The convictions on September 11, 2009, in Los Angeles, of Gerald and Patricia Green, two Hollywood film producers, on conspiracy, Foreign Corrupt Practices Act (FCPA) and money laundering charges offer valuable legal lessons for multinational corporations and their senior executives in all industries. With ramifications extending far beyond Hollywood, the Green case underscores the seriousness with which the Department of Justice (DOJ) treats the FCPA and the cooperation and coordination of law enforcement agencies around the globe in pursuing FCPA cases. It also reaffirms the government's FCPA enforcement initiatives to: (i) prosecute company executives, not just their corporate employers, for knowingly participating in a bribe scheme; (ii) hold companies and their executives accountable for failing to implement systems that permit accounting snafus and potential subterfuges, even absent their knowledge of corrupt dealings; and (iii) ensure that companies doing business abroad will conduct proper due diligence and implement adequate controls to prevent and detect bribing foreign officials.
During the trial on its 21-count indictment (along with a criminal forfeiture allegation), the government introduced evidence that the Greens paid approximately $1.8 million in bribes to an official of the Tourism Authority of Thailand to obtain more than $13.5 million in contracts, including business to manage the Bangkok International Film Festival. The government offered evidence of how the bribes and contract payments were structured under the defendants' scheme: (i) multiple business entities and fictitious addresses were created to evade the scrutiny and required approval of Thai authorities; (ii) contractors and sub-contractors were used as conduits for illegal payments; and (ii) cash was handed to the official directly and funds were transmitted to bank accounts held by the official's daughter and friend in the Isle of Jersey, UK and Singapore.
According to the government's evidence, the payments, typically 10% to 20% of the value of the contracts, were recorded in the businesses' books as "sales commissions" — a term the government argued was a mischaracterization intended to conceal the true nature of the payments and also a material false statement on the U.S. business's income tax return. The government won convictions from the jury on 19 counts, on charges of conspiracy, violating the FCPA, money laundering and subscribing to a false income tax return. The government previously had dismissed one money laundering count, and the jury deadlocked on the obstruction of justice claim.
The FCPA prosecution in Green clearly reflects the Justice Department's priorities to pursue international bribery cases aggressively, vigilantly look for corruption in government-funded economic programs around the world and hold international businesses legally responsible for having sophisticated and effective controls and compliance measures to prevent and detect the kind of subterfuge and financial legerdemain on display in Green.
The case is also consistent with several trends in FCPA enforcement that a DOJ official recently cited at an ABA forum: (i) to aggressively pursue criminal FCPA enforcement, with investigations arising from overlapping violations involving export controls and sanctions, and antitrust, embezzlement, procurement fraud and commercial bribery matters,1 (ii) to exploit increased global cooperation of law enforcement agencies; (iii) to extend the full jurisdictional reach of the FCPA by conducting international investigations of corruption, across multiple sectors and industries, that involve U.S. citizens or businesses no matter where they are located; and (iv) to hold individual executives criminally liable, independent of separate corporate accountability, for FCPA violations.
The breadth of the government's resources used to make the FCPA criminal case in Green is remarkable, but it also can be expected to be the norm for future FCPA cases. In Green, the government relied on lawyers, agents and investigators from the U.S. Attorney's Office in Los Angeles, DOJ's Criminal Fraud Section, DOJ's Office of International Affairs, DOJ's Attache in Asia, the FBI Legal Attache in Bangkok and field offices of the FBI and IRS in Los Angeles.
The government's prosecution in Green reflects the government's commitment to holding individuals accountable for FCPA violations. Earlier this summer, Frederic Bourke, a U.S. investor in an international consortium, was convicted of conspiring to violate the FCPA. At his trial, prosecutors argued that Bourke knew — or should have known or at least realized based on appropriate due diligence that should have been conducted but was not — that his consortium partners were making payments to officials of the Republic of Azerbaijan in efforts to promote privatization. This past August, in a civil enforcement action, the SEC brought claims against the former COO and CFO of Nature's Sunshine Products Inc., for violations of the books and records provision of the FCPA, in connection with bribe payments that employees of a foreign subsidiary made to Brazilian officials (through customs brokers) to allow company products to be sold in Brazil. The SEC acted to hold the executives accountable as "control persons" under Section 20(a) of the Securities Exchange Act of 1934, for failing to adequately supervise the miscreant employees of a subsidiary; the SEC did not allege that the executives had any knowledge of the payments.
The methods used to execute the bribe scheme in Green are a popular target of the government's enforcement initiatives. The Justice Department has made it clear that it expects international businesses to implement effective and appropriately sophisticated controls to prevent and detect the "red flags" of bribery used to carry out the corruption scheme in Green and other international bribery cases, including the following usual suspects: dummy entities; third parties, including sub-contractors, used as conduits; inflated invoices; and mischaracterized record entries such as "sales commissions" to conceal improper payments. According to the DOJ official, the absence of an adequate compliance program at the time of an FCPA violation can virtually assure the DOJ's insistence on a government-imposed corporate monitor as part of a deferred prosecution or non-prosecution agreement with the government. Indeed, to receive credit for an effective compliance program under the Sentencing Guidelines, the organization is required, among other things, to make "any necessary modifications" and to "evaluate periodically the effectiveness of the organization's compliance and ethics program." See Section 8B2.1., USSG.
The DOJ's recent successes in Green and Bourke underscore the government's commitment to enforcing the FCPA and holding "issuers" and "domestic concerns" — whether multinationals or individuals — accountable for failing to conduct proper due diligence and installing effective controls.