Are Stuart And Rose Carson Planning To Plead?

There could be a lot of reasons for the latest order in the Carson case.

Stuart and Rose Carson asked for new conditions of release. The married couple had secured their million dollar appearance bonds with two homes -- one in California and the other in Florida. This month, the married couple asked the judge to cut their bonds in half and remove the encumbrance on the Florida home.

The prosecutors agreed and the judge signed the order.

Why did the Carsons ask? And why did the government agree? 

We don't know.

But in Florida, there's an unlimited homestead exemption. That means houses aren't subject to forced sale, either before or after death. It's the ultimate protection against creditors -- the best in the nation.

In May, the Carsons' lost their motion to dismiss the case against them based on the definition of 'foreign official.'

They're accused of bribing employees at state-owned companies in Korea, China, the UAE, and Malaysia.

They have another motion to dismiss that's pending. It argues that the Travel Act is unconstitutional and didn't apply to their conduct. (We'll discuss that motion in another post.)

After that, their jury trial on FCPA and Travel Act charges is set to open on June 5, 2012.

The Carsons are presumed innocent, of course. But their former employer CCI and a couple of ex-colleagues, Mario Covino and Richard Morlok, pleaded guilty in the case more than two years ago. Evidence and testimony against the Carsons will come from them.

As we've said, the odds are always against FCPA defendants. So if the Carsons lose their latest motion to dismiss, will they be ready to cut a plea deal with the DOJ?

And is their use of the Florida homestead exemption advance planning -- protection against claims and civil litigation that might follow a guilty plea?

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Download a copy of the stipulation and proposed order to amend pretrial conditions of release for Stuart and Hong 'Rose' Carson here. 

'Foreign Official' Challenge Fails Again

Judge James V. Selna yesterday denied the Carson defendants motion to dismiss ten FCPA-related counts in the indictment against them based on the definition of "foreign official" in the FCPA.

Stuart Carson, his wife Hong “Rose” Carson, Paul Cosgrove, and David Edmonds -- all former executives of California-based Control Components Inc. -- had argued that employees of state-owned enterprises aren't "foreign officials," as the DOJ contends.

The defendants said the state-owned companies where officials were allegedly bribed -- Korea Hydro and Nuclear Power, PetroChina, China Petroleum Material and Equipment Corporation, China National Offshore Oil Corporation, National Petroleum Construction Company, Dongfang Electric Corporation, Guohua Electric Power, Petronas -- aren't covered by the FCPA.

Judge Selna disagreed. He said it's a question of fact.

In making his decision, he declined to review the legislative history of the FCPA, saying:

The Court finds that the statutory language of the FCPA is clear, that the statutory scheme is coherent and consistent, and that resort to the legislative history of the FCPA is unnecessary.

 He then said in a footnote,

Defendants include a comprehensive review of the legislative history of the FCPA with their motion. (See Decl. of Prof. Michael J. Koehler, Feb. 2, 2011, ECF No. 305.) The Government argues that “nowhere in the vast review of legislative history can the defendants point to a single quote that supports the position that the FCPA should not apply to employees of [state-owned enterprises].” (Opp’n at 35.) Defendants reply that “the inverse is equally true, that is, the Government ‘cannot point to a single quote’ from a member of Congress that supports the position that the FCPA should apply to employees of [state-owned enterprises].”

The judge also disagreed with the defendants’ argument that the FCPA's definition of "foreign official" is void for vagueness. The meaning of “instrumentality” in the FCPA, he said, is sufficiently definite that an ordinary person can understand what conduct is prohibited.

Given the Government’s substantial evidentiary burden to establish that a business entity constitutes a government instrumentality, and the scienter requirement mentioned above, the definition of a “foreign official” does not encourage arbitrary or discriminatory enforcement.

Judge Selna mentioned the same challenges to the meaning of "foreign official" in the Haiti Telco and Lindsey cases, which both also failed. He said: "The Court reaches the same conclusion as these district courts: state-owned companies may be considered 'instrumentalities' under the FCPA, but whether such companies qualify as 'instrumentalities' is a question of fact."

A jury trial of the Carson defendants including Han Yong Kim is now set for June 5, 2012.

The case is U.S. v. Carson, (U.S.District Court, Central District of California, Southern Division - Santa Ana) Case #: 8:09-cr-00077-JVS-1.

Download a copy of Judge Selna's May 18, 2011 Order Denying Defendants’ Motion to Dismiss Counts 1 though 10 of the Indictment here.

Download a copy of the indictment in U.S. v. Carson here.

View Mike Koehler's declaration in support of the defendants' motion to dismiss in U.S. v. Carson et al here.

We Repeat, It's The Travel Act

CCI did it. So did Nexus Technologies, Nam Nguyen, Kim Nguyen, and An Nguyen. And now Flavio Ricotti has done it too.

They've all pleaded guilty in FCPA cases to violating or conspiring to violate the Travel Act.

And let's not forget Fredrick Bourke. A federal jury convicted him of conspiring to violate both the FCPA and the Travel Act.

The what? We've talked about the Travel Act before. But because it's now a big deal in FCPA-related cases, let's have another go.

As the name suggests, the Travel Act (18 U.S. C. §1952) prohibits traveling between states or countries or using an interstate facility in aid of any crime, and carries a 5-year jail sentence for most offenses. The underlying crime doesn't have to be a federal offense, such as an FCPA violation. Traveling around or using the mails to violate a state law can also trigger a Travel Act violation.

State law? Right. Which means the Travel Act can be used, as it was in the CCI cases, to prosecute companies and individuals for bribing private parties. The FCPA only applies to bribes to foreign officals. But some state laws prohibit bribery to private parties. And that's also enough to support a Travel Act charge in a federal prosecution.

For example, in the cases of CCI and some of its ex-employees, the federal government alleged they violated or conspired to violate California's anti-bribery law (California Penal Code section 641.3). It bans corrupt payments anywhere of more than $1,000 between any two persons, including private commercial parties. In their federal indictments, the Travel Act charges alleged violations of California's anti-corruption law, including bribes paid overseas to private parties.

This wasn't a brand new approach by the DOJ. But until the past couple of years, there wasn't much history of Travel Act charges in FCPA cases.

In 2004, two former Health South executives, Robert Thompson and James Reilly, were indicted for Travel Act and FCPA books and records violations. The next year, a jury acquitted them of all charges.

And according to the FCPA Digest, the Travel Act was mentioned in a couple of cases in the 1990s as a predicate act in RICO cases that also involved FCPA violations. The cases involved Young & Rubicam and Ashland Oil.

But now, with the Travel Act popping up in more FCPA-related cases, those responsbile for compliance might want to check their programs, looking out not only for the FCPA but also applicable state anti-corruption laws, including those that might apply to private overseas bribery.

Italian Citizen Pleads Guilty

Former fugitive Flavio Ricotti pleaded guilty yesterday in federal court in Santa Ana, California to a single count of conspiracy to violate the Foreign Corrupt Practices Act and the Travel Act. 

Ricotti, 51, of Bientina, Italy, was a vice president for sales of Control Components Inc. (CCI). He was arrested in February last year in Frankfurt, Germany and extradited to the United States.

He faces up to five years in prison.

In 2009, Ricotti and five other former executives of CCI were named in a 16-count indictment. Also charged were Stuart Carson, CCI's former president, his wife Hong (Rose) Carson, the former director of sales for China and Taiwan, Paul Cosgrove, former director of worldwide sales, David Edmonds, CCI’s former vice president of worldwide customer service, and Han Yong Kim, the former president of CCI’s Korean office. Their trial is scheduled to start on October 4 this year.

As the DOJ says, an indictment is merely an accusation and the defendants are presumed innocent until proven guilty beyond a reasonable doubt.

Ricotti admitted conspiring with other CCI employees to bribe an official of Saudi Aramco, the Saudi Arabian state-owned oil company, and an employee of a private company in Qatar. The bribes were to help win contracts for CCI, which makes valves for the nuclear, oil and gas, and power industries. The conspiracy charge under the Travel Act related to the bribe to the employee at the private company.

Two other former CCI employees pleaded guilty in 2009 to conspiring to bribe officers and employees of foreign state-owned companies on behalf of CCI.

Mario Covino, an Italian citizen, was CCI's former director of worldwide factory sales. He pleaded guilty to one count of conspiracy to violate the FCPA. Covino admitted arranging bribes of about $1 million to officers and employees of several foreign state-owned companies.

Richard Morlok, CCI’s former finance director, pleaded guilty to one count of conspiracy to violate the FCPA and admitted arranging about $628,000 in bribes to officers and employees of several foreign state-owned companies.

Covino and Morlok are scheduled to be sentenced in February next year. They face up to five years in prison.

In July 2009, CCI pleaded guilty to violating the anti-bribery provisions of the Foreign Corrupt Practices Act (15 U.S.C. §78dd-2) and the Travel Act (18 U.S. C. §1952). It admitted bribing foreign officials in a decade-long scheme to secure contracts in about 36 countries. CCI's three-year plea agreement imposed a criminal fine of $18.2 million and required appointment of a compliance monitor and cooperation with the DOJ's investigation.

CCI is owned by British-based IMI plc, which trades on the London Stock Exchange under the symbol IMI.L.

View the DOJ's April 29, 2011 release 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.