“Foreign Official” Cert Petition
Joel Esquenazi and Carlos Rodriguez, whose convictions for FCPA and other violations were affirmed by the 11th Circuit in May 2014, have filed a petition for certiorari to the U.S. Supreme Court.
In affirming the convictions of Esquenazi and Rodriguez, the 11th Circuit defined an “instrumentality” of a foreign government, in order to decide whether an employee of a particular state-owned entity may be considered a foreign official under the FCPA: “An ‘instrumentality’ [under the FCPA] is an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own.” The Court announced multi-factor tests for determining (1) whether an entity is controlled by the government, and (2) whether it is performing a function the controlling government treats as its own.
The Esquenazi opinion has been widely criticized by FCPA practitioners, for the breadth and vagueness of its definition of “instrumentality” and component terms. However, it is the first federal appellate court decision on the issue, so there is no circuit split to resolve.
Smith & Wesson
Massachusetts-based firearms manufacturer Smith & Wesson Holding Corporation has settled SEC charges that it violated the FCPA by paying foreign officials to win contracts to supply firearm products to military and law enforcement overseas. The matter was resolved through a settled administrative proceeding, in which Smith & Wesson agreed to pay $2 million and accept a two-year monitorship.
The allegations included that Smith & Wesson’s international sales staff made illegal payments to government officials in countries including Pakistan and Indonesia, and that it authorized illegal payments to third party agents to be paid to foreign officials in Turkey, Nepal and
Bangladesh. Smith & Wesson has since fired its entire international sales staff.
Cobalt International Energy
Houston-based oil exploration company Cobalt International Energy has received a Wells Notice from the SEC related to the SEC’s investigation of Cobalt’s activities in Angola. The Wells Notice notifies Cobalt that SEC Staff has preliminarily determined to recommend that the SEC institute an enforcement action against it for alleged violations of federal securities laws.
Cobalt announced that it plans to file a responsive Wells Submission, and appears braced for a fight, noting that “[t]he Company has conducted an extensive investigation into these allegations and the receipt of the Wells Notice does not change the Company’s belief that its activities in Angola have complied with all laws, including the U.S. Foreign Corrupt Practices Act.”
Bernd Kowalewski, former President and CEO of Oklahoma-based BizJet, a Lufthansa Technik AG subsidiary, has pleaded guilty to conspiracy and a substantive violation of the FCPA. The scheme involved the payment of bribes to officials in Mexico and Panama in exchange for those officials’ assistance in securing contracts for BizJet to perform aircraft maintenance, repair and overhaul services. BizJet executives, including Kowalewski, referred to these payments as “commissions” or “incentives.”
Kowalewski was living outside the United States when his indictment was unsealed. He was arrested in Amsterdam and waived extradition.
The Wall Street Journal reports that federal and state prosecutors in New York are investigating Venezuelan energy company Derwick Associates, which was awarded Venezuelan power plant contracts worth hundreds of millions of dollars, for possible FCPA violations.
Also reportedly snagged in the investigation is ProEnergy Services, an engineering, procurement and construction company based in Missouri, which sold dozens of turbines to Derwick and helped build the power plants.
TH E UN I T E D KI N G D O M
Alstom Network charged with corruption by SFO
Further to the July’s digest which reported that the Serious Fraud Office (the “SFO”) was pursuing an investigation of alleged corruption at Alstom in connection with its probe into the company which commenced over four years ago, Alstom Network UK Ltd, a UK subsidiary of the French engineering group Alstom, has been charged with corruption by the SFO.
Alstom is a leading firm in the train, power generation and electricity transmission industries.
Alstom Network UK Ltd has been charged with three offences of corruption contrary to section 1 of the Prevention of Corruption Act 1906, as well as three offences of Conspiracy to Corrupt contrary to section 1 of the Criminal Law Act 1977.
The SFO said the alleged crimes took place between June 2000 and November 2006 (prior to the Bribery Act coming into force), involving
large transport projects in India, Poland and Tunisia.
The SFO commenced its investigation after receiving information from the Swiss authorities.
The first hearing in the case will be at Westminster Magistrates' Court on 9 September 2014.
Bruce Hall sentenced to 16 months in prison
Bruce Hall, former CEO of a Bahraini company Aluminium Bahrain B.S.C. (“ALBA”), was sentenced to 16 months in prison for conspiracy to corrupt, in relation to contracts for the supply of goods and services to ALBA, as reported by the SFO.
Judge Loraine-Smith heard evidence of how Mr Hall received £2.9 million in corrupt payments between 2002 and 2005, including 10,000 Bahraini dinars in cash from Sheikh Isa bin Ali Al Khalifa, a member of the Bahraini royal family and at the time Bahrain's minister of finance and ALBA's chairman. The payments were made in exchange for Mr Hall agreeing to and allowing corrupt arrangements that Sheikh Isa had been involved in (prior to Mr Hall’s appointment as CEO) to continue.
Mr Hall was ordered to pay a confiscation order of £3,070,106.03 in seven days or face serving an additional term of imprisonment of 10 years. Additionally, Mr Hall must pay ALBA compensation amounting to £500,010 and
£100,000 towards legal costs.
Judge Loraine-Smith said: “In any view, this was an extremely serious use of corruption… You breached the trust that was placed in you as the CEO of Alba.”
Judge Loraine-Smith noted that Mr Hall had cooperated with authorities throughout the investigation and he was entitled to a 66% reduction in his sentence. Mr Hall was also entitled to a further reduction of one-third due to entering a guilty plea.
The SFO reported that, as part of Mr Hall’s mitigation he also agreed to divest himself of other corrupt payments he received during his time as the CEO of ALBA. These payments were not part of the indictment as the SFO did not have the jurisdiction to prosecute for the conduct acknowledged by Mr Hall. In order to recover these payments received by Mr Hall, which amount to US$900,000 (c.£534,236), the Director of the SFO elected to launch proceedings under Part 5 of the Proceeds of Crime Act 2002 in the High Court.
Businessmen bribed foreign officials to import poisonous chemical
Further to June’s Digest which reported the SFO’s first successful overseas corruption trial against two former Innospec Limited (“Innospec”) executives, the SFO reported that four men have been sentenced for their roles in bribing state officials in Indonesia and Iraq, following a SFO investigation into Innospec (formerly, Associated Octel Corporation).
The four men are: Dennis Kerrison, who was sentenced to 4 years in prison; Paul Jennings, who was sentenced to 2 years in prison, Miltiades Papachristos, who was sentenced to 18 months in prison and David Turner, who was sentenced to a 16 month suspended sentence with 300 hours unpaid work.
The corruption involved payment of multi- million-pound bribes to foreign officials to induce them to buy large quantities of a toxic chemical, tetra ethyl lead (“TEL”) which is illegal in the UK, Europe and the USA. TEL is slowly being banned around the world.
The SFO stated that Mr Kerrison and Dr Papachristos were convicted of conspiracy to commit corruption in June 2014 in relation to Indonesia only. Mr Jennings pleaded guilty in June 2012 to two charges of conspiracy to commit corruption and in July 2012 to a further charge of conspiracy to commit corruption in relation to Indonesia and Iraq. Dr Turner pleaded guilty to three charges of conspiracy to commit corruption in January 2012 in relation to Indonesia and Iraq.
HHJ Goymer who sentenced the four executives said: “Corruption in this company was endemic, institutionalised and ingrained… but despite being a separate legal entity it is not an automated machine; decisions are made by human minds.” He added: “None of these defendants would consider themselves in the same category as common criminals who commit crimes of dishonesty or violence….. but the real harm lies in the effect on public life, the effect on community and in particular with this corruption, its effect on the environment. If a company registered or based in the UK engages in bribery of foreign officials it tarnishes the reputation of this country in the international arena.”
The Director of the SFO, David Green CB QC, was quoted saying: “This successful conclusion to a long-running investigation demonstrates the SFO’s ability and determination to bring corporate criminals to justice.”
Dr Turner was also ordered to pay £10,000 towards prosecution costs and Mr Jennings was ordered to pay £5,000 towards the costs. The matter of costs for Mr Kerrison and Dr Papachristos has been adjourned pending the hearing of confiscation proceedings against them.
TH E RE S T O F T HE WO R L D
Brazilian authorities are investigating an alleged embezzlement of $10million (c.£5,939,583) of humanitarian funds from the Brazilian Red Cross.
The investigation commenced after an audit, commissioned by the Brazilian Red Cross last year revealed millions of dollars in voluntary contributions and donor funding had been withdrawn.
Paulo Roberto Costa, secretary general of the Brazilian Red Cross told reporters: “The funds collected from two years of campaigning by the Brazilian Red Cross from 2010 to 2012 for four campaigns, including Somalia, the Japan tsunami, floods in Rio de Janeiro and a national dengue campaign did not reach where they were supposed to go. The funds were diverted.” He added: “The audit showed that a total of $10million of funds from 2010 to 2012 were diverted.”
Mr Costa explained: “I have given the results of the audit to the Brazilian police and judicial authorities and investigations are underway to see what sanctions will be placed on those people allegedly involved in the diversion of those funds.”
According to reports, the audit indicated a Brazilian non-governmental organisation, Instituto Humanus, received $7million (c.£ 4,156,510) from the Brazilian Red Cross between 2010 and 2012 without providing third party service receipts.
The Brazilian Red Cross has said it has tightened its oversight of how donor funds are managed. Mr Costa said:
“In response to the audit, we have changed our statutes, have a new management, ethics committee and accountability and transparency processes to make sure this does not happen again,” he added: “All those people involved in the diversion of funds do not now work at the Brazilian Red Cross and our committee members of the Red Cross in Brazil have also changed.”
It has been reported that China commenced an investigation into former domestic security chief, Zhou Yongkang, on suspicion of corruption. The Communist Party decided to question Zhou Yongkang for suspected “serious disciplinary violations”, according to the official Xinhua news agency.
The investigation will be conducted by the Party’s watchdog, the Central Commission for Discipline Inspection.
During Zhou Yongkang’s five-year appointment as security chief, he oversaw the police force, civilian intelligence apparatus, paramilitary police, judges and prosecutors.
Further to the May Digest which reported the bribery case concerning Bernie Ecclestone, it has been reported that the German court agreed to drop a criminal case against Mr Ecclestone for alleged bribery in return for a payment of $100 million (c.£59.5million).
Mr. Ecclestone was facing a potential jail sentence of up to 10 years had he been convicted. Mr. Ecclestone has denied any wrongdoing.
Reports state that Mr. Ecclestone has one week to pay the money, $99 million of which will go
to the state and $1 million to a German children's hospice foundation.
This settlement follows the German Code of Criminal Procedure, which allows prosecutors to drop a case in exchange for conditions such as a payment or community work, as long as what it calls “the gravity of guilt” does not pose an obstacle.
The court said: “The fine is of an appropriate amount to satisfy public interest in the case. The gravity of the defendant’s potential guilt doesn’t stand in the way of a settlement”.
The court added: “Based on evidence gathered until now, many of the charges have not been substantiated.”
The court also took into account Mr. Ecclestone's age, his health and the burden involved in attending court hearings in a foreign language and amid heightened public interest.
Reports indicate that the settlement of the criminal case does not affect potential compensation claims that would need to be resolved in separate civil proceedings.
Further to the January and March 2012 editions of the Anti-corruption Digest, which reported that two former directors of a Swire Pacific subsidiary, Mr Lionel Krieger and Mr James Tam Ping-cheong, had been imprisoned for three years and three months for conspiring to bribe former secretary for transport and public works, it has been reported that the Hong Kong government has lost its appeal against an appeal court ruling that the Chinese city’s laws do not criminalize conspiracy in the territory to pay overseas bribes.
Justice Roberto Ribeiro of the Court of Final Appeal dismissed the application by the
Director of Public Prosecutions to hear arguments over the Prevention of Bribery Ordinance. Justice Roberto Ribeiro stated that the three-judge panel will deliver its reasoning at a later date.
Hong Kong’s Court of Appeal last year overturned the convictions of Mr Krieger and Mr Tam, directors of a Swire Pacific Ltd. waste management subsidiary, for conspiring to bribe Macau’s former public works chief Ao Man- long, ruling that the law does not cover offers made outside Hong Kong, even if they were planned in the city.
While Hong Kong’s anti-corruption efforts from the 1970s have been successful locally, the city allegedly exports about HK$30 billion ($3.9 billion) each year in corruption to developing countries through bribes of foreign officials.
According to reports, Indian police have arrested the chairman of state-run Syndicate bank, Sudhir Kumar Jain, and 11 others in connection with allegations of bribery.
Mr Jain has been accused of taking bribes to raise credit limits of firms. Reports stated that the Central Bureau of Investigation recovered 5m rupees (c.£49,000) allegedly paid to Mr Jain.
Ranjit Sinha, director of the Central Bureau of Investigation (“CBI”) was quoted in a statement saying: “We are determined to fight corruption at high levels”. The CBI allegedly seized cash, documents and computer records after conducting raids across 20 different locations in Delhi, Mumbai, Bangalore and Bhopal.
A Supreme Court panel has reportedly ordered a retrial of the former Israeli Prime Minister
Ehud Olmert in a bribery case concerning US businessman Morris Talansky, in which Mr Olmert was originally acquitted on corruption charges.
According to local newspapers, in 2008 prosecutors found that undeclared funds from Mr Talansky were accepted by Mr Olmert during his time as mayor of Jerusalem in 1990 and as a cabinet minister in early 2000.
In 2012 the Jerusalem District Court acquitted Mr Olmert of charges of fraud, breach of trust, tax evasion and falsifying corporate records.
However, according to reports, a former assistant Shula Zaken, who had been convicted for fraudulently obtaining benefits, fraud and breach of trust, disclosed new evidence. In her plea bargain she provided recordings of conversations between her and Mr Olmert.
A Spanish public sector union, Manios Limpias, has reportedly filed a claim against Jordi Pujol, an ex-president of Catalonia, accusing him of corruption involving up to €18million (c.$24 million).
According to reports, Manos Limpias accused Mr Pujol of corruption in addition to tax evasion. The organisation said part of the money stored in foreign accounts came from the “systematic collection of illegal commissions in exchange for awarding contracts for public works and services between 1980 and 2003.”
Corruption issues are also addressed in the Anti-Fraud Network’s newsletters: see www.antifraudnetwork.com for current and archived material; see also the Computer Fraud website at http://computerfraud.us and www.secactions.com.
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This update is provided for general informational purposes and is not intended to constitute advice. If you require advice on any of the matters raised in this update, please let us know and we will be delighted to assist.