I. Introduction and Background
In a stunning result, on July 7, 2011, U.S. District Court Judge Richard Leon declared a mistrial in the first of four anticipated trials in the “Catch- 22” Foreign Corrupt Practices Act (FCPA) trial: the prosecution that began with 22 individual indictments in January 2010. The case was the first FCPA case in which the government utilized enforcement tactics common to drug and organized crime investigations, i.e., a sting operation in which the individuals are charged for involvement in a criminal scheme that is not real but is instead part of an undercover investigation by the government.
The Catch-22 FCPA sting operation centered on a scheme alleged to involve paying a bribe to secure a $15 million contract with the Gabon Ministry of Defense. An FBI informant, Richard Bistrong, posed as a middleman between the defendants and the Gabonese Minister of Defense. Bistrong obtained the necessary export licenses for the deal and coordinated who would participate as suppliers to the Gabonese government. Defendants agreed to prepare two invoices for the contract, one written out to the middleman for the real value of the deal and the other written out to the Gabonese government with a 20 percent commission added. At trial, the prosecution presented evidence that the defendants were told that half of the commission would be split between Bistrong and another intermediary, while the other half would be paid to the Gabonese Minister of Defense, who at the time was Ali Bongo, the son of the country’s then- President, Omar Bongo. The scheme, however, was a ruse and the contract with Gabon did not actually exist. The prosecution ultimately indicted the 22 arms industry executives on multiple counts of violating the FCPA, conspiracy to violate the FCPA, and related charges such as money laundering.
The defendants who have gone to trial rather than plead guilty (as some already have) secured some victories: for example, an FCPA count against one non-U.S. defendant was dismissed for lack of jurisdiction, and several defendants secured dismissal of the government’s money laundering charges. Then came the latest: at trial, the four defendants in the first trial raised doubts about whether the government had proven the requisite criminal intent, and the jury deadlocked, resulting in a mistrial.
II. The Charges Against the First Tranche of Defendants
Judge Leon had divided the defendants into four groups, to be tried sequentially. The first group was comprised of Pankesh Patel (an executive of a United Kingdom company that acted as a sales agent for law enforcement and military products companies), John Wier III (an executive of a Florida company that sold tactical and ballistic equipment), Andrew Bigelow (an executive of a Florida company selling small arms and accessories), and Lee Tolleson (Director of Acquisitions and Logistics for an Arkansas law enforcement and military equipment company). These defendants went to trial on a 10-count indictment that charged violations of the FCPA, conspiracy to violate the FCPA, and conspiracy to commit money laundering. The trial lasted six weeks. The jury deliberated for over a week and reportedly voted on the charges more than a half dozen times.
III. Dismissal of FCPA Count for Lack of Jurisdiction
During trial, Patel obtained dismissal of one of the FCPA counts against him. This is a significant development because the Court concluded that the requisite jurisdictional nexus for this count was lacking in light of Patel’s status as a UK citizen, where the basis for the count was that he had mailed a copy of a purchase agreement related to the deal from the UK to Washington, D.C. In situations involving foreign citizens where there is no other jurisdictional hook, the FCPA requires that the individual have committed an act within the United States in furtherance of the improper payment or offer. The government has always taken a broad view of this requirement, but Judge Leon concluded that mailing a document to the U.S. did not constitute an act within the U.S. The remaining FCPA count against Patel, based on Patel attending a meeting in Washington, D.C. related to the corrupt deal, went to the jury.
IV. Defenses Proffered / Government Conduct
At trial, the defendants’ focus was to attack the government’s conduct during the sting operation. The defendants argued that government inducements left them without knowledge that the proposed transaction was wrong or illegal. A defendant who participated in the transaction without such a mental state would lack the “willful” state of mind required for FCPA criminal liability. See United States v. Kay, 513 F.3d 461, 463 (5th Cir. 2008).
Defendants made many allegations of improper or alleged outrageous behavior by Bistrong and the government in connection with the sting operation. First the defendants argued Bistrong submitted forged documents to the State Department so that he could procure required export licenses to pursue the deal – and that the DOJ “manipulated [Bistrong’s] legal status” to allow him to do so. Several defendants noted that one reason they believed the deal was legitimate was that Bistrong had been able to procure the licenses, which meant that he had not been implicated in prior criminal transactions (i.e., he was not on any Department of State “debarred” lists).
The Defendants argued that two incidents demonstrated the extreme steps taken to conceal the deal’s illegal nature. The first was a telephone conversation between Bistrong and defendant Saul Mishkin, who had been advised by an attorney that the Gabon deal might violate the FCPA. Mishkin was considering pulling out of the deal and to advise other defendants to do the same. According to the defendants, in a call with Mishkin, Bistrong employed “a combination of threats, inducements and misrepresentations,” to persuade Mishkin to abandon his plan to tell the other defendants that the deal was potentially illegal. Bistrong also specifically mentioned during this call that he had “already spoken to the State Department” and that “they’re supporting this transaction.”
The second incident concerned Bistrong’s discussion of the commissions, namely, the defendants argued that Bistrong “sandwiched” discussion of any “commissions” in the midst of unremarkable statements about product quality and timely deliveries. Defendants maintained that this was simply another means of concealing the illegal nature of the transaction, which meant that none of the defendants had the requisite guilty state of mind. The government countered that Bistrong’s discussions with defendants and related conduct did not obscure the true nature of the transaction, but indeed made clear that money was going to go into the pocket of an individual foreign official in order to obtain business, and that this sufficed to show the requisite elements of willfulness and corrupt intent.
Finally, the defendants elicited evidence that Bistrong had admitted to using prostitutes, structuring deposits to avoid reporting requirements, and transporting illegal narcotics across state and international borders for personal use.
V. Conclusion: The Verdict and Lessons from the Trial
The result in this case reveals that the question of guilty knowledge in an FCPA matter may, sometimes, be more complicated than it first appears – even though the standard only requires that the defendant knew that what he or she was doing was unlawful, and not that the conduct specifically violated the FCPA. At the same time, the trial also teaches that purported government agency “support” of a particular transaction – in this case, the issuance of export licenses by the State Department – should not be deemed sufficient to override FCPA red flags associated with a deal. This case also shows that the absence of “magic words” such as “bribe” or “kickback” may not dissuade the government from pursuing charges in a case they believe nonetheless involves an improper payment scheme.
We will report on further developments in this case (i.e., the government is likely to seek a retrial) and the remaining defendants. Stay tuned.