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FCPA Blog Daily News

Entries in Smith and Wesson (70)

Monday
Apr042011

Enforcement Report For Q1 '11

During the first quarter of 2011, two earlier FCPA-related indictments were disclosed. And there were four corporate actions, four guilty pleas, including two shot-show defendants and the former KBR middleman Jeffrey Tesler, who was hit with the biggest forfeiture order in FCPA history, and two sentencings of individuals to prison.

Click to read more ...

Monday
Dec272010

Fox's Favorite Investigations

Last week Tom Fox picked his top ten FCPA enforcement actions for 2010. Today he gives his choices for the top ten investigations disclosed or making news this year:

Click to read more ...

Friday
Dec032010

A Missing Cornerstone Of Enforcement?

A look behind the DOJ's tally of individual prosecutions under the FCPA.

Click to read more ...

Thursday
Sep162010

Key Witness In Shot-Show Case Pleads Guilty

Richard Bistrong, the key intermediary identified as “Individual 1” in the historic bribery indictment of 22 people from the military and police-equipment industry, pleaded guilty today in federal court in Washington, D.C. to one count of conspiracy to violate the Foreign Corrupt Practices Act and other statutes.

Click to read more ...

Monday
Sep132010

The Enforcement Rap Sheet

If the DOJ and SEC are prosecuting corporations instead of individuals for FCPA violations -- an idea raised in another post -- the numbers should show it. So let's take a look.

Click to read more ...

Tuesday
Jul062010

Disclosing Compliance

Smith and Wesson, the most prominent company implicated in the Shot-Show prosecutions, disclosed last week that it's being investigated by the DOJ and SEC for FCPA violations. The company said it has already spent $3.2 million in connection with the case.

The disclosure was fairly typical -- some reasons for the government's investigation, the uncertain outcome for the company, and no details about how Smith and Wesson tries to comply with the FCPA. That's too bad.

We'd like to hear more about compliance. But for now, companies and their lawyers think that information doesn't belong in SEC disclosure material. They're partly right. Once an employee pleads guilty to an FCPA offense (the usual outcome of an indictment), the company becomes strictly liable under respondeat superior. It has no defense, so information about its compliance program becomes largely irrelevant.

There's also an assumption that because a compliance program didn't prevent an FCPA offense, the program is worthless. That's wrong. Overseas bribery can happen in any company, even one with an "effective" compliance program.

Here's an idea. Instead of holding companies strictly liable for their employees' FCPA offenses, let them assert a good-faith defense. When accused of an FCPA violation, encourage companies to talk about the strengths of their compliance programs and how they tried to keep their employees on the right side of the law. Give them a chance to redeem their corporate citizenship without being pressured into a deal with the DOJ and SEC. That, in turn, will give them a powerful reason to have a robust compliance program and to disclose details about it, even before they're in trouble.

Investors, customers, suppliers, NGOs, lawmakers, and the general public want to know what companies are doing to avoid overseas corruption. We think Smith and Wesson had good intentions. In its disclosure the company said: "We have always taken, and continue to take seriously, our obligation as an industry leader to foster a responsible and ethical culture, which includes adherence to laws and industry regulations in the United States and abroad." 

Still, we'd like to know more about what S&W and other companies do to comply with the FCPA. Fixing respondeat superior will encourage them to tell us.

______________________

Here's Smith and Wesson's full FCPA disclosure from its latest annual report:

Foreign Corrupt Practices Act (FCPA)

On January 19, 2010, the U.S. Department of Justice (“DOJ”) unsealed indictments of 22 individuals from the law enforcement and military equipment industries, one of whom was our Vice President−Sales, International & U.S. Law Enforcement. We were not charged in the indictment. We also were served with a Grand Jury subpoena for the production of documents. We have always taken, and continue to take seriously, our obligation as an industry leader to foster a responsible and ethical culture, which includes adherence to laws and industry regulations in the United States and abroad. Although we are cooperating fully with the DOJ in this matter and have undertaken a comprehensive review of company policies and procedures, the DOJ may determine that we have violated FCPA laws. We cannot predict when this investigation will be completed or its outcome. There could be additional indictments of our company, our officers, or our employees. If the DOJ determines that we violated FCPA laws, or if our employee is convicted of FCPA violations, we may face sanctions, including significant civil and criminal penalties. In addition, we could be prevented from bidding on domestic military and government contracts, and could risk debarment by the U.S. Department of State. We also face increased legal expenses and could see an increase in the cost of doing international business. We could also see private civil litigation arising as a result of the outcome of the investigation. In addition, responding to the investigation may divert the time and attention of our management from normal business operations. Regardless of the outcome of the investigation, the publicity surrounding the investigation and the potential risks associated with the investigation could negatively impact the perception of our company by investors, customers, and others.

SEC Investigation

Subsequent to the end of fiscal 2010, we received a letter from the staff of the SEC giving notice that the SEC is conducting a non−public, fact−finding inquiry to determine whether there have been any violations of the federal securities laws. It appears this civil inquiry was triggered in part by the DOJ investigation into potential FCPA violations. We have always taken, and continue to take seriously, our obligation as an industry leader to foster a responsible and ethical culture, which includes adherence to laws and industry regulations in the United States and abroad. Although we are cooperating fully with the SEC in this matter, the SEC may determine that we have violated federal securities laws. We cannot predict when this inquiry will be completed or its outcome. If the SEC determines that we have violated federal securities laws, we may face injunctive relief, disgorgement of ill−gotten gains, and sanctions, including fines and penalties, or may be forced to take corrective actions that could increase our costs or otherwise adversely affect our business,
results of operations, and liquidity. We also face increased legal expenses and could see an increase in the cost of doing business. We could also see private civil litigation arising as a result of the outcome of this inquiry. In addition, responding to the inquiry may divert the time and attention of our management from normal business operations. Regardless of the outcome of the inquiry, the publicity surrounding the inquiry and the potential risks associated with the inquiry could negatively impact the perception of our company by
investors, customers, and others.

Thursday
May202010

Feds Call Time Out

There hasn't been a new FCPA enforcement action from the DOJ since Daimler's on April 1 and only Dimon's from the SEC. That's strange. The first three months of this year were the busiest in FCPA history. But since then, hardly a peep.

With around 150 cases pending and pressure building to resolve long-standing actions involving Panalpina, Technip, ENI, ABB, Alcatel-Lucent, Pride International, Inc., Alcoa, the medical device makers, and pharmas, you have to ask: Where are the enforcement actions for April and May?

In a typical year, we'd expect a couple of actions a month; this year, we'd expect more. So what's happening?

Here are a few guesses:

  • Changing horses. Mark Mendelsohn, head of the DOJ's FCPA unit, left government service in mid-April. His departure would be a natural time for those still there or newly arrived to take inventory -- to use the white board to plot their present location and itinerary for the coming year.
  • Resources are stretched. With all the pending prosecutions, including the 22-defendant shot-show case, the DOJ's FCPA group has to be stretched. Maybe they're taking a couple of months to catch their breath, bring in reinforcements, and lift their eyes above the trenches to make sure they aren't about to make any big mistakes.
  • A new strategy. Could the DOJ be assessing its overall enforcement approach? Looking, perhaps, at how decisions are made to prosecute corporations (which are defenseless because of respondeat superior)? Or whether financial penalties that punish innocent stakeholders make sense? Or if enforcement should zero in on individuals, or find new ways to spotlight foreign officials who demand bribes . . . ?

There's precedent for the current FCPA moratorium. In February and March 2008, the DOJ also came to a dead stop. The reason was never announced but it could have been the controversy over the unregulated appointment of compliance monitors. Former Attorney General John Ashcroft's $52 million gig with Zimmer in a domestic kickback case threw Washington into a spin. The storm blew over and the DOJ was back in the FCPA business after about two months.

Tuesday
Apr202010

Feds Tidy Up Shot-Show Case

The government yesterday filed a superseding indictment in the prosecution of the 22 shot-show defendants, charging them under a consolidated grand jury indictment with 44 counts, including conspiracy to violate the FCPA, substantive FCPA offenses, conspiracy to commit money laundering, and aiding and abetting.

Prosecutors proposed trying the defendants in four groups:

The first group: Daniel Alvirez, Lee Allen Tolleson, Andrew Bigelow, Pankesh Patel, John Benson Weir III.

The second group: David Painter, Lee Wares, Jonathan Spiller, Michael Sacks, Israel Weisler.

The third group: Patrick Caldwell, Stephen Giordanella, John Mushriqui, Jeana Mushriqui, John Godsey, Mark Morales.

And the fourth group: Helmie Ashiblie, Yochanan Cohen, Haim Geri, Amaro Goncalves, Saul Mishkin, Ofer Paz.

As reported in March, one of the 22 defendants, Daniel Alvirez, is expected to plead guilty soon to charges of conspiracy to violate the FCPA. Although he's included in yesterday's superseding indictment, the government in March released a two-count superseding information against him alone. An information generally indicates a plea bargain is in the works or already agreed.

Alvirez faces up to five years in prison for each of the two conspiracy counts in the information. He could have faced up to 20 years in jail on the money-laundering charge that was dropped, and five years in prison for each substantive FCPA offense he originally faced.

Alvirez and the other shot-show defendants were first charged in 16 separate indictments. They allegedly plotted with an undercover FBI agent to bribe the minister of defense of an African country.

Download a copy of the superseding indictment released April 19, 2010 in U.S. v. Amaro Goncalves et al here.

Wednesday
Apr142010

Goodbye, Mr. Mendelsohn

As head of the DOJ's Foreign Corrupt Practices Act enforcement unit, Mark Mendelsohn transformed the FCPA from a legal backwater to a headline practice. He's leaving the Justice Department Friday after a dozen years, and leaving behind the most aggressive overseas anti-bribery regime in the world.

In November last year, Mendelsohn's boss, Assistant AG Lanny Breuer, called him an "exceptional public servant and a visionary steward of the FCPA program." In private practice, he's expected to earn between $2.5 and $3 million a year. 

Mendelsohn's view of the FCPA and American anti-corruption policy wasn't complicated. He pushed enforcement against corporations of any size and from any country -- including U.S.-government contractor KBR, German industrial giants Siemens and Daimler AG, British-based BAE Systems, and France's Alcatel-Lucent. Financial penalties ballooned during Mendelsohn's time, topped by Siemens' $800 million payment to the DOJ and SEC in December 2008.

He also led the government's charge against individual FCPA defendants -- among them KBR's Jack Stanley, entrepreneur Frederic Bourke, and the 22 shot-show defendants. 

During his term, no corporations mounted a courtroom defense against FCPA charges; instead all made deals with the DOJ to settle their cases. That gave Mendelsohn extraordinary power -- in the FCPA realm, he and the DOJ became prosecutor, judge, and jury. That's more power than most mortals can handle, but he did just fine. 

Like all top cops, he was criticized from every direction. Some said he was overzealous, that his expansive view of the FCPA went far beyond Congress' original intent. Others complained that corporations enjoyed easy settlements, based not on bribery charges but only related offenses, and never resulting in debarment from U.S. government business. But his fans cheered because nearly all corporate defendants were given second chances.

Above all, Mendelsohn was an honest advocate for compliance, not only at home but abroad. That may be his most important contribution. His steady hand encouraged prosecutors in other countries to fight public sleaze. And his FCPA team partnered with counterparts in England and Germany, Italy and France, Switzerland, Hungary, Costa Rica, Nigeria and elsewhere, forging ties that led to the first real global enforcement actions. Those cases helped change attitudes everywhere.

His boss was right. Mark Mendelsohn was an extraordinary public servant and an FCPA visionary.

Thursday
Mar252010

Where To Look

Be sure to check out Shearman & Sterling's searchable data base here. It's utterly amazing and free to use. Searches return cases, pleadings, dollar amounts, countries involved, dispositions, and related actions. It's like their original FCPA Digest, but in liquid form. A wonderful new public resource.

Philip Urofsky, who heads the project, told us "the new 'Digest 2.0' should be a useful tool for companies in evaluating risk by region, industry, and enforcement trends." He said his group will keep the data base current and as comprehensive as possible with original pleadings.

On top of that, the latest version of the firm's "Trends and Patterns in the Enforcement of the Foreign Corrupt Practices Act" is now available, along with the March 10, 2010 .pdf edition of the FCPA Digest. Both are here.

Authors Urofsky and Dan Newcomb always bring a fresh perspective. In the latest Trends, they wonder how the DOJ's FCPA trial teams will cope with the recent indictment of so many individuals:

Senior DOJ and SEC officials of the Obama Administration have repeatedly promised a robust program of enforcement, including proactive initiatives focusing on specific business sectors, particularly the pharmaceutical industry. Nevertheless, the DOJ’s focus on individuals will undoubtedly have an impact on enforcement in the coming year. As of March 1, the DOJ has 38 individuals awaiting trial; some, such as the six Control Components defendants charged with a single conspiracy, will potentially be tried together, while others, such as the 22 defendants in the law enforcement supply cases, are likely to stand trial separately. Trials drain resources, and although we expect that the DOJ’s Fraud Section will call upon other parts of the Department for assistance, it is likely to be stretched thin in the near future.

And somehow anticipating the DOJ's comments about Daimler, they ruminate on the questionable role played by corporate law departments, as described in some pre-Daimler enforcement actions:

The SEC similarly expressed concerns about the fairly passive role of AGCO’s legal department. For example, the SEC noted that, in addition to allowing the Iraqi contracts to be executed without legal review, the legal department was aware that the company was doing business in Iraq, a country then subject to U.S. economic sanctions, yet it “failed to ensure that the sanctions or the U.N. rules and regulations were followed.” Further, the company did not conduct any due diligence on the agent nor did it provide or require the agent to take FCPA training nor did its agreement with the agent accurately describe his services and payment terms or include FCPA language.

We're grateful to Philip Urofsky and Dan Newcomb, as we have been for years, for making these resources available to the compliance community.

Monday
Mar082010

Shot-Show Prosecution May Expand

As reported Friday, one of the 22 shot-show defendants, Daniel Alvirez, is expected to plead guilty soon to charges of conspiracy to violate the Foreign Corrupt Practices Act. The government's two-count superseding information alleged that he plotted to bribe defense officials in Africa and the Republic of Georgia.

What to expect now? We asked someone familiar with the evidence, who requested anonymity. Here's what he or she told us:

The government's video and audio tapes are of good quality and the confidential informant, Richard Bistrong, should be an effective witness despite some baggage. Overall, the cases appear to be strong and supported by ample evidence.

There are indications of more foreign bribery involving the military-equipment industry; the allegations in the first 16 indictments (available here) and the superseding information may be the tip of the iceberg. 

The Justice Department is seeking to build bigger cases against some current defendants. It may also indict other individuals.

Investigators could also be looking at involvement by some well-known industry leaders -- an Indian military-equipment supplier, three U.S. public companies, and two large private security contractors among them.

Countries and governments involved may include not just Georgia (mentioned in the superseding information) but also Peru, Mexico, Saudi Arabia, Guatemala, the Philippines, Colombia, and others. Representatives from some of the countries could be targeted by the Justice Department.

Saturday
Mar062010

Guilty Plea Expected In Shot-Show Case

One of the 22 shot-show defendants is expected to plead guilty soon to charges of conspiracy to violate the Foreign Corrupt Practices Act by plotting to bribe defense officials in Africa and the Republic of Georgia.

Prosecutors on Friday filed a two-count superseding information against Daniel Alvirez, the former president of Arkansas-based ALS Technologies Inc. It manufacturers ammunition and other military equipment.

Washington, D.C. lawyer Michael Volkov said his client Alvirez will plead guilty soon. "I can confirm that," he told Reuters.

The superseding information alleges that Alvirez, 32, conspired with Lee Allen Tolleson and others to bribe Georgian defense officials to win contracts to sell ammunition and rations. Tolleson, 25, was the director of acquisitions and logistics at ALS Technologies.

Alvirez and the other shot-show defendants were originally charged with conspiracy to violate the FCPA, conspiracy to engage in money laundering, and committing substantive FCPA violations. The 16 indictments covering the 22 defendants alleged that they plotted with an undercover FBI agent to bribe the minister of defense of an African country. The superseding information also alleges that Alvirez and others plotted to bribe Georgian officials through an Israeli sales agent.

One of the shot-show defendants is Ofer Paz, 50, the president and chief executive officer of Paz Logistics, an Israeli company that acts as sales agent for companies in the law enforcement and military products industries

Alvirez may face up to five years in prison for each of the two conspiracy counts. He could have faced up to 20 years in jail on the money-laundering charge that was dropped in the superseding information, and five years in prison for each substantive FCPA offense he originally faced.

As we've said, when the government indicts en masse as in this case, defendants who offer early cooperation usually make out best. They often receive lighter sentences, depending in part on their level of cooperation with prosecutors. See our post here.

Download a copy of the March 5, 2010 superseding information in U.S. v. Daniel Alvirez here.

The original 16 indictments in the case can be downloaded from our post here.