Foreign Corrupt Practices Act Developments Update

A 63-year-old executive from Greenwich, Conn., who had placed nearly US$8 million in his friend's business hoping to profit from the privatization of the oil industry in Azerbaijan, will soon learn the return on his investment: up to 10 years in federal prison.

This case is evidence of a trend in policy at the US Department of Justice ("DOJ") that favors holding individual business executives and other professionals personally accountable for violations of the US Foreign Corrupt Practices Act ("FCPA"). It also marks a continued aggressive expansion of the application of the statute to defendants one- or two-steps removed from the act of making corrupt payments.

On July 10, 2009, a federal jury in New York City concluded a six-week trial by finding Frederic A. Bourke Jr., cofounder of handbag maker Dooney & Bourke, guilty on one count of conspiracy to violate the FCPA. Bourke was also convicted of conspiracy to violate the Travel Act, and of making false statements to the FBI. His sentencing is scheduled for October 13, 2009.

Unlike most FCPA-related cases that result in negotiated settlements with federal prosecutors, Bourke is one of two individuals who took his case to trial this summer. The other trial—against former US Congressman William Jefferson—is still underway. Both trials are indicative of the DOJ's emphasis on pursuing and prosecuting individuals suspected of violating the FCPA. Bourke's trial was both rare and risky: since 1991, none of the few FCPA defendants who had gone to trial was acquitted.

Bourke's conviction also raises concerns regarding the actions that might lead to FCPA criminal liability under the "willful ignorance" or "willfull blindness" doctrine. In the late 1990s, Bourke invested nearly US$8 million in Oily Rock Group Ltd., whose president and chairman, Viktor Kozeny, was Bourke's friend. Kozeny sought to obtain vouchers and ultimately profit from the privatization of the State Oil Company of the Azerbaijan Republic ("SOCAR"). The evidence at trial showed that Kozeny, who is currently in the Bahamas fighting extradition to the US for his alleged crimes, bribed Azeri government officials in a scheme to rig the auctions for the oil vouchers in his favor. The evidence also showed Bourke's level of knowledge of the scheme: Bourke knew that Oily Rock's US$300 million increase in authorized shares was to be transferred to Azeri officials, and Bourke had arranged for Oily Rock to pay for two officials to fly to New York for medical treatment. After finding Bourke guilty, the federal jury's foreman stated in a public interview: "We thought he knew and definitely could have known [of the bribery]. He's an investor. It's his job to know." The jury came to this conclusion without Bourke testifying at trial.

Interestingly, Bourke had been the whistleblower in the Oily Rock scheme. After Kozeny's bribes fell through, he reportedly stole the remaining funds, including monies that Bourke had invested. Bourke complained first to the President of Azerbaijan, and then to US officials. The State of New York charged Kozeny with fraud, followed by the DOJ indicting Bourke for conspiracy in Kozeny's corruption scheme.

For each of the two counts for which he was convicted, Bourke faces a maximum penalty of five years in prison and a maximum fine of US$250,000 or twice the gross gain or loss resulting from the alleged violations. The jury acquitted Bourke of an additional count of money laundering.

The case is United States v. Bourke, 05-cr-00518, US District Court, Southern District of New York (Manhattan).

The DOJ's press release can be found here: www.usdoj.gov/opa/pr/2009/July/09-crm-677.html