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Canada’s “Africa Sting” Moment

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As noted in various reports, three executives of SNC-Lavalin Group (former SNC vice-president of energy and infrastructure Kevin Wallace, former SNC vice-president of international development Ramesh Shah, and Bangladeshi-Canadian businessman Zulfiquar Ali Bhuiyan) were recently acquitted in connection with a Bangladesh bribery scheme “after an Ontario judge threw out wiretap evidence key to the case, saying the wiretap applications were based on gossip and rumour.”

The recent development follows charges being dropped against two other defendants charged in the same case.

While not a perfect parallel, the recent failed prosecution north of the border is similar in certain respects to the DOJ’s failed, manufactured Africa Sting case.

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Crossing Richard Bistrong

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Today’s post is from Mike Madigan, Paul Calli, and Chas Short who represented individuals in the DOJ’s failed Africa Sting Foreign Corrupt Practices Act enforcement action.

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Convicted federal felon Richard Bistrong is speaking at an FCPA Blog conference today about his role in the failed Africa Sting prosecution. In Bistrong’s tout about the occasion, he said “it will be the first time I’ve publicly discussed my role in the Sting” and he dubbed it “one more cross examination about the Africa Sting.”

You may remember the Africa Sting case, in which the government manufactured a fake “crime” with Bistrong at the center and every accused person was vindicated. The truth won out; Bistrong and his FBI puppeteers were unsuccessful.

We won’t be paying money to attend the FCPA Blog conference to hear Bistrong have “one more cross examination.” We’re familiar with the real cross examination. We were there.

In this post, we share our observations regarding Bistrong’s real cross examination and highlight various facts from information and records in the public domain.

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Stung By The Sting – Smith & Wesson Resolves FCPA Scrutiny That Originated With The Africa Sting

In January 2010 when highlighting the manufactured Africa Sting enforcement action, I predicted that the public company employing one of the defendants was likely going to be the subject of Foreign Corrupt Practices Act scrutiny not only based on the alleged conduct in the Africa Sting case, but also other conduct as well because the indicted individual was the “Vice President−Sales, International & U.S. Law Enforcement” for the company.  That company, it soon was learned, was Smith & Wesson and indeed in July 2010 Smith & Wesson disclosed its FCPA scrutiny (see here).

In an instructive example of a dynamic I highlight in my recent article “Foreign Corrupt Practices Act Ripples” (that is every instance of FCPA scrutiny has a point of entry – in other words, a set of facts that give rise to the scrutiny in the first place – and this point of entry is often the beginning of a long and expensive journey for the company under scrutiny as the company – to answer the frequently asked “where else” question and to demonstrate its cooperation – will conduct a world-wide review of its operations), yesterday the SEC announced this administrative FCPA enforcement action against Smith & Wesson.

The conduct has nothing to do with the manufactured (and failed) Africa Sting case, but does involve Smith & Wesson’s former Vice President of International Sales and another individual referred to as the Regional Director of International Sales.  The SEC states in summary fashion as follows.

“This matter concerns violations of the anti-bribery,books and records and internal controls provisions of the Foreign Corrupt Practices Act (“FCPA”) by Smith & Wesson. The violations took place from 2007 through early 2010, when a senior employee and other employees and representatives of Smith & Wesson made, authorized, and offered to make improper payments  and/or to provide gifts to foreign officials in an attempt to win contracts to sell firearm products to foreign military and law enforcement departments. During this period, Smith & Wesson’s international business was in its developing stages and accounted for approximately 10% of the company’s revenues. Smith & Wesson’s employees and representatives engaged in a systemic pattern of making, authorizing and offering bribes while seeking to expand the company’s overseas business.

The bribe payments were inaccurately recorded in Smith & Wesson’s books and records as legitimate sales commissions or other business expenses. Despite its push to make sales in new and high risk markets overseas, Smith & Wesson failed to establish an appropriate compliance program or devise and maintain an adequate system of internal accounting controls, which allowed the repeated improper offers and payments to continue undetected for years.”

According to the SEC:

“Smith & Wesson does not have any international subsidiaries and conducts its international business directly and through brokering agents. Much of Smith & Wesson’s international business involves the sale of firearms to foreign law enforcement and  military departments.  […] From 2007 through early 2010, as Smith & Wesson sought to break into international markets and increase sales, certain of the company’s employees and representatives engaged in a pervasive practice of making, authorizing and offering improper payments to foreign government officials as a means of obtaining or retaining international business. Although only one of the contracts was fulfilled before the unlawful activity was identified, company employees made or authorized the making of improper payments in connection with multiple ongoing or contemplated international sales.”

The SEC’s order contains factual allegations regarding the following countries: Pakistan, Indonesia, Turkey, Nepal and Bangladesh.

As to Pakistan, the SEC order states:

“In 2008, for example, Smith & Wesson retained a third-party agent in Pakistan to assist the company in obtaining a deal to sell firearms to a Pakistani police department. Even after the agent notified the company that he would be providing guns valued in excess of $11,000 to Pakistani police officials in order to obtain the deal, and that he would be making additional cash payments to the officials, the company authorized the agent to proceed with the deal. Smith & Wesson’s Vice President of International Sales and its Regional Director of International Sales authorized the sale of the guns to the agent to be used as improper gifts and authorized payment of the commissions to the agent, while knowing or consciously disregarding the fact that the agent would be providing the guns and part of his commissions to Pakistani officials as an inducement for them to award the tender to the company. Smith & Wesson ultimately sold 548 pistols to the Pakistani police for $210,980 and profited from the corrupt deal in the amount of $107,852.”

As to Indonesia, the SEC order states:

“In 2009, Smith & Wesson attempted to win a contract to sell firearms to a Indonesian police department by making improper payments to its third party agent in Indonesia, who indicated that part of the payment would be provided to the Indonesian police officials under the guise of legitimate firearm lab testing costs. On several occasions, Smith & Wesson’s third-party agent indicated that the Indonesian police expected Smith & Wesson to pay them additional amounts above the actual cost of testing the guns as an inducement to enter the contract. The agent later notified Smith & Wesson’s Regional Director of International Sales that the price of “testing” the guns had risen further. Smith & Wesson’s Vice President of International Sales and its Regional Director of International Sales authorized and made the inflated payment, but a deal was never consummated.”

As to Turkey, Nepal and Bangladesh, the SEC order states:

Similarly, Smith &Wesson made improper payments in 2009 to its third party agent in Turkey, who indicated that part of the payments would be provided to Turkish officials in an attempt to secure two deals in Turkey for sale of handcuffs to Turkish police and firearms to the Turkish military. Neither of these interactions resulted in the shipment of products, as Smith & Wesson was unsuccessful bidding for the first deal, while the latter deal was ultimately canceled. Similarly, Smith & Wesson authorized improper payments to third party agents who indicated that parts of these payments would be provided to foreign officials in Nepal and Bangladesh in unsuccessful attempts to secure sales contracts in those countries. Although these contemplated deals in Nepal and Bangladesh were never consummated in each case, the company had obtained or attempted to obtain the contract by using third party agents as a conduit for improper payments to government officials.”

The SEC’s order then states:

“Despite making it a high priority to grow sales in new and high risk markets overseas, the company failed to design and implement a system of internal controls or an appropriate FCPA compliance program reasonably designed to address the increased risks of its new business model. The company did not perform any anti-corruption risk assessment and conducted virtually no due diligence of its third-party agents regardless of the perceived level of corruption in the country in which Smith & Wesson was seeking to do business. Smith & Wesson  failed to devise adequate policies and procedures for commission payments, the use of samples for test and evaluation, gifts, and commission advances. The Vice President of International Sales had almost complete authority to conduct the company’s international business, including the sole ability to approve most commissions. Smith & Wesson’s FCPA policies and procedures, and its FCPA-related training and supervision also were inadequate. As a result of these compliance and internal controls failures, Smith & Wesson’s Vice President of International Sales and the Regional Director of International Sales were able to cause the company to pay and/or authorize improper payments in numerous countries around the globe for a period of several years.”

Under the headline “Remedial Measures,” the SEC order states:

“Smith & Wesson took prompt action to remediate its immediate FCPA issues, including: conducting an internal investigation, terminating its entire international sales staff; terminating pending international sales transactions; and re-evaluating the markets in which it sought international sales. In addition, Smith & Wesson implemented a series of significant measures to improve its internal controls and compliance processes, including: implementing new internal audit procedures to identify FCPA issues; creating more robust controls on payments, gifts, and other transactions in connection with international business activity; enhancing its FCPA compliance policies and procedures; and creating a Business Ethics and Compliance Committee.”

Based on the above findings, the SEC found that Smith & Wesson violated the FCPA’s anti-bribery provisions, books and records provisions and internal controls provisions.  As to the later, the SEC order states:

“Smith & Wesson failed to devise and maintain sufficient internal controls with respect to its international sales operations. While the company had a basic corporate policy prohibiting the payment of bribes, it failed to implement a reasonable system of controls to effectuate that policy. For example, Smith & Wesson failed to devise adequate policies and procedures with regard to commission payments, the use of samples for test and evaluation, gifts, and commission advances. Further, Smith & Wesson’s FCPA policies and procedures, and its FCPA-related training and supervision were inadequate.”

As highlighted in the SEC’s order, Smith & Wesson agreed to “report to the Commission staff on the status of [its] remediation and implementation of compliance measures at six-month to twelve-month intervals during a two-year term.” In addition, Smith & Wesson agreed to conduct an initial review – and two follow-up reviews – “setting forth a complete description of its remediation efforts to date, its proposals reasonably designed to improve the policies and procedures of Respondent for ensuring compliance with the FCPA and other applicable anticorruption laws, and the parameters of the subsequent reviews.”

In the SEC order, Smith & Wesson was ordered to cease and desist from future FCPA violations and agreed to pay $2,034,892 …  including $107,852 in disgorgement, $21,040 in prejudgment interest, and a civil monetary penalty of $1,906,000.”  In resolving its FCPA scrutiny, Smith & Wesson did not admit nor deny the SEC’s findings.

In this SEC release, Kara Brockmeyer (Chief of the SEC’s FCPA Unit) stated:

“This is a wake-up call for small and medium-size businesses that want to enter into high-risk markets and expand their international sales. When a company makes the strategic decision to sell its products overseas, it must ensure that the right internal controls are in place and operating.”

In this release, Smith & Wesson President and CEO James Debney stated:

“We are pleased to have concluded this matter with the SECand believe that the settlement we have agreed upon is in the best interests of Smith & Wesson and its shareholders.  Today’s announcement brings to conclusion a legacy issue for our company that commenced more than four years ago, and we are pleased to now finally put this matter behind us.”

John Pappalardo (Greenberg Traurig) represented Smith & Wesson.

Smith & Wesson’s stock price was down approximately .7% on the day of the SEC’s announcement of the enforcement action.

New Article Examines Overcriminalization, Plea Bargaining, And The FCPA Africa Sting Case

A guest post today from my Southern Illinois University School of Law colleague Lucian Dervan.  Professor Dervan is a widely recognized expert on plea bargaining and has, among other things, testified before Congress on such issues.

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I greatly appreciate the opportunity to guest post on Professor Koehler’s FCPA Professor site.  In my post today, I will focus on my discussion of overcriminalization, plea bargaining, and the Africa Sting case in a new article just posted to SSRN – “The Quest for Finality: Five Stories of White Collar Criminal Prosecution,” 4 Wake Forest Journal of Law & Policy 91 (2014) (available here).

In an article I authored a few years ago for the George Mason Journal of Law, Economics, and Policy (available here), I discussed the growth of overcriminalization in the United States and the impact of broad and vague statutes on white collar criminal enforcement.  In particular, I argued that there is a symbiotic relationship between overcriminalization and plea bargaining because each of these important legal concepts relies on the other to flourish.

As I wrote in that article:

To illustrate the co-dependent nature of plea bargaining and overcriminalization, consider what it would mean if there were no plea bargaining. Novel legal theories and overly-broad statutes would no longer be tools merely for posturing during charge and sentence bargaining, but would have to be defended and affirmed both morally and legally at trial. Further, the significant costs of prosecuting individuals with creative, tenuous, and technical charges would not be an abstract possibility used in determining how great of an incentive to offer a defendant in return for pleading guilty. Instead, these costs would be a real consideration in determining whether justice is being served by bringing a prosecution at all.

Similarly, consider the significant ramifications that would follow should there no longer be overcriminalization. The law would be refined and clear regarding conduct for which criminal liability may attach. Individual benefits, political pressure, and notoriety would not incentivize the invention of novel legal theories upon which to base liability where none otherwise exists, despite the already expansive size of the United States criminal code. Further, novel legal theories and overly-broad statutes would not be used to create staggering sentencing differentials that coerce defendants, even innocent ones, to falsely confess in return for leniency.

In the Over-Criminalization 2.0 article, I went on to focus on the Computer Associates prosecution.  In the Computer Associates case, the government requested the company retain outside counsel to perform an internal investigation regarding allegations of accounting improprieties.  During that internal investigation, several employees allegedly lied to investigating counsel.  The government later brought obstruction of justice charges against those employees.  In the indictment, the government argued that the defendants “knew, and in fact intended, that the company’s law firm would present these false justifications to the United States Attorney’s Office, the SEC and the FBI so as to obstruct and impeded (sic) the government investigations.”

This broad and creative application of an obstruction of justice statute (18 U.S.C. § 1512(c)(2)) led to widespread concern from various sectors of the legal community.  In particular, much unease was expressed about the impact of this charging decision on the role of privately retained investigating counsel.  Had the government deputized law firms?  Embracing similar concerns, including concerns about the impact of this case on the attorney-client privilege, the defendants challenged the government’s theory of the case.  Unfortunately, the district court dismissed the motion without specifically addressing the core issues of concern.  While the stage appeared set for an important review of this charging theory by the United States Court of Appeals for the Second Circuit, no such review ever took place.  As is so common today, the opportunity to examine the broad application of a vague statute was lost to the power of plea bargaining.  Instead of proceeding to the appellate court, all of the defendants pleaded guilty and the corporation entered into a deferred prosecution agreement.  Once again, the symbiotic relationship between overcriminalization and plea bargaining had prevented a true judicial review of this case.

In my new article, The Quest for Finality, I found similar issues in the FCPA Africa Sting case.  As readers of FCPA Professor will recall, the Africa Sting case involved an undercover FCPA operation targeting the defense sector.  As occurred in the Computer Associates case, the government used creative legal theories to build key aspects of its case.  Unlike the Computer Associates case, however, not all of the defendants pleaded guilty.  Therefore, the broad application of vague criminal statutes was tested and the results were very favorable for the defense.

In September 2011, a number of the Africa Sting defendants who had resisted the government’s offers of leniency in return for pleas of guilt went on trial.  Almost immediately, the government’s case began to fall apart under the weight of judicial scrutiny.  At one point, Judge Richard Leon stated, “I read all sixteen indictments, and I didn’t see it. I have zero sense that there was an omnibus grand conspiracy.”  Despite these words of caution, the government continued to pursue the conspiracy charges, the same conspiracy charges to which other defendants had already pleaded guilty.  Finally, after giving the government ample opportunity to make its case, Judge Leon dismissed the conspiracy counts in the middle of the trial.  Eventually, when the trial concluded, the case ended without a single conviction on the remaining counts.

In February 2012, the government asked Judge Leon to dismiss the charges against the remaining defendants awaiting trial in the Africa Sting matter.  As discussed on FCPA Professor at the time (see here), Judge Leon granted the motion and stated:

“This appears to be the end of a long and sad chapter in the annals of white-collar criminal enforcement. Unlike takedown day in Las Vegas, however, there will be no front page story in the New York Times or the Post for that matter tomorrow reflecting the government’s decision today to move to dismiss the charges against the remaining defendants in this case. Funny isn’t it what sells newspapers.
….

Two years ago, at the very outset of this case I expressed more than my fair share of concerns on the record regarding the way this case has been charged and was being prosecuted. Later, during the two trials that I presided over I specifically commented again on the record regarding the government’s very, very aggressive conspiracy theory that was pushing its already generous elasticity to its outer limits. Of course, in the second trial that elastic snapped in the absence of the necessary evidence to sustain it.

In addition, in that same trial, I expressed on a number of occasions my concerns regarding the way this case had been investigated and was conducted especially vis-a-vis the handling of Mr. Bistrong. I even had an occasion, sadly, to chastise the government in a situation where the government’s handling of the discovery process constituted sharp practices that have no place in a federal courtroom.”

In a move seldom seen, the government even went on to dismiss the charges against the defendants who had already pleaded guilty in the case.

In discussing, amongst others, the Africa Sting prosecution in my new article on The Quest for Finality, I examine once again the role of plea bargaining.

It is disturbing to recognize that if all of the defendants in the Broadcom or Africa Sting cases had taken plea deals, we would likely never have learned just how tenuous the government’s positions were in these matters.  Further, evidence demonstrates that it is not unlikely that all the defendants in such a case might plead guilty, even if they were innocent.  During 2011 and 2012, Professor Vanessa Edkins and I conducted a psychological study in which we placed students in a situation where they were accused of cheating.  All the students, regardless of factual guilt or innocence were then offered a deal.  Of the guilty participants, 89% took the plea deal. Of the innocent participants, 56% took the plea deal.  Given the incentives plea bargaining creates for defendants to falsely admit guilt and the observed utilization of plea bargaining as a tool to mask flawed criminal cases where the evidence alone is insufficient for conviction at trial, perhaps it is time to reevaluate our reliance on bargained justice.

The Africa Sting Case is one in which a number of defendants proceeded to trial to challenge the government’s theory of the case.  Such challenges, however, have become a rarity in today’s criminal justice system.  As the Computer Associates case illustrates, even where the government’s aggressive application of broad criminal statutes draws wide attention, most defendants succumb to the powerful incentives plea bargaining offers to forgo trial.

You can read the full examination of the Africa Sting case and related white collar prosecutions by clicking here for a free copy of the article.

Referenced Articles

  • The Quest for Finality: Five Stories of White Collar Criminal Prosecution, 4 Wake Forest Journal of Law & Policy 91 (2014) (available here).
  • Over-Criminalization 2.0: The Symbiotic Relationship Between Plea Bargaining and Overcriminalization, 7 The Journal of Law, Economics, and Policy 645 (2011) (available here).
  • The Innocent Defendant’s Dilemma: An Innovative Empirical Study of Plea Bargaining’s Innocence Problem, 103 Journal of Criminal Law & Criminology 1 (2013) (with Dr. Vanessa A. Edkins) (available here).

Richard Bistrong … In His Own Words

Richard Bistrong.

Most people likely associate his name with the manufactured Africa Sting FCPA enforcement action. The Africa Sting action involved a purported deal to purchase equipment for the presidential guard of an African Government with FBI agents posing as African Government officials and Bistrong working as an undercover informant.

The Africa Sting enforcement action resulted in criminal charges against 22 individuals.  After extensive motions practice and two trials, all charges against all defendants were ultimately dismissed by the DOJ and the action ended with Judge Richard Leon (D.D.C.) calling the entire case a “long and sad chapter in the annals of white collar criminal enforcement.” (See here).

Bistrong was not charged in the Africa Sting case, but previously pleaded guilty to “real-world” Foreign Corrupt Practices Act conduct, including conspiring with others to bribe United Nations officials, Dutch officials, and Nigeria officials.  (See here and here). This charge stemmed from Bistrong’s work as the international sales vice president for a large, successful and publicly traded multi-national corporation.  Bistrong started to cooperate with the DOJ in June 2007 and Judge Leon ultimately credited Bistrong’s extensive cooperation at sentencing.  (See here).

FCPA Professor seeks to highlight a wide range of voices on FCPA issues.  With this goal in mind, I requested to communicate with Bistrong with the permission of his attorney.  Bistrong’s attorney, Brady Toensing (diGenova & Toensing) would not allow his client to discuss questions about the Africa Sting case.

At present, Bistrong is out of prison but still serving the supervised release portion of his sentence.

In this detailed Q&A, Bistrong describes: the circumstances that put him in a position to violate the FCPA; what made him think he could get away with it; his thought process when he realized he was caught; and how he spent his time in federal prison. In the Q&A Bistrong not only looks back, but forward as well and shares what he learned from his experience and what he hopes to accomplish in the future, including through his recently launched blog.

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