen O'Shea hired to act as ABB's sales agent. Basurto admitted in a guitly plea in 2009 that he paid kickbacks to officials at CFE in exchange for contracts for ABB.

In September 2010, ABB Ltd of Switzerland reached a $58 million settlement with the DOJ and SEC. Its U.S. unit that O'Shea worked for pleaded guilty to one count of violating the anti-bribery provisions of the FCPA and one count of conspiracy to violate the FCPA. Since then, ABB has been cooperating with prosecutors by handing over evidence developed during internal investigations.

SEC Posts Cases Eligible For Whistleblower Rewards

The SEC's Office of the Whistleblower (yes, it's real) published its first list of enforcement actions that might be eligible for whistleblower rewards. It includes FCPA-related cases.

On the November 1 list -- under the heading of 'Claim an Award' -- are completed enforcement actions against companies and people that resulted in judgments or orders issued after July 21, 2010 with sanctions of more than $1 million.

FCPA-related enforcement actions on the list include ABB, Alcatel-Lucent, S.A., Alliance One, Comverse Technology, GE, Diageo plc, GlobalSantaFe, Johnson & Johnson, Maxwell Technologies, Noble Corp, Panalpina, Pride Inc, RAE Systems, Rockwell Automation, Royal Dutch Shell plc, Tidewater, Transocean, Tyson Foods, and Universal Corporation. (Our posts about all of them can be found by following the tags below.)

'Subject to the Final Rules,' the Office of the Whistleblower said, 'individuals who voluntarily provided the Commission with original information after July 21, 2010 that led to successful enforcement of a covered action listed below are eligible to apply for a whistleblower award.'

The SEC said that 'once a Notice of Covered Action is posted, individuals have 90 calendar days to apply for an award by submitting a completed Form WB-APP to the Office of the Whistleblower by midnight on the claim due date listed for that action.'

Appearing on the list doesn't mean a whistleblower has or will be rewarded for information, only that it might happen.

As the SEC said in an 'Important Note:'

The inclusion of a Notice below means only that an order was entered with monetary sanctions exceeding $1 million. By posting a Notice for a particular case, we are not making any determinations either that (i) a whistleblower tip, complaint or referral led to the Commission opening an investigation or filing an action with respect to the case or (ii) an award to a whistleblower will be paid in connection with the case.

View the Office of the Whistleblower's 'Claim an Award' site here.

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Special thanks to a good friend for providing the link to the SEC's November 1 list.

Japan's JGC Makes Top Ten

With yesterday's $218.8 million criminal fine, JGC joins the top ten FCPA cases of all time. Nine now involve non-U.S. companies, and the oldest -- Siemens from December 2008 -- is still the biggest.

Yokohama-based JGC -- the only Japanese company on the list -- knocks off Houston-based Pride and its $56.1 million settlement in 2010.

The current top ten are:

1. Siemens (Germany): $800 million in 2008.

2. KBR / Halliburton (USA): $579 million in 2009.

3. BAE (UK): $400 million in 2010.

4. Snamprogetti Netherlands B.V. / ENI S.p.A (Holland/Italy): $365 million in 2010.

5. Technip S.A. (France): $338 million in 2010.

6. JGC Corporation (Japan) $218.8 million in 2011.

7. Daimler AG (Germany): $185 million in 2010.

8. Alcatel-Lucent (France): $137 million in 2010.

9. Panalpina (Switzerland): $81.8 million in 2010.

10. ABB Ltd (Switzerland): $58.3 million in 2010.

[Editor's note: the list was updated here.]

FCPA Defendants Face Long Odds

In Los Angeles this week, the trial of Lindsey Manufacturing, Dr. Keith Lindsey, Steve K. Lee, and Angela Aguilar opened in federal court.

(On Friday, they lost their motion to dismiss the case when the judge ruled that officers of the Mexican electric utility CFE, who the defendants allegedly bribed, are foreign officials under the FCPA.)

Later this year, more FCPA trials are set to happen. In California, six defendants from Control Components Inc. will go on trial, and in Houston, John O'Shea of ABB will face a jury.

What are the prospects for this year's FCPA defendants? It's an uphill fight.

In 2009, another jury in LA convicted Gerald Green and his wife Patricia on FCPA and related charges in just hours. There are also lessons from Frederic Bourke, William Jefferson, David Kay, Douglas Murphy, and David Mead, who in recent times all lost FCPA-related jury trials.

Here are some reasons why fighting FCPA charges is so tough. Not all the reasons apply to all defendants.

Juries hate graft. FCPA cases are about bribes to corrupt foreign officials. They're about sophisticated and often wealthy people looking for shortcuts, hoping to subvert foreign governments for personal or corporate gain. Wheeling and dealing in exotic places. Flashing cash and pulling strings. Juries lap it up. We've said before that even if the government's evidence isn't rock solid on all the elements of an FCPA offense, the jury will still get the picture that people stepped over the line of acceptable business behavior. And they'll convict.

There are lots of witnesses. Forget lone wolves and rogue employees. Foreign bribery is usually a team effort. When the government gets a whiff of the plot, it hauls in everyone -- from those who might have had a hand in it to anyone who could have overheard talk at the water cooler. If it's early in the investigation, the bit players can be persuaded to turn, to become the government's cooperating witnesses or confidential informants. Supporting actors are given immunity or offered the hope of lighter sentences. So they sing about their bosses, colleagues, clients, and friends.

Two former CCI execs -- Mario Covino and Richard Morlok -- already pleaded guilty and are helping prosecutors. And Fernando Basurto, ABB's former agent in Mexico, will testify against John O'Shea. He may also turn up in the Lindsey trial. And both CCI and ABB have also pleaded guilty and have been cooperating with the feds.

Evidence is everywhere. Bribes have to be planned, funded, paid, and covered up. There's always someone on the receiving end, so the complications multiply. It usually leaves behind a trail that's easy to find and follow. Phony contracts and dummy invoices, hot money bouncing from bank to bank, fake agents and distributors, shell companies as fronts, two sets of books, and so on.

Prosecutors show and tell. These days the government is likely to show up for trial with audio tapes of the accused discussing the bribes or videos showing the actual handover of cash. "Wearing a wire" once meant strapping to your torso an awkward piece of electronic gear the size of a croissant. Not any more. A cell phone on the table can be an open mic. A spy pen in the breast pocket can capture or broadcast sound and pictures.

Related charges grow like mushrooms. With foreign bribery, there's usually a conspiracy, money laundering, traveling to commit the offense, fraud and obstruction in the cover-up, and tax-cheating to boot. Prosecutors stack the charges and drop weak ones later, plowing ahead with the rest. 

In addition to substantive FCPA charges, the Lindsey defendants face conspiracy counts; Angela Aguilar at first faced FCPA charges, later replaced with money laundering and aiding and abetting. On top of his FCPA counts, O'Shea faces conspiracy, money-laundering, and falsification of records. The CCI defendants are charged with FCPA violations and conspiracy, Travel Act, and aiding and abetting offenses.

Frederic Bourke, incidentally, was convicted not for violating the FCPA but of conspiracy and a Travel Act offense. William Jefferson beat a substantive FCPA charge but was found guilty of conspiracy to violate the FCPA and other corruption counts. Gerald Green beat the obstruction rap -- the government ended up dropping the charge -- but he and his wife were convicted of conspiracy to violate the FCPA, eight violations of the FCPA and seven counts of money laundering. Mrs. Green was also found guilty of two counts of falsely subscribing a U.S. tax return.

Forfeiture -- the government's WMD. An FCPA defendant can win acquittal on every FCPA-related count but one and still lose a forfeiture action. Any assets derived from proceeds traceable to a violation of the FCPA, or a conspiracy to violate the FCPA, can be forfeited. The Greens were only sentenced to six months in federal prison. But through forfeiture they lost their home, bank accounts, car, companies, and pensions. The Lindsey defendants all face forfeiture, as does O'Shea. The CCI defendants don't.

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An indictment is merely an accusation, and all defendants are presumed innocent until and unless proven guilty beyond a reasonable doubt.