'It's A Growth Industry, Isn't It?'

Jack Stanley's admissions when he pleaded guilty three years ago to conspiracy to violate the FCPA and commit mail and wire fraud were staggering.

The former CEO of KBR helped funnel $182 million in bribes to government officials in Nigeria. 

Judge Keith P. Ellison gave Stanley a preliminary sentence of 84 months in prison (subject to final review after his cooperation) and ordered a $10.8 million restitution payment.

On February 3, Stanley is set to appear again before the judge to learn his final sentence.

Here's a look at what happened during Stanley's initial appearance, arraignment, and plea before Judge Ellison on September 3, 2008. William Stuckwisch was the prosecutor.

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THE COURT: Unless I have forgotten how to do multiplication, six and a half years would be what, 78 months?

MR. STUCKWISCH: That's correct, Your Honor. The [Federal Sentencing] Guidelines range calculated by the Government for Count Two would be 78 to 97 months.

THE COURT: So it is within that Guideline range?

MR. STUCKWISCH: It would be within the Guideline range on Count Two, and then --

THE COURT: I know, Count One would be a lot higher.

MR. STUCKWISCH: Correct.

THE COURT: And in terms of the purposes of punishment, do you think this is primarily as a matter of
general deterrence? I doubt he's a continuing risk, is he?

MR. STUCKWISCH: No, Your Honor, we don't believe he's a continuing risk. It's both -- it's general deterrence in the area of enforcement of the Foreign Corrupt Practices Act. A sentence such as this would send a message to other executives that foreign bribery is taken very seriously and penalties will be paid for violators of the Act. In terms of Mr. Stanley himself, I should note that his conduct here was egregious.

THE COURT: I'm concerned about the conduct. I'm concerned about it.

MR. STUCKWISCH: Yes, Your Honor.

THE COURT: Is this comparable to other sentences that have been imposed pursuant to the Foreign Corrupt Practices Act?

MR. STUCKWISCH: This would be the longest sentence to date in a Foreign Corrupt Practices Act.

THE COURT: That's what I wondered about. I know it's a growth industry, isn't it, the Foreign Corrupt Practices Act? It's keeping a lot of white collar lawyers busy; is that fair?

MR. STUCKWISCH: I think that's fair. I believe the previous longest sentence of an individual in an FCPA case was I believe 60-odd months here in Houston. [Editor's note: sentence of Douglas Murphy, American Rice Inc., 63 months.]

THE COURT: The distinguishing aspects of this one are the dollar volume and the far-ranging nature of the conspiracy?

MR. STUCKWISCH: Those are distinguishing factors, and Mr. Stanley's position at the company. He was the CEO and chairman of his company.

THE COURT: Was it a Halliburton subsidiary; is that right?

MR. STUCKWISCH: We haven't identified the company in the public papers, Your Honor, because of Justice Department Guidelines about identifying uncharged wrongdoers.

THE COURT: Okay.

MR. STUCKWISCH: But if that's important to your consideration --

THE COURT: No, no. I know something about that corporation. He wasn't the chairman of the corporation. It's set forth in the Pretrial Report he was chairman of some subsidiary, I have to believe.

MR. STUCKWISCH: That's right, Your Honor, he was the chairman of a major global engineering and construction services company, business around the world, constructing, among other things, large liquefied natural gas plants, which were at issue in these projects. This case is distinguishable also because of the wide range and high level of the officials, the foreign government officials whom were to be bribed. This scheme is distinguish able from previous cases by the sophistication of the scheme, funneling the bribes through agents and Swiss bank accounts, other foreign bank accounts, shell companies, nominee accounts. I think it's fair to say that this is the largest FCPA prosecution to date.

THE COURT: Well, I'm not trying to play defense counsel, I'm really not, but I'm concerned about this proceeding, as I am about all proceedings. But it appears Mr. Stanley was dealing with a substantial physical dependency during much of this time. Was that factored in?

MR. STUCKWISCH: Yes, Your Honor.

THE COURT: I know the Guidelines don't allow you to, but --

MR. STUCKWISCH: No, it was factored in, Your Honor. We considered not only his conduct here, but his personal circumstances, including his alcoholism and his current health. We've also considered our ongoing investigations and the needs of our investigation and our desire that Mr. Stanley cooperate --

THE COURT: All right. Do you think a 5K [downward sentencing departure based on Substantial Assistance to Authorities] is realistic?

MR. STUCKWISCH: If Mr. Stanley provides substantial assistance, I think a 5K is realistic, yes, Your Honor. And we have every expectation that Mr. Stanley is going to provide substantial assistance, to be perfectly honest. We wouldn't be doing the deal unless we believed that.

How Much Prison Time For Lindsey and Lee?

They're facing up to 30 years behind bars.

The government isn't likely to ask for jail terms of that length. But prosecutors will want long sentences -- probably more like 10 or 12 years.

It will be up to Judge Matz to decide how long Keith Lindsey and Steve K. Lee will serve.

Lindsey, 66, and Lee, 60, were convicted last week of one count of conspiracy to violate the FCPA and five counts of violating the FCPA. Each count is punishable by a maximum of five years in prison.

Sentencing is set for September 16.

How have other FCPA defendants done? Some judges have shown a lot of sympathy.

Bobby Jay Elkin Jr., a former manager in Kyrgyzstan for a tobacco company, avoided prison after pleading guilty last year to one count of conspiracy to violate the FCPA. The government had asked for a 38-month prison term. The judge thought Elkin, 50, was a hero for protecting his company's people during a civil uprising.

Leo Winston Smith received another short sentence. He pleaded guilty in 2009 to bribing an official from the U.K. Ministry of Defense. On an FCPA conspiracy count and tax-related charge, he received just six months in prison followed by six months of home confinement. The government had asked for a 37-month sentence. He's 76 and had suffered three heart attacks before being sentenced.

Gerald Green and his wife Patricia each got just six months in prison after an LA jury found them guilty of conspiring to violate the FCPA, nine counts of violating the FCPA, and seven counts of money laundering. Patricia Green was also found guilty on two counts of falsely subscribing to a U.S. income tax return. The government wanted them each to serve ten years in prison. Gerald Green was 78 when sentenced last year, and suffering from emphysema.

On the other end of the range, here are the longest sentences in FCPA cases. Charles Jumet and Jack Stanley may serve less time than shown in return for their cooperation with the government.

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Chart courtesy of Michael Volkov of Mayer Brown LLP in Washington, D.C.

The Hard Timers

Compliance officers will want to keep a copy of the table below close at hand. What better way to answer those who insist that the FCPA is small potatoes, after all, when you look at the relatively few enforcement actions over the past 33 years.

Here are the 22 men (no women so far), most of them former company executives, who've spent time in prison for FCPA-related convictions. Each name that follows represents a terrible tragedy, often with permanent damage extending to families. As the compiler of the list said: "By my count there have been 187 people charged with violating the FCPA. This list will look a little different at the end of the year."

We'd like to thank the generous individual responsible for this post, but that's not possible. He or she has asked to remain anonymous, making this contribution pro bono publico.

The information is compiled from the Federal Bureau of Prisons' inmate locator. Readers with suggestions and corrections are welcome to let us know.

Name	Related Company	Register #	Age Race Sex	Release Date	Location
FERNANDO MAYA BASURTO	ABB Ltd	39135-177	48-White-M	UNKNOWN	HOUSTON FDC
CHARLES PAUL EDWARD JUMET	Ports Engineering Consultants Corporation	75638-083	53-White-M	UNKNOWN	NOT IN BOP CUSTODY
SULEIMAN A NASSAR	Lockheed	45723-019	73-White-M	11/19/1996	RELEASED
DAVID H MEAD	Saybolt	79529-079	72-White-M	7/21/1999	RELEASED
HERBERT STEINDLER	General Electric	02423-061	71-White-M	3/13/2000	RELEASED
HERBERT LAWRENCE TANNENBAUM	Tanner Management Corp	82537-054	85-White-M	4/20/2000	RELEASED
RICHARD G PITCHFORD	Central Asia American Enterprise Fund	26036-016	75-White-M	12/4/2003	RELEASED
ROBERT RICHARD KING	Owl Securities and Investments	14447-045	76-White-M	6/30/2006	RELEASED
STEVEN LYNWOOD HEAD	Titan	95321-198	63-White-M	9/29/2008	RELEASED
YAW OSEI AMOAKO	ITXC Corporation	60267-050	58-Black-M	12/17/2008	RELEASED
PAUL GRAYSON NOVAK	Willbros	43505-279	43-White-M	12/19/2008	RELEASED
ROGER MICHAEL YOUNG	ITXC Corporation	29574-016	49-White-M	4/10/2009	RELEASED
STEVEN JOSEPH OTT	ITXC Corporation	60540-050	50-White-M	6/17/2009	RELEASED
RAMENDRA BASU	World Bank	29254-016	47-White-M	8/7/2009	RELEASED
FAHEEM MOUSA SALAM		28567-016	32-White-M	1/7/2010	RELEASED
MISAO HIOKI	Bridgestone	90290-111	56-Asian-M	11/23/2010	LOMPOC USP
DAVID KAY	American Rice	13749-179	58-White-M	1/27/2011	TEXARKANA FCI
JIM BOB BROWN	Willbros	66158-179	48-White-M	1/29/2011	ATLANTA USP
CHRISTIAN SAPSIZIAN	Alcatel SA	78172-004	63-White-M	3/18/2011	NE OHIO CORR CTR CI
JASON EDWARD STEPH	Willbros	36444-177	40-White-M	3/28/2011	EL RENO FCI
DOUGLAS MURPHY	American Rice	13987-179	53-White-M	12/31/2012	EL RENO FCI
SHU QUAN-SHENG	AMAC International	58250-083	69-Asian-M	2/18/2013	LA TUNA FCI

Frederic Bourke's Big Bet

While we're watching the teletype (left) for news about William Jefferson's sentencing Friday morning (see our post here), let's talk about Mr. Bourke. He was sentenced Tuesday to a year and a day in jail and fined a million dollars for conspiring to violate the FCPA and lying to FBI agents. People in the courtroom said when he was convicted, Bourke was shocked. So apparently he never expected the jury to find him guilty. But when he was sentenced, he was happy and relieved. So he must have been expecting a lot worse. And that probably means the DOJ never offered him a deal with so little jail time.

Why was Bourke shocked by the verdict? Because he had good facts and good law and good lawyers. He didn't pay any bribes himself; he was one of Viktor Kozeny's victims; he'd blown the whistle on Kozeny's fraud and testified to a state grand jury that indicted Kozeny; he thought he'd have the local law defense (he didn't; Judge Scheindlin ruled against it); George Mitchell was his friend, co-investor and character witness; he had smart, active lawyers, and so on. So let's face it. As a defendant, Bourke had a lot going for him. That's why he was shocked by the verdict.

But should he have been? We don't think so. Defendants haven't done well with juries in FCPA-related cases. There hasn't been a full acquittal -- Mr. Jefferson's split decision notwithstanding -- since 1991. Why? For two main reasons.

Before we get to reason number one, we acknowledge that there are lots of legal arguments you can raise about the words of the FCPA -- about the business nexus element, the meaning of "foreign official," and others. And those are good arguments on paper. But judges haven't wanted to hear much about them. In the Kay and Murphy case, for example, the Fifth Circuit even warned against defendants who try "splitting hairs" (they were talking about the meaning of "obtaining or retaining business"). So that's reason number one why defendants don't do well in court. Judges don't welcome a lot of legal argument about the FCPA. Bourke's trial also illustrated the point. Judge Scheindlin didn't allow the local law defense. That surprised us and it dented Bourke's chances of acquittal.

Reason number two: Juries hate graft. That's what we said when the Greens were convicted in September. There's no other conclusion to draw from the trial record in FCPA-related prosecutions stretching back eighteen years. We'll say it again: 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. That's how the prosecutors tell it and juries lap it up. So 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 who should know better stepped over the line. And they'll convict.

Coming back to Bourke, we'd have to say he took a big risk going to trial, even though he had a lot going for him. But he was fortunate. Judge Scheindlin was on the bench. She said he was at least partly a victim so she gave him a break on the jail time. That's how justice should work (and why no one is sorry the federal sentencing guidelines aren't compulsory anymore).

One more thing. Bourke still has an appeal to the Second Circuit. Defendants who plea bargain can't appeal but those who go to trial can. That's a reason to go to trial, although it can't be nice to sit in a jail cell hoping your appeal will work (they rarely do). Still, Bourke's chances with the Second Circuit aren't too bad.

Our conclusion: If the government never offered Bourke less than a year in prison as part of a plea deal, he came out ahead by going to trial. And he may do even better after his appeal. But his decision to go to trial in the first place was against the odds. And he ended up lucky.

How Appealing Are Bourke's Chances?

On the subject of Frederic Bourke -- the wealthy entrepreneur convicted in July of conspiring to violate the Foreign Corrupt Practices Act and lying to FBI agents -- we now know what issues his lawyers plan to raise on appeal. Most relate to what Bourke knew and intended -- his mens rea. In a recent pleading arguing for his release pending the appeal, his lawyers said:

[T]he issues Bourke intends to raise on appeal relate closely to each other and, in turn, to the critical disputed aspects of the case. A series of issues—the conscious avoidance instruction, the good faith instruction, the absence of an instruction on "willfully and corruptly," and the exclusion of the Dresner testimony, for example—bear directly on Bourke's mens rea, which was the central battleground at trial. The assessment of Bourke's mens rea, in turn, depends heavily on the weight given the testimony of Bodmer and Farrell. . . .

The mens rea argument didn't work for Bourke in his motion for acquittal or a new trial (see here). Nor did it work for David Kay and Douglas Murphy in the Fifth Circuit or with the Supreme Court. See our posts here and here.

But it might work for Bourke on appeal. He's got deep pockets and good facts. And the timing is right. There are more questions these days about the criminalization of business mistakes and mere negligence. Under the influence of thoughtful commentators such as Ellen Podgor at the White Collar Crime Prof Blog and Tom Kirkendall at Houston's Clear Thinkers, more appellate justices must be wondering if the vague elements that are part of so many white-collar prosecutions are fair -- including the ever-more elusive mens rea element. Last month, the Supreme Court agreed to review whether the honest-services statute used to prosecute Jeffrey Skilling and Conrad Black (18 U.S.C. § 1346) is too vague to meet constitutional standards. If that's a signal of wider judicial discomfort with some of the push-the-envelope white-collar prosecutions, mens rea could be in play, and that could help Bourke.

His prosecution didn't include a substantive FCPA charge. Bourke was tried and convicted for conspiracy to violate the FCPA. On appeal, some of his arguments will probably relate exclusively to the conspiracy elements -- such as whether there needs to be an overt act. So he could still win on appeal without us learning anything new about the FCPA itself.

Bourke is scheduled to be sentenced on November 10, 2009. He faces up to ten years in prison.

View a copy of the October 16, 2009 Reply Memorandum in Support of Defendant Frederic Bourke, Jr.'s Motion For Release Pending Appeal here.

Read all our posts about the prosecution of Frederic Bourke here.
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