O'Shea Lawyer: The Gov't Will Have To Alter Its Strategy

Joel Androphy, left, is the lawyer who led John O'Shea's defense team to a stunning win.

On Monday, Judge Lynn Hughes tossed all twelve substantive FCPA counts against O'Shea (the judge's order is below).

We asked Androphy what the case means for future FCPA prosecutions.

"The government will have to alter its FCPA strategy in prosecuting individuals," he said. "Proving one to be a foreign official requires more than just a recitation by a lay witness; it requires expert testimony."

Should others facing FCPA charges be encouraged? Or was this case a special circumstance? A fluke result?

According to Androphy, it's not easy for the government to prosecute these cases. "It rarely has the ability to obtain the testimony of foreign witnesses," he said.  "It is difficult to obtain foreign documents. Defense lawyers should put the government to its burden of proof and not confess without a trial." 
 
What about public companies? For the past two decades, none have gone to trial. Will O'Shea encourage them to fight FCPA charges?

"It is unlikely that public corporations will try these cases," Androphy said. "Paying money is an easier exit than the risk of conviction and more money."

Shifting The FCPA Reform Debate Into High Gear

By T. Markus Funk and M. Bridget Minder

Simmering throughout 2011, the robust FCPA reform debate can now be divided into a number of distinct drafting and public policy battle fields.

Our hope in writing a recent Bloomberg Law Report piece (available in pdf here) was to advance the dialogue. We examine (1) the core criminal law theory assumptions and (2) some of the public policy objectives driving the debate, including whether reforming the FCPA is advisable on public policy grounds, and the extent to which the position that foreign governments will view even modest FCPA reform as a signal to abandon wholesale their domestic anti-corruption efforts are justified.

(Having served two years in a post-conflict environment for USDOJ/State setting up domestic anti-corruption laws and enforcement mechanisms, the latter issue was of particular concern to one of the authors). 

In the article, we also make four suggestions for reforming the FCPA.

They are:

• Provide a sensible “adequate compliance procedures” defense

• Appropriately limit successor liability

• Establish a fitting scope of corporate liability for acts of a subsidiary

• Properly define “foreign official”

To round out the analysis, we take a closer look at the theoretical assumptions grounding recent critiques of the U.S. Chamber of Commerce's calls for reform.

In the end, all sides of the debate undeniably have a genuine, well-intentioned interest in balancing the noble pursuit of a corruption-free world against the values of fairness and transparency in our domestic laws and enforcement policies. 

We hope that 2012 will see us come closer to reaching consensus.

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T. Markus Funk, a former federal prosecutor who is now in private practice and is the Co-Chair of the ABA's Global Anti-Corruption Task Force, and his Perkins Coie colleague M. Bridget Minder just authored "Bribery of Foreign Officials: The FCPA in 2011 and Beyond: Is Targeted FCPA Reform Really the “Wrong Thing at the Wrong Time”? in the Bloomberg Law Reports. It is available in pdf here.

Final Countdown For O'Shea

Jury selection in John O'Shea's trial is scheduled to start on January 11.

The former ABB manager is being tried in federal court in Houston before Judge Lynn N. Hughes.

He's charged with one count of conspiracy to violate the FCPA, twelve substantive FCPA counts, four counts of international money laundering, and one count of falsifying records in a federal investigation. He also faces a forfeiture count.

The conspiracy and substantive FCPA counts each carry a penalty of up to five years in prison. The money laundering and falsification of records counts each carry a maximum penalty of twenty years in prison.

Last week, O'Shea lost his 'foreign official' challenge. He argued that alleged recipients of the bribes were employees of Comisión Federal de Electricidad (CFE), a Mexican state-owned enterprise. SOEs aren't government 'instrumentalities' under the FCPA, O'Shea said, so their employees aren't 'foreign officials.'

Judge Hughes didn't issue a written ruling. But he accepted as facts that under Mexican law electricity is a public service, CFE has a monopoly over it, a Mexican ministry sets requirements for CFE, the President of Mexico appoints the general director of CFE, and CFE's governing board includes ministry secretaries.

The judge in the Lindsey case also ruled that CFE was an 'instrumentality' under the FCPA and its people were 'foreign officials.'

After the ruling in O'Shea's case, prosecutors asked Judge Hughes for this jury instruction:

The term “foreign official” means any officer or employee of a foreign government or any department, agency, or instrumentality. An “instrumentality” of a foreign government includes state-owned or state-controlled companies.

Last year, O'Shea lost motions to dismiss based on the statute of limitations and on government misconduct for withholding evidence.

Fernando Basurto is expected to testify against O'Shea. He's a Mexican citizen O'Shea hired to act as ABB's sales agent. Basurto admitted in a guitly plea in 2009 that he paid kickbacks to officials at CFE in exchange for contracts for ABB.

In September 2010, ABB Ltd of Switzerland reached a $58 million settlement with the DOJ and SEC. Its U.S. unit that O'Shea worked for pleaded guilty to one count of violating the anti-bribery provisions of the FCPA and one count of conspiracy to violate the FCPA. Since then, ABB has been cooperating with prosecutors by handing over evidence developed during internal investigations.

The Week's Best Blog Lit

On his Conflict of Interest Blog, Jeff Kaplan talked this week about people from one company serving on another company's board. He's not always against it. But he flags COI concerns that can come up.

This is always a hard one (ask any risk manager in a big law firm).

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Tom Fox wowed us again with his practical approach. His Ten Compliance Issues from 2011 included this gem: 'With the effective changes in the federal sentencing guidelines from November, 2010 and the DOJ comments this year,' Fox said, 'it has become clear that companies must give a more prominent role to the Chief Compliance Officer and separate that function from that of the General Counsel.'

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On the FCPA Professor, Mike Koehler's discussion about an FCPA appeal stood out. One of the Haiti Telco defendants, Carlos Rodriguez, was sentenced to seven years in prison in October last year. Now he's challenging the jury instruction on who's a 'foreign official.' Koehler thinks Rodriguez has a good shot at winning the appeal.

Incidentally, John O'Shea's 'foreign official' challenge was denied yesterday. Judge Lynn Hughes in Houston adopted the DOJ's view that foreign state-owned enterprises are instrumentalities under the FCPA, which makes their officers and employees 'foreign officials.' As Mike Koehler said today, this was the fifth time the DOJ's interpretation of 'foreign official' was challenged at the trial court level, and all have failed.

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Former federal prosecutor Michael Volkov penned this about wiretaps and the FCPA:

The idea of wiretaps in corporate board rooms sends shivers down every director’s spine. It should. The Justice Department no longer views white collar crime as different than organized crime, gangs or drug trafficking. What that means from a practical standpoint is that federal agents are using the same investigative tactics as they have historically used against organized crime and drug traffickers.

Volkov's Corruption, Crime, and Compliance blog is full of great writing.

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Ever wonder what makes the best news writing?

In a letter to the Washington Post, journalist John B. Holway of  Springfield, Virginia, cited short, simple sentences (and he used a bunch of them to make his point).

He said:

No opening adverbial phrases. No which/who/that subordinate clauses. No phrases between dashes. Throw out every “as” and every gerund. Use concrete nouns and active verbs. Subject-verb-direct object. Drop most adverbs and adjectives; probably the right noun or verb will suffice. Attribution can go in paragraph two. Where and when can also be in paragraph two. Or assume that “when” was “yesterday.”

We're lucky to bat .220 against those fastballs. Plenty of room for improvement. Wish us luck. Later.

We Confess Our Love

There's no subtle way to say this: We love Shearman & Sterling's FCPA Digest.

The January 2012 edition is nearly seven hundred pages. In it are every DOJ and SEC enforcement action --  catalogued, explained, and analyzed. There are also parallel cases (private suits), ongoing investigations, and all the DOJ opinion procedure releases.

Shearman & Sterling partner Philip Urofsky is the editor-in-chief. He took over a few years ago from founding editor Danforth Newcomb. Nearly twenty others are listed as editors and contributors. No wonder. The FCPA Digest is a monumental work and an amazing gift to the compliance world.

That's right. It's a gift -- available to anyone without charge.

The DOJ and SEC don't publish FCPA case compilations. In fact, those agencies rely on the FCPA Digest and often include it with official compliance-related submissions to the U.N., OECD, and other international groups.

The current edition starts with a thirty-page 'trends and patterns' section that can also be downloaded separately. It's an outstanding analysis of the state of FCPA enforcement. Included are discussions about 2011's settlements, trials, reform efforts, the financial rewards (or not) of self-disclosure, and even the U.K. Bribery Act.

A few other observations (among many) from trends and patterns about enforcement in 2011:

• Judges in multiple districts largely adopted the government’s expansive interpretation of what constitutes an “instrumentality” of a foreign government, including state-owned entities indirectly controlled by a foreign government

• Despite claims that the government extracted exorbitant fines in FCPA matters, the average penalty continued to be less than $25 million

• The DOJ and the SEC almost completely withdrew from their prior practice of routinely requiring an independent monitor in all cases and demonstrated a willingness to accept various forms of self-monitoring

We use the FCPA Digest every day in our work here. And our admiration for the publication keeps growing.

The January 2012 editions of the FCPA Digest and Recent Trends and Patterns in FCPA Enforcement can be downloaded from Shearman & Sterling's dedicated FCPA website here.

Disclosure: Shearman & Sterling is a premium-listed United States law firm in the FCPA Database law firm directory.