The FCPA Blog

What does it mean to "cooperate with the government" after discovering serious Foreign Corrupt Practices Act compliance problems? There's a description of organizational cooperation in a recent sentencing memo the Justice Department filed in US v. Latin Node Inc.

Latinode was a privately held company. Publicly-listed eLandia bought it and soon discovered a history of corrupt payments in Yemen and Honduras. The strategy eLandia adopted for itself and Latinode was to cooperate with the DOJ. That culminated in Latinode's guilty plea earlier this month to a one-count criminal information charging it with violating the FCPA's antibribery provisions.

In describing the cooperation, the government said eLandia and Latinode made commendable efforts to uncover evidence of corrupt activities. The cooperation was authentic throughout the investigation, the DOJ said, with significant remedial efforts upon discovery of the misconduct.

Here, largely in the government's words, is what the companies did:

• Latinode and its corporate parent, eLandia, initiated an internal investigation of the corrupt payments immediately upon discovery of the potential problems. This investigation included numerous witness interviews and the review of thousands of documents.

• Within three months of discovering the improper payments, counsel for Latinode and eLandia visited the government to make a voluntary disclosure of the FCPA violations. Latinode and eLandia provided timely, thorough, and exemplary cooperation in connection with the investigation of Latinode's past corporate conduct.

• Through counsel, Latinode and eLandia produced thousands of non-privileged documents to the government and responded promptly and productively to all of its requests.

• The cooperation provided by Latinode and eLandia substantially aided the government in developing its investigation.

• Almost immediately upon determining the culpability of senior Latinode officers and employees, eLandia terminated those individuals.

• Although there is no evidence of misconduct by eLandia employees, the company took steps to strengthen its own anti-corruption compliance program, including training its employees in the FCPA and related laws and committing to anti-corruption due diligence in future acquisitions.

• Perhaps the greatest evidence of eLandia's remedial efforts, the government said, is that it dissolved Latinode from an operational perspective, at a cost to eLandia of millions of dollars, and ceased doing business relating to the tainted contracts.

Did their cooperation help the companies? You bet. eLandia wasn't charged at all in the criminal case (it may still face an SEC civil enforcement action). The government accepted a plea to a single criminal count from Latinode, eLandia's subsidiary that was already largely dormant. The government didn't put either company on organizational probation; nor did it impose a deferred prosecution agreement or require a compliance monitor, saving eLandia enormous out-of-pocket costs. Finally, the criminal penalty of $2,000,000 was far below the fine range in the U.S. sentencing guidelines -- $4,200,000 to $8,400,000 (U.S.S.G. § 8C2.7). eLandia was even given three years to pay.

The plea agreement obligates Latinode (i.e., eLandia) to continue to cooperate with any further investigations by law enforcement agencies. So individuals responsible for the corrupt payments may yet face prosecution.

Download the March 23, 2009 criminal information against Latinode here.

Download Latinode's April 3, 2009 plea agreement here.

Download the DOJ's April 3, 2009 sentencing memo here.
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A former privately held company that had serious undisclosed Foreign Corrupt Practices Act violations when it was acquired by a U.S. public company has pleaded guilty and agreed to pay a fine of $2 million over the next three years. Latin Node Inc. (Latinode), a Florida corporation, pleaded guilty on April 7, 2009 to a one-count criminal information in the U.S. District Court for the Southern District of Florida. It was charged with violating the FCPA's antibribery provisions by making improper payments in Honduras and Yemen.

Soon after Coral Gables, Fla.-based eLandia International Inc. acquired Latinode in 2007, it discovered potential FCPA violations. The DOJ said eLandia self-reported them immediately, conducted an internal FCPA investigation, shared the results of the investigation with the DOJ, cooperated fully in the government's investigation, and took appropriate remedial action, including terminating senior Latinode management involved in or having knowledge of the violations. eLandia trades on the over-the-counter bulletin board under the symbol ELAN.OB.

In eLandia's Form 10Q/A for September 2008, it said: [W]e engaged in a review of Latin Node's internal controls and legal compliance procedures within its finance and accounting department as a part of our acquisition and integration of Latin Node. As a result of this review, certain past payments in Central America were identified as having been made in the absence of adequate records and controls for a U.S. public company. We have initiated an internal investigation to determine whether any direct or indirect payments by Latin Node prior and subsequent to its acquisition by us were made in violation of the Foreign Corrupt Practices Act ("FCPA"). The internal investigation of the FCPA matter is being conducted by a Special Committee of the Board of Directors. The Special Committee has retained independent legal counsel to assist in the investigation of the FCPA matter.

eLandia also disclosed that its purchase price for Latin Node "was approximately $20.6 million in excess of the fair value of the net assets acquired from Latin Node mostly due to the cost of the FCPA investigation, the resulting fines and penalties to which it may be subject, the termination of Latin Node's senior management, and the resultant loss of business. Therefore, we allocated approximately $20.6 million of the purchase price as a direct charge to operations during the quarter ended June 30, 2007."

Before some of its business was discontinued by eLandia, Latinode provided wholesale telecommunications services using internet protocol technology to countries throughout the world, including Honduras and Yemen. From March 2004 through June 2007, it paid or arranged payments of $1,099,889 to third parties to be used to bribe officials at Hondutel, the Honduran state-owned telecommunications company. The payments were in exchange for an interconnection agreement and a reduced rate per minute under it. The payments were made from Latinode's Miami bank account and approved by the company's senior executives. Recipients included a member of the evaluation committee responsible for awarding Hondutel interconnection agreements, the deputy general manager (who later became the general manager) of Hondutel, and a senior attorney for Hondutel.

And from July 2005 to April 2006, Latinode made 17 other payments from its Miami bank totaling $1,150,654, either directly to Yemeni officials or through a third-party consultant, in exchange for favorable interconnection rates. Internal company emails showed that the intended recipients included the son of the Yemeni president; the vice president of operations at TeleYemen, the Yemeni government-owned telecommunications company; other officials of TeleYemen; and officials from the Yemeni Ministry of Telecommunications.

View the DOJ's April 7, 2009 release here.

Download the criminal information here.

Download the plea agreement here.

Download the sentencing memo here.
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