The FCPA Blog

The Justice Department announced on Monday the indictment of five people -- including two Florida executives, a Florida-based agent, and two former Haitian telco officials -- for their roles in a bribery scheme. The executives and agent were charged under the Foreign Corrupt Practices Act and other laws; the former Haitian telco officials were charged with money laundering.

The Foreign Corrupt Practices Act prohibits corrupt payments to foreign officials, including employees of state-owned businesses such as the Haitian telco. Foreign officials, however, can't be punished under the FCPA and in the past haven't been included in indictments involving FCPA offenses. In this case, the DOJ could bring money-laundering counts against the former Haitian officials because they also live in Florida and committed the alleged offenses while there. The charges against them will put other foreign bribe-takers on notice of the DOJ's ever more aggressive anti-corruption strategy.

The DOJ said the Florida executives are Joel Esquenazi, 53, of Miami, president of a Florida company identified in the indictment as privately-held "Company X," and Carlos Rodriguez, 53, the former executive vice president of the company. They were each charged with one count of conspiracy to violate the Foreign Corrupt Practices Act and to commit wire fraud, seven counts of FCPA violations, one count of conspiracy to commit money laundering and 12 counts of money laundering. Both are U.S. citizens.

The two Haitian foreign officials are Robert Antoine, 61, of Miami and Haiti, a former director of international relations at Haiti’s state-owned Telecommunications D’Haiti. He's charged with one count of conspiracy to commit money laundering. Jean Rene Duperval, 43, of Miramar, Florida and Haiti, is also a former director of international relations at Telecommunications D’Haiti. He's charged with one count of conspiracy to commit money laundering and 12 counts of money laundering.

The fifth person charged is Duperval's sister, Marguerite Grandison, 40, also of Miramar. She was the president of Telecom Consulting Services Corp., an intermediary for the alleged bribe payments. She's charged with one count of conspiracy to violate the FCPA and commit wire fraud, seven substantive FCPA violations, one count of conspiracy to commit money laundering and 12 counts of money laundering. She's a permanent resident of the U.S.

The Justice Department said the indictment was unsealed on Monday after Duperval's initial appearance in U.S. District Court in Miami. He was arrested in Haiti on December 5 by a special unit of the Haitian National Police. The DOJ didn't describe the legal means used to bring Duperval from Haiti to the U.S. to face the charges. Rodriguez and Grandison also appeared in court on Monday in Miami.  Arrest warrants have been issued for Antoine and Esquenazi, who apparently are at large.

According to the indictment, the defendants allegedly participated in a scheme to commit foreign bribery and money laundering from November 2001 through March 2005, when the Florida telco, Company X, paid more than $800,000 to shell companies for bribes to officials of Telecommunications D’Haiti.

The indictment alleges that Marguerite Grandison's company, Telecom Consulting Services Corp., executed a series of contracts with Telecommunications D’Haiti that allowed the Florida telco's customers to place telephone calls to Haiti. The alleged corrupt payments were authorized by Esquenaz and Rodriguez. The purpose of the bribes, according to the indictment, was to obtain preferred rates, reduce the number of minutes for which payment was owed, and give other discounts, as well as to defraud Haiti of revenue. The defendants allegedly concealed the bribes using shell companies and false records showing the payments were for "consulting services."

The FCPA conspiracy and wire fraud counts carry a maximum penalty of five years in prison and a fine of the greater of $250,000 or twice the value gained or lost. The substantive FCPA counts each carry a maximum penalty of five years in prison and a fine of the greater of $100,000 or twice the value gained or lost. The conspiracy to commit money laundering count carries a maximum penalty of 20 years in prison and a fine of the greater of $500,000 or twice the value of the property involved in the transaction. The money laundering counts each carry a maximum penalty of 20 years in prison and a fine of the greater of $500,000 or twice the value of the property involved in the transaction. The indictment also contains a criminal forfeiture count.

In April 2009, Antonio Perez, the former controller of Marguerite Grandison's company, Telecom Consulting Services Corp., pleaded guilty to conspiring to violate the FCPA and money laundering for his role in the payment of bribes to former officials of Telecommunications D’Haiti. In May 2009, Juan Diaz, the president of J.D. Locator Services, a shell intermediary company, pleaded guilty to one count of conspiracy to violate the FCPA and money laundering. He admitted receiving more than $1 million in bribe money from telecommunication companies.  He also admitted laundering the money for a former Haitian government official. Diaz is scheduled to be sentenced on January 29, 2010. Perez was scheduled to be sentenced on October 6, 2009. He has not been sentenced and no new sentencing date has been reported. See our post here.

Also in Apri this year, Latin Node Inc., a privately held Florida corporation in the telecommunications business, pleaded guilty to violating the Foreign Corrupt Practices Act in connection with improper payments in Honduras and Yemen. Latinode agreed to pay a $2 million fine and to cooperate with investigators in the U.S. and other countries.

As the Justice Department says, an indictment is merely an accusation, and defendants are presumed innocent until and unless proven guilty beyond a reasonable doubt.

Download the DOJ's December 7, 2009 release here.

Download a copy of the indictment in US v. Esquenazi et al here.

Mergers and acquisitions are back. Seeking Alpha just said: "Over the past few weeks, there has been a resurgence in acquisition activity, fueling an already strong market rally. This news has spanned all regions of the economy ranging from the transportation sector (Burlington Northern being taken over by Berkshire Hathaway) to pharmaceuticals (Schering Plough being acquired by Merck). Most recently, in the consumer sector, Kraft announced its intention to take over confectionery giant Cadbury while Hewlett Packard announced plans to buy 3com."

When M&A numbers climb, so do Foreign Corrupt Practices Act enforcement actions. That's because all acquisitions involve due diligence, either before or after the deal is done. Due diligence is one way potential FCPA offenses are discovered. And once discovered, most are now self-reported to the Justice Department or the Securities and Exchange Commission. Directors protect themselves through disclosure. Beyond that, buyers in friendly M&A deals commonly insist that the target's compliance problems be reported and resolved before the closing.

In the past, M&A activity has led to some well-known FCPA enforcement actions. Cardinal Health's 2003 acquisition of Syncor produced FCPA precedents concerning an acquirer's pre-merger due diligence obligations and successor liability. Titan Corporation's FCPA violations were discovered after a Lockheed tender offer. Lockheed aborted the offer and in 2005 Titan paid a record $28.5 million for its FCPA settlement. More recently, M&A activity resulted in enforcement actions involving Delta Pine, Aibel, and Latin Node, among others. In May, Sun Microsystems self-disclosed an internal investigation into possible FCPA violations discovered during due diligence for Oracle's takeover bid. And last year, Halliburton's clumsy attempt to buy British firm Expro through a hostile takeover produced the most intrusive Justice Department FCPA Opinion Procedure Release on record.

The current M&A wave, combined with the DOJ's already sharpening focus on the FCPA, means there's lots more enforcement action on the way.

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Where do FCPA cases come from? In remarks yesterday to the National Forum on the Foreign Corrupt Practices Act, Assistant Attorney General Lanny Breuer said this: "Although many of these cases come to us through voluntary disclosures, which we certainly encourage and will appropriately reward, I want to be clear: the majority of our cases do not come from voluntary disclosures. They are the result of pro-active investigations, whistleblower tips, newspaper stories, referrals from our law enforcement counterparts in foreign countries, and our Embassy personnel abroad, among other sources. I have personally traveled abroad and spoken with Embassy personnel about this issue."

A copy of Lanny Breuer's November 17, 2009 remarks can be downloaded here.

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Presidential Proclamation 7750 allows the State Department to deny visas to foreign kleptocrats and their families. It was signed into law in 2004 and by 2006 it was being called a key tool in America's anti-corruption arsenal. (The FCPA reaches bribe payers but not bribe takers.) Yet we could say without exaggeration in a post last week that the U.S. press had completely ignored Proclamation 7750.

But that's now changed.

Harper's Magazine published an article by Ken Silverstein on November 16 about the son of Equatorial Guinea's ruler, Teodoro Nguema Obiang Mangue. The article began:

In 2004, George W. Bush issued Presidential Proclamation 7750, which barred corrupt foreign officials from entering the United States and ordered the State Department to compile a list of banned individuals. Three years later Congress approved a complementary measure that said the State Department should take special heed to bar officials when there was “credible evidence” to believe they were involved in the theft of natural resources revenues. Last July, the State Department issued a report noting that corruption eroded “confidence in democratic institutions” and that fighting it was a central tenet of American foreign policy. The report also stated that the Obama administration would “vigorously” enforce 7750, better known as the Anti-Kleptocracy Intiative, and give particularly close scrutiny to visa requests from individuals involved in corruption involving natural resources.

And somewhat improbably, the New York Times carried its own story on the same day by Ian Urbina about Teodoro Nguema Obiang that also featured the hitherto invisible Proclamation 7750.

After five years, what a difference a week makes.

During the second quarter there were, by our count, eleven Foreign Corrupt Practices Act enforcement actions. They involved four companies -- three firms resolved criminal or civil charges, or both, and one disclosed an investigation -- and 13 individuals who were either indicted, put on trial, pleaded guilty or sentenced. Here's the rundown:

Joseph T. Lukas (June 29, 2009) Guilty plea to a two-count criminal indictment.

Lukas, 60, a partner in Nexus Technologies Inc. until 2005, was indicted in September 2008 on one count of conspiracy to bribe Vietnamese public officials in violation of the Foreign Corrupt Practices Act and one substantive count of violating the FCPA. He admitted in his guilty plea that from 1999 to 2005, he and other Nexus employees agreed to pay, and knowingly paid, bribes to Vietnamese government officials in exchange for contracts with the officials' agencies. At his sentencing scheduled for April 2010, he faces up to 10 years in prison and a possible $350,000 fine.

The 2008 indictment also charged Nexus and alleged co-conspirators Nam Nguyen, Kim Nguyen and An Nguyen, all U.S. citizens, with similar violations. Their cases are still pending.

William Jefferson (June 9, 2009) The start of his federal criminal trial in Alexandria, Virginia.

It's the first time a former member of congress has been prosecuted under the Foreign Corrupt Practices Act. Jefferson, 62, faces up to 20 years in prison. He's accused of violating the FCPA by arranging bribes to African officials to win contracts for his family's companies, and with soliciting and accepting bribes, wire fraud, money laundering and obstruction of justice. He lost an election last year for a 10th term in the House of Representatives from a district that includes New Orleans.

Frederic Bourke (June 1, 2009) The start of his federal criminal trial in Manhattan.

The co-founder of luxury handbag brand Dooney & Bourke is accused of investing in a deal in Azerbaijan in 1998 that he knew involved paying bribes to officials there. He faces up to 30 years in jail for conspiring to violate the FCPA, money laundering and lying to federal investigators. Bourke says he didn't know about the bribery. His co-defendant Viktor Kozeny is a fugitive in the Bahamas.

United Industrial Corporation (UIC) (May 29, 2009) Civil enforcement action resolved.

The Securities and Exchange Commission filed a settled enforcement action against UIC, an aerospace and defense systems contractor. UIC agreed to pay $337,679.42 in disgorgement and prejudgment interest. (See also Thomas Wurzel below.)

Thomas Wurzel (May 29, 2009) Civil enforcement action resolved.

The SEC filed a settled enforcement action against Thomas Wurzel, the former president of UIC's one-time subsidiary, ACL Technologies, Inc.. He agreed to pay a $35,000 civil penalty. The SEC said Wurzel authorized illegal payments to Egyptian Air Force officials in 2001 and 2002 through an agent in return for business related to a military aircraft depot in Cairo.

Wurzel and UIC were charged with violating the antibribery, books and records and internal controls provisions of the Foreign Corrupt Practices Act; Wurzel also faced aiding and abetting violations.

Novo Nordisk A/S (May 11, 2009) Criminal and civil enforcement actions resolved.

Denmark-based Novo Nordisk agreed to pay a $9 million criminal penalty and enter into a deferred prosecution agreement with the DOJ for illegal kickbacks paid to the former Iraqi government under the U.N. oil-for-food program. It also agreed to pay $3,025,066 in civil penalties and $6,005,079 in disgorgement of profits, including pre-judgment interest, to the SEC.

The DOJ charged Novo with one count of conspiracy to commit wire fraud and to violate the books and records provisions of the FCPA. In the civil enforcement action, the SEC charged Novo with violating the FCPA's books and records and internal controls provisions.

Sun Microsystems (May 7, 2009) Investigation disclosed.

Sun said in an SEC filing that it may have violated the FCPA. It didn't reveal where the payments might have occurred or how much the bribes amounted to. But it said the potential offenses, which it has reported to U.S. and other authorities, "could possibly have a material effect on our business."

Juan Diaz and Antonio Perez (April 27, 2009) Guilty pleas to a one-count criminal information.

Diaz and Perez, both 51 of Miami, pleaded guilty to a one-count criminal information. They were charged with conspiracy to violate the FCPA by making corrupt payments to officials from Telecommunications D'Haiti. Diaz paid and concealed $1,028,851 in bribes while acting as an intermediary for three private telecommunications companies. Perez arranged bribes of $674,193 to the Haitian officials while he worked as a controller at one of the companies from March 1998 to January 2002.

Stuart Carson, Hong (Rose) Carson, Paul Cosgrove, David Edmonds, Flavio Ricotti, and Han Yong Kim (April 9, 2009) Indicted by a federal grand jury.

The six former executives of Control Components Inc., an Orange County, Calif.-based valve company, were charged with conspiracy to violate the FCPA and the Travel Act, violating the FCPA, and as to Hong (Rose) Carson, one count of obstruction. It was the biggest multi-party indictment of individuals yet under the FCPA.

Earlier this year, two other former executives from Control Components admitted paying bribes to foreign officials and have been cooperating with authorities. Richard Morlok, 55, the former finance director, and Mario Covino, 44, the company's former director of worldwide factory sales, pleaded guilty to one count of conspiracy to violate the FCPA. They're sentencing is set for July 20, 2009.

Shu Quan-Sheng (April 7, 2009) Sentenced to prison.

The Virginia-based physicist who sold controlled space-launch technology to China by bribing government officials there was sentenced to 51 months in prison. Shu, 68, a native of China and naturalized U.S. citizen, pleaded guilty in November 2008 to one count of violating the FCPA and two counts of violating the Arms Export Control Act. Shu had already forfeited $386,740 to the federal government before being sentenced to prison.

Latin Node Inc. (April 7, 2009) Criminal enforcement action resolved.

The former privately held Florida telecommunications company pleaded guilty to a one-count criminal information and agreed to pay a fine of $2 million over the next three years. It was charged with violating the FCPA's antibribery provisions by making improper payments in Honduras and Yemen.
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Click on the party names for the original posts, with links to the charging documents, plea agreements, and news and litigation releases.

View our enforcement report for Q1 '09 here.

View our 2008 enforcement index here.
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Two Florida men have admitted bribing employees of Haiti's state-owned telephone company in return for better rates for Miami-based communications firms.

Juan Diaz, 51, of Miami, pleaded guilty Friday to a one-count criminal information. He was charged with violating the Foreign Corrupt Practices Act by conspiring to make corrupt payments to officials from Telecommunications D'Haiti. He paid and concealed $1,028,851 in bribes while acting as an intermediary for three private telecommunications companies.

Antonio Perez, 51, of Miami, the former controller of one of the U.S. telecos, pleaded guilty on April 27, 2009, to a one-count information charging him with conspiring to bribe officials at Telecommunications D'Haiti. Perez arranged bribes of $674,193 to the Haitian officials while he worked at the company from March 1998 to January 2002.

The government said Diaz and Perez admitted they conspired to make "side payments" through a shell company belonging to Diaz. The bribes went to Telecommunications D'Haiti's ex-director general and ex-director of international relations.

Diaz and Perez each face up to five years in prison and a fine of the greater of $250,000 or twice the gross gain produced by their bribes. The government said its investigation is ongoing.

The Justice Department hasn't released the names of the U.S. companies involved in the case. In late April, Latin Node Inc., another privately held Florida corporation in the telecommunications business, pleaded guilty to violating the Foreign Corrupt Practices Act in connection with improper payments in Honduras and Yemen. Latinode agreed to pay a $2 million fine and to cooperate with investigators in the U.S. and other countries.

Download a copy of the DOJ's May 15, 2009 release here.

Download a copy of the April 22, 2009 criminal information against Juan Diaz here.

Download a copy of the April 22, 2009 criminal information against Antonio Perez here.
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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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