An article in The New Republic by Steve LeVine about the Wal-Mart bribery scandal stood out, but for the wrong reasons. It was thinly sourced and logically weak . . . .
Entries in James Giffen (32)
Last post, I discussed the proposal from Nigeria’s Social-Economic Rights and Accountability Project to establish a mechanism for using the proceeds of FCPA settlements to help bribery victims.
As we mentioned a few weeks ago, Ousama Naaman's sentencing is on hold while he and the government review new evidence that may be classified.
We have enormous respect for those who serve the public, including the prosecutors at the DOJ. Without them, the 'rule of law' would just be pretty words.
Should anyone be surprised by the guilty verdicts handed down Tuesday in the Lindsey case? Not at all. History, and the odds, are always against FCPA defendants.
Professor Andy Spalding: The Giffen prosecution shows why FCPA enforcement is a foreign policy debacle.
Oil consultant James Giffen, 69, escaped jail time, criminal fines, and probation when he appeared Friday before U.S. District Judge William H. Pauley in New York.
We're always happy to hear from lawyer Andy Spalding, left. He recently returned from a year-long Fulbright Research Grant in Mumbai, India, and is now on the faculty at the Chicago-Kent College of Law.
He's been thinking about the extraordinary case of James Giffen, the former middleman to U.S. oil companies doing business in Kazakhstan. He writes:
Dear FCPA Blog,
With James Giffen's plea on Friday to a mere misdemeanor, the case is drawing to an anti-climatic and curious close. In an era of ever-increasing fines and penalties for FCPA violations, Giffen's modest settlement seems an aberration; even more peculiar, some have commented on how the otherwise highly-capable Southern District prosecutors fumbled through this case with atypical awkwardness.
All of this gives rise to speculation that the case was subject to political pressures -- namely, that either the agencies that were asked to produce documents and stonewalled, or outside agencies that may have bore down on the Southern District, determined that the foreign policy implications of this case, involving delicate relations with resource-rich Kazakhstan, were so sensitive as to outweigh any public interest in Giffen's fulsome prosecution.
If political forces did indeed compromise the prosecution (and few of us can know for sure), does this scenario seem familiar to anyone?
Let's recall the similarly strange prosecution of BAE, the British defense contractor who allegedly paid more than $2 billion in bribes and kickbacks to a Saudi Arabian prince. The U.K.'s Serious Fraud Office opened an investigation, which it suddenly closed. We would learn that pressure to terminate the investigation came from outside (or perhaps, above) the SFO: the Blair government apparently insisted on the file's closure in response to Saudi threats to cease cooperation with the UK's anti-terrorism efforts.
The High Court in London berated the SFO for capitulating, and on appeal the House of Lords declared SFO's handling of the matter "extremely distasteful"; the SFO director resigned shortly thereafter. In apparent protest of the the SFO's decision, our DOJ opened its own investigation, and the SFO eventually reopened its file. The result? BAE settled with the DOJ for $400 million, the third-highest amount in FCPA history. But the SFO fined BAE a relative pittance -- £30 million. The parallel is unmistakable, and striking: in a case with heightened foreign policy sensitivities, allegations that seem to otherwise warrant a substantial settlement resulted in something far less.
In fairness to the DOJ, this may not be their fault: whether due to an uncooperative client, or irresistible political pressure, they may have wanted to push further but were hamstrung. Still, it raises a compelling question: Is the Giffen case America's BAE?
Last Friday in federal court in Manhattan, oil consultant James Giffen, the seven-year target of one of history's biggest individual FCPA prosecutions, was allowed to plead guilty to a misdemeanor -- failing to report a foreign bank account in a 1996 tax return. His now-dormant firm, Mercator Corporation, pleaded guilty to one count of violating the Foreign Corrupt Practices Act by giving two snowmobiles to officials in Kazakhstan in 1999.
Giffen now faces not more than a year in prison when he's sentenced on November 19, but he may not serve any jail time at all.
We called the plea deal a sputtering end for such a high-profile prosecution. The DOJ, which may have been caught flat-footed in the case by undisclosed and still-classified maneuverings in the 1990s by other three-letter U.S. agencies, put a different spin on things.
Here's what the Justice Department said in its August 6 release:
WASHINGTON – The Mercator Corporation, a merchant bank with offices in New York, pleaded guilty today in federal court in Manhattan, N.Y., to one count of making an unlawful payment to a senior government official of the Republic of Kazakhstan, in violation of the Foreign Corrupt Practices Act (FCPA), announced Assistant Attorney General Lanny A. Breuer of the Criminal Division and U.S. Attorney Preet Bharara for the Southern District of New York. Additionally, James H. Giffen, 69, of Mamaroneck, N.Y., and Mercator’s chairman, pleaded guilty today in federal court in Manhattan to one count of failing to disclose control of a Swiss bank account on his income tax return. Both pleas were before U.S. District Judge William H. Pauley III.
According to court documents, Mercator advised Kazakhstan in connection with various transactions related to the sale of portions of Kazakhstan’s oil and gas wealth. Three senior officials in the government of Kazakhstan had the power to substantially influence whether Mercator obtained and retained lucrative business, as well as the authority to pay Mercator substantial success fees if certain oil transactions closed, as well as to decide whether or not those transactions would close. According to court documents, Mercator was therefore dependent upon the goodwill of those senior officials, and in an effort to maintain its lucrative position, Mercator caused the purchase of two snowmobiles in November 1999. The snowmobiles were shipped to Kazakhstan for delivery to one of the officials.
According to the criminal information to which Giffen pleaded guilty, Giffen filed a U.S. Individual Income Tax Return, Form 1040, on March 27, 1997, for himself for the calendar year 1996, which failed to report that he maintained an interest in, and a signature and other authority over, a bank account in Switzerland in the name of Condor Capital Management, a British Virgin Islands corporation he controlled.
In 2007, the United States brought a separate, related civil forfeiture action in U.S. District Court in Manhattan against approximately $84 million on deposit in Switzerland. The civil complaint alleged that the funds were traceable to unlawful payments to senior Kazakh officials in connection with oil and gas transactions arranged by Mercator for Kazakhstan. According to a 2007 agreement between the United States, Switzerland and Kazakhstan, the funds are being used by a non-governmental organization in Kazakhstan, independent of the Kazakh Government, to benefit underprivileged Kazakh children.
Mercator faces a maximum fine of the greater of $2 million or twice the gross gain or loss resulting from the offense. Giffen faces a maximum sentence of one year in prison and a fine of up to $25,000.
Bloomberg's David Glovin is reporting that James Giffen will plead guilty to a tax-related misdemeanor today in federal court in Manhattan.
Giffen has spent more than seven years fighting charges that he bribed government officials in Kazakhstan. Prosecutors alleged that Giffen, 69, paid $84 million to Kazakh President Nursultan Nazarbayev and other officials in violation of the FCPA. He was a middleman for several Western oil companies.
Giffen "will enter a plea today in federal court in Manhattan to failing to supply information about foreign bank accounts in his tax return," Glovin reported. In addition, Giffen’s investment bank, Mercator Corp., will plead guilty to a single FCPA offense.
Giffen's prosecution has been stuck while the parties fought about access to classified documents and procedural matters. Giffen had claimed the U.S. government knew about his work in Kazakhstan and the alleged payments he arranged to leaders there. He has been free on bail since his arrest in 2003.
Glovin's report didn't say what punishment Giffen might face from his plea deal.
The prosecution of James Giffen for violating the FCPA is a ghostlike case. As David Glovin of Bloomberg wrote earlier this month: "Oil consultant Jim Giffen was told by a U.S. judge six months after his 2003 arrest in an international bribery scheme that he would go on trial in the fall of 2004. He’s still waiting."
His trial may be on hold, but his case made legal history years ago. Professor Elizabeth Spahn, a friend of the FCPA Blog and an occasional contributor here, has published a great article on U.S. v. Giffen and the act of state doctrine -- the notion that sovereign nations engaged in domestic actions cannot be questioned in the courts of another nation.
The act of state doctrine is not typical fare for most prosecutors or judges in U.S. criminal proceedings. The first opinion addressing the act of state doctrine in a U.S. bribery case was issued in 2002 in the Giffen prosecution [when it was still before a grand jury] by Judge Denny Chin (more recently famous for sentencing white collar criminal, Ponzi scheme architect Bernie Madoff). The 2002 Chin opinion is a landmark case of first impression. It provides helpful precedent for future decisions on the most significant legal hurdle facing prosecutors developing a case—discovering the facts of complicated bribery schemes where the documents are ostensibly protected by foreign law. [footnotes omitted]
Prof Spahn describes the Giffen case as "a gripping story of alleged grand corruption bribery suitable for a Hollywood movie." What's remarkable, she says, is that despite the best efforts of powerful U.S. lobbyists and law firms in an FCPA case allegedly involving $105 million in bribes in Kazakhstan, during one of the darkest periods in the history of the U.S. Department of Justice, the case still "demonstrates the rule of law operating even handedly, even when major oil interests are at stake."
The article can be downloaded from SSRN here. The citation is Discovering Secrets: Act of State Defenses to Bribery Cases (2009), Hofstra Law Review, Vol. 38, p. 163, 2009.
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And more from Prof Spahn. We'd like to thank her for mentioning the FCPA Blog during her talk at the June 30 ABA ROLI Anti-Corruption Mini-Seminar. She referred to us as a clearinghouse serving the FCPA / compliance community. We'll do our best to live up to that role. During the last segment of her talk, Prof Spahn suggested topics for future compliance-related research. We often hear from students and others looking for ideas, so check out what she had to say here.