The FCPA Blog

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.

Bloomberg's David Glovin has written of the terrible harm caused to corporate executives indicted on federal criminal charges and the scars left on those whose cases are later dropped.

The numbers are surprising. From 2006 to 2008, Glovin says, U.S. prosecutors dismissed charges against 42 such defendants -- more than twice the 20 dismissals in the prior three years, according to the Federal Justice Statistics Resource Center.

Glovin covered the FCPA-related prosecutions in U.S. v. Kozeny. One defendant indicted, then dropped from the case, was David Pinkerton of AIG. Glovin writes:

Pinkerton had just left his 8- year-old twins at his in-laws’ home in Morristown, New Jersey, when he learned he was no longer a suspected felon.

Pinkerton’s lawyer called to say that the U.S. prosecutors who had charged the former American International Group Inc. managing director with bribery -- which could have led to a decade in prison -- had dropped the case. . . .

The relief was so great that day in July 2008 that the 6- foot-2-inch-tall (1.88-meter-tall) executive, who had fought the stress of the 31-month-long ordeal with intense gym workouts, broke down and cried.

We've said before that the power of prosecutors to wield the sword of Caesar is a heavy burden. Used correctly, it enforces the rule of law for the good of the many. Use wrongly, it destroys innocent people -- not just the accused, but their families, employees and others, and the damage is permanent.

Pinkerton said: “Somebody made an allegation that I did something improper, and everything got thrown under the bus. One day, 100 people around the world want to talk to you. The next, your BlackBerry goes silent and you have three friends."

He was lucky to still have three friends.

David Glovin's article can be found here.

* * *

The whirlwind. From our porch last evening, we watched and listened as the storm blew through our corner of central Virginia. The wind whistled and trees bent and creaked, but only a bit and for just a few minutes. Then it rained lightly for a half hour. We went to bed thinking nothing more about the little storm.

But this morning, when we drove the fifteen miles to Charlottesville proper, it was another story. Trees down everywhere, power lines dangling, and roads impassible. We climbed over the limbs to reach our downtown workspace but the power was out. So we went home.

We like to think we're in control of things. But that's never really true on the grander scale of events.

Hans Bodmer, a key witness against Frederic Bourke, faces sentencing today in federal court in Manhattan for conspiracy to launder money. Photo by edenpicturesHans 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 most famous FCPA fugitive is wanted by U.S. authorites for conspiracy to bribe Azeri leaders.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.

A ruling this week in the Foreign Corrupt Practices Act prosecution of four former executives of Control Components Inc. (CCI) could have implications for defendants in other FCPA and white collar cases. The U.S. District Court in Santa Ana, California on Tuesday rejected the defendants' motion to obtain discovery of CCI's internal investigation through the Department of Justice.

Stuart Carson, Hong Rose Carson, Paul Cosgrove, and David Edmonds had argued that due to CCI's plea agreement with the DOJ, which required CCI to produce all records related to foreign bribery, the government had "constructive possession" of CCI's documents even though it took physical delivery of only a small portion. The volume of material was enormous -- 5.6 million documents, equating to 75 million pages. Because of the government's "constructive possession," the defendants argued, they could obtain all the material through the DOJ instead of CCI (thereby short-circuiting any objections to discovery CCI might have). But the court disagreed.

The defendants had relied on Judge Kaplan's decision in the KPMG case in the Southern District of New York. It tended to support the defendants' motion. But Judge James Selna rejected the motion and said the former CCI executives couldn't obtain discovery from CCI through the DOJ. His ruling took a narrower view of Judge Kaplan's order in the Stein case, which has been seen as an important help to white-collar defendants. Judge Selna said:

At the end of the day, Carson’s argument rests on the district court decision in United States v. Stein, 488 Supp. 2d 350 (S.D. N.Y. 2007). There are many reasons not to follow Stein’s lead. First, the terms of the Deferred Prosecution Agreement executed by KPMG in Stein were sweeping and open ended:

"8. KPMG agrees that its continuing cooperation with the Office's investigation shall include, but not be limited to, the following:

(a). Completely and truthfully disclosing all information in its possession to the Office and the IRS about which the Office and the IRS may inquire, including but not limited to all information about activities of KPMG, present and former partners, employees, and agents of KPMG . . ."

(Id. at 353; emphasis supplied; internal quotation marks deleted.) By no stretch of the imagination did CCI enter into an agreement allowing the Government to request anything in the possession of CCI. The KPMG agreement is devoid of the subject matter and comprehensive privilege strictures for which CCI bargained. (Plea Agreement, ¶¶ 6.) Even if Stein were taken at face value, it would not justify the blanket production of much of what Carson requests, including most specifically CCI’s Electronic Database.

Judge Selna also issued a separate order rejecting the defendants' motion to dismiss several counts of the indictment. The order included a nice discussion of the FCPA's statute of limitations and what the government needs to do to protect its tolling. That's the same issue that came up in the prosecution of Viktor Kozeny and his co-defendants.

The discovery ruling is a big win for the government. In April this year, the four former CCI executives had accused the Justice Department of playing "a game of hide and seek" with its evidence against them. They said the government had identified only 30 of the 236 illegal payments alleged in the indictment -- not enough for them to plan their defense. They wanted access through the DOJ of everything it had received as a result of CCI's self-reporting. Their discovery request included the electronic database collected during CCI's internal investigation and audit documents, among other things.

CCI designs and manufactures service control valves for use in the nuclear, oil and gas, and power generation industries. It's owned by British-based IMI plc, which trades on the London Stock Exchange under the symbol IMI.L.

The four former executives were charged with two others in a nine-year conspiracy to win contracts by bribing officials at foreign state-owned companies. The indictment alleged bribery "in over thirty countries" with "approximately 236 payments" totaling "approximately $6.85 million" to secure a series of projects that "resulted in net profits to [their employer, CCI] of approximately $46.5 million." In addition to cash, the government said the bribes consisted of "overseas holidays," "extravagant vacations," "lavish sales events," and "expensive gifts."

Their trial was supposed to start on Tuesday this week. But Judge Selna moved the start all the way to November 2, 2010. He said both sides need extra time to prepare due "to the nature of the prosecution, the volume of discovery, the international issues, and the number of defendants . . . ."

A copy of Judge Selna's December 8, 2009 Order Granting in Part and Denying in Part Defendants’ Motion to Compel in US v. Carson et al can be downloaded here. 

A copy of Judge Selna's December 8, 2009 Order Denying Defendants’ Motion to Dismiss Counts 9-11 can be downloaded here.