'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.

The Justice Department, Miss Havisham, And A Wish For The New Year

By Jeffrey M. Kaplan

In a post occasioned by the twentieth anniversary of the Federal Sentencing Guidelines for Organizations, I described two very different approaches to promoting compliance programs that exist within the U.S. Department of Justice.

The first – that of the Fraud Section – is characterized by embracing the considerable promise of such programs to prevent and detect wrongdoing. It involves not only use of the “stick” of punishing companies for not having good  anti-corruption programs, but also the “carrot” – by providing companies with credit for “pre-existing” programs and specifying, in settlement documents, what anti-corruption efforts should entail.

By contrast, the latter approach – that of the Antitrust Division – has been characterized by near total neglect. Not surprisingly, antitrust compliance efforts ― at least relative to those for other risk areas ― seem to have receded in importance since the Guidelines went into effect.

Recently, the oddity of the Justice Department’s split personality on compliance programs was highlighted in a way that, to my knowledge, has never happened before. Last fall, Bridgestone Corporation was prosecuted for both FCPA and antitrust violations. As part of the settlement, the company was required to maintain various specified anti-corruption measures similar to those mandated in various recent FCPA cases. But on the subject antitrust compliance there was nothing of this sort.

(Bridgestone's plea agreement (pdf) can be downloaded here. Attachment B is the corporate compliance program.)

In other words, the Department of Justice seemed to believe that it was important for the company to have, among other things, risk assessments, clearly articulated policies, procedures, training, certifications, reporting protocols, self-assessments and many other measures to prevent the recurrence of corruption - but none of these steps to prevent the recurrence of antitrust violations. Is this really the message the Department wants to send?  E.g., if it makes sense to require a company to assign one or more senior executives the responsibility for ensuring anti-corruption compliance – executives with the requisite level of authority, autonomy and resources to do that job – why wouldn’t the government do the same for antitrust?

The Bridgestone plea agreement is indeed a strikingly peculiar read from a law enforcement policy perspective. One almost has the sense from it that the Antitrust Division, when it comes compliance, has become the Miss Havisham of the U.S. enforcement community – stuck in the past and missing out on today.

On the other hand, by highlighting the Department’s long standing lack of consistency on compliance in such a singular way, perhaps the case will contribute to 2012 being the year that the Antitrust Division finally gets serious about encouraging companies to promote law abidance through compliance programs.

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Jeffrey M. Kaplan, a partner in the Princeton, New Jersey office of Kaplan & Walker LLP, has practiced in the compliance law field since the early 1990’s. He serves as Adjunct Professor of Business Ethics at NYU’s Stern School of Business. His Conflict of Interest Blog is the authoritative source for COI discussion online. He can be contacted here.

Measuring Naaman's Jail Time

How does the thirty-month prison term Ousama Naaman received last week compare with other FCPA sentences?

It's near the middle.

Here are some shorter sentences:

In January this year, Antonio Perez received two years in prison in the Haiti Telco case. He admitted paying $36,375 in bribes.

Leo Winston Smith was given just six months jail time in December 2010. The former salesman for Pacific Consolidated Industries was 75 and in poor health.

In October 2010, Bobby Jay Elkin Jr., a country manager in Kyrgyzstan for tobacco company Dimon Inc, copped just three years probation. The judge called him a hero for helping his subordinates during local rioting.

In September 2010, Nam Nguyen was sentenced to sixteen months in prison. His brother, An Nguyen, received nine months, and their sister, Kim Nguyen, was sentenced to two years probation.

Joseph Lukas, a co-defendant with the Nguyens, was let off with two years probation.

In August 2010, Hollywood couple Gerald and Patricia Green got six months in jail. Gerald Green, 78, was suffering from emphysema.

Frederic Bourke was sentenced in 2009 to a year and a day in prison. The judge said, “After years of supervising this case, it’s still not entirely clear to me whether Mr. Bourke is a victim or a crook or a little bit of both.”

In all those cases, as in Naaman's, the DOJ had asked for more jail time.

Some longer FCPA-related prison terms are shown below. Five of those defendants, including Joel Esquenazi, were sentenced in the U.S. District Court for the Southern District of Florida (Miami), known as a tough sentencing venue.

In October, Esquenazi received a fifteen-year prison term -- the longest in an FCPA-related case. A jury convicted him on multiple related charges -- one count of conspiracy to violate the FCPA and commit wire fraud, seven substantive FCPA counts, one count of money laundering conspiracy, and twelve counts of money laundering. Each money laundering-related count carried a maximum twenty-year sentence.

Chart courtesy of Michael Volkov of Mayer Brown LLP in Washington, D.C. Volkov is the primary contributor to the Corruption, Crime & Compliance Blog.

What Sentence Is Fair For Naaman?

When Ousama Naaman is sentenced -- now scheduled for December 22 at 10:30 AM before Judge Ellen S. Huvelle in federal court in the District of Columbia -- prosecutors will ask for a seven and half year prison term.

Naaman has said that if his bribery conspiracy was really as bad as the DOJ claimed, why weren't others prosecuted? Why was he the only conspirator to face charges in the United States?

Naaman was Innospec's former agent in Iraq. He pleaded guilty in June last year to one count of conspiracy to violate the Foreign Corrupt Practices Act and commit wire fraud, and one count of violating the FCPA.

After indicting Naaman, the DOJ handed off to the U.K. the prosecution of those who may have helped him bribe Iraqi officials. As of today, the U.K. Serious Fraud Office has charged three individuals in the case.

Naaman argued in a brief last month that the U.K. has a more lenient sentencing regime. Even if individuals charged there are more culpable then he is, Naaman said, they won't face long prison terms.

Naaman told Judge Huvelle:

It is unclear what course the government expects the United Kingdom will take with the other co-conspirators. On the one hand, it says it will "defer prosecution" to a foreign sovereign, but -- on the other hand -- the government argues that there can be "no disparity" when the coconspirator has not been charged or sentenced. Obviously, if the co-conspirators are charged in the United Kingdom under a far more lenient sentencing regime than exists in the United States, this will produce a relevant sentencing disparity.

To support his argument, Naaman tracked sentences imposed on defendants convicted in other SFO prosecutions for oil-for-food bribery prosecutions.

The U.K.'s sentencing record, Naaman said, looks like this:

•  Mark Jessop sentenced to 24-weeks imprisonment for engaging in 54 contracts worth more than $12.3 million with Iraq.

•  Riad El-Taher paid $500,000 in bribes to Iraqi officials and was sentenced to 10-months imprisonment, which was later reduced to 8 months.

•  Aftab Noor Al-Hassan sentenced to a suspended sentence or 16-months imprisonment for paying $1.6 million in bribes to Iraqi officials for oil contracts that profited him $4.4 million.

•  Richard Forsyth sentenced to 21-months imprisonment, David Mabey sentenced to 8-months imprisonment and Richard Gledhill was given a suspended sentence of 8-months imprisonment for making illegal payments to Iraq of more than €420,000.

Last month, a reader talking about the Tesler case reminded us that multi-jurisdictional anti-bribery enforcement is complicated. The Naaman case proves his point. 

The Sentencing Guidelines: Field Notes On A 20-Year Experiment

By Jeffrey M. Kaplan

Next Tuesday marks the twentieth anniversary of the Federal Sentencing Guidelines for Organizations, and their highly influential compliance and ethics program standards.

Because these standards are now well-established, it is easy to forget just how path breaking the Guidelines approach ― which entails providing both guidance and incentives for compliance programs ― was at the time. Indeed, the then Chair of the Sentencing Commission referred to this aspect of the Guidelines as both “exploratory” and “developmental.” (Hon. William M. Wilkins, Jr., Preface to Kaplan and Murphy, Compliance Programs and the Corporate Sentencing Guidelines.)

Commemorating the Guidelines anniversary should therefore include taking stock of how this experiment has fared to date. However, this exercise involves multiple avenues of inquiry, because different governmental bodies have addressed the Guidelines approach in different ways.

The anti-corruption aspect of the experiment should, I believe, be seen as a clear success story, as companies of all kinds have in the past few years developed strong ― and sometimes even innovative - anti-corruption compliance programs. This success is reflected in part in the results of the recently published anti-corruption compliance program benchmarking study (discussed here), and in many other ways, too.

Much of the impetus for this activity has, of course, been the “stick” of strict anti-corruption enforcement. But importantly, this has also been the generic (i.e., not industry-specific) risk area where the US Department of Justice has done the most to utilize the “carrot” of providing real enforcement-related incentives and guidance for effective “pre-existing” (meaning prior to the offense in question) compliance efforts. (For more information on this see my prior FCPA Blog posts here and here.)

The SEC’s approach to the Guidelines experiment, by contrast, has been more of a mixed bag. Based on anecdotal evidence (including my own experience) there is no question that the SEC gives credit in enforcement decisions to “pre-existing” programs. However, that agency almost never publicizes actual examples of this. The SEC’s relative silence in this respect is perhaps due to its ill-considered practice of assessing pre-existing programs as a part a company’s “cooperation,” which suggests that compliance matters most to the government as a post-violation remedy, rather than a good-faith effort to prevent wrongdoing in the first instance. 

One hopes that in the years to come the SEC will adjust this aspect of its enforcement policy, so that companies can have a truer picture of the importance of compliance programs to this agency. Doing so would further incent the development and maintenance of strong programs, particularly in publicly traded companies.

And then there is the Antitrust Division of the Justice Department, which has decided that compliance programs won’t count at all in antitrust enforcement matters! (For more information about this peculiar approach, see this posting by Joe Murphy on the SCCE social networking.) While unfortunate, the Antitrust Division’s approach can also be seen presenting a “control group” for Guidelines experiment, i.e., as providing a sense of what happens to compliance programs without the types of incentives pioneered by the Guidelines.  

Based on my twenty years in the field, antitrust compliance efforts ― at least relative to those for other risk areas ― seem to have receded in importance during the time of the Guidelines experiment. This decline is remarkable given that the same period has seen a dramatic growth in antitrust enforcement and also because there was a time where antitrust risk mitigation efforts led the compliance field in innovation and energy.

By its apparent failure, the antitrust exception may help to prove the success of the larger Guidelines rule. And it also should help set the enforcement agenda for the next twenty years to one in which promoting compliance programs becomes a top priority for enforcement of all kinds.

Jeffrey M. Kaplan, a partner in the Princeton, New Jersey office of Kaplan & Walker LLP, has practiced in the compliance law field since the early 1990’s. He serves as Adjunct Professor of Business Ethics at NYU’s Stern School of Business. He can be contacted here.