The following trends emerged during 2009 in cases brought under the Foreign Corrupt Practices Act (FCPA)1:
- Increased Use of Non-Prosecution Agreements for Cooperation
- Increased International Enforcement and Cooperation
- Use of Conscious Avoidance and Control Person Theories of Liability
As has generally been true in recent years, 2009 brought an increase in the number of FCPA cases filed by the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC). In the past twelve months, DOJ and SEC together initiated a total of 44 FCPA enforcement actions (28 by DOJ and 16 by the SEC), the most ever filed in a single year. This upward trend almost certainly will continue, as DOJ officials have stated publicly that there are at least 130 open FCPA investigations and the SEC’s Enforcement Division has established an FCPA unit.
The DOJ and SEC have also continued to seek substantial penalties and disgorgement from companies in FCPA cases. For example, in February 2009, Halliburton and its former subsidiary Kellogg, Brown & Root LLC paid $579 million in criminal penalties to the DOJ and disgorgement to the SEC, the second highest amount imposed in an FCPA case. And they have taken the same tack against individuals, with the DOJ having asked for a life sentence following the conviction of film executive Gerald Green on FCPA charges for bribes paid in Thailand. DOJ has also engaged in increasingly sophisticated investigatory techniques, as demonstrated by the 22 indictments handed down in early 2010 following the most extensive undercover sting operation in the history of FCPA enforcement.
At the same time that the federal government continued to intensify its FCPA enforcement efforts, DOJ and SEC officials made public statements last year that clarified the means by which they intend to do so. For example, DOJ set out its intention to focus on industries known for corruption and on individuals who serve as intermediaries in foreign bribery schemes. DOJ also has announced that it will vigorously pursue asset forfeiture in appropriate cases. The SEC likewise made clear its continued focus on FCPA cases, including by establishing an FCPA unit. Also of note, for the first time since 2005, the DOJ took FCPA cases against individuals to trial. And DOJ obtained convictions following all three trials, against four individuals, albeit with the jury in the case against former Congressman William Jefferson rejecting the FCPA charge against him while convicting him on conspiracy charges.
Self-Reporting and Cooperation Yield Tangible Benefits: Non-Prosecution Agreements and/or Lesser Penalties
Self-reporting and cooperation on the part of companies resulted in non-prosecution agreements with the DOJ and reduced penalties being imposed by the SEC.
Helmerich & Payne Inc.
On July 30, 2009, Helmerich & Payne Inc. entered into a non-prosecution agreement with DOJ in which it acknowledged responsibility for improper payments to customs officials in Argentina and Venezuela in exchange for favorable import and export terms. Under the agreement, Helmerich & Payne agreed to pay a penalty of $1 million and continue to cooperate fully with the government’s investigation. In recognition of the company’s voluntary disclosure, thorough self-investigation, cooperation, and extensive remedial measures, DOJ elected not to prosecute the company. According to one DOJ official, the financial penalty imposed on Helmerich & Payne was approximately 30 percent below the bottom of the range set in the Federal Sentencing Guidelines for the conduct. Helmerich & Payne also settled SEC charges by agreeing to disgorge approximately $375,000.
UT Starcom Inc.
On December 31, 2009, UTStarcom Inc. entered into a non-prosecution agreement with the DOJ to resolve FCPA charges. The settlement related to allegations thatthe company’s Chinese subsidiary provided $7 million worth of travel and other things of value to employees of state-owned telecommunications firms in China, Mongolia, and Thailand in an effort to secure lucrative contracts. UTStarcom agreed to pay a $1.5 million fine and continue to cooperate with DOJ’s investigation. DOJ agreed not to prosecute UTStarcom or its subsidiaries because of the company’s voluntary disclosure, thorough self-investigation, cooperation, and remedial efforts. UTStarcom also settled SEC charges by agreeing to pay an additional $1.5 million penalty.
On February 11, 2009, ITT Corporation settled SEC charges that a wholly-owned Chinese subsidiary made $200,000 in improper payments to Chinese government officials. The consentedto order alleged that the payments were made to influence the purchase of water pumps for infrastructure projects in China. ITT paid a civil penalty of $250,000 and disgorged more than $1.4 million. In announcing the settlement, the SEC noted that ITT had self-reported the violations, cooperated with the SEC’s investigation, and instituted subsequent remedial measures.
Latin Node Inc.
On April 7, 2009, Latin Node Inc. (Latinode) pleaded guilty to a one-count information charging it with a criminal violation of the FCPA based on payments to government officials in Honduras and Yemen. Payments totaling $1.1 million were made to intermediaries with knowledge that some of those funds would be passed to Honduran officials in exchange for a favorable contract with Honduras’s stateowned telecommunications company. In addition, approximately $1.15 million was paid to a third-party consultant with knowledge that some or all of that money would be passed to Yemeni officials in exchange for favorable interconnection rates in Yemen. Latinode agreed to pay a $2 million fine. In a press release announcing the deal, DOJ emphasized that the resolution with Latinode largely reflected the cooperative conduct of Latinode’s corporate parent, which had promptly disclosed the potential FCPA violations, conducted an internal investigation, shared its findings with the government, cooperated with DOJ, and taken prompt remedial action against individuals involved.
International Enforcement and Cooperation
The DOJ pursued FCPA charges against a number of foreign intermediaries who paid bribes. Several other countries have cooperated in these and other U.S. investigatory efforts. As one DOJ official noted in public remarks in November 2009, the U.S. often receives referrals from law enforcement counterparts in other countries.
KBR, Halliburton, Jeffrey Tesler and Wojciech Chodan
On February 11, 2009, Kellogg Brown & Root LLC (KBR) pleaded guilty to a five-count information charging it with violations of the FCPA based on a decade-long scheme to bribe Nigerian government officials in exchange for the award of construction contracts valued at over $6 billion. Four of the counts against KBR related to the company’s payment of $182 million in “consulting fees” to agents who used those fees to bribe the Nigerian officials. To resolve the charges against it, KBR agreed to pay a $402 million fine and cooperate with DOJ’s ongoing investigations. Concurrent with its plea, KBR’s current and former parent companies, KBR Inc. and Halliburton Company, settled a related civil complaint in which the SEC asserted anti-bribery, books and records, and internal controls violations. The parent companies jointly agreed to disgorge $177 million in profits. In announcing the settlements, DOJ credited cooperation from authorities in France, Italy, Switzerland, and the United Kingdom.
On February 17, 2009, a grand jury in the U.S. indicted U.K. citizens Jeffrey Tesler and Wojciech Chodan for violations of the FCPA based on their roles as intermediaries in the Nigerian bribery scheme. According to an indictment, Tesler bribed the Nigerian government officials on behalf of KBR and its joint venture partners and Chodan, a former KBR consultant, attended meetings during which participants discussed the bribes. Following the indictment, the London Metropolitan Police arrested Tesler at the United States’ request. An arrest warrant for Chodan is outstanding, and the DOJ is currently seeking both defendants’ extradition from the United Kingdom.
On December 7, 2009, a federal district court in Miami unsealed an indictment against three United States telecommunications executives for participating in bribing Haitian officials to obtain business with Telecommunications D’Haiti (Haiti Teleco). Also indicted were two former Haitian government officials. Telecommunications executives Joel Esquenazi, Carlos Rodriguez, and Marguerite Grandison face FCPA, conspiracy, and money laundering charges, and former Haiti Teleco executives Robert Antoine and Jean Rene Duperval face conspiracy and money laundering charges. DOJ has expressed gratitude to the government of Haiti for providing substantial assistance with its investigation.
Pacific Consolidated Industries
On September 3, 2009, Leo Winston Smith, the former director of sales and marketing for Pacific Consolidated Industries LP (PCI), pleaded guilty to criminal charges that he conspired to bribe a U.K. Ministry of Defense official in exchange for lucrative equipment contracts with the U.K. Royal Air Force. The U.K. official involved in the bribery scheme pleaded guilty to crimes in the United Kingdom based on his acceptance of the bribes and was sentenced to two years in prison. PCI referred the matter to DOJ and cooperated with the government’s investigation.
On November 16, 2009, John Joseph O’Shea, the former general manager of a Texas-based business unit of Swiss electrical engineering company ABB, was indicted based on his alleged role in a conspiracy to bribe Mexican government officials in exchange for contracts with a Mexican state-owned utility company. The indictment against O’Shea alleges that ABB’s business unit used a Mexican company headed by Fernando Maya Basurto to serve as its sales representative in Mexico and that O’Shea, Basurto, and the Mexican officials agreed that 10 percent of the revenues would be returned to the officials. Simultaneously, Basurto pleaded guilty to a one-count information charging Basurto with conspiring to violate the FCPA and obstruct DOJ and SEC investigations. ABB, which discovered the corrupt payments during an internal investigation, voluntarily disclosed them to the DOJ and SEC and is cooperating with the ongoing investigations. In announcing its actions against O’Shea and Basurto, DOJ thanked the Federal Republic of Germany for supplying valuable evidence.
U.S. v. Jefferson -- Lack of Cooperation
Not all foreign governments are acting cooperatively, however. On August 5, 2009, a federal jury in Alexandria, Virginia found former United States Congressman William Jefferson guilty of numerous crimes based on his receipt and payment of bribes in several African countries. At trial in this case – the first ever charging a U.S. official with violations of the FCPA –the DOJ claimed that Jefferson solicited bribes in exchange for his performance of official acts on behalf of companies doing business in Nigeria, Ghana, Equatorial Guinea, Botswana, and the Republic of Congo. Evidence presented at trial showed that Jefferson also paid bribes in relation to those ventures. Jefferson was convicted on eleven counts, including solicitation of bribes, honest services wire fraud, money laundering, racketeering, and conspiracy and has been sentenced to 13 years in prison.
By all accounts, the FCPA played a significant role in Jefferson’s trial. The most widelypublicized evidence was a videotape that showed Jefferson accepting $100,000 in marked bills from an FBI informant in exchange for an agreement to use it to bribe then-Nigerian Vice President Atiku Abubakar. FBI agents later searched Jefferson’s home and found $90,000 of the marked bills hidden in his freezer. Although the jury acquitted Jefferson of the single substantive FCPA charge against him, it may have determined to convict him of conspiracy to violate the FCPA by accepting these funds.
Jefferson’s case highlights the difficulties that FCPA defendants face when the evidence they hope to present in their defense is located in another country. In pre-trial motions, Jefferson’s defense team sought unsuccessfully to obtain testimony from Abubakar and another person in Nigeria who was alleged to have been involved in the bribery scheme. Although those individuals made statements in the press denying the bribery, they refused to travel to the U.S. to provide testimony.
Use of Conscious Avoidance and Control Person Theories of Liability
Both the DOJ and the SEC signaled that they will use all weapons available in their arsenals to pursue top officers of companies who violate the FCPA. The DOJ obtained a conviction against an investor who did not participate in the bribes being made based on conspiracy and conscious avoidance charges. Similarly, the SEC has asserted control person theories of liability against officers who had no knowledge of any bribes.
In July 2009, following a six-week jury trial, Connecticut businessman Frederic Bourke was convicted of violating the FCPA related to his investment in a privatization program in the Republic of Azerbaijan. At trial, prosecutors from DOJ and the United States Attorney’s Office for the Southern District of New York argued that Bourke and his business partners, particularly Viktor Kozeny, arranged to receive a controlling interest in the State Oil Company of the Azerbaijan Republic (SOCAR) through a secret partnership with government officials. Following the verdict, Bourke was sentenced to one year and one day in prison and ordered to pay a $1 million fine.
The prosecutors in Bourke’scase alleged that Kozeny and members of his investment consortium bribed government officials to encourage them to privatize SOCAR and to ensure that the consortium would gain a controlling interest in it. The government presented evidence that, acting through Oily Rock Ltd., Kozeny and the others bribed government officials by making cash payments to them, by surreptitiously transferring a twothirds interest in Oily Rock’s stake in the privatization venture to them, and by helping them or their family members to obtain medical appointments, visas, and college admissions in the United States. Bourke was not alleged to have played a significant role in carrying out the bribes (although prosecutors presented evidence that he arranged for two officials to receive medical treatment funded by Oily Rock) but the DOJ proceeded against him because of his extensive involvement with Oily Rock (he had invested approximately $8 million in Oily Rock and accepted directorships, salary, and stock options with companies related to it) and his knowledge of rampant corruption in Azerbaijan.
Thus, at Bourke’s trial the government relied on the “conscious avoidance” theory in addition to a conspiracy theory. In regard to the former, the FCPA provides that “[w]hen knowledge of the existence of a particular circumstance is required for an offense, such knowledge is established if a person is aware of a high probability of the existence of such circumstance, unless the person actually believes that such circumstance does not exist.” Based on that provision, the government argued that Bourke was guilty of violating the FCPA because he purposely avoided knowledge of Kozeny’s bribery scheme. To show that Bourke was aware of the high probability that Azeri officials were being bribed as part of the investment effort, the prosecutors presented evidence of corruption in Azerbaijan generally, of Bourke’s personal knowledge of the corruption, and of knowledge by Bourke’s colleagues of the corruption.
In a post-trial motion for acquittal, Bourke argued that the government’s evidence of his alleged knowledge was so tenuous that the court’s conscious avoidance charge likely misled the jury into believing it could convict him on the basis that he had “not tried hard enough to learn the truth.” He also argued that the evidence showed mere negligence at most. The court rejected both contentions, pointing to the testimony of several witnesses that Bourke “knew that corruption was rampant in Azerbaijan” and knew about Kozeny’s “exploits and misdeeds” in Czechoslovakia during thatcountry’s earlier privatization period. In addition, the prosecutors had presented a taperecorded telephone conference among Bourke, a business partner, and their attorneys during which Bourke made statements evidencing a concern that Kozeny was paying bribes. The court also pointed out that, when asked to assume a position on Oily Rock’s board of directors, Bourke instead arranged to accept a position with a related entity, in an apparent attempt to distance himself from knowledge of Oily Rock’s activities. Finally, the court credited the government’s reliance on evidence comparing the scant due diligence work performed by Bourke and his attorneys with the due diligence efforts of others asked to join the consortium, noting that “[t]he Government was entitled to show that others – who were exposed to the same sources as Bourke – had high suspicions regarding the legitimacy of the venture which they were able to later confirm while Bourke willfully shielded himself from learning all the facts.” The court concluded that, even if Bourke did not actually know about the bribery scheme, the government had presented sufficient evidence to show that he “knew of the high probability that bribes were being paid” and “took steps to ensure that he did notacquire knowledge” ofbribery.
United Industrial Corporation
On May 29, 2009, United Industrial Corporation (UIC) and former UIC executive Thomas Wurzel settled charges by the SEC based on Wurzel’s alleged improper payments to an Egyptianbased agent. The consented-to order alleged that Wurzel made the payments with knowledge or conscious disregard of the high probability that the agent would offer some of the money to Egyptian Air Force officials to influence the award of business to UIC. Wurzel agreed to pay a $35,000 civil penalty and UIC agreed to disgorge approximately $337,679.
Nature's Sunshine Products Inc., Douglas Faggioli and Craig Huff
On July 31, 2009, Nature’s Sunshine Products Inc. (NSP) and NSP officers Douglas Faggioli and Craig Huff entered into settlements with the SEC to resolve FCPA charges. The consented-to order alleged that employees of an NSP subsidiary used third-party brokers to transmit approximately $1 million to Brazilian customs agents as part of a scheme to avoid product registration requirements. The order also alleged that although Faggioli and Huff did not participate in the bribery scheme, they violated the “control person” provision of the Securities Exchange Act because they failed to adequately supervise the subsidiary’s activities. The company agreed to pay a $600,000 civil penalty and the individuals agreed to pay $25,000 each.
Other Significant 2009 FCPA Cases
Satisfying Terms of a Deferred Prosecution Agreement
The first foreign company ever charged criminally for violating the FCPA successfully completed a monitorship imposed as part of a deferred prosecution agreement (DPA), resulting in the charges being dismissed with prejudice. In November 2009, the appointed monitor for Statoil ASA provided a final compliance report to the DOJ and the government determined that the company had met all of the DPA’s requirements.
Raising the Stakes: DOJ Seeks Life Sentence for Bribery in Thailand
On September 11, 2009, Los Angeles-area film executives Gerald and Patricia Green were convicted, following a jury trial, of violations of the FCPA, money laundering, and conspiracy based on their roles in a sophisticated bribery scheme to secure Thai government contracts with revenues of $13.5 million. The DOJ presented evidence that the Greens conspired to pay $1.8 million in kickbacks to the former Governor of the Tourism Authority of Thailand in exchange for contracts to manage and operate that country’s annual Bangkok International Film Festival and to provide a tourism “privilege card” marketed to wealthy foreign visitors. The evidence indicated that the Greens paid the kickbacks using bank accounts in Singapore, the United Kingdom, and the Isle of Jersey and used numerous business entities, some with falsified business addresses and telephone numbers, to conceal the large amounts of money they received in return. The evidence of deceit also included notations in business documents that the payments were for commissions.
The Greens are scheduled to be sentenced in early 2010. In recent filings, the DOJ has urged the court to sentence Gerald Green to life in prison, arguing that he served as the ringleader of the bribery scheme.
Pattern of Corruption Results in Multiple Prosecutions: Control Components Inc. The prosecution of multiple employees of California-based valve company Control Components Inc. (CCI) signals that the DOJ will dig deep in instances where there is a pattern of corruption. In January and February 2009, CCI employees Mario Covino and Richard Morlok entered guilty pleas for paying bribes to government officials in several countries including Brazil, China, India, Korea, Malaysia, Romania, Saudi Arabia, and the United Arab Emirates. In April 2009, DOJ indicted six additional CCI employees – Stuart Carson, Hong (Rose) Carson, Paul Cosgrove, David Edmonds, Flavio Ricotti, and Han Yong Kim – charging them all with a conspiracy to secure contracts by making 236 corrupt payments in more than 30 countries. In July 2009, CCI entered a guilty plea to charges that it bribed officials to secure contracts in 36 countries. The company was ordered to pay an $18.2 million criminal fine and serve a three-year term of organizational probation.
Looking Forward to 2010: Sting Operations
On January 19, 2010, DOJ announced the arrest of 22 individual officers and employees of small companies that manufacture arms and armor. The defendants were charged with violations of the FCPA in connection with a government-run sting operation in which the FBI set up an undercover operative who promised the defendants that he could obtain contracts for them with an African nation for outfitting a military guard unit, but only if the defendants agreed to pay a 20 percent commission to the undercover agent. Not only is this the largest single FCPA case ever brought in terms of the number of defendants, but it represents a fundamental shift in strategies to include enforcement through sting operations.