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Quiz Time

With two weeks left in the semester and final exams thereafter, hypotheticals are dancing in my head.

But this question is no hypothetical.

In 2009, there were three FCPA trials – Frederic Bourke, William Jefferson, and Gerald and Patricia Green.

So here is the question.

What is the common thread in these three FCPA enforcement actions – a fact which speaks to the great difficulty individual FCPA defendants generally have in mounting a legal defense?

Please feel free to comment on this blog or otherwise send me your answer (perhaps there is more than one correct answer).

I am a quick grader, so stay tuned for the answer tomorrow.

BAE Plea Agreement Challenge Dropped

Yesterday, the Campaign Against Arms Trade (“CAAT”) and The Corner House, two British non-profits, announced (see here) “with regret that they are witdrawing their application for a judicial review of the 5 February 2010 decision by the Serious Fraud Office (SFO) to enter into a controversial plea bargain settlement with BAE Systems and to drop ‘conspiracy to corrupt’ charges against a BAE former agent, Count Alfons Mensdorff-Pouilly.”

For more on this challenge and the BAE bribery, yet no bribery case see here and here.

While CAAT and The Corner House have withdrawn their application for judicial review, the groups do intend to “ask questions inside BAE’s AGM on May 5th” and otherwise voice “the people’s judgment” on BAE’s corporate ethics.

Should you want to make your voice heard on this issue, see here.

Africa Sting Updates

It’s been a while since the last post on the Africa Sting cases.

Below is a summary of recent activity.

Last week, the DOJ filed a routine discovery notice (see here) that perhaps hints at a much broader case.

In relevant part, the DOJ stated:

“The government has produced to each defendant and his or her co-defendant documents regarding the defendant’s participation in the Country A deal charged in the indictments and historic deals, including emails, invoices and quotes. Documents related to other co-conspirators’ participation in the Country A deal and historic deals have been made available to the defendants upon request.” (emphasis added).

Time will tell what is meant by “historic deals.”

However this case is already wider than the case charged in January (see here). In March, the DOJ filed a superseding indictment (see here) against Daniel Alvirez, the President of ALS Technologies, Inc. The superseding indictment contains charges against Alvirez not found in the original indictment, specifically charges related to the Republic of Georgia. Alvirez is expected to plead guilty to charges of conspiracy to violate the FCPA as set forth in the superseding indictment and cooperate in the government’s investigation.

For more on the DOJ’s discovery filing (see here) from Christopher Matthews at Main Justice.


When the Africa Sting case was first announced, I raised the issue (see here) of whether the defendants could even be found guilty of violating the FCPA’s antibribery provisions given that the “foreign official” was not real.

At the time, it was yet known whether the “foreign official” was purely fictitious or an actual, yet non-participating person.

I suspected the later and Main Justice (see here) recently reported that the FBI agents involved in the sting operation were posing as representatives of Ali Ben Bongo – the current president of Gabon and the Minister of Defense of that country from 1999 to 2009.

Because the FCPA’s relevant provisions include terms such as influence and induce, it remains an open question whether one can seek to induce or influence an actual, yet non-participating “foreign official.”


Finally, during a status hearing yesterday, Judge Leon indicated (see here) that it was highly unlikely that the cases would go to trial in 2010.

Also at the status conference, defense lawyers continued to argue that the DOJ has not produced sufficient information concerning Richard Bistrong – a key participant in the government undercover sting operation – yet a person who was also recently criminally charged in connection with a separate bribery scheme (see here for the prior post).

Judge Leon reportedly said that the FBI’s relationship with Bistrong is “likely relevant to the case” and that DOJ is going to have produce documents and information concerning this issue.

The next status hearing is April 21st.

Lord Justice Thomas’s Innospec Sentencing Remarks

Given the frequency in which U.S. judges seem to be rubber-stamping FCPA settlements – including plea deals agreed to by the DOJ under circumstances which arguably violate the DOJ’s own policy as set forth in the US Attorneys’ Manual (see here for a prior post), it is refreshing to read Lord Justice Thomas’s stern rebuke of the DOJ-SFO’s joint settlement in the Innospec matter (see here for more on the Innospec matter).

Lord Justice Thomas (Britain’s second most senior criminal judge) concluded that the Director of the SFO “had no power to enter into the arrangements made” to settle the matter and he warned that “no such arrangements should be made again.” (See here for Lord Justice Thomas’s sentencing remarks).

With the SFO publicly stating on numerous occasions that it seeks to adopt DOJ-like enforcement strategies and procedures and given that the SFO’s conduct in the Innospec mater was very “DOJ-like”, Lord Justice Thomas’s remarks, while heavy on English law, should be more broadly viewed as an indictment of DOJ enforcement strategies as well.

The sentencing remarks begin by providing an interesting glimpse into the “negotiations” between the DOJ and SFO in the Innospec matter – the “first case where a ‘global settlement’ had been sought in respect of concurrent criminal proceedings in the UK and the US.”

The conduct at issue largely centered on Indonesia and Iraq. The sentencing remarks note that “both the SFO and DOJ agreed that the fines and other penalties which might be imposed in the US and the UK might exceed $400m in the US and $150m in the UK.”

However because any such amount “would exceed by many times the ability of Innospec to pay” “both the SFO and the DOJ agreed that, in light of Innospec’s full admission and full co-operation, they should not seek to impose a penalty which would drive the company out of business.”

The sentencing remarks then state:

“In September 2009, when it was anticipated that an acceptable settlement would be reached, discussions began between the SFO and the DOJ about the manner in which the authorities in the US and the SFO should proceed to implement any settlement and divide up the monetary amount to be paid. The discussions took place against the background that it had been agreed that the SFO would have primacy in respect to the Indonesian corruption and the DOJ in respect of the Iraq corruption.”

The sentencing remarks note that “the SFO began by suggesting a 50:50 split based upon the fact that the criminality had been orchestrated and arranged from the UK in respect of the corruption in both Iraq and Indonesia.”

However, the “DOJ would not accept this,” but rather proposed a “methodology that in the result produced a split which was approximately one third to the DOJ, one third to the SFO and one third to the SEC and the OFAC.”

As noted in the sentencing remarks, “after much further discussion on 28 January 2010 the SFO agreed to a split that was approximately one third to the DOJ, one third to the SEC and OFAC and one third to the SFO. It was agreed that the DOJ would ask the court to approve a fine of $14.1m with the balance of the US proportion going to the SEC ($11.2m) and OFAC ($2.2m); $12.7m would be the SFO’s share.”

Lord Justice Thomas next turns to the Innospec-SFO plea (see here) and states that “it became quickly apparent … that a number of difficult issues was raised by the process adopted.”

In his remarks, Lord Justice Thomas cites a paper delivered by Nicholas Purnell QC “The Risk of Abusing A Dominant Position” delivered to the International Bar Association at its New York Conference in June 2009 (see here) which notes, among other things, that newly enacted SFO guidance on “alternative methods to the disposal of criminal investigations by way of negotiated pleas or other resolutions by corporate defendants” may “introduce some unintended risks of abuse.”

Lord Justice Thomas next touches upon such issues.

Among other things, he notes that the “question has arisen as to the extent of [the SFO’s Director’s] powers and duties in the light of the constitutional position of a prosecutor, the role of the courts in the UK and the rules relating to plea agreements in the U.K.” Lord Justice Thomas specifically notes that “it is clear” that the “SFO cannot enter into an agreement … with an offender as to the penalty in respect of the offence charged,” but that a reading of the papers submitted in connection with Innospec-SFO plea “suggests that a penalty had in fact been agreed.”

In language that all U.S. judges who have rubber-stamped DOJ FCPA settlements (without inquiring into the factual and legal basis for the settlement including whether other charges more accurately fit the crime – see here) should read, Lord Justice Thomas states:

“Principles of transparent and open justice require a court sitting in public itself first to determine by a hearing in open court the extent of the criminal conduct on which the offender has entered the plea and then, on the basis of its determination as to the conduct, the appropriate sentence. It is in the public interest, particularly in relation to the crime of corruption, that … there may be discussion and agreement as to the basis of plea” and that a court “must rigorously scrutinise in open court in the interests of transparency and good governance the basis of that plea and to see whether it reflects the public interest.”

Lord Justice Thomas then states that “those who commit such serious crimes as corruption of senior government officials must not be viewed or treated in any different way to other criminals.” (See here, here and here for my prior posts on the increasing and alarming trend of bribery, yet no bribery FCPA prosecutions).

Lord Justice Thomas states that the $12.7m SFO fine is “wholly inadequate as a fine to reflect the criminality displayed by Innospec” and that if it were up to him the fine would have measured in the “tens of millions.” Nevertheless, because of Innospec’s apparent inability to pay a larger fine, he “reluctantly concluded that, on this occasion, it would neither be just nor fair in the unusual circumstances of this case for this court to impose a penalty greater than the amount allocated to the UK.”

Even so, Lord Justice Thomas is stinging in his final remarks.

He notes:

“The court was faced with an agreement made between the DOJ, the SEC, the OFAC and SFO as to the division of the sum these bodies had considered Innospec was able to pay. This was not a matter that received judicial determination in either the UK or the US (save that inherent in the Federal District Court’s approval of the plea agreement). As it is the position in both the US and the UK that it is for the court ultimately to determine the sanction to be imposed for the criminal conduct, an agreement between prosecutors as to the division, even if it had been within the power of the Director of the SFO (which as I have explained it was not), cannot be accordance with basic constitutional principles.”

Lord Justice Thomas concludes that “the Director of the SFO had no power to enter into the arrangements made and no such arrangements should be made again.”

He notes that “it is essential for the future that, unless any change is made to the rule of procedure or to the practice direction, it is appreciated this court must and will sentence in the way set out in the law, as that is what the rule of law requires” and that “this applies as much to companies as to individual defendants.”

A couple of other interesting tidbits from Lord Justice Thomas’s sentencing remarks.

With cross-border investigations and global corruption settlements seemingly becoming a new norm, Lord Justice Thomas’s comments on uniform financial penalties also bear mention. He states, “there is every reason for states to adopt a uniform approach to financial penalties for corruption of foreign government officials so that the penalties in each country do not discriminate either favourably or unfavourably against a company in a particular state.” He notes that “if the penalties in one state are lower than in another, business in the state with lower penalties will not be deterred so effectively from engaging in corruption in foreign states, whilst businesses in states where the penalties are higher may complain that they are disadvantaged in foreign states.”

Lord Justice Thomas concludes his sentencing remarks with one final dig, a dig aimed at a common feature in all DOJ FCPA pleas, non-prosecution agreements and deferred prosecution agreements – and that is the “don’t issue a press release about this unless you first approve it with us” clause.

Lord Justice Thomas notes: “It would be inconceivable for a prosecutor to approve a press statement to be made by a person convicted of burglary or rape; companies who are guilty of corruption should be treated no differently to others who commit serious crimes.”


A couple of final notes about the SFO’s enforcement action against Innospec. Unlike a typical DOJ FCPA charging document, the SFO “names names.” In its previous Mabey & Johnson prosecution (see here for a prior post), the SFO specifically named the foreign official recipients of the bribe payments. That trend continues in the SFO’s charging documents against Innospec (see here).

Finally, in many cases, FCPA fines and penalties are just one “cost” to a company. While I disagree with the notion that the “costs of getting caught” should somehow factor into the final penalty amount (see here for a prior post), this is a cost that can not be ignored by companies. On this issue, para. 32 of the SFO charging document notes that “at this stage … Innospec’s internal investigation and cooperation with the SFO, DOJ, and SEC globally has cost the Company in excess of US$32 million in costs …”

A Happy Ending

It’s a happy morning on a happy campus!

Playing in the national championship game, as the Butler Bulldogs will be doing tonight, tends to make people happy. I put myself in that category. As a former college basketball player, I certainly never made it to the “big game” so “getting there” as a faculty member of a participating school … well, let’s just say it puts an extra spring in my step.

So, it’s with much institutional pride that I say “Go Butler.”

Let’s stick with the theme, but return “on topic.”

From time to time, the DOJ comments that some voluntary disclosure cases never lead to an actual enforcement action. Analyzing the extent to which this may or may not be true is difficult, particularly as to non-public companies.

Nevertheless, a recent “no action” disclosure caught my eye.

It involves Global Industries Ltd., a publicly-traded provider of “offshore construction, engineering, project management and support services…” (see here).

“In June 2007, the Company announced that it was conducting an internal investigation of its West Africa operations, focusing on the legality, under the U.S. Foreign Corrupt Practices Act (FCPA) and local laws, of one of its subsidiary’s reimbursement of certain expenses incurred by a customs agent in connection with shipments of materials and the temporary importation of vessels into West African waters.” (see here). As noted in this linked filing, the Global Industries investigation was not a pure voluntary disclosure in that the investigation was motivated, at least in part, on “the settlement of the FCPA proceedings involving certain Vetco Gray entities” and the fact that “Company’s management and the Audit Committee were aware of press releases by three other companies disclosing that they are conducting internal investigations into the FCPA implications of certain actions by a customs agent in connection with the temporary importation of their vessels into Nigeria.” As noted in the filing, against this backdrop, the “Company’s management considered it prudent to review the Company’s operations since it uses customs agents and the Company’s vessels that have operated in Nigeria do so under temporary importation permits.”

Fast forward to February 2010 when the company disclosed in this press release as follows:

“We are pleased to also announce that our and the Government’s investigation of our activities in West Africa have concluded without any fines or penalties being imposed upon the Company. Both the DOJ and SEC have concluded their investigations and are not recommending any enforcement actions against the Company.”

In other words, a happy ending to an FCPA investigation and disclosure.

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