There's more to FCPA conspiracy charges and aiding and abetting than meets the eye, according to this reader.
Entries in Jurisdiction (81)
What are the odds that the next Congress will amend the FCPA? Not bad, we think.
It's not hard to find reasons why the DOJ and SEC would rather prosecute corporations instead of individuals.
Here are a few:
Corporations can't defend themselves. They're strictly liable under respondeat superior for crimes committed by employees in the scope of their jobs. That's why no company has fought against FCPA charges in court for more than two decades. Individuals, on the hand, can and do fight in court and sometimes win. Recent examples of tough trials with mixed results include Frederick Bourke and William Jefferson.
Corporations cooperate. No all companies self-disclose their FCPA offenses, but most do. They hire outsiders to conduct in-depth internal investigations and hand the results over to the government. That makes life easier for prosecutors and in theory benefits the company. Individuals can also plead guilty, of course, and many do. But they usually first try to defend themselves, which increases the government's burden.
Corporations can't run or hide. Domestic companies are all registered in their home states and can be brought to court there. Foreign corporations that are issuers under the FCPA have also submitted to the jurisdiction of U.S. courts. But individuals of any nationality can run. If they make it to another country, they have to be extradited back to the U.S. to face trial, a complicated process that can take years and may not be successful. Some examples include Viktor Kozeny and Jeffrey Tesler.
Corporate cases make headlines. For years, journalists have known that FCPA cases don't generate much buzz with the general public, and cases involving individuals hardly make a ripple (the Bourke and Jefferson cases were exceptions because of the defendants' fame). But giant penalties assessed against well-known global corporations are widely reported. Recent examples are Siemens, KBR, Daimler, and BAE. If the DOJ and SEC want to spread the word about the FCPA, chasing big companies is a good way to do it.
Corporate prosecutions are cost effective. They don't require long and expensive trials, so there's less drain on agency resources. And the payday for the U.S. government can be a quarter or even a half billion dollars per case, swamping the top fines for individuals.
How do any of the above influence prosecutorial decisions, if at all? The DOJ and SEC would say they don't. In other posts, we'll look at the recent enforcement track record, and we'll try to see things from the perspective of the prosecutors.
Iran has all the ingredients to be an FCPA minefield. It's big -- 66 million people in an area about the size of Alaska -- and it's the world's 6th largest oil producer. On top of that, it has a corruption problem, ranking near the bottom of the latest Corruption Perception Index -- 168th, tied with Burundi, Equatorial Guinea, Haiti, and Turkmenistan.
But although the country routinely makes world headlines, it's hardly mentioned on the FCPA Blog. Why not?
Iran has been off limits to U.S. companies from around the time the FCPA became law in 1977. The U.S. first imposed sanctions on Iran in 1979. After the takeover of the American embassy in Teheran, President Carter banned imports of Iranian oil and blocked all transfers of property in the U.S. owned by the Central Bank and Government of Iran. In 1980, he embargoed all U.S. exports to and imports from Iran, and stopped U.S. citizens from traveling or conducting financial transactions there.
Some of those sanctions were loosened after the U.S. hostages were released. But in 1987, President Reagan imposed a new embargo on Iranian-origin goods and services. And in 1995, after Iran was labelled a sponsor of international terrorism, President Clinton again banned U.S. involvement with Iran's oil and gas development. He later confirmed that "virtually all trade and investment activities with Iran by U.S. persons, wherever located, are prohibited," according to the Treasury Department. With some small adjustments, that's how things stand today.
Criminal penalties for violating the U.S. sanctions are stiff -- fines up to $1,000,000 and prison for up to 20 years, four times harsher than the FCPA's penalties.
Even without America's business, Iran was the focus of an important FCPA case. In 2006 the Norwegian company Statoil was hit with DOJ and SEC enforcement actions for bribery and books and records violations. Statoil in 2002 had paid $5.2 million in bribes to a modern-day prince of Persia -- the son of a former president of Iran, and promised to pay $20 million more for access to the giant Pars oil field. The company eventually self-disclosed the payments and paid $3 million to Norwegian prosecutors and $21 million in penalties and disgorgement to the DOJ and SEC (with credit for the $3 million it paid back home).
That was the first FCPA criminal enforcement action against a foreign company -- Statoil is an "issuer," trading on the NYSE under the symbol STO. Its three-year deferred prosecution agreement with the DOJ expired in November 2009.
We could be hearing more FCPA news involving Iran. Last week the Wall Street Journal said the SEC's enforcement and corporation finance divisions have sent letters to several pharmaceutical and energy companies that work in Iran, as well as in Cuba, Sudan, and Syria -- which all appear on the State Department's list of countries that sponsor terrorism. (Some medicines and medical devices are licensed for export from the U.S. to Iran.) The letters reportedly asked the companies, which haven't been named, what they are doing in the four countries to ensure compliance with the FCPA.
The news last week from the U.K. that the Bribery Bill had become the Bribery Act seemed important. But we didn't understand why it still wasn't law.
So we asked London lawyer Kelly Hagedorn about it. Here's what she said:
Dear FCPA Blog,
The U.K.’s Bribery Act received Royal Assent on April 8 and passed onto the statute book.
Britain's been trying to pass a new law to deal with overseas bribery and corruption for a long time -- the predecessor Corruption Bill went back and forth between the Houses of Commons and Lords several times before final rejection in 2003. The Bribery Act nearly ended up with the same fate.
The General Election, however, was called on April 6, requiring Parliament to be dissolved on April 12. That left less than a week for “wash up” -- a process whereby the Government seeks to rush through unfinished legislative business before dissolution. It worked.
But the law isn't yet in force. The statutory instruments needed to implement the Act still have to be released. The “general offences” part should come into force in June 2010. The corporate offence of failing to prevent bribery (section 7) should come into force in October 2010, after the Government issues guidance on “adequate procedures” by July 2010.
The Bribery Act has a broader scope than the FCPA and a wide reach, particularly for the offence of failing to prevent corruption within an organisation. This applies to organisations incorporated anywhere, if they undertake a business or part of a business in the U.K. The defence to this charge is that the organisation had “adequate procedures” in place to attempt to prevent bribery.
Companies should start preparing now, if they haven't already, for implementation of the Bribery Act.
More about the Bribery Act can be found here.
It's hard to bribe a foreign official without someone laundering the money. That's why money-laundering charges are part of most FCPA cases. Each shot-show defendant, for example, was charged with conspiracy to launder money. And it's why the DOJ uses the same law against corrupt foreign officials, as in the recent Haiti telco case. (The FCPA doesn't reach bribe takers, only bribe payers.)
The U.S. anti-money laundering law is 18 U.S.C. §1956. It packs a wallop -- a fine of a half million dollars or more, and up to 20 years in prison. (Jail terms for FCPA anti-bribery violations are five years maximum.)
What's a money-laundering offense? Knowingly using money that comes from an illegal activity; trying to conceal or disguise the nature, location, source, ownership, or control of the proceeds of unlawful activity; or trying to avoid reporting a transaction that has to be reported under state or federal law.
Foreigners are subject to the U.S. anti-money laundering law if any part of their transaction happens in the U.S., if they use property in which the U.S. has an interest (through a judgment, lien, or court order), or if they maintain a bank account at a financial institution in the U.S.
Just as bribery usually involves money laundering, money laundering usually involves tax evasion. Again in the Haiti telco case, it was the IRS's Miami field office that investigated Robert Antoine, the former director of international affairs for Haiti telco, who lived in both Miami and Haiti. He pleaded guilty last week to a money-laundering conspiracy (same statute; same potential penalties).
Evidence of money laundering often leads to discovery of other crimes. On its extensive AML website, the University of Exeter says:
Although money laundering is a threat to the good functioning of a financial system, it can also be the Achilles heel of criminal activity. In law enforcement investigations of organised criminal activity, it is frequently the connections made through financial transaction records that allow hidden assets to be located and that establish the identity of the criminals and the criminal organisation involved.
The DOJ hasn't said how often it finds FCPA offenses through money-laundering investigations.
Hans Bodmer, the Swiss lawyer who once represented Viktor Kozeny and provided key testimony against Frederic Bourke, may learn his sentence today. He's scheduled to appear in U.S. federal district court in Manhattan before Judge Shira A. Scheindlin, who oversaw Bourke's trial last summer.
Bodmer was indicted by a New York federal grand jury in August 2003 on single counts of conspiracy to violate the Foreign Corrupt Practices Act and to launder money. A copy of the indictment can be downloaded here. The court dismissed the FCPA charge, ruling that before being amended in 1998, the FCPA didn't apply to non-U.S.-resident foreign nationals who served as agents of domestic concerns. Bodmer then pleaded guilty in October 2004 to conspiracy to launder money.
He was released on bail of $1.5 million, including $1.45 million in cash first held at the Royal Bank of Scotland in London and later transferred with Judge Scheindlin's consent to Thurgauer Kantonalbank in Switzerland.
Bodmer faces ten years in prison on the money-laundering conspiracy charge. Because of his guilty plea and cooperation with the DOJ in the prosecution of Frederick Bourke, his sentence will be much lighter.
Bloomberg's David Glovin gave this account of Bodmer's June 2009 appearance for the prosecution at Bourke's trial:
Bodmer, who is testifying for prosecutors in exchange for leniency and admits knowing of the bribery scheme, testified yesterday that he told Bourke about the payments. . . .
[S]peaking methodically through a thick German accent, [he] told jurors he was surprised when Bourke asked him about the “arrangement” [to pay Azeri officials bribes] because it was a “sensitive matter.” After getting permission from Kozeny, Bodmer said he outlined the scheme. Justice Department lawyer Robertson Park asked Bodmer how Bourke responded.
“No specific response,” Bodmer testified.
Bourke was convicted in July 2009 of conspiracy to violate the FCPA and lying to FBI agents. Judge Scheindlin sentenced him to a year and a day in prison. He's free on bail while he appeals his conviction.
Bodmer's one-time client, Czech-born Victor Kozeny, is the best-known FCPA fugitive. Last month he won a decision in a Bahamas appellate court that continues to block his extradition to the U.S. He's lived in the Bahamas for about ten years. A federal grand jury in Manhattan indicted Kozeny in May 2005 for a plot to bribe Azeri leaders to gain control of the state oil company. His co-defendant Bourke was accused of investing in the scheme despite knowing Kozeny planned to use bribes.
[Editor's note: Bodmer's sentencing was postponed today until August 23, 2010.]
Victor Kozeny, the Czech-born fugitive wanted in the United States for conspiracy to violate the Foreign Corrupt Practices Act, won a decision this week in the Bahamas court of appeal that continues to block his extradition to the U.S.
Kozeny, 46, is the best known FCPA fugitive. He has lived in the Bahamas for about ten years. He was arrested there at the request of the U.S. government in October 2005 and held in prison until granted bail in April 2007. Although a judge ordered his extradition, his lawyers were able to convince another judge to block it (here). The U.S. then pushed the case to the court of appeals. The three-judge panel held hearings in December and issued a 26-page ruling Tuesday.
A federal grand jury in Manhattan indicted Kozeny in May 2005 for a plot to bribe Azeri leaders to gain control of the state oil company. His co-defendant, Frederic Bourke, was convicted in July of conspiracy to violate the FCPA and lying to FBI agents. Bourke was sentenced to a year and a day in prison. His appeal is pending.
Others involved in the Azeri scheme have pleaded guilty. Waiting to be sentenced are Thomas Farrell, a director of one of Kozeny's companies, Kozeny's Swiss lawyer Hans Bodmer, and Clayton Lewis, a partner in Omega Advisors, Inc., a hedge fund that invested and lost about $126 million in Kozeny's Azeri plot.
Kozeny was also indicted in 2003 in a New York state criminal case for stealing $182 million from investors, including Omega, AIG, and Bourke.
The Bahamas decision dismissed all six grounds of appeal by the U.S. government. A lower court judge found it had acted in bad faith in the extradition process by failing "to disclose certain pertinent information in law and fact." In letting that part of the lower court judgment stand, Justice Longley, writing for the appeal panel, said:
The extradition process, because it involves the depravation of liberty, requires the exercise of good faith on the part of the requesting state and that must mean that it has a duty to disclose in a timely manner and with its request if the information is known at that time, any information that would not only be adverse to its request but would inform a prudent court in the exercise of its function that might lead to a relevant trial of inquiry. Whether the failure to comply with its obligation in any particular case is bad faith depends on all circumstances of the case. There certainly was material before the learned judge to reach the conclusion which he did and I see no reason to interfere with that decision.
The Bahamas attorney general and the U.S. government can request a final appeal to London’s Privy Council. They haven't said what they plan to do.
Download a copy of the judgment by the Bahamas court of appeal in Government of the United States et al, Appellants and Victor Kozeny, Appellee (January 26, 2010) here.
Bloomberg's David Glovin, who has reported Kozeny's legal battles, filed a report here.
In what may be the first case of its kind, a U.S. company that has no securities traded on an exchange but files periodic reports with the Securities and Exchange Commission has disclosed an internal investigation into possible Foreign Corrupt Practices Act violations.
In a December 30, 2009 SEC filing (here), Tampa-based PBSJ Corporation said it will miss the filing deadline for its Annual Report on Form 10-K for the year ended September 30, 2009 "due to an internal investigation being conducted by the Audit Committee of the Board of Directors." The company said the purpose of the internal investigation "is to determine whether any laws have been violated, including the Foreign Corrupt Practices Act, in connection with certain projects undertaken by PBS&J International, Inc., one of the Company’s subsidiaries, in certain foreign countries."
The FCPA's antibribery provisions apply to "domestic concerns," which include all U.S. companies; the books and records and internal controls provisions apply only to "issuers" -- corporations that have issued securities that have been registered in the United States or who are required to file periodic reports with the SEC. See 15 U.S.C. §§ 78c(a)(8), 78dd-1(a) and our post here.
PBSJ Corporation is a "domestic concern" subject to the anti-bribery provisions. It has no publicly traded securities. But because it has so many shareholders -- about 4,000 mainly current and former employees -- it must file periodic reports with the SEC. That makes it an "issuer" subject to the books and records and internal controls provisions.
The Company said it self-reported to the SEC and Justice Department "the circumstances surrounding this internal investigation. Should the SEC or DOJ decide to conduct its own investigation, the Company will cooperate fully."
PBSJ provides engineering and construction management for government agencies worldwide, usually for road-building projects. It has 80 offices and 3,900 employees.
The company has had other compliance problems and internal controls lapses. The Tampa Business Journal said in March 2005 PBSJ discovered "what eventually was determined to be a $36.6 million embezzlement scheme by the former CFO and two other workers. Discovery of the scheme triggered a series of events, including repayments to clients that had been overbilled in an effort to cover the missing funds and a restatement of financial information for several years."
The company was also investigated by the Federal Election Commission. The FEC said for years PBSJ hid campaign contributions to political candidates. It also encouraged employees to contribute to campaigns, then secretly reimbursed them for their payments, which violates the law.
Viktor Kozeny, left, the promoter of a failed 1998 plot to take control of the Azeri state oil company during its privatization by bribing the country's leaders, has again asked a court in the Bahamas to block his extradition to the United States. The Czech-born fugitive appeared this week at a hearing to consider an appeal on behalf of U.S. authorities. They want to bring him back to face trial for conspiracy to violate the Foreign Corrupt Practices Act. The appellate judges didn't say when they'll decide the case.
Kozeny, 46, has lived in the Bahamas for about ten years. He was arrested there at the request of the U.S. government in October 2005 and held in prison until granted bail in April 2007. Although a judge ordered his extradition, his lawyers were able to convince another judge to block it (here). The U.S. then pushed the case to the court of appeals.
Kozeny was indicted for the Azeri bribery plot by a federal grand jury in Manhattan in May 2005. His co-defendant, Frederic Bourke, was convicted in July of conspiracy to violate the FCPA and lying to FBI agents. Bourke was sentenced to a year and a day in prison. Others involved in the Azeri scheme have pleaded guilty. Waiting to be sentenced are Thomas Farrell, a director of one of Kozeny's companies, Kozeny's Swiss lawyer Hans Bodmer, and Clayton Lewis, a partner in Omega Advisors, Inc., a hedge fund that invested and lost about $126 million in the Azeri privatization. Kozeny was also indicted in 2003 in a New York state criminal case for stealing $182 million from investors, including Omega, AIG, and Bourke.
Kozeny's lawyer, Clive Nicholls QC, told the appellate court this week that his client shouldn't be extradited. The lawyer said Kozeny committed no crime under Bahamas law, which doesn't reach bribery between third-country nationals. According to a report in the local Tribune (here), Nicholls also said Kozeny was "not a U.S. resident or national at the time the alleged offences were committed and therefore is not subject to the U.S. jurisdiction. He further submitted that when the alleged offences were committed, the Bahamas had not signed onto the Organisation for Economic Co-operation and Development (OECD) anti-bribery convention and also that the alleged offences occurred before the [Inter-American Convention Against Corruption (IACAC)] came into force."
In Kozeny's indictment, the United States said he was subject to the Foreign Corrupt Practices Act because he acted as an agent for U.S.-based investors, known as "domestic concerns" in the FCPA, including Kozeny's own investment vehicle (15 U.S.C. § 78dd-2(h)(1)(A)).