The FCPA Blog

The DOJ said today that Flavio Ricotti, an Italian citizen indicted in April 2009 with five other former executives of California-based valve-maker Control Components Inc. (CCI), has been extradited to the United States from Germany. He's facing trial for his alleged role in a conspiracy to bribe officials of foreign state-owned companies and private parties.

Ricotti, 49, of Bientina, Italy, was arrested in February this year in Germany and extradited from there last week.

The others indicted with Ricotti are Stuart Carson, CCI’s former chief executive officer; Hong (Rose) Carson, CCI’s former director of sales for China and Taiwan; Paul Cosgrove, CCI’s former director of worldwide sales; David Edmonds, CCI’s former vice president of worldwide customer service; and Han Yong Kim, the former president of CCI’s Korean office. Their trial is scheduled to start on November 2, 2010.

Ricotti and his co-defendants are charged with one count of conspiracy to violate the FCPA and the Travel Act, one count of violating the FCPA, and three counts of violating the Travel Act. The conspiracy count carries a maximum penalty of five years in prison and a fine of $250,000 or twice the value gained or lost. The FCPA count carries a maximum penalty of five years in prison and a fine of $100,000 or twice the value gained or lost. The Travel Act counts each carry a maximum penalty of five years in prison and a fine of the greater of $250,000 or twice the pecuniary gain or loss.

Two other former CCI employees pleaded guilty last year to conspiring to bribe officers and employees of foreign state-owned companies on behalf of CCI. In January 2009, Mario Covino, the company's former director of worldwide factory sales, pleaded guilty to one count of conspiracy to violate the FCPA. He admitted arranging bribes of about $1 million to officers and employees of several foreign state-owned companies. In February last year, Richard Morlok, CCI’s former finance director, pleaded guilty to one count of conspiracy to violate the FCPA and admitted arranging about $628,000 in bribes to officers and employees of several foreign state-owned companies. Covino and Morlok are scheduled to be sentenced in January 2011.

In July 2009, CCI pleaded guilty to violating the anti-bribery provisions of the Foreign Corrupt Practices Act (15 U.S.C. §78dd-2) and the Travel Act (18 U.S. C. §1952). It admitted bribing foreign officials in a decade-long scheme to secure contracts in about 36 countries. CCI's three-year plea agreement imposed a criminal fine of $18.2 million and required appointment of a compliance monitor and cooperation with the DOJ's investigation.

The government alleges that Ricotti, who was CCI’s vice president and head of sales for Europe, Africa and the Middle East from 2001 through 2007, arranged bribes of at least $750,000 to officers and employees of state-owned companies (considered "foreign officials" under the FCPA), and bribes of about $380,000 to officers and employees of private companies. The payments allegedly related to projects in the United Arab Emirates, Kazakhstan, India and Qatar.

CCI designs and makes valves for the oil, gas, nuclear, coal and power plant industries. It is owned by British-based IMI plc, which trades on the London Stock Exchange under the symbol IMI.L.

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

A copy of the DOJ's July 6, 2010 release can be viewed here.

Representatives of the United Nations are "foreign officials" under the Foreign Corrupt Practices Act. The key intermediary identified as “Individual 1” in this week's historic bribery indictment of 22 people from the military and police-equipment industry has been charged with conspiracy (18 U.S.C. § 371).

In a one-count criminal information filed in federal court in the District of Columbia, the DOJ accused Richard T. Bistrong of conspiring with others to violate the Foreign Corrupt Practices Act's antibribery provisions, 15 U.S.C. §78dd-1, its books and records provisions, 15 U.S.C. §§ 78m(b)(2)(A), 78m(b)(5) and 78ff(a), and the Commerce Department's export license rules, 50 U.S.C. §§ 1701-1706 and 15 C.F.R. §§ 736.2, 764.2, and 774. The information was released on Friday.

Bistrong was a vice president for international sales at Armor Holdings, a former publicly traded military equipment manufacturer in Jacksonville, Florida. Amor became a subsidiary of BAE Systems after the British firm acquired it in 2007.

According to a report in the New York Times Friday by Diana Henriques, John Suttle, senior vice president for corporate communications at BAE's U.S. unit, confirmed that Bistrong had worked at Armor Holdings but was fired before BAE's acquisition. He said Armor had self-disclosed to the DOJ and SEC and that "all of these events occurred before BAE bought the company."

The New York Times also said sources confirmed that Bistrong -- or “Individual 1” as he's referred to in the earlier indictments -- introduced undercover FBI agents to senior executives in the arms and security-equipment business.

Tuesday's indictment of 22 people, including four Israelis and three Britons, was the first big undercover sting used in connection with alleged violations of the Foreign Corrupt Practices Act. It was also the biggest mass indictment in FCPA history. An FBI undercover agent posed as a military-equipment buyer for an African country. He told the sellers they would have to pay 20% commissions to an African government official for the sales. "Individual 1," according to the indictments, played a key role by introducing the undercover FBI agent to the various sellers.

In its charges against Bistrong, the DOJ alleged that from 2001 through 2006, he and others concealed about $4.4 million in payments to agents and other intermediaries who helped Armor Products obtain business from "foreign government customers" in Nigeria and the Netherlands. Payments for sales to the United Nations for its mission in Iraq were also involved.

The DOJ said in the information that an official of a "public international organization" is a "foreign official" under the FCPA. 15 U.S.C. §§ 78dd-l(f)(l)(A) and 78dd-l(f)(I)(B). The United Nations is a "public international organization;" therefore its offcials are "foreign officials" under the FCPA. 22 U.S.C. § 288; Exec. Order No. 9698, 11 Fed. Reg. 1809 (Feb. 20,1946).

The information also alleged that in March 2004, Bistrong and another employee authorized the export from the U.S. to the United Arab Emirates for further shipping to Iraq of vests and helmets "without obtaining a required license from the Commerce Department to do so."

Download a copy of the information in U.S. v. Richard T. Bistrong here.

Special thanks to Marc Bohn in the District of Columbia for help with this post.

The Justice Department has announced its first Foreign Corrupt Practices Act enforcement action of 2009. Mario Covino, 44, an Italian citizen living in Irvine, California, pleaded guilty in federal court in Santa Ana to a single count of conspiring to violate the FCPA by paying at least $1 million in bribes to foreign officials in several countries. He's cooperating in an ongoing federal investigation and waiting to be sentenced in July. He faces up to five years in prison.

The DOJ said Covino was formerly the worldwide sales director for an unidentified Rancho Santa Margarita-based company that designs and makes valves used in the oil, gas, nuclear, coal and power plant industries. The plea agreement refers to the company as an "unnamed co-conspirator." A report from the Associated Press said online business directories list Covino as having worked for Control Components Inc. The company, also known as CCI, hasn't commented. It is owned by British-based IMI plc, which trades on the London Stock Exchange under the symbol IMI.L.

Covino acknowledged that he arranged for company employees and agents to pay about $1 million to employees at state-owned foreign enterprises from March 2003 through August 2007. He said his company made about $5 million in profits from the business obtained through the bribes. According to the plea agreement, some of the corrupt payments went to officials at Petrobras (Brazil), Dingzhou Power (China), Datang Power (China), China Petroleum, China Resources Power, China National Offshore Oil Company, PetroChina, Maharashtra State Electricity Board (India), KHNP (Korea), Petronas (Malaysia), Dolphin Energy (UAE) and Abu Dhabi Company for Oil Operations (UAE).

Covino also said he provided false and misleading responses during a 2004 internal audit of the company’s commission payments. And to obstruct the audit, he deleted and told others to delete emails that referred to corrupt payments.

Download the DOJ's January 8, 2009 release here.

Download Covino's plea agreement here.
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Internal Investigation into Oil-For-Food Abuses Uncovered Widespread Bribery

York International Corporation has reached a settlement with U.S. prosecutors of numerous violations of the U.S. Foreign Corrupt Practices Act -- relating to bribes paid under the United Nations oil-for-food program and kickbacks for other government contract work in Bahrain, Egypt, India, Turkey, the United Arab Emirates and China. York -- a subsidiary of Johnson Controls, Inc. since 2005 -- provides heating, ventilation, air conditioning, and refrigeration products and services worldwide.

Under York's three-year deferred prosecution agreement with the U.S. Department of Justice, it will pay a $10 million criminal penalty, cooperate with the DOJ’s related investigations and appoint an independent compliance monitor. York also consented to the Securities and Exchange Commission’s filing of a complaint for FCPA violations and agreed to disgorge about $10 million and pay $2 million in civil penalties.

From 2001 through 2006, York paid over $7.5 million in bribes through subsidiaries and agents to obtain work on commercial and government projects throughout the world. York referred to the payments internally as "consultancy payments" but no bona fide services were involved. It made 854 improper consultancy payments on more than 770 contracts -- 302 projects involved government end-users, such as government-owned companies, public hospitals, or schools.

The payments violated the anti-bribery provisions of the FCPA, and York failed to devise and maintain an effective system of internal controls to prevent or detect the bribes. It also failed to accurately record in its books and records the kickbacks to Iraq, bribes in the UAE, and the bogus consultancy payments made in various countries. York consented to the entry of a final judgment with the SEC permanently enjoining it from future violations of Sections 30A, 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934. The DOJ’s three-count criminal Information charged York with conspiracy to commit wire fraud and to falsify books and records in violation of 15 U.S.C. §§ 78m(b)(2)(A), 78m(b)(5) and 78ff(a).

York self-reported the violations and worked with the DOJ and the SEC to investigate the illegal conduct. The criminal Information also mentions "Employee A" and “Employee B,” citizens of the United Kingdom and Syria respectively, who were involved in the bribery, as well as "Company X," a consulting company based in Jordan that acted as a sales agent for York in the Middle East. They have not yet been charged with FCPA violations.

Among the details mentioned by prosecutors, York’s Danish subsidiary, which sells refrigeration equipment to ship builders and ship yards owned by the Chinese government, made illegal payments from 2004 through 2006 to agents and to Chinese officials connected with the shipyards. “Hundreds of thousands of dollars for nebulous and undocumented services” were processed through York’s Danish subsidiary, which also provided Chinese ship yard employees with lap top computers and other electronics.

York's parent company, Johnson Controls, Inc. (NYSE: JCI) will not be prosecuted on the facts admitted by York.

View the DOJ’s October 1, 2007 News Release Here.

View the October 1, 2007 Deferred Prosecution Agreement and Criminal Information Here.

View the SEC’s Litigation Release No. 20319 / October 1, 2007 Here.

View the SEC’s Complaint Here.

Textron Inc., without admitting or denying books and records and internal controls allegations, consented to the entry of a final judgment with the SEC permanently enjoining it from future violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934, ordering it to disgorge $2,284,579 in profits, plus $450,461.68 in pre-judgment interest, and to pay a civil penalty of $800,000. Textron will also pay a $1,150,000 fine pursuant to a non-prosecution agreement with the DOJ.

The SEC complaint alleges that from approximately 2001 through 2003, two of Textron's fifth tier French subsidiaries that it acquired in 1998 and 1999 authorized and made approximately $650,539 in kickback payments in connection with its sale of humanitarian goods to Iraq under the U.N. Oil for Food Program. The complaint also alleges that Textron's subsidiaries made illicit payments of $114,995 to obtain thirty-six contracts in the United Arab Emirates, Bangladesh, Indonesia, Egypt, and India from 2001 to 2005.

View the SEC’s Litigation Release Here.

View the SEC’s Complaint Here.

View the DOJ's Press Release Here.