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House Passes Impotent Debarment Bill

The façade of Foreign Corrupt Practices Act (FCPA) enforcement is so deep that the House of Representatives recently passed legislation that will fail to accomplish its stated purpose – to debar corporations committing FCPA violations from federal government contracts.

On September 15th, the House, by a unanimous 409-0 vote, passed H.R. 5366 (“Overseas Contractor Reform Act”) (see here). The Act generally provides that a corporation “found to be in violation of the [FCPA’s anti-bribery provisions] shall be proposed for debarment from any contract or grant awarded by the Federal Government within 30 days after a final judgment of such a violation.”

The Act’s key trigger term for debarment – “found to be in violation” of the FCPA’s anti-bribery provisions – is a trigger that is not reached in nearly every FCPA enforcement action because of the façade of FCPA enforcement. Thus, the Act represents impotent legislation.

Nearly every FCPA enforcement action against a corporation is resolved through a non-prosecution agreement (“NPA”) or a deferred prosecution agreement (“DPA”). In an NPA, such as the recent NPAs against UTStarcom, Inc. (here) and Helmerich & Payne, Inc. (here), criminal charges are not filed in court. Rather, the “charges” are resolved via a private letter agreement that is subject to no judicial scrutiny. In a DPA, such as the recent DPAs against Technip S.A. (here) and Snamprogretti Netherlands BV (here), criminal charges are technically filed in court, but those charges are never prosecuted if the company adheres to compliance undertakings set forth in the DPA. Because of the prevalence of NPAs or DPAs in the FCPA context, a corporation entering into such an agreement with the Department of Justice (“DOJ”) is never “found to be in violation” of the FCPA’s anti-bribery provisions.

The Act will be even more impotent given the frequency by which the DOJ resolves clear instances of corporate bribery without charging FCPA anti-bribery violations. Three recent examples highlight this troubling feature of the façade of FCPA enforcement. In March 2010, the DOJ alleged that Daimler AG (“Daimler”) “engaged in a long-standing practice of paying bribes” to foreign officials in at least 22 countries. Despite these allegations, the DOJ resolved the matter against Daimler without charging FCPA anti-bribery violations (see here). In February 2010, the DOJ alleged that BAE Systems Plc (“BAE”) “provided substantial benefits,” including through U.S. payment mechanisms, to a Saudi public official “who was in a position of influence regarding” a lucrative fighter jet contract. Despite these allegations, the DOJ resolved the matter against BAE without charging FCPA anti-bribery violations (see here). In December 2008, the DOJ alleged that Siemens AG engaged in pattern of bribery “unprecedented in scale and geographic reach” and that the “corruption involved more than $1.4 billion in bribes to government officials in Asia, Africa, Europe, the Middle East and the Americas.” Despite these allegations, the DOJ resolved the matter against Siemens without charging FCPA anti-bribery violations (see here).

Numerous other examples could also be cited and because of how FCPA violations are typically resolved by the DOJ, the Act’s debarment provisions will only be triggered in the rarest of instances.

Yet this salient fact was presumably not understood by Representatives who unanimously voted for the Act and championed it as common sense, effective legislation. Who can blame the Representatives for not understanding the full effects of the façade of FCPA enforcement? Most Representatives probably assumed that the DOJ prosecutes companies that commit FCPA anti-bribery violations with FCPA anti-bribery charges in a transparent manner subject to judicial oversight and scrutiny. Yet in this current façade of FCPA enforcement era nothing can be taken for granted.

Perhaps those who championed the Act were aware of its impotence yet voted for it because the costs of voting against it were too great a few months before an election. Representative Peter Welch (D-VT) sponsored the Act in response to an occurrence that is merely tangential to the FCPA – the conduct of Xe Services (formerly known as Blackwater Worldwide) following the 2007 shooting in Nissour Square Iraq that left 17 dead. (See here, here and here). It is clear from the floor statements of various Representatives (see here) that Blackwater’s conduct, and a desire to rein in military contractors, motivated passage of the Act.

Whatever the motivations for unanimous House passage of the Act, because of the façade of FCPA enforcement, the Act is impotent in addressing the conduct it seeks to address. The Act now moves to the Senate Committee on Homeland Security and Governmental Affairs. If the Senate is serious about imposing a debarment penalty on those who commit FCPA anti-bribery violations, a penalty deserving of serious consideration to best effectuate deterrence, the Senate first needs to understand the façade of FCPA enforcement and draft a bill that can actually accomplish its stated purpose.

Friday Roundup

In one way, shape or form, whistleblowing is the theme of this week’s Friday Roundup.

SEC Timeline on Various Dodd-Frank Provisions

The SEC has a lot on its plate in implementing various rules pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”).

Included on that list is the new whistleblower provisions established by Dodd-Frank (see here for a prior post).

Interested in following the SEC’s progress?

If so, here are the important dates (or months as the case may be) to keep in mind.

October – December 2010

SEC plans to “propose rules to implement a Whistleblower Incentives & Protection Program,” “report to Congress on Whistleblower Program,” and “Establish Whistleblower Office.”

January – March 2011

SEC plans to “adopt rules to implement a Whistleblower Incentives & Protection Program.”

Another Dodd-Frank provision many in the FCPA universe are following is Section 1504 – “Disclosure of Payments by Resource Extraction Issuers” (see here for a prior post).

Here is the planned timeline for that provision.

October – December 2010

SEC to “propose rules regarding disclosure by resource extraction issuers”

January – March 2011

SEC to “adopt rules regarding disclosure by resource extraction issuers”

Khuzami on the SEC’s Whistleblower Program

Earlier this week Robert Khuzami (Director, Division of Enforcement – SEC) had this to say about the SEC’s whistleblower program in testimony before the Senate:

“The Division currently is in the process of drafting the proposed rules applicable to the Whistleblower Program, including rules setting forth the procedures for whistleblowers to submit original information to the Commission and for the Commission to make awards to whistleblowers. We also have begun the process of staffing the Commission’s Whistleblower Office. As we create the Program and the Office, we will be mindful of competing interests, including: (i) a desire to encourage whistleblowers to provide the Commission with high-quality tips regarding potential violations of the federal securities laws, and (ii) a need to avoid creating undue burdens on the Commission and the constituencies that we protect and regulate that could result from groundless whistleblower submissions.”

Furmanite Corporation

Kendall Law Group is one of the new breed of FCPA “plaintiff” firms that have sprung up in recent months. The sequence is usually predictable. A company discloses an FCPA issue or inquiry. Within days the firm, or one of the other firms that is also seeking to capitalize on what, at times, seems like an FCPA feeding frenzy, issues a press release such as this one. These releases have become so common, that it is easy to gloss over them.

However, Kendall Law Group’s September 16th release (here) regarding Furmanite Corporation was a bit different. Here is what it said, in relevant part:

“The Kendall Law Group was recently notified by a confidential source of potential violations of the Foreign Corrupt Practices Act (FCPA) by Furmanite. The company was allegedly made aware of potential violations of the FCPA as early as 2008. The firm’s source indicates that cash gifts were given to representatives of state-owned enterprises to maintain and develop customer relations. Furmanite has two subsidiaries in China, Furmanite Mechanical Technology Services Co. Ltd. which operates out of Shanghai and Furmanite East Asia Ltd. which is based in Hong Kong. Furmanite has entered into business relationships with state-owned enterprises in China, such as the recently announced delivery of equipment to China HuanQiu Contracting and Engineering Company, a branch of the China National Petroleum Corporation, China’s largest integrated oil and gas company.”

Is Kendall Law Group representing a whistleblower in connection with Dodd-Frank’s new whistleblower provisions? Pursuant to the new whistleblower provisions, a whistleblower may be represented by counsel.

Furmanite, “the worldwide innovator and leader in comprehensive on-site and on-line plant and pipeline maintenance” according to its website (here), is an issuer on the New York Stock Exchange.

To my knowledge Furmanite has not issued a release / disclosure about this issue.

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A good weekend to all.

A Noisy Exit

Robert Bruce, a former Director and Chair of the Audit Committee of China North East Petroleum, is not the only individual to have recently made a noisy exit (see here for the prior post at the FCPA Blog).

Peter Barker-Homek was the Chief Executive Officer of Abu Dhabi National Energy Company PJSC – also known as TAQA (see here) and TAQA New World Inc. (see here).

In an explosive complaint (see here) recently filed in U.S. District Court for the Eastern District of Michigan (Southern Division), Barker (a former pilot in the U.S. Marine Corps and Gulf War veteran as well as State Department official) alleges as follows:

“When Barker tried to put a stop to the kickbacks, bribery, accounting fraud and corruption at TAQA, the Defendants [TAQA, TAQA New World, […] (a NY licensed attorney and chief attorney for and General Counsel of TAQA] fired him. Instead of abiding by the terms of Barker’s employment contract, they summoned him to a meeting and presented him with a so-called ‘severance agreement,’ a one-sided agreement in which Barker purportedly agreed to step down as CEO and forfeit millions of dollars owed to him. Defendant […], a New York-licensed attorney, chief attorney for and General Counsel of TAQA, demanded that he sign the ‘severance agreement’ on the spot, comply with its provisions, or be arrested and sent to prison. Worried for his life and the well-being of his family, Barker signed the ‘severance agreement.’ Thereafter, he was harassed and lived in fear of a ‘knock’ on the door by police, received mysterious phone calls and was followed, until finally he and his family escaped to the safety of the United States.”

According to the complaint, 75% of TAQA’s stock is owned by the Abu Dhabi Ruling Family and 25% is owned by investors and is publicly-traded on the Abu Dhabi Stock Exchange. The complaint asserts that TAQA has offices in North America, including in Ann Arbor, Michigan, and that TAQA does business by and through various subsidiaries including TAQA New World Inc., a Delaware corporation based in Ann Arbor.

In terms of the Foreign Corrupt Practices Act, TAQA New World is a “domestic concern.” The complaint also asserts that TAQA “conducts several of its global business functions out of its Ann Arbor office including: human resources; accounting; tax management; and regulatory affairs.”

While Barker’s complaint does not appear to directly implicate the FCPA, given his general allegations, this case may draw DOJ interest.

Will Bistrong’s Plea Impact The Africa Sting Cases?

Last week Richard Bistrong’s plea agreement was made public.

Who is Richard Bistrong?

He is “Individual 1” – the person who worked with FBI agents as alleged in the Africa Sting indictments. (See here). (See here for the superseding indictment).

Bistrong was soon identified as Individual 1 and criminally charged.

Not in connection with the Africa Sting case, but a completely different matter. (See here). The criminal information (here) charges Bistrong with conspiracy to violate the Foreign Corrupt Practices Act’s antibribery provisions, books and records provisions, and the International Emergency Economic Powers Act and related Export Administration Regulations.

The conspiracy was broad in scope and included charges that Bistrong conspired with others: (i) to obtain for his employer [Armor Holdings, a former publicly-traded company, currently a subsidiary of BAE Systems] United Nations body armor contracts (valued at $6 million) by causing his employer to pay $200,000 in commissions to an agent while knowing that the agent would pass along a portion of that money to a United Nations procurement officer (a “foreign official” per the FCPA) to cause the officer to award the contracts; (ii) to obtain for his employer, a $2.4 million pepper spray contract with the National Police Services Agency of the Netherlands by paying a Dutch agent approximately $15,000 while knowing that the agent would pass along some of that money to a procurement officer with the Police Services Agency to influence the contract; and (iii) to obtain for his employer (although it was never obtained), a contract to sell fingerprint ink pads to the Independent National Elections Commission of Nigeria by making kickback payments to a commission official indirectly through an intermediary company.

Bistrong’s criminal information was filed on January 21, 2010.

It turns out that Bistrong agreed to plead guilty nearly a year before that – in February 2009, as indicated in the Bistrong plea agreement (see here).

So what did Bistrong agree to when he signed the plea agreement in February 2009?

To cooperate fully with with the government, including:

“whenever requested by the Government, working in an undercover role to record meetings and telephone calls under the supervision of United States law enforcement;” and

“attending all meetings at which the Government requests his presence.”

Per the Bistrong plea agreement, Bistrong “and the Department of Justice agree that the [Sentencing Guidelines] sentence is five years’ imprisonment.” Even so, the plea agreement states: “if in the sole and unreviewable judgment of the Government the defendant’s cooperation is of such quality and significance to the investigation or prosecution of other criminal matters as to warrant the Court’s downward departure from the sentence calculated by the Sentencing Guidelines, the Government may at or before sentencing make a motion pursuant to Section 5K1.1 of the Sentencing Guidelines reflecting that the defendant has provided substantial assistance and recommending a downward departure from the applicable guideline range.”

Brady Toensing (diGenova & Toensing, LLP) (see here) represents Bistrong.

What impact will Bistrong’s plea have in the Africa Sting case – particularly the defendants’ expected entrapment defense?

Per the superseding indictment, the earliest conduct forming the basis of the criminal charges against the Africa Sting defendants occurred in May 2009. In other words, Bistrong had already agreed to plead guilty to separate criminal charges prior to introducing the Africa Sting defendants to the undercover “foreign official” or the “foreign official’s” undercover representative.

Will this matter?

Unlikely says Dru Stevenson, a Professor of Law at South Texas College of Law (see here). Professor Stevenson previously offered his thoughts on the entrapment issue (here) and offered these thoughts in light of Bistrong’s plea.

“The incentives of the informant or undercover agent have never mattered in an entrapment defense, under either of the tests that courts use. For the subjective test (used in federal court), entrapment analysis focuses entirely on the defendant’s predisposition to commit the crime. The incentives of the agent provocateur are irrelevant. For the objective test (used in a minority of states, but never in the federal courts), entrapment analysis focuses on the actual conduct of the undercover agents – how outrageous it was – but not on the agent’s incentives or motives. It would be a completely novel approach if a court gives any weight to the fact that the agent provocateur had made a plea bargain. And it is not clear why this should matter any more than an undercover police officer who is paid to trick criminals into committing crimes as part of a sting operation.”

The 30% Commission, The Dream Seeker, The Ferrari Spyder, and Consulting Fees for Mom

According to its website (see here) Mexico’s Comision Federal de Electricidad (“CFE”) “is a decentralized government agency, duly incorporated and which controls its own assets.”

Does that make CFE’s Sub-Director of Generation and Director of Operations “foreign officials” under the FCPA?

According to the DOJ, apparently so, as it alleges in this recent indictment against Enrique Faustino Aguilar Noriega and Angela Maria Gomez Aguilar. See here for the DOJ release.

According to the indictment, “Comision Federal de Electricidad (‘CFE’) was an electric utility company owned by Mexico. During the time period relevant to this Indictment, CFE was responsibile for supplying electricity to all of Mexico othern than Mexico City. CFE contracted with Mexican and foreign companies for goods and services to help supply electricity services to its customers.”

“Company LM” according to the indictment, (a company identified as Lindsey Manufacturing in media reports – see here see here for more about Lindsey Manufacturing), is a “privately held company incorporated in California and headquartered in Azusa, California. According to the indictment, LM “manufactured emergency restoration systems and other equipment used by electrical utility companies” including “state-owned utilities, including CFE” “one of LM’s most significant customers.” According to the indictment, LM “conducted business in a number of foreign markets through sales representatives.”

According to the indictment, “Grupo Internacional De Asesores S.A. (‘Grupo’) was a company incorporated in Panama and headquartered in Mexico” with a “brokerage account in Houston, Texas at Global Financial Services, Inc.” The indictment alleges that “Grupo’s purported business was to provide sales representation services for companies like LM that had business with CFE” and that “Grupo was LM’s sales representative in Mexico and received a percentage of the revenue LM received from its contracts with CFE.” According to the indictment, Grupo was an “agent of a domestic concern” under the FCPA.

According to the indictment, Enrique Aguilar, a lawful permanent resident of the U.S. “was a Director of Grupo and was hired by LM to obtain contracts from CFE” and a “an agent of a domestic concern” under the FCPA.

According to the indictment, Angela Aguilar, a citizen of Mexico, “served as an Officer and a Director of Grupo” and “managed Grupo’s finances” and was “the sole signatory on Grupo’s Global Financial brokerage account.”

According to the indcitment, Enrique Aguilar, together with President KL (an individual identified as the President of LM), Vice President SL (an individual identified as the Vice President and Chief Financial Officer of LM), LM and others conspired to make improper payments to “foreign officials” to assist Aguilar, Grupo, President KL, Vice President SL, LM, and others in obtaining and retaining business in violation of the FCPA.

The indictment alleges that Aquilar offered to become LM’s “sales representative in Mexico in exchange for a thirty percent commission on all of the goods and services” LM sold to CFE and that President KL and Vice President SL “would agree to pay” Aquilar “a thirty percent commission into Grupo’s brokerage account at Global Financial, even though it was significantly higher than the commission LM paid to its previous sales representative in Mexico” knowing that Aquilar “had a close personal relationship with Official 1 and would use all or a portion of the thirty percent commission to pay Official 1 and others bribes in exchange for CFE awarding LM contracts.”

Among other things, the indictment alleges that: (i) Grupo’s Global Financial brokerage account was used to “pay the credit card bills for Official 1’s American Express credit card ‘in full every month, until further notice'”; (ii) Aquilar “aided Official 1 in purchasing an 82 foot yacht named the Dream Seeker for $1,800,010 …;” (iii) Aquilar caused wire transfers to Official 2’s female and male relatives for “payment for professional services advice” and Official 2’s mother and brother for a “consulting fee;” and (iv) Aquilar caused the “issuance of a check to Ferrari of Beverly Hills from Grupo’s Financial brokerage account for approximately $297,500 to purchase a 2005 Ferrari Spyder for Official 1.”

Who are Official 1 and 2?

According to the indictment:

“Official 1 was a Mexican citizen who held a senior level position at CFE. Official 1 became the Sub-Director of Generation for CFE in 2002 and the Director of Operations in 2007. Official 1’s position at CFE made him a ‘foreign official’ as that term is defined in the FCPA …”

“Official 2 was a Mexican citizen who also held a senior level position at CFE. Official 2 was the Director of Operations at CFE until that position was taken over by Official 1 in 2007. Official 2’s position at CFE made him a ‘foreign official’ as that term is defined in the FCPA …”

[For more on Official 1 and CFE – see David Luhnow, “U.S. Probe Leads to Mexico Chief,” Wall Street Journal (August 24, 2010)]

According to the indictment, Angela Aguilar assisted or otherwise caused many of the above referenced payments to be made.

Based on the above core conduct, Enrique Aquilar was charged in a seven-count indictment with conspiracy to violate the FCPA, FCPA violations, money laundering conspiracy and money laundering. Angela Aquilar was charged with money laundering conspiracy and money laundering.

As noted in the DOJ’s release “an indictment is merely an accusation, and defendants are presumed innocent until and unless proven guilty beyond a reasonable doubt.”

Michael Zweiback (here), a former DOJ prosecutor currently with Seyfarth Shaw LLP, represents both Enrique and Angela Aquilar. He stated: “we intend to vigorously defend the charges and expect the Aguiliar’s to be found not guilty.”

With Lindsey Manufacturing and certain of its top executives implicated in the alleged conduct, it is likely that the above core allegations will be repeated in future enforcement actions.

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The Aquilar indictments continue a DOJ trend of holding agents, sales representatives etc. accountable for allegedly participating in bribery schemes. (See this prior post for other such enforcement actions).

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Does CFE ring a bell?

It should because this alleged “state-owned utility company” is at the center of the enforcement actions against John Jospeh O’Shea (see here and here) and Fernando Maya Basurto (see here).

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