KBR's U.K. Middlemen Indicted

Two U.K. citizens who allegedly helped Houston-based Kellogg Brown & Root (KBR) bribe Nigerian officials have been indicted for violating the Foreign Corrupt Practices Act. Jeffrey Tesler, 60, of London, England, and Wojciech Chodan, 71, of Maidenhead, England, were indicted on Feb. 17, 2009 by a federal grand jury sitting in Houston. The Justice Department didn't unseal the indictments until after yesterday's arrest of Tesler by British police, who acted at the request of U.S. authorities. Chodan hasn't been arrested but faces an outstanding U.S. warrant. The DOJ said it will try to extradite Tesler and Chodan from the U.K. to stand trial in the U.S.

Tesler, a lawyer in London, and Chodan, a former employee and consultant of KBR's U.K subsidiary, were charged with one count of conspiracy to violate and ten counts of violating the FCPA. They face up to 55 years in prison if convicted on all counts. The indictment also seeks forfeiture from them of more than $132 million.

The indictment says a joint venture that included KBR entered into consulting contracts with a Gibraltar corporation allegedly controlled by Tesler called Tri-Star Investments. The joint venture paid Tri-Star about $132 million to be used to bribe Nigerian government officials. The bribes were intended to secure contracts worth more than $6 billion to build liquefied natural gas facilities on Bonny Island, Nigeria. The joint venture, known as TSKJ, was equally owned by KBR, Technip, SA of France, Snamprogetti Netherlands B.V. (a subsidiary of Saipem SpA of Italy) and JGC of Japan. Chodan allegedly participated in meetings where the bribery was discussed and he wired $50 million from KBR-controlled accounts to a Japanese trading company to be used to bribe Nigerian officials.

Among the details in the indictment: In August 2002, a KBR representative, using money KBR provided to Tesler, "delivered a pilot's briefcase containing one million U.S. dollars in one-hundred dollar bills to the [Nigerian] Official at a hotel in Abuja, Nigeria, for the benefit of a political party in Nigeria." And in April 2003, a KBR representative "delivered a vehicle containing Nigerian currency valued at approximately $500,000 to the hotel of the [Nigerian] Official in Abuja, Nigeria, for the benefit of a political party in Nigeria, leaving the vehicle in the hotel parking lot until the . . . Official caused the money to be removed."

Last month, KBR pleaded guilty to violating the Foreign Corrupt Practices Act. It agreed with the DOJ to pay a $402 million fine. KBR and its former parent company, Halliburton Company, also agreed to pay $177 million in disgorgement to the Securities and Exchange Commission to settle the FCPA offenses. KBR's former CEO, Albert "Jack" Stanley, pleaded guilty in September 2008 to conspiring to violate the FCPA and to mail and wire fraud charges. He has been cooperating with prosecutors. His sentencing is now scheduled for Aug. 27, 2009.

The DOJ said it had help in the case from "authorities in France, Italy, Switzerland and the United Kingdom, including in particular the Serious Fraud Office’s Anti-Corruption Unit, the London Metropolitan Police and the City of London Police."

The indictment against Tesler and Chodan contains only FCPA charges. Usually the DOJ adds other criminal counts, such as money-laundering, mail and wire fraud. Relying strictly on alleged antibribery offenses will test the jurisdictional reach of the FCPA over foreign citizens who apparently were not in the U.S. at any times relevant to the charged conduct.

The FCPA asserts jurisdiction over foreign companies and nationals that take any act in furtherance of a corrupt payment while within the territory of the United States. See §78dd-3(a), (f)(1). This part of the FCPA is untested in court, but the DOJ interprets it expansively as conferring jurisdiction whenever a foreign company or national acting as an agent of an issuer or domestic concern causes an act to be done within the territory of the United States. (See the United States Attorneys' Manual, Title 9, Criminal Resource Manual §1018 “Prohibited Foreign Corrupt Practices” here.) The indictment says Tesler and Chodan were agents of KBR and sent some of the bribe money through U.S. bank accounts.

Another unusual aspect of the indictment is the use of the forfeiture remedy against Tesler and Chodan. (See 28 USC Section 2461, and Title 18 USC Section 981 (a)(l )(C), "all property, real and personal, which constitutes or is derived from proceeds traceable to the violations.") The U.S. government says it wants the entire $132 million that KBR transferred to Tesler's Gibraltar company or the property derived from it. The DOJ apparently isn't distinguishing the KBR money Tesler allegedly paid out in bribes from amounts he may have kept.

Jeffrey Tesler was identified in KBR's 2007 annual report. British and French authorities investigated him two years ago but didn't file any charges. In 2007, British authorities searched his London office at the request of U.S. officials. He is listed as a consultant to a small North London law firm called Kaye Tesler & Co. Among other things, the firm offers anti-money laundering training. 

As the Justice Department says: Criminal indictments are only charges and not evidence of guilt. A defendant is presumed to be innocent until and unless proven guilty.

The DOJ's March 5, 2009 release can be downloaded here.

The federal grand jury's February 17, 2009 indictment of Jeffrey Tesler and Wojciech Chodan can be downloaded here.

KBR and Halliburton Resolve Charges

Houston-based global engineering firm Kellogg Brown & Root LLC (KBR) pleaded guilty on Wednesday to a five-count criminal information, with one conspiracy count and four substantive counts of violating the Foreign Corrupt Practices Act. KBR agreed to pay a $402 million fine, the second largest criminal fine for an FCPA violation, following Siemens' $450 million penalty in December 2008.

KBR admitted paying Nigerian officials at least $182 million in bribes for engineering, procurement and construction contracts awarded between 1995 and 2004 to build liquefied natural gas facilities on Bonny Island, Nigeria. The contracts to an international joint venture led by KBR were worth more than $6 billion. KBR's former CEO, Albert "Jack" Stanley, pleaded guilty in September 2008 to conspiring to violate the FCPA. His sentencing is scheduled for May 6th.

Also on Wednesday, KBR’s parent company, KBR Inc., and its former parent company, Halliburton Company, settled civil FCPA charges with the Securities and Exchange Commission, agreeing to be jointly liable to pay $177 million in disgorgement. The SEC's complaint alleges that Halliburton's internal controls failed to detect or prevent the bribery, and that its records were falsified to cover up the illegal payments.

The SEC's final order (i) permanently enjoins KBR from violating the anti-bribery and records falsification provisions in Sections 30A, 13(b)(5) and Rule 13b2-1 of the Securities Exchange Act of 1934, and from aiding and abetting violations of the record-keeping and internal control provisions in Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act; (ii) permanently enjoins Halliburton from violating the record-keeping and internal control provisions of the Exchange Act; (iii) orders the companies to disgorge $177 million in profits derived from their FCPA violations; (iv) imposes an independent monitor for KBR for three years to review its FCPA compliance program, and (v) imposes an independent consultant to review Halliburton's FCPA-related policies and procedures.

The DOJ said it had help in its investigations from authorities in France, Italy, Switzerland and the United Kingdom.

Jack Stanley was a senior vice president of Dresser Industries, Inc. when it merged into Halliburton in September 1998. Dresser's wholly-owned construction subsidiary, Kellogg, was combined with Halliburton's construction subsidiary, Brown & Root, Inc., to form KBR. In November 2006, Halliburton spun KBR off and it became a separate publicly-traded company. Under their agreement for KBR's spin off, Halliburton is obligated to pay most of KBR's fines and other penalties for the FCPA violations.

The SEC's complaint alleges that after the Dresser acquisition, Halliburton's due diligence didn't detect any bribe payments and failed "to devise and maintain adequate internal controls to govern the use of foreign sales agents and failed to maintain and enforce the internal controls it had." Former Vice President Dick Cheney was Halliburton's chief executive from 1995 to 2000. He has denied any wrongdoing.

Download the DOJ's February 11, 2009 release here.

Download KBR's February 11, 2009 criminal plea agreement with the DOJ here.

View the SEC's Litigation Release No. 20897 (February 11, 2009) and Accounting and Auditing Enforcement Release No. 2935 (February 11, 2009) in Securities and Exchange Commission v. Halliburton Company, 4:09-CV-399, S.D. Tex. (Houston) here.

Download the SEC's February 11, 2009 civil complaint against KBR and Halliburton here.

View prior posts about Halliburton, KBR and Jack Stanley here.

Listen to the podcast here.
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KBR's Twisted Web

We've been looking over the criminal information charging Kellogg, Brown & Root LLC with violating the Foreign Corrupt Practices Act. There's one conspiracy and four substantive counts. There's also a related document called the Joint Motion to Waive Presentence Investigation. That's where the Justice Department talks about the potential criminal fine range and agrees with KBR on a final penalty (subject to court approval) of $402 million.

(Halliburton, KBR's former parent, said two weeks ago that the Securities and Exchange Commission has also agreed, contingent on the DOJ's settlement, to a separate disgorgement payment to the SEC of $177 million.)

The criminal information describes KBR's attempts to shield from the FCPA its corrupt payments to Nigerian officials. Its TSKJ joint venture, equally owned with Technip, SA of France, Snamprogetti Netherlands B.V., a subsidiary of Saipem SpA of Italy, and JGC of Japan, "operated through three Portuguese special purpose corporations based in Madeira, Portugal." Madeira Company 3, as the information calls it, was used to enter into so-called consulting agreements with agents, who in turn passed bribes to Nigerian officials.

KBR and its top brass tried to hide behind Madeira Company 3. Ownership was held indirectly through M.W. Kellogg Ltd., a U.K. company. The criminal information says the ownership structure was "part of KBR's intentional efforts to insulate itself from FCPA liability for bribery of Nigerian government officials through the Joint Venture's agents." And the information continues:

The boards of managers of Madeira Company 1 and Madeira Company 2 included U.S. citizens . . . but KBR avoided placing U.S. citizens on the board of managers of Madeira Company 3 as a further part of KBR's intentional effort to insulate itself from FCPA liability.

The Foreign Corrupt Practices Act prohibits both direct and indirect corrupt payments to foreign officials. Indirect payments typically pass through the hands of an overseas partner or agent, then end up with the foreign official for an unlawful purpose. That's how most violations happen. And yet, executives keep trying to outsmart the FCPA. They create convoluted ownership structures and payment patterns that they think will somehow insulate them and their company from FCPA liability. The results, as the KBR case shows, are usually disastrous.

The FCPA is smart. It looks not at how payments to foreign officials are made, but why. It looks, in other words, at the intent. If a payment was meant to corruptly obtain and retain business, then the payment violates the FCPA, no matter how many Madeira-like companies it passed through, and no matter how many agents or other middlemen were involved.

The DOJ's plain-English explanation of the FCPA's anti-bribery provisions talks about warning signs, called "red flags." They should tip off anyone about impending compliance dangers. Red flags include unusual payment patterns or other strange arrangements, and a lack of transparency. Red flags would include all of the devices KBR employed. So the lesson? Whenever company structures, payment arrangements, and management compositions have no obvious operational or economic justification, there must be something wrong. That's when everyone involved should be asking hard questions, such as whether the real intent is to do legitimate business or to violate the FCPA and other laws.

Download a copy of KBR's criminal information here.

Download a copy of the DOJ / KBR Joint Motion to Waive Presentence Investigation here.

Listen to the podcast here.
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KBR Nears Final Plea Deal

A criminal information filed in federal court in Houston on Friday shows that Kellogg, Brown & Root LLC, the Houston-based global engineering and construction firm that was once part of Halliburton, will plead guilty to violating the Foreign Corrupt Practices Act. KBR may appear in court next week. The information refers to a plea agreement that has not yet been released by the Justice Department. The Houston Chronicle and the AP have reports.

The criminal information, according to the reports, indicates that the government has agreed to a $402 million fine, payable in installments, beginning with a $52 million payment five days after sentencing, and seven $50 million installments, each due on the first day of each quarter beginning April 1. Under federal sentencing guidelines, the fine range was between $376.8 million and $753.6 million.

Two weeks ago, KBR's former parent, Halliburton, said a settlement of Foreign Corrupt Practices Act enforcement actions with the Justice Department and the Securities and Exchange Commission was waiting for the DOJ's final approval. It said it had reserved $559 million for the proposed settlements. Halliburton is obligated under indemnity agreements to pay fines and penalties on behalf of KBR. It said in the release that it would "pay $382 million [to the DOJ] on behalf of KBR in eight installments over the next two years. Pursuant to the terms of the prospective settlement with the SEC, Halliburton would agree to be jointly and severally liable with KBR for and, as a result of the indemnity, to pay to the SEC $177 million in disgorgement."

In September 2008, Albert “Jack” Stanley, 65, a former chairman and CEO of KBR, pleaded guilty to a two-count criminal information charging him with conspiracy to violate the Foreign Corrupt Practices Act and conspiracy to commit mail and wire fraud. His final sentencing is set for May this year. Under his plea agreement, he faces up to seven years in prison and a restitution payment of $10.8 million.

From 1995 to 2004, Stanley helped a joint venture that included KBR and its predecessors funnel $182 million in bribes to government officials in Nigeria. The bribes were paid in exchange for contracts worth $6 billion to build liquefied natural gas facilities there. KBR's 2007 Annual Report (its most recent) described a joint venture called TSKJ "formed to design and construct large-scale projects in Nigeria. TSKJ's members are Technip, SA of France, Snamprogetti Netherlands B.V., which is a subsidiary of Saipem SpA of Italy, JGC [of Japan] and us, each of which has a 25% interest. TSKJ has completed five LNG production facilities on Bonny Island, Nigeria . . . ."

Jack Stanley was a senior vice president of Dresser Industries, Inc. when it merged into Halliburton in September 1998. Dresser's wholly-owned construction subsidiary, Kellogg, was combined with Halliburton's construction subsidiary, Brown & Root, Inc., to form KBR. In November 2006, Halliburton spun KBR off and it became a separate publicly-traded company. Former Vice President Dick Cheney was Halliburton's chief executive from 1995 to 2000.

Why did Halliburton, and not KBR, first announce the proposed settlements with the DOJ and SEC two weeks ago? Under the indemnity in their agreement for KBR's spin off, known as the master separation agreement, Halliburton calls the shots on most FCPA-related matters. Here's what KBR said about that in the 2007 Annual Report:

As part of the master separation agreement, Halliburton has agreed to indemnify us for certain FCPA Matters, but we had to agree that Halliburton will, in its sole discretion, have and maintain control over the investigation, defense and / or settlement of FCPA Matters until such time, if any, that we exercise our right to assume control of the investigation, defense and /or settlement of FCPA Matters. We have also agreed, at Halliburton’s expense, to assist with Halliburton’s full cooperation with any governmental authority in Halliburton’s investigation of FCPA Matters and its investigation, defense and/or settlement of any claim made by a governmental authority or court relating to FCPA Matters, in each case even if we assume control of FCPA Matters.

Halliburton said in its release two weeks ago that it gave KBR the indemnity "[t]o enhance KBR's financial stability and solvency, making possible the separation of KBR . . . ."

KBR, Inc. trades on the NYSE under the symbol KBR.

Halliburton Company trades on the NYSE under the symbol HAL.

Listen to the podcast here.
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Halliburton Announces Pending Settlement

Halliburton said today its settlement of Foreign Corrupt Practices Act enforcement actions with the Justice Department and Securities and Exchange Commission is waiting for the DOJ's final approval. It said it has reserved $559 million for the proposed settlements that include payments on behalf of its former subsidiary KBR.

In September last year, Albert “Jack” Stanley, 65, a former chairman and CEO of KBR, pleaded guilty to a two-count criminal information charging him with conspiracy to violate the Foreign Corrupt Practices Act and conspiracy to commit mail and wire fraud. He admitted that from 1995 to 2004, he helped a joint venture that included KBR and its predecessors funnel $182 million in bribes to government officials in Nigeria. The bribes were paid in exchange for contracts worth $6 billion to build liquefied natural gas facilities there. Stanley was sentenced to seven years in prison and a restitution payment of $10.8 million. The sentence is subject to review based on his cooperation.

Here's the full text of Halliburton's announcement:
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2009 Press Releases
FOR IMMEDIATE RELEASE: January 26, 2009

HALLIBURTON ANNOUNCES FOURTH QUARTER CHARGE RELATED TO PROSPECTIVE SETTLEMENT OF FOREIGN CORRUPT PRACTICES ACT (FCPA) INVESTIGATIONS

$0.34 fourth quarter 2008 earnings per diluted share impact from $303 million charge to discontinued operations

HOUSTON, Texas - As previously disclosed in its public filings, Halliburton (NYSE:HAL) has engaged in settlement discussions with the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) with regard to the ongoing FCPA investigations involving Halliburton and KBR, Inc. (KBR). These discussions have resulted in prospective settlements with both agencies. The settlement with the DOJ has been fully negotiated and Halliburton has been advised that it is being reviewed for final approval. The settlement with the SEC has been approved contingent upon the completion of the settlement with the DOJ. There can be no assurance, however, that the settlement with the DOJ will be approved or that, consequently, the condition to the settlement with the SEC will be satisfied.

To enhance KBR's financial stability and solvency, making possible the separation of KBR, Halliburton indemnified KBR from fines or other monetary penalties or direct monetary damages, including disgorgement, as a result of a claim made or assessed by a governmental authority in the United States and certain other countries related to alleged or actual violations occurring prior to November 20, 2006 of the FCPA or particular, analogous applicable foreign statutes, laws, rules, and regulations in connection with investigations pending as of that date.

As a result of the indemnity and the terms of the prospective settlement with the DOJ, Halliburton would agree to pay $382 million on behalf of KBR in eight installments over the next two years. Pursuant to the terms of the prospective settlement with the SEC, Halliburton would agree to be jointly and severally liable with KBR for and, as a result of the indemnity, to pay to the SEC $177 million in disgorgement. KBR would separately agree that Halliburton's indemnification obligations with respect to the DOJ and SEC investigations would be fully satisfied.

The prospective settlement with the DOJ would not require Halliburton to engage a monitor. The prospective settlement with the SEC would require Halliburton to retain an independent consultant to perform a 60-day initial and, approximately one year later, a 30-day follow-up review and evaluation of Halliburton's anti-bribery and foreign agent internal controls and record-keeping policies and to adopt any necessary improvements.

During the second quarter of 2007, in connection with the separation of KBR from Halliburton, Halliburton recorded a gain on the disposition of KBR of approximately $933 million, net of tax and the estimated fair value of the FCPA and other indemnities and guarantees provided to KBR, which was included in "Income (loss) from discontinued operations, net of income tax" on the consolidated statement of operations. During the second quarter of 2008, Halliburton recorded additional adjustments to the estimated liability for the indemnities and guarantees provided to KBR. These indemnities and guarantees are primarily included in "Other liabilities" on the consolidated balance sheets and totaled $342 million at September 30, 2008.

As a result of these prospective settlements, Halliburton recorded in the fourth quarter of 2008 an additional charge to discontinued operations of $303 million or $0.34 per diluted share.

Commenting on these matters, a Company spokesperson stated, "The Company will not further comment or take questions regarding the prospective settlements, given that there can be no assurance that they will become effective in accordance with their respective terms."
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Family, Food, Football . . . And FCPA

Our post yesterday referred to the long-pending Foreign Corrupt Practices Act investigations at Halliburton and DaimlerChrysler (now Daimler AG). For readers wanting to know what the two companies are now saying about their FCPA issues, we've rounded up their latest disclosures. Daimler's is extracted from its Annual Report for December 31, 2007 (here), and Halliburton's is from its Quarterly Report for September 30, 2008 (here).

Daimler's disclosure is brief. It says the DOJ and SEC are investigating possible violations of the Foreign Corrupt Practices Act, and that the company has already determined through its own investigation that it made improper payments in Africa, Asia and Eastern Europe. The internal investigation detected tax liabilities resulting from "misclassifications of, or the failure to record, commissions and other payments and expenses," which have been self-reported to authorities in several jurisdictions. Daimler says it has also taken other corrective action and is working to complete the internal investigation.

(In August 2007, Daimler sold 80.1 percent of Chrysler to private-equity firm Cerberus Capital Management LP and retained the remaining 19.9 percent. Cerberus is now accusing Daimler of "intentionally and materially" misleading it in connection with the sale. FCPA issues have not been mentioned publicly. An AP report about the dispute features our favorite legal pundit, Professor Peter Henning.)

At around 2,500 words, Halliburton's most recent FCPA disclosure is one of the longest on record. It describes two decades of potential compliance problems related to the giant Bonny Island Project and others in Nigeria. The SEC, it says, has subpoenaed information about "current and former agents used in connection with multiple projects, including current and prior projects, over the past 20 years located both in and outside of Nigeria" involving Halliburton's energy services business and its former affiliate KBR. Halliburton says it has agreed with the DOJ and SEC to toll the statute of limitations.

Albert "Jack" Stanely, a past chairman and CEO of KBR, features in the disclosure. He pleaded guilty in September to helping funnel $182 million in bribes to government officials in Nigeria. He was sentenced to a maximum of 84 months in prison (subject to a reduction for future cooperation) and ordered to make restitution of about $11 million.

Research for this post was provided courtesy of Securities Mosaic.

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Charting The FCPA

"Cash crunch could result in more corruption cases," says a headline in the current Financial Week (available here.) In the article, Steven Tyrrell, the head of the Justice Department's fraud section, says the credit crisis may produce a crop of additional Foreign Corrupt Practices Act cases. The targets this time would be banks and others that went looking for cash from sovereign wealth funds in exchange for favors rendered to the host-country's rulers.

"Mr. Tyrrell," the article says, "noted the recent boom of sovereign wealth funds is an area at the top of the Justice Department’s hit list, though it has not yet garnered any definitive cases."

We've never seen empirical studies on the subject, but we've noticed that FCPA cases generally spring from industries that deal in scarce commodities -- whatever those happen to be at any moment in history. It could be energy, telecommunications licenses, access to hospital patients, metals, food, cash and so on.

Wherever buyers are scrambling for supply, sellers have opportunities to squeeze them. Rising energy prices over the past decade, for example, increased the leverage corrupt oil-producing countries could exert over foreign buyers. In her excellent book, Bribery and Extortion, Alexandra Wrage talks about corruption in Nigeria's ruling family during the energy and metals boom. The story is grotesque, and the scenario was repeated in resource-rich, governance-poor countries around the globe. The pressures in energy-related markets eventually resulted in many FCPA enforcement actions, culminating in Jack Stanley's shocking guilty plea last month.

These days, a commodity in short supply is cash. Sovereign wealth funds have it and banks need it. Will the financial institutions succumb to market pressures? Will they abandon FCPA compliance to save their balance sheets? Some might, as the DOJ's Steven Tyrrell predicts. And if that happens, pin-striped tragedies are sure to follow.

We don't have empirical evidence for this one either. But we're fairly certain that anyone who has ever occupied a jail cell because of an FCPA offense wishes they'd complied instead.

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What's The Tally?

The Justice Department says it plans to prosecute more individuals under the Foreign Corrupt Practices Act -- and send them to jail. We looked through our posts to see how men and women fared over the past year. Below are excerpts from posts dealing with those who've been criminally charged or sentenced under the FCPA, or settled enforcement actions with the SEC, or both, during the past twelve months. The titles link to the original posts.

More Individuals Indicted For FCPA Violations (September 8, 2008)

The Justice Department said it arrested four people last week on charges that they and their company bribed Vietnamese officials in exchange for contracts to supply equipment and technology to government agencies in Vietnam.

The DOJ said U.S. citizens Nam Nguyen, 52, of Houston; Joseph Lukas, 59, of Smithville, N.J.; Kim Nguyen, 39, of Philadelphia; and An Nguyen, 32, of Philadelphia were arrested after they, along with Nexus Technologies Inc., were indicted on Sept. 4, 2008, by a federal grand jury in Philadelphia on one count of conspiracy to violate the Foreign Corrupt Practices Act and four substantive counts of violating the FCPA.

# # #

Ex-KBR Boss Pleads Guilty (September 4, 2008)

The Justice Department said today that Albert “Jack” Stanley, 65, a former chairman and CEO of KBR, the global engineering and construction firm based in Houston, pleaded guilty to a two-count criminal information charging him with conspiracy to violate the Foreign Corrupt Practices Act and conspiracy to commit mail and wire fraud. He appeared in U.S. District Court in his hometown of Houston before U.S. District Judge Keith P. Ellison. . . .

Under the plea deal accepted by the court, Stanley faces seven years in prison and a restitution payment of $10.8 million.

# # #

Former Execs Avoid Hard Time (September 3, 2008)

Two former telecommunications executives who admitted bribing employees of state-owned companies in Africa and concealing the payments have avoided prison in exchange for their cooperation in an ongoing FBI investigation.

The Justice Department said yesterday that Roger Michael Young, 48, of Washington, D.C., a former managing director of ITXC Corporation, has been sentenced to five years probation, including three months home confinement, three months in a community confinement center, and a $7,000 fine. He pleaded guilty in July 2007 to violating the Foreign Corrupt Practices Act and the Travel Act.

Former ITXC Vice President Steven J. Ott, 49, of Princeton, N.J., who also pleaded guilty, was sentenced in July this year to five years probation, including six months in a community confinement center and six months home confinement. He was fined $10,000.

A third defendant in the case, Yaw Osei Amoako, 55, of Hillsborough, N.J., pleaded guilty in September 2006. He was sentenced in August 2007 to 18 months in prison followed by two years of supervised release, and a $7,500 fine.

# # #

FCPA Guilty Plea For Bribing UK Official (May 9, 2008)

A former co-owner and executive of California-based Pacific Consolidated Industries (PCI) pleaded guilty yesterday to violating the Foreign Corrupt Practices Act. Martin Eric Self, 51, of Orange, California pleaded guilty to a two-count information charging him with violating the FCPA by paying more than $70,000 in bribes to a U.K. Ministry of Defence official. The bribes were intended to secure equipment contracts with the U.K. Royal Air Force. . . .

Self is scheduled to be sentenced in federal court on September 29, 2008. Although he faces a maximum sentence of five years in prison per count, his plea agreement contemplates a prison term of eight months, subject to the court's final determination at sentencing.

# # #

Former ITXC Execs Settle Civil FCPA Charges (May 8, 2008)

The Securities and Exchange Commission said that on April 18, 2008 it settled civil proceedings under the Foreign Corrupt Practices Act against Steven J. Ott, Roger Michael Young, and Yaw Osei Amoako. The SEC charged the former executives of ITXC Corp. with violating the antibribery and books and records provisions of the FCPA by bribing senior officials of government-owned telephone companies in Nigeria, Rwanda and Senegal, and concealing and falsely reporting the illegal payments.

In settling the SEC's civil enforcement action, Ott, Young and Amoako each consented to the entry of a final judgment that permanently enjoins them from violating Sections 30A and 13(b)(5) of the Securities Exchange Act of 1934, Rule 13b2-1 thereunder, and from aiding and abetting violations of Exchange Act Section 13(b)(2)(A) and, with respect to Ott and Young, violations of Exchange Act Section 13(b)(2)(B). Amoako also must pay $188,453 in disgorgement and prejudgment interest. He took kickbacks for some of the bribes he paid to the foreign officials.

# # #

Ex-World Bank Manager Sentenced For FCPA Offense (April 28, 2008)

The Justice Department has announced the April 22, 2008 sentencing of former World Bank employee, Ramendra Basu. The Indian national and U.S. permanent resident received 15 months in prison for conspiring to award World Bank contracts to consultants in exchange for kickbacks and for helping a contractor bribe a foreign official in violation of the Foreign Corrupt Practices Act. In addition to the 15- month prison term, Basu was sentenced to two years supervised release and 50 hours of community service. U.S. v. Basu, (Cr. No. 02-475) D.D.C., November 2002.

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That's Entertainment? (December 19, 2007)

Wow! It's not often -- never, in fact -- that we can talk about the LA movie scene and tap Variety as one of our sources. But here it is. The Department of Justice just announced that a Los Angeles film executive and his wife were arrested on allegations of making corrupt payments to a Thai government official in order to obtain lucrative contracts to run an international film festival in Bangkok, in violation of the Foreign Corrupt Practices Act.

Gerald Green, 75, and his wife Patricia Green, 52, both of Los Angeles, were arrested on a criminal complaint filed on Dec. 7, 2007, in federal court in Los Angeles and unsealed today. The complaint alleges that the Greens conspired to pay more than $1.7 million in bribes for the benefit of a government official with the Tourism Authority of Thailand (TAT) in order to obtain the film festival contract and other contracts with the TAT worth more than $10 million.

[The Greens are awaiting trial.]

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Schnitzer's Former Boss Settles FCPA Charges (December 14, 2007)

The former chairman and ceo of Schnitzer Steel Industries, Inc. resolved charges on December 13, 2007 brought by the Securities and Exchange Commission under the U.S. Foreign Corrupt Practices Act. Robert W. Philip, 60, of Portland, Oregon, will pay about $250,000 to settle charges that he violated the antibribery, books and records and internal controls provisions of the FCPA (Section 30A of the Securities Exchange Act of 1934 [15 U.S.C. § 78dd-1], Section13(b)(2)(A) [15 U.S.C. § 78m(b)(2)(A)], and Section 13(b)(2)(B) [15 U.S.C. § 78m(b)(2)(B)]). He served as Schnitzer's president beginning in 1991, as its chief executive officer from 2002, and as chairman from 2004. He left the company in May 2005.

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Another Former Willbros Executive Pleads Guilty (November 6, 2007)

Jason Edward Steph, 37, who once served as general manager of on-shore operations for a subsidiary of Willbros Group Inc., entered into a plea agreement with the U.S. Department of Justice on November 5, 2007. He pleaded guilty to conspiring to bribe officials of the government of Nigeria with more than $6 million -- in violation of the U.S. Foreign Corrupt Practices Act. Steph, of Sunset, Texas, was indicted on July 19, 2007. He now faces five years in prison and a $250,000 fine. . . .

Steph also said that in February and March of 2005 he, former Willbros executive Jim Bob Brown, and others arranged for the payment of approximately $1.8 million in cash to government officials in Nigeria. Brown pleaded guilty to a similar charge on Sept. 14, 2006. Steph and Brown are cooperating with the government’s ongoing investigation . . . .

[Steph and Brown are awaiting sentencing.]

# # #

Syncor's Founder Settles FCPA Charges With The SEC (October 1, 2007)

Monty Fu, the founder of Syncor International Corp., agreed with the Securities and Exchange Commission on September 27, 2007 to resolve U.S. Foreign Corrupt Practices Act charges by consenting to a permanent injunction against FCPA books-and-records violations and agreeing to pay a $75,000 civil penalty. Fu was Syncor's CEO from 1985 to 1989 and board chairman from 1985 to November 6, 2002, when he went on paid leave until he resigned in December 2002.

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A.T. Kearney's Former India President Violated The FCPA (September 26, 2007)

The U.S. Securities and Exchange Commission announced on September 25, 2007 two settled enforcement actions based on violations of the books and records provisions of the Foreign Corrupt Practices Act. The actions involved the founder and former president of A.T. Kearney Ltd's India business, Chandramowli Srinivasan, and Kearney's former parent company, Electronic Data Systems Corp. . . .

For violating Sections 13(b)(5) and 30A of the Securities Exchange Act of 1934, Srinivasan paid a civil penalty of $70,000.

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Intent On Complying

The shocking news last week about Jack Stanley's guilty plea teaches again that not all FCPA violations can be prevented. No compliance program or compliance training would have kept Mr. Stanley on the right side of the law. Leaders with bad intentions -- with criminal intent -- can always find a way to cheat, and putting a compliance program in their path won't help.

But Jack Stanley isn't a typical company leader. Unlike him, most want to comply with the FCPA. They want to stay in their jobs and out of jail. They want to protect their companies and the people in them. They want to be proud of the way they do business. For the overwhelming majority of executives, compliance is the goal and compliance training is the tool -- because it works.

That's why regular, repeated training is required for an effective compliance program. The 2005 Federal Sentencing Guidelines say:

The organization shall take reasonable steps to communicate periodically and in a practical manner its standards and procedures, and other aspects of the compliance and ethics program, to the individuals [responsible for compliance] by conducting effective training programs and otherwise disseminating information appropriate to such individuals’ respective roles and responsibilities.

The Sentencing Guidelines don't dictate content or format. That's up to each organization. But the objective is clear: make sure everyone knows what the Foreign Corrupt Practices Act says, requires and prohibits, and do that through training.

Aside from filling heads with knowledge, training sessions sometimes start a dialogue with weird surprises. Schnitzer Steel Industries Inc., the story goes, learned about its public bribery problem after an employee came back from a company-sponsored FCPA training course. He told his supervisors that he and his co-workers were doing all the things the trainers just said were illegal. That triggered Schnitzer's internal investigation, which led finally to a company clean-up and a favorable settlement with the government.

During training sessions, it's best if senior executives are part of the program. They can tell everyone face-to-face that the company really and truly expects 100% compliance. No kidding. And if someone decides on their own not to follow company policy but instead to do something illegal, then they'll likely end up unemployed and facing the full wrath of the law.

Employees working outside the U.S. are especially susceptible to the notion that more sales are always the goal. They need to hear that the first priority is compliance -- and that sales landed illegally aren't wanted. A general counsel told us last month that her CEO often says he isn't interested in being in a market where the company can't operate legally. The CEO has stayed out of at least one rich but dicey African country, sending his compliance message to everyone, loud and clear.

One more thing. FCPA training doesn't need to be elaborate to be effective. In fact, sometimes less formal settings produce the best results. Even the Federal Sentencing Guidelines say organizations, especially smaller ones, can train employees "through informal staff meetings, and monitoring through regular 'walk-arounds' or continuous observation while managing the organization." In other words, effective FCPA training can be woven into the fabric of the organization. That, after all, is the hallmark of a real compliance culture.

We hear from managers, sales people, engineers and others about the daily pressure in the marketplace to win. The temptation to take shortcuts is always huge. Jack Stanley couldn't resist. But most people want to stay straight. They want to avoid hurting themselves, their families, colleagues and companies. Compliance training helps them do that.

View Chapter 8 - PART B - §8B2.1. ("Effective Compliance and Ethics Program") of the 2005 U.S. Federal Sentencing Guidelines here.

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More Individuals Indicted For FCPA Violations

The Justice Department said it arrested four people last week on charges that they and their company bribed Vietnamese officials in exchange for contracts to supply equipment and technology to government agencies in Vietnam.

The DOJ said U.S. citizens Nam Nguyen, 52, of Houston; Joseph Lukas, 59, of Smithville, N.J.; Kim Nguyen, 39, of Philadelphia; and An Nguyen, 32, of Philadelphia were arrested after they, along with Nexus Technologies Inc., were indicted on Sept. 4, 2008, by a federal grand jury in Philadelphia on one count of conspiracy to violate the Foreign Corrupt Practices Act and four substantive counts of violating the FCPA.

The arrests are more evidence of the government's stepped-up enforcement of the FCPA and its apparent strategy to target individuals.

In April 2008, Washington Post business columnist Steven Pearlstein said the DOJ used to have the equivalent of two people assigned to FCPA cases but "now has as many as 12 prosecutors, assisted by a new team of FBI agents dedicated to these cases." And ProPublica's story about Jack Stanley's guilty plea said, "The active involvement of the FBI is particularly worrisome to [people who violate the FCPA]. In contrast to white-collar investigations handled by the Justice Department and the Securities and Exchange Commission, the FBI is believed to be prepared to use techniques more familiar to investigations of organized crime, including wiretapping and undercover agents."

According to the indictment, Nexus Technologies Inc., a privately-held Delaware company with offices in Philadelphia, New Jersey and Vietnam, sold third-party underwater mapping and bomb containment equipment, helicopter parts, chemical detectors, satellite communication parts and air tracking systems to the government of Vietnam. The indictment alleges that from about 1999 through 2008, the defendants paid at least $150,000 to officials at Vietnam’s Ministries of Transport, Industry and Public Safety to secure supply contracts. The indictment says Nam Nguyen negotiated contracts and bribes with Vietnamese government officials while Lukas negotiated with vendors in the United States. Kim and An Nguyen allegedly arranged for the transfer of funds at Nam Nguyen’s direction.

The conspiracy count carries a maximum penalty of five years in prison, a fine of the greater of $250,000 or twice the gain; and a three year term of supervised release. The FCPA counts each carry a maximum penalty of five years in prison, a fine of the greater of $100,000 or twice the gain; and a three year term of supervised release. Nexus Technologies Inc., faces a maximum $2 million fine per count, if convicted.

The DOJ's announcement said the case was investigated by the FBI and the U.S. Department of Commerce, Office of Export Enforcement. The government hasn't said whether the four individuals or their company may have violated U.S. export rules.

As the Justice Department says, an indictment is merely an accusation and the defendant is presumed innocent until and unless proven guilty at trial beyond a reasonable doubt.

View the DOJ's Sept. 5, 2008 release here.

View a copy of the indictment here.

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