Continuing a trend of increased prosecution of individuals in FCPA matters, Mario Covino pleaded guilty on January 8, 2009, to a one-count Information charging him with criminal conspiracy to violate the FCPA by making corrupt payments to foreign government officials in Brazil, China, India, Korea, Malaysia, and the United Arab Emirates. From March 2003 to August 2007, Covino caused employees and agents of the California-based valve company at which he worked to make $1 million in corrupt commission payments to foreign government officials employed at state-owned enterprises who successfully assisted the valve company in obtaining and retaining business. Covino admitted that the valve company earned approximately $5 million in profits from the contracts that it had obtained as a result of these corrupt payments.
Covino also admitted to providing false and misleading responses to internal auditors of the valve company's parent corporation, and to deleting emails and instructing others to delete emails referring to the corrupt payments, for the purpose of obstructing the internal audit. As part of his plea agreement, Covino agreed to cooperate fully with the DOJ and FBI's ongoing investigation. Covino's sentencing is scheduled for July 20, 2009. Covino could face a maximum sentence of five years' imprisonment.
A fellow executive at the same company, Richard Morlok, pleaded guilty on February 3, 2009, to a one-count Information charging him with conspiracy to violate the anti-bribery provisions of the FCPA.
Morlok's plea agreement admits to a four-year-long scheme in which Morlok caused his subordinates to wire commission payments totaling $628,000 to foreign government officials employed at state-owned oil and energy companies in China, Korea, Romania, and Saudi Arabia. The valve company made $3.5 million in profits from the contracts obtained through the corrupt payments.
Morlok further admitted to providing false and misleading information regarding the commission payments to internal auditors from the valve company's parent corporation. Morlok also admitted to later providing false and misleading information to external accounting auditors hired by the valve company.
Morlok's sentencing is scheduled for July 10, 2009, and he could face a maximum sentence of five years' imprisonment. As part of the plea agreement, Morlok has agreed to cooperate fully with the DOJ and FBI's ongoing investigation.
It appears that the company discovered Covino's and Morlok's illegal conduct during an internal audit, which the company followed with an external audit and, apparently, disclosure to authorities. If the company's name is officially disclosed, whether the company must pay any penalty to resolve any FCPA liability of its own and the details about its cooperation with authorities could provide a useful roadmap for other companies that discover rogue employees' misconduct in the normal course of implementing internal controls.
White & Case LLP's White Collar Practice Group will continue to provide updates regarding emerging FCPA enforcement actions.
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