Entries in Blackwater (5)
During the quarter just ended, there were five corporate FCPA enforcement actions, one enforcement against an individual by the SEC, four criminal sentencings of individuals, and three and a half corporate declinations.
Here's what happened:
Will the latest federal indictment involving private security firm Blackwater lead to Foreign Corrupt Practices Act charges? It's possible, based on allegations against the five defendants.
On Friday, a federal grand jury in North Carolina indicted Gary Jackson, Blackwater’s former president; William Matthews, the former executive vice president; Andrew Howell, the former general counsel; Ana Bundy, a former vice president; and Ronald Slezak, a former weapons manager.
They were charged with 15 counts of conspiracy to violate firearms laws, making false statements and representations on federally licensed firearms dealers' records, possession of machine guns, possession of other firearms (short-barrelled shotguns) not registered in the National Firearms and Registration and Transfer Record, and aiding and abetting.
They weren't charged with bribing foreign officials. But federal investigators have reportedly been looking into possible violations of the Foreign Corrupt Practices Act by Blackwater, now renamed Xe. And the indictment contained this allegation:
Another means [of circumventing the possession and disposition of arms] consisted of Blackwater/Xe's efforts to gain favor with the Government of the Kingdom of Jordan. When the King of Jordan came to examine Blackwater/Xe's training facility at Moyock, North Carolina, the defendants arranged to present the King and/or his entourage with several firearms as gifts. When the defendants subsequently realized they were unable to account for the disposition of the firearms, they falsified four separate Alcohol, Tobacco, and Firearms (ATF) Form 4473s for submission to federal authorities. The defendants falsely completed the forms to give the appearance that the weapons had been purchased by them as individuals.
Giving gifts to foreign officials to obtain or retain business can violate the FCPA. Members of royal families are foreign officials under the law.
In November last year, the New York Times reported that Blackwater executives authorized secret payments of about $1 million to Iraqi officials that might have violated the FCPA. The payments were "intended to silence [the officials'] criticism and buy their support after a September 2007 episode in which Blackwater security guards fatally shot 17 Iraqi civilians in Baghdad," the Times said.
Four former employees the Times interviewed for the November story claimed the payments were approved by the company's president and money was wired to Iraq from accounts in Jordan. The employees didn't know if the payments were actually made. The report said "Blackwater’s strategy of buying off the government officials, which would have been illegal under American law, created a deep rift inside the company, according to the former executives."
A report by the Times Friday said, "While the indictment is somewhat limited in scope, it could be the government’s opening salvo in a broader offensive to bring criminal charges against the company. They could include charges for bribery and export violations, according to officials familiar with the case, perhaps under a strategy of turning former and current executives of the company against one another."
Download a copy of the April 15, 2010 indictment in U.S. v. Gary Jackson et al here.
Virginia-based DynCorp International said payments by its subcontractors to speed up visas and permits may have caused the company to violate the Foreign Corrupt Practices Act. In its November 12, 2009 quarterly report (Form 10-Q here), it said it found about $300,000 in payments by subcontractors to "expedite the issuance of a limited number of visas and licenses from foreign government agencies." The company didn't include any details about the project involved or the subcontractors referred to in the disclosure. It said it had self-reported the payments to the Justice Department and Securities and Exchange Commission a week earlier and hired outside counsel to conduct an investigation.
On November 23, 2009, the company said in a further filing (Form 8-K here) that "Curtis L. Schehr’s employment as Senior Vice President, Chief Compliance Officer and Executive Counsel of DynCorp International LLC, DynCorp International Inc.’s wholly-owned subsidiary, was terminated without cause."
Schehr, 50, had been in the job since May 2009. Before that he was Dyncorp's Senior Vice President & General Counsel from October 2006.
The Foreign Corrupt Practices Act prohibits both direct and indirect corrupt payments to foreign officials to obtain or retain business. Indirect payments typically pass through the hands of an overseas partner, agent, or subcontractor, then end up with the foreign official for an unlawful purpose.
But the FCPA includes an exception for payments for “routine governmental action . . . which is ordinarily and commonly performed by a foreign official." See 15 U.S.C. §§78dd-1 (b) and (f) (3) [Section 30A of the Securities & Exchange Act of 1934]. Examples in the statute of so-called facilitating payments include those for "obtaining permits, licenses, or other official documents to qualify a person to do business in a foreign country" and "processing governmental papers, such as visas and work orders."
Aren't those the payments Dyncorp disclosed? Maybe not. As we've said before, the facilitating payments exception won't apply if there was no legitimate routine governmental action pending for which a bribe was paid. Action obtained or sought to be obtained by subornation of the official’s duty is not an action ordinarily and commonly performed by a foreign official. So if the visas and licenses mentioned in Dyncorp's disclosure weren't already pending or set to be issued, payments "to expedite" them could be outside the exception. And while the FCPA doesn't limit the size of facilitating payments, the $300,000 disclosed by Dyncorp suggests a quid pro quo for something more than routine governmental action.
DynCorp International Inc. has about 14,000 employees worldwide and reported revenue last year of $3.21 billion. According to its website, the company has "recruited, trained, and deployed more than 6,000 highly-qualified civilian peacekeepers and police trainers to 11 countries, including Haiti, Bosnia, Afghanistan, and Iraq, for the [U.S.] Department of State." It provides "logistics and contingency support to the United States military around the world, including major contract task orders in Afghanistan and Kuwait to augment U.S. Army logistics capabilities, as well as support for Africa Union peacekeepers in Somalia."
After the Iraqi government refused to renew Blackwater's license to operate there, Dyncorp replaced it in a contact to supply helicopters for U.S. diplomats in Baghdad. The Wall Street Journal reported that the contract has been delayed "well into next year as DynCorp's aircraft weren't suited to the job."
DynCorp International Inc. trades on the New York Stock Exchange under the symbol DCP.
Four former employees the Times interviewed claimed the payments were approved by the company's president and money was wired to Iraq from accounts in Jordan. T