Second Thoughts About The Second Sting Trial

Another group of defendants went on trial this week in federal court in the District of Columbia in the Africa sting case. 

Patrick Caldwell, John Mushriqui, Jeana Mushriqui, Stephen Giordanella, John Godsey, and Marc Morales each face one count of conspiracy to violate the FCPA. Except for Giordanella, they also face multiple substantive FCPA counts. And the government has included a forfeiture count against all of them.

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Twenty two individuals were charged in the case. All but one were arrested early last year while attending a trade show in Las Vegas. Three have pleaded guilty.

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The trial of four other defendants charged in the case -- Pankesh Patel, Andrew Bigelow, John Benson Weir, and Lee Allen Tolleson -- ended in a mistrial in July when the jury was deadlocked after five days of deliberations.

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During a three-year undercover operation, FBI agents posed as representatives of the president of Gabon. The DOJ alleges the defendants conspired to pay bribes to the phony government officials to win contracts to supply ammunition and body armor to the country's presidential guard.

Richard Bistrong, the DOJ's cooperating witness, introduced the undercover FBI team to his friends and colleagues in the military and police equipment industry. Bistrong had already pleaded guilty to unrelated FCPA violations and has been trying to earn a lighter sentence.

Although they're all on trial for being part of a common conspiracy, some defendants have said they didn't even know each other and were brought together by Bistrong.

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In Mike Koehler's Congressional testimony last year about FCPA enforcement, he described this case and some others involving multiple individual defendants as 'manufactured.'

He said:

Prosecuting individuals is a key to achieving deterrence in the FCPA context and should thus be a 'cornerstone´ of the DOJ's FCPA enforcement program. However, the answer is not to manufacture cases or to prosecute individuals based on legal interpretations contrary to the intent of Congress in enacting the FCPA while at the same time failing to prosecute individuals in connection with the most egregious cases of corporate bribery.

As we said after the mistrial of the first four sting defendants, the feds never needed to use their bag of tricks to dig up FCPA defendants.

'There are plenty of real targets out there,' we said, 'and they're easy to find. Just listen to the whistleblowers. Or look inside Tyson Foods, Siemens, BAE, Daimler, and dozens of other companies that have admitted violating the FCPA, paid big fines, but produced no individual FCPA defendants.'

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An account this week in the Blog of the Legal Times said prosecutor Laura Perkins referred to the sting defendants as 'savvy business people' who knew what they were doing and deserve to be punished.

Is that true?

In July, a law enforcement officer told us many of the defendants and their companies were 'so small or regional that I haven’t heard of them.' He thought any juror would wonder why the government is trying to get rid of some of the same 'hardworking' people who supported America's wars in Iraq and Afghanistan by providing equipment for the troops.

Good question.

Counsel To The Top Ten

What law firms and lawyers represented the companies from our list of the top ten corporate FCPA settlements of all time?

Here they are:

1. Siemens - Davis Polk (Scott W. Muller, Angela T. Burgess)

2. KBR - Paul Hastings (Timothy L. Dickinson, William F. Pendergast, Jennifer D. Riddle)

3. BAE - Linklaters (Lawrence Byrne)

4. Snamprogetti - Sullivan & Cromwell (Karen Patton Seymour, Nicolas Bourtin)

5. Technip - Patton Boggs (Robert D. Luskin) and Wachtell Lipton (John F. Savarese)

6. JGC Corporation - Latham & Watkins (Manuel A. Abascal)

7. Daimler - Willkie Farr (Martin J. Weinstein), Hogan & Hartson (Carl S. Rauh), and Skadden Arps (Gary DiBanco)

8. Alcatel-Lucent - Sale & Weintraub (Jon A. Sale) and Willkie Farr (Martin J. Weinstein, Robert J. Meyer)

9. Panalpina - Baker & McKenzie (Richard N. Dean, Douglas M. Tween)

10. Johnson & Johnson - Reed Smith (Eric A. Dubelier)

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Compiled from outside counsel of record on deferred and non-prosecution agreements, except in the case of Alcatel-Lucent, which was obtained from PACER.

Stewart On Tyson: Who's Accountable?

James B. Stewart, left, arguably America's finest business writer, has looked at the Tyson FCPA case for the New York Times. And he's asked some tough questions about enforcement.

In February, Tyson Foods settled FCPA violations with the DOJ and SEC for $5.2 million. Tyson had made illegal payments to government-employed inspectors in Mexico, and covered-up the payments.

The SEC said it was "not until two years after Tyson Foods officials first learned about the illicit payments that its counsel instructed Tyson de Mexico to cease making the payments." That fact was curious. It showed that people at the company decided to continue the bribery after it was discovered.

Yet no individuals were prosecuted.

On Friday, from his new perch at the Times, Stewart (BA DePauw University, JD Harvard Law, former associate at Cravath, Swaine & Moore, and winner of a Pulitzer Prize) picked up the story:

When I called this week, press officers for both the Justice Department and SEC said the investigation was over and no one would be named or charged. This seems to reflect the belief that the deferred prosecution agreement, penalty and SEC settlement largely achieved the government’s objectives, which were to stop the illegal conduct at Tyson and deter future instances. The decision not to pursue cases against individuals seems also to reflect budgetary constraints at both agencies (cases involving foreign witnesses can be especially costly) and, for the Justice Department, the burden in a criminal case of proving guilt beyond a reasonable doubt. But surely bribery, not to mention other forms of corporate wrongdoing, would be more effectively deterred if someone was actually held accountable for it.

As we reported last year, more than sixty percent of the companies that have settled FCPA enforcement actions since 2005 had no individual employees or agents who were charged.

The DOJ has consistently said individuals are still a target. As examples, it cites the shot-show prosecutions -- 22 individuals indicted for FCPA violations -- and the mass FCPA indictment of eight CCI executives, six at one time. It also prosecuted Frederic Bourke, Gerald and Patricia Green, and Keith Lindsey and Steve Lee of Lindsey Manufacturing, among others. 

But then there's Siemens, an $800 million enforcement action. The DOJ's Lanny Breuer called it "arguably the most egregious example of systemic foreign corruption ever prosecuted." Yet no one from the company was ever indicted in the U.S.

U.K.-based BAE paid $400 million to settle an FCPA case. No one from BAE has faced U.S. charges. Again, Daimler AG from Germany paid $185 million in penalties, and so far no one from that company has been charged here.

The pattern is broken, but only slightly, by the biggest enforcement action of them all. From the four companies that made up the TSKJ Nigeria consortium -- Technip, Saipem, KBR, and JGC -- just one U.S. executive and two Britons have been charged. Meanwhile, the four TSKJ companies have paid $1.5 billion to settle with the DOJ and SEC.

Unlike the foreign executives from Siemens, BAE, and Daimler, the Tyson executives responsible for the Mexican bribery were in the U.S. The DOJ and SEC didn't name them but Stewart did.

As Stewart wrote, "Companies seem all too willing to go along with this, passing settlement costs on to the shareholders while sweeping the details — and names — under the rug."

Do current FCPA enforcement practices really deter bribery? Or do they weaken the rule of law and encourage cynicism?

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.]

Top Ten Disgorgements

There's been a lot of talk lately about the DOJ's "expansive enforcement practices" and practically none about the SEC's. So let's get started by taking a look at a remedy the SEC now uses in most FCPA cases: disgorgement.

As one commentator said a couple of years ago, disgorgement was never mentioned when the FCPA was first debated and adopted in 1977, nor when Congress amended the law in 1988 or 1998. In fact, as of 1977, the SEC had barely used disgorgement in any type of securities enforcement actions, and 27 years passed before disgorgement popped up in an FCPA case.

That was in 2004 when ABB Ltd disgorged $5.9 million to settle civil antibribery, books-and-records, and internal-controls offenses. Since then the SEC has used disgorgement in about three-quarters of its FCPA-related enforcement actions.

Here are the SEC's top ten FCPA-related disgorgements (including prejudgment interest):

1. Siemens $350 million in 2008.

2. KBR $177 million in 2009.

3. Snamprogetti $125 million in 2010.

4. Technip $98 million in 2010.

5. Daimler $91.4 million in 2010.

6. Alcatel-Lucent $45 million in 2010.

7. Chevron $25 million in 2007.

8. Pride $23.5 million in 2010.

9. GE $22.5 million in 2010.

10. Baker Hughes $23 million in 2007.

If we've missed any cases that should appear in this initial list, please let us know.

For comparison, take a look at our current list of the top ten FCPA enforcement actions of all time.

The cheesiest disgorgement of all time? SEC v. Tyco Int’l. Ltd., a 2006 case. For numerous charges including fraud by inflating its operating income by $567 million, and antibribery violations under the FCPA for payments to government officials in Brazil, the company paid a $50 million penalty and a $1 million disgorgement.

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Our thanks to a reader in D.C. who helped research this post.