During the past several months, there has been stepped-up enforcement activity of the FCPA by the Department against individuals, including foreign nationals.
Former Manager of Willbros’ Nigerian Operations Indicted
On July 19, 2007, a federal grand jury in Houston returned a four count indictment against Jason Steph, a former manager of a Nigeria-based subsidiary of Willbros Group, Inc. (“Willbros”), a corporation providing construction and engineering services in the oil and gas industry.13 Willbros is a public company whose shares have traded on the New York Stock Exchange since 1996. Willbros had several subsidiaries in Nigeria, where it conducted business for 40 years prior to the sale of its Nigerian assets in 2007. The indictment charges Steph with violations of the anti-bribery provisions of the FCPA, money laundering, and conspiracy. As described in the indictment, Steph, a U.S. citizen,14 conspired to make illegal payments to Nigerian officials, including senior officials in the Nigerian government, in the Nigerian National Petroleum Corporation (“NNPC”), and officials of the Peoples’ Democratic Party, the dominant political party in Nigeria, to secure work on the Eastern Gas Gathering System (“EGGS”) project.15
According to the indictment, Steph conspired with several individuals to use unnamed fictitious consulting services, which served as a cover for corrupt payments to Nigerian officials. Between December 2003 and early 2004, the indictment charges that Steph, and other individuals, agreed to over six million dollars in illegal payments. Allegedly, the conspirators engaged in fictitious consulting agreements to acquire the money to pay the officials, and the consultants received three percent of the contract revenue received by the Willbros subsidiaries. The indictment describes that Steph approved and negotiated the three percent payments to the purported consulting companies. In addition, the indictment charges that Steph had knowledge of and gave authorization to the consultants to use the money to bribe Nigerian officials for the purpose of securing work on the EGGS project.
In January 2005, Willbros Group initiated an internal investigation and ceased payments to the consulting companies, and therefore, to the foreign officials. Steph, allegedly concerned that nonpayment would result in the loss of the EGGS business, agreed to raise almost two million dollars in cash through outside funds to continue the illegal payments to the Nigerian officials. The indictment charges that a German company agreed to a million dollar loan and gave another million dollars in cash to Steph’s co-conspirator, which was delivered to the fictitious Nigerian consulting company and the Nigerian officials. Steph allegedly borrowed half a million dollars from a different Nigerian consulting company to make outstanding payments. Furthermore, Steph allegedly supervised a subordinate employee’s submission of false vendor expenses to inflate petty cash requests to Houston, Texas. These requests resulted in wire transfers of over a million dollars from a company bank account in Houston to Nigeria and provided more money for the illegal payments.
One of Steph’s alleged co-conspirators, another Willbros “supervisory” employee based in Nigeria, Jim Bob Brown, pleaded guilty to criminal bribery charges in the fall of 2006, and entered into a consent decree with the SEC with penalties to be determined at a later date.16
Former Pacific Consolidated Industries Executive Indicted
On June 18, 2007, Leo Winston Smith, former executive vice-president and director of sales and marketing at Pacific Consolidated Industries LP (“PCI”), a private manufacturer of portable air separation equipment for military use in several countries, was arrested on an eleven count indictment charging him with violations of the anti-bribery provisions of the FCPA, international money laundering, tax evasion and conspiracy.17 According to the indictment, Smith conspired to pay bribes totaling approximately $300,000 to an official at the Ministry of Defense (“MOD”) of the United Kingdom in return for the official’s influence in the MOD’s award of contracts to PCI valued at $11 million.18
PCI is a private company supplying air separation and high pressure cryogenic distribution equipment to government defense establishments worldwide. Smith, a founder of the company, was PCI’s executive vice-president and director of sales and marketing and, as such, was principally responsible for obtaining business from domestic and international defense departments, and negotiating contracts.19
The indictment charges that Smith made payments to an unnamed MOD official, described as a civil servant and project manager who participated in the review of requests for proposals, or tenders, for the MOD. In this capacity, the official was in a position to influence the awarding of contracts for equipment and services. As an employee for the U.K. Ministry of Defense, the official is a “foreign official” within the meaning of the FCPA.
The indictment alleged that Smith obtained valuable contracts for PCI to produce equipment for the MOD through the use of two different schemes.
The Sham Marketing Contract
According to the indictment, Smith and an unnamed PCI senior executive entered into a sham marketing agreement with a relative of the MOD official purportedly for marketing and consulting services. Smith is alleged to have been responsible for wiring two payments, each in the amount of $5,000, from a PCI account in California to the relative’s account in the U.K. The indictment further alleged that in January 2001, Smith entered into a second agreement with the relative for the payment of “commissions,” and Smith is charged with having caused three wire transfers, totaling $71,350, from the PCI account in California to the relative’s U.K. bank account. The indictment charges that all the payments to the MOD official’s relative were, in fact, payments to the official in exchange for his having caused the award of the MOD contracts to PCI valued at $5 million.
The Royalty Agreement
The indictment alleged that Smith created an entity, known as DSI International, to facilitate the payment of a bribe to the MOD official and to conceal Smith’s receipt of income. Smith allegedly caused DSI International, in January 2002, to enter into an agreement with PCI whereby PCI International ostensibly would provide marketing and consulting services. Smith is charged with thereafter having caused DSI International to enter into an agreement with PCI in October 2002 under which PCI would make royalty payments for the sale of equipment. The indictment alleges that Smith received $500,000 in payments through DSI International and that he failed to report his receipt of this income to the Internal Revenue Service on his 2003 individual tax return.
On February 24, 2003, according to the indictment, the MOD official traveled to PCI’s California office to inspect and approve the MOD’s purchase of equipment. Thereafter, between February 2003 and July 2003, it is alleged that Smith caused the wire transfer of approximately $275,000 from an account of DSI International at a financial services firm in the US to a bank account in Spain to fund the MOD official’s purchase of a villa. The indictment charges that this payment was in exchange for the official’s having influenced the MOD’s award of contracts to PCI valued at approximately $6 million.
This case is notable because PCI referred the conduct in question to the Department of Justice following its acquisition by an investment group. It is a further example of FCPA enforcement arising from due diligence conducted during a merger and acquisition and a corporate voluntary disclosure with the expectation of receiving more favorable treatment for cooperation.
Guilty Plea of Former Schnitzer Steel Industries Inc. Officer
On June 29, 2007, Si Chan Wooh, a former senior officer of scrap metal seller, Schnitzer Steel Industries Inc. (“SSI”), pleaded guilty to conspiracy to violate the FCPA.20 Wooh admitted to conspiring with SSI and its South Korean subsidiary, SSI International Far East, Ltd. (“SSI Korea”), to violate the FCPA by making corrupt payments over a 10-year period to officers and employees of government-owned customers in China. The purpose of the payments made by Wooh and others was to induce the government employees to purchase scrap metal from SSI, resulting in considerable profits for the company.
As reported in the November 2006 issue of the FCPA Advisor, SSI voluntarily disclosed to the Department and SEC the conduct in question. Following a lengthy internal investigation and active cooperation by the Audit Committee of SSI, on October 16, 2006, SSI entered into a Deferred Prosecution Agreement with the Department in which it admitted that employees and officers of SSI and SSI Korea had authorized and paid kickbacks to purchasing managers of state-owned steel companies in China and private steel companies in both China and South Korea. SSI Korea also entered a guilty plea to a criminal Information in the District of Oregon, charging it with violations of the anti-bribery and books and records provisions of the FCPA, as well as wire fraud and conspiracy, in connection with the kickback scheme. In addition, SSI consented to the entry of a Cease and Desist Order by the SEC. As part of the October 16, 2006 settlement, SSI admitted that between 1999 and 2004, it paid approximately $204,437 to managers of government-owned steel companies in China and approximately $1,683,672 to managers of private companies in China and South Korea. As a result of these payments, SSI secured scrap metal contracts that generated revenue of approximately $96 million and profit of approximately $6.2 million. As part of its agreement with the Department, SSI paid a fine of $7,500,000, and disgorged profits and pre-judgment interest to the SEC totaling $7,725,201.
Wooh is awaiting sentencing and has agreed to cooperate with the Department and the SEC in their ongoing investigations of various individuals. Wooh also settled a related civil case brought by the SEC, by agreeing to pay approximately $40,000 in disgorgement of bonuses, interest and penalties, and consenting to a cease and desist order.21
Interestingly, according to the SEC Complaint, SSI’s investigation of the improper practices that ultimately led to its voluntary disclosure, was triggered by Wooh’s disclosure of the payments to SSI’s compliance department in May 2004. The SEC Complaint further alleged, however, that Wooh continued to make payments after he had self-reported the conduct, and that he authorized SSI Korea employees to destroy documents related to improper payments to foreign officials.
Former Alacatel Executive Pleads Guilty
On June 7, 2007, Christian Sapsizian, a French citizen who was an executive of a subsidiary of Alcatel S.A. (“Alcatel”) in Latin America, pleaded guilty to two counts of violating, and conspiring to violate, the FCPA. Sapsizian admitted to paying bribes to senior Costa Rican government officials to influence Costa Rica’s state-owned telecommunications authority to award a mobile telephone contract to Alcatel.22
Sapsizian, who was Director of Sales Support, was responsible for negotiating commercial contracts and for hiring agents in Latin American countries, including Costa Rica. As part of a concerted campaign to convince the telecommunications authority to switch to a different mobile telephone technology and to purchase the necessary equipment from Alcatel, Sapsizian agreed to pay a bribe equal to 1.5% of the value of any contract awarded to Alcatel, to senior government officials and to a director of the authority. Sapsizian also obtained approval to enter into a series of consulting contracts with another entity as conduits for the bribe payments to the government officials.
According to the DOJ pleadings, Alcatel wire transferred approximately $14 million from a US bank account to an account controlled by the consulting company, from which $2.5 million was paid to Costa Rican government officials. According to Sapsizian, the payments to the government officials were made to assist Alcatel in winning a mobile telephone contract. In August 2001, Alcatel was awarded a $149 million mobile telephone service contract.
Sapsizian, whose sentencing is scheduled for December 20, 2007, faces up to 10 years in prison and a fine of up to $250,000. Sapsizian agreed to cooperate with the Department and other law enforcement authorities in their ongoing criminal investigation of Alcatel.
The March 2007 indictment of Sapsizian also charged another former Alcatel executive of involvement with the bribe payments to Costa Rican officials in order to obtain a telecommunications contract on behalf of Alcatel. That executive, Edgar Valverde Acosta, a Costa Rican citizen who was the former senior country officer for Alcatel, is currently facing conspiracy, FCPA, and money laundering charges.
Former Titan Corporation Executive Sentenced
On September 28, 2007, Steven Head, a former President of Titan Corporation’s (“Titan”) operations in Africa, was sentenced to six months’ incarceration, three years’ supervised release, and a fine of $5,000 in connection with his June 2006 guilty plea to one count of falsifying a financial document.23 Head was charged in connection with the payment of $3.5 million in bribes to officials of Benin that led Titan in March 2005 to plead guilty to violations of the FCPA and aiding and abetting the filing of a false tax return.24 The government represented that Head had prepared a fraudulent $2 million invoice for consulting services to an agent in Benin, knowing that the services had not been performed, and that the funds would be used in part to support the 2001 re-election efforts of the president of Benin.25