U.S. Suffers Setbacks on FCPA

Foreign bribery defendants may fight more as cases falter.

Executives facing trial in U.S. courts over accusations of bribing foreign officials may be encouraged to fight charges as prosecutors regroup after two courtroom setbacks and await a verdict in their largest overseas corruption probe targeting individuals.

One of two cases hailed by the government as milestones in its enforcement of the Foreign Corrupt Practices Act was dismissed last year by a judge who said the jury verdict convicting two men at an electricity tower company of bribing Mexican officials was tainted by prosecutor misconduct in “a sloppy, incomplete and notably over-zealous investigation.”

In the first prosecution under the FCPA based on a sting operation, a judge declared a mistrial for four of 22 defendants accused of participating in a fake $15 million weapons deal involving Gabon. A separate trial is under way for a second group of defendants.

The 2011 outcomes will make individual defendants in FCPA cases more confident in contesting charges, in particular because they may face long prison terms under the plea deals the Justice Department offers, even as corporations continue to self-report and settle, said Philip Urofsky, a former FCPA prosecutor who now defends cases at Shearman & Sterling LLP.

“If a defendant is able to finance a significant defense, they can really put the government to the test,” Urofsky said in a phone interview.

In a crackdown on overseas bribery that started during the Bush administration, the government settled 57 cases against companies from 2005 through 2011 without trial, reaping $4.1 billion for the U.S. treasury, according to Justice Department data. A push to prosecute more individual defendants during the same period has produced mixed results, with some beating charges outright and others getting less punishment than prosecutors sought.

Of the 93 people charged over the past seven years, including 43 in 2009 alone, 41 pleaded guilty and six were convicted at trial, according to Shearman & Sterling data. Four defendants are fugitives, one was exonerated and three had their cases dismissed. Of the remainder, 38 either have a trial date scheduled or are awaiting one. The 31 defendants who’ve been sentenced got an average of 2 years and 2 months in prison.


‘Great Success’

Laura Sweeney, a spokeswoman for the Justice Department, said the government has had “great success” against individuals since increasing its enforcement actions in 2009.

“Our record speaks for itself, with numerous guilty pleas and trial convictions, and substantial sentences imposed, including a 15-year prison sentence just three months ago on FCPA charges,” she said in an e-mailed statement. “These many successful prosecutions of individuals are in addition to our numerous corporate prosecutions.”

In the case that was thrown out because of misconduct, the Justice Department is appealing the dismissal of the conviction and indictment of the two Lindsey Manufacturing Co. executives and the company. The government’s opening brief is due April 2.

The 1977 law bars companies or individuals regulated or based in the U.S. from paying bribes to foreign officials to win business. Foreign companies and nationals also can be prosecuted if their corrupt acts were committed in the U.S.

Corporations started to approach the Justice Department about possible FCPA violations and to negotiate settlements beginning about 2003, when, as part of the Sarbanes-Oxley Act, top executives were required to certify that they weren’t aware of any fraud at their companies, Urofsky said.

The multimillion-dollar settlements the Justice Department reached with public companies led to more resources, including prosecutors and FBI agents, getting assigned to FCPA cases, Urofsky said. That in turn brought about more investigations of smaller, closely held companies and individuals and an uptick in FCPA trials the past two years, he said.

“Corporations will look at it as part of business management and settle as long as the costs are reasonable and don’t break the bank,” Urofsky said. “An individual can go to jail -- they have a lot more tangible skin in the game.”

Bethany Hengsbach, a lawyer with Sheppard Mullin Richter & Hampton LLP in Los Angeles, said it’s difficult for the government to investigate foreign bribery cases and bring them to trial.

“FCPA cases present a unique number of challenges, including overseas fact gathering, relying on the cooperation of foreign governments,” she said in an interview.

The obstacles to compiling evidence may have caused prosecutors to overreach in the case of Lindsey Manufacturing, Hengsbach said.


Government Misconduct

Prosecutors persuaded a federal jury in Los Angeles to render a guilty verdict in May against Lindsey’s president and finance chief, as well as the closely held Asuza, California- based company itself, over allegations of bribing Mexican officials with a state utility. In November, U.S. District Judge Howard Matz threw out the convictions after finding eight instances of government misconduct, including using false information to get a warrant, conducting unauthorized searches and lying to a grand jury.

It was the first time in about two decades that FCPA prosecutors were forced to go to trial against a company -- in this case a business whose president, Keith Lindsey, is the son of the founder, according to the company’s website.

One of the biggest hurdles prosecutors face is to prove knowledge and intent, John Davis, a lawyer with Miller & Chevalier, said in a phone interview. Since many foreign bribery cases turn on payments that are handled through middlemen, prosecutors often need to rely on circumstantial evidence that executives knew bribes were paid, Davis said.

In the Lindsey case, a Federal Bureau of Investigation agent had falsely testified before the grand jury that one of the defendants told investigators that he “didn’t want to know” what the Mexican middleman did with the unusually high sales commissions he was paid, according to Matz’s findings.

Now, a former manager at a Texas unit of Zurich-based ABB Ltd. is claiming the misconduct in the Lindsey investigation also undermines the bribery case against him. He’s accused of using the same intermediary to bribe the same Mexican utility officials identified in the Lindsey case, according to court filings.

The trial of the ex-ABB manager, John Joseph O’Shea, began with jury selection yesterday in federal court in Houston. O’Shea last month cited the Los Angeles judge’s ruling dismissing the Lindsey case in his bid to block the government from introducing evidence at trial of a Ferrari and a yacht, both of which were identified as bribes in the Lindsey case, according to court records.


Criminal Intent

The Justice Department has been so successful in developing a culture in which companies self-investigate and self-report that some prosecutors may have forgotten they have to prove there was corruption and criminal intent when a case goes to trial, said Peter Zeidenberg, a former federal prosecutor now with DLA Piper LLP in Washington.

“They’re talking in a different language,” Zeidenberg said in a telephone interview. “Out in the real world, a lot of people don’t understand the FCPA. They don’t understand the law and its prohibitions.”

In June, a federal jury in Washington deadlocked on charges against four security-industry executives ensnared in a sting operation.

Justice Department prosecutors had touted the case as a cutting-edge example of the government using wiretaps and other undercover techniques to pursue white-collar criminals. One juror said after the mistrial that others on the panel were troubled that the defendants might not have participated willfully but for the government’s enticement. The government is now seeking to retry the four men.

The case, involving alleged bribes to agents posing as government representatives of Gabon, sub-Saharan Africa’s fifth- biggest oil producer, is the biggest yet FCPA prosecution of individuals, with a total of 22 defendants. Three of the defendants pleaded guilty and agreed to cooperate. U.S. District Judge Richard Leon grouped the remaining 19 defendants into four trials.

A second group of defendants who went to trial won dismissal last month of conspiracy charges against them, resulting in one executive’s acquittal. A Washington jury is expected to begin deliberating this week whether to convict the other five defendants of bribery charges.

Urofsky said prosecutors may have erred in charging all 22 defendants with taking part in a single conspiracy, which stemmed from a dinner at a Washington restaurant that the government itself invited them to as part of the sting operation.


Jim Giffen

Among government upsets in FCPA prosecutions of individuals, one case that stands out is that of Jim Giffen, an oil consultant who worked as a go-between for oil-rich Kazakhstan and energy companies including Chevron Corp. and the former Mobil Oil Corp., negotiating payments for exploration rights.

U.S. prosecutors in 2003 accused Giffen of funneling $78 million in bribes to leaders of the former Soviet republic in what was then the largest case ever brought under the FCPA. Seven years later, instead of a prison term for money laundering and bribery, he received no punishment, pleading guilty to a misdemeanor tax charge. Rather than reprimand him, the federal judge overseeing his case thanked him Nov. 19 for “his service” to America during and after the Cold War.

Giffen denied wrongdoing and said some of his still-classified activities were done at the behest of the U.S. government. For years, the case stalled as the government refused to turn over documents that Giffen said would exonerate him. In the end, prosecutors agreed he shouldn’t be imprisoned and the judge called it an “embarrassing” conclusion to the case.

Even when the government secures a conviction, some judges have been disinclined, over the objections of prosecutors, to impose significant sentences for foreign bribery crimes.

The U.S. sought 10-year prison terms for a Hollywood couple convicted in 2009 of bribing a Thai government official to get a contract to run a Bangkok film festival.

In August 2010, U.S. District Judge George Wu in Los Angeles said while sentencing Gerald Green and his wife, Patricia, to six months behind bars that their crimes weren’t as serious as other foreign bribery cases. That was after a Justice Department lawyer argued that it defied logic for the couple to get a more lenient sentence than other defendants in foreign bribery cases who pleaded guilty and cooperated.


Frederic Bourke

Federal prosecutors in New York sought the maximum 10-year prison term after winning a conviction against Frederic Bourke for conspiring to pay bribes to leaders in Azerbaijan in what they called one of the most corrupt investment schemes in the former Soviet Union. Instead, Bourke, the co-founder of handbag maker Dooney & Bourke, got one year and one day in prison.

At Bourke’s sentencing in November 2010, U.S. District Judge Shira Scheindlin cited Bourke’s “lifetime of good works” for a sentence that was far less than the 57 months to 71 months recommended by U.S. sentencing guidelines. The judge said that while she agreed with prosecutors that Bourke helped promote a deal he knew was corrupt, there was “slim proof” that bribes were ever paid.

Two executives charged under the FCPA didn’t fare as well when they fought back. The former president of Miami-based Terra Telecommunications Corp., Joel Esquenazi, was sentenced in October to 15 years in prison after he was found guilty at trial of bribing officials at a state-owned Haiti company. The sentence was the longest ever in an FCPA case. A co-defendant received a seven-year sentence.

Many individual defendants still choose to settle, rather than fight, and avoid the risk of a trial. In September, the former chief executive officer of Latin Node Inc., a Miami-based telecommunications company, was sentenced to 46 months in prison after pleading guilty to bribing Honduran government officials, and last month, a United Arab Emirates man, who was extradited to the U.S., got 30 months after pleading guilty to bribing Iraqi officials and paying kickbacks under the UN oil for food program.

“They probably have had more successes than failures,” Davis, the Miller & Chevalier attorney, said of the Justice Department’s FCPA unit. “They’re still very committed to charging individuals because of the deterrent effect.”

In December, eight former executives of Siemens AG, Europe’s largest engineering company, were charged by the U.S. with conspiring to bribe Argentine government officials to land a $1 billion contract to make national identity cards. None of the accused live in the U.S. and it wasn’t known whether they will be extradited.

The Lindsey case is U.S. v. Aguilar, 2:10-cr-01031, U.S. District Court, Central District of California (Los Angeles). The Gabon case is U.S. v. Goncalves, 09-cr-00335, U.S. District Court, District of Columbia (Washington).


Bloomberg News


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