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The Chiquita Enforcement Action – A Bunch Of Bananas With A Slippery Origin

chiquita

[This post is part of a periodic series regarding “old” FCPA enforcement actions]

If you think strict liability enforcement of the FCPA books and records and internal controls provisions is a recent invention, think again.

If you think off-the-rails FCPA enforcement (that is enforcement theories seemingly in conflict with actual legal authority) is a recent invention, think again.

A dubious FCPA enforcement action occurred in 2001 when the SEC announced this administrative cease and desist order finding that Chiquita Brands International Inc. violated the books and records and internal controls provisions of the Foreign Corrupt Practices Act.

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Odebrecht / Braskem Bribery Schemes Net Approximate $420 Million FCPA Enforcement Action

oder

Yesterday, the DOJ and SEC announced (here and here) a Foreign Corrupt Practices Act enforcement action against Odebrecht S.A. (a Brazilian holding company) and Braskem S.A. (a Brazil-based petrochemical company in which Odebrecht owns 50.1% of the voting shares, 38.1% of the total share capital and which Odebrecht “effectively controlled” according to the DOJ). Braskem has American Depositary Receipts registered with the SEC and traded on the NYSE and thus the enforcement action also included an SEC component.

Perhaps because of the less than clear DOJ release (clear once one actually reads the original source documents), this action is being reported in various places as a $3.5 billion FCPA enforcement action. While that figure represents the overall global settlement amount (Brazil and Swiss law enforcement also brought related actions), yesterday’s action was most certainly not a $3.5 billion FCPA enforcement action. Not even close.

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Olympus Latin America Pays $22.8 Million In Latest FCPA Enforcement Action To Allege That Health Care Professionals Are “Foreign Officials”

olympus

Earlier this week, the DOJ announced (as part of a much larger enforcement action) a Foreign Corrupt Practices Act action against Olympus Latin American Inc. (OLA), a Miami-headquartered company that distributes medical imaging equipment in the Caribbean, Central America, and South America for Olympus Corporation (a Japanese company).

This post highlights the OLA enforcement action (the latest FCPA enforcement based on the theory that certain health care professionals are “foreign officials” under the FCPA) in which the DOJ charged the company in this criminal complaint with conspiring to violate the FCPA’s anti-bribery provisions and violating the FCPA’s anti-bribery provisions. The charges were resolved via this deferred prosecution agreement in which OLA agreed to pay $22.8 million.

According to the charging documents, from 2006 to 2011 OLA provided approximately $3 million in “hundreds of unlawful payments” to publicly employed healthcare professionals in Brazil, Bolivia, Colombia, Argentina, Mexico, and Costa Rica to “induce the purchase of Olympus products, influence public tenders, or prevent public institutions from purchasing or converting to the technology of competitors.” According to the charging documents, OLA recognized approximately $7.5 million in profits as a result of the alleged unlawful payments.

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DOJ Announces FCPA Enforcement Action Against Former CEO’s and General Counsel Of PetroTiger

Yesterday the DOJ announced FCPA and related charges against former executives of PetroTiger Ltd., a British Virgin Islands oil and gas company with operations in Colombia and offices in New Jersey, “for their alleged participation in a scheme to pay bribes to foreign government officials in violation of the FCPA, to defraud PetroTiger, and to launder proceeds of those crimes.”

The individuals charged were former co-CEOs of PetroTiger Joseph Sigelman and Knut Hammarskjold and former general counsel Gregory Weisman.

According to the DOJ release, Sigelman and Hammarskjold “were charged by sealed complaints filed in the District of New Jersey on Nov. 8, 2013” and “Hammarskjold was arrested Nov. 20, 2013, at Newark Liberty International Airport” and “Sigelman was arrested on Jan. 3, 2014, in the Philippines and appeared [yesterday] in Guam before a U.S. Magistrate Judge” and “will have an initial appearance in New Jersey federal court on a date to be determined.”  According to the release, Weisman “pleaded guilty on Nov. 8, 2013, to a criminal information charging one count of conspiracy to violate the FCPA and to commit wire fraud.”

Sigelman

This criminal complaint, charges Sigelman with conspiracy to violate the FCPA’s anti-bribery provisions as well as three substantive FCPA charges.  The FCPA charges are based on allegations that Sigelman and others made at least four transfers of money in the approximate amount of $333,500 to an account in Colombia of a “foreign government official in Colombia.”

Elsewhere, the complaint identifies the foreign official as “an official at Ecopetrol [who] had influence over the approval and award of contracts by Ecopetrol, including the Mansarovar Contract.”  Ecopetrol is alleged to be “the state-owned and state-controlled petroleum company in Colombia” and the complaint states as follows.

“Ecopetrol was created by national law, and it was required by law that Colombia conserve, at a minimum, eighty percent of the shares in circulation, with voting rights. During the relevant time period, Colombia controlled 89.9% of Ecopetrol’s outstanding capital stock, and held the right to elect the majority of the members of the company’s board of directors. Ecopetrol’s board of directors included the Minister of Mines and Energy, the Minister of Finance, and the Director of the National Planning Agency of Colombia. Ecopetrol was responsible for approving contracts to drill or perform services on oil fields in Colombia, including the Mansarovar Contract.”

The complaint also refers to the official’s wife and states that “the Official’s Wife purportedly provided finance and management related consulting services for PetroTiger [when] in reality, the Official’s Wife served as a conduit for bribe payments to the Official.”

Under the heading “Bribery Scheme,” the complaint alleges that Sigelman and other PetroTiger executives [Hammarskjold and Weisman] “attempted to secure the Mansarovar Contract” and “because Ecopetrol had ultimate authority for approving projects and contracts to perform oil-related services in Colombia, Sigelman [and the other executives] were required to obtain approval from Ecopetrol for the Mansarovar Contract.”

According to the complaint, Sigelman and others “in order to secure Ecopetrol’s approval for the Mansarovar Contract,” “paid bribes to the Official, who had the ability to influence the approval process.”

The complaint states that Sigelman and others “attempted to conceal the bribes by funneling the payments through the Official’s Wife and by falsely claiming in documents that the payments were for finance and management consulting services that the Official’s Wife purportedly performed for PetroTiger.”  The complaint further states that “when transfers to the bank account in the name of the Official’s Wife failed as a result of incorrect account information,” Sigelman and others “transferred the money directly to a bank account in the name of the Official.”

According to the complaint, PetroTiger was successful in “obtaining Ecopetrol’s approval, and secured the Mansarovar Contract” which was valued “at approximately $39.6 million, and has resulted in a gross profit to date, of approximately $3.5 million.”

The Sigelman complaint also charges one count of conspiracy to commit money laundering and one count of conspiracy to commit wire fraud.  These charges are based, in pertinent part, on allegations that an owner of a company “being acquired by Sigelman and others” transferred approximately $262,000 “as part of an illegal kickback scheme” to Sigelman’s bank account and that Sigelman then “divided up the money and transferred portions of the money” to other PetroTiger executives.  According to the complaint, Sigelman and the others “did not disclose to their investing partners that they were receiving a kickback in exchange for the additional money that the investing partners would be paying in connection with the acquisition of the Target Company.  As a result, the investing partners were deprived of money and property and the honest services of” Sigelman and others.  According to the complaint, this “Target Company” was “an oil services company with operations in Colombia” that PetroTiger acquired in 2009 for approximately $53 million.

Hammarskjold

This criminal complaint also charges Hammarskjold with conspiracy to violate the FCPA’s anti-bribery provisions as well as three substantive FCPA charges based on the same conduct alleged in the Sigelman complaint.

The Hammarskjold complaint also charges one count of conspiracy to commit money laundering and one count of conspiracy to commit wire fraud based on the same kickback scheme alleged in the Sigelman complaint.

Weisman

This criminal information alleges the same bribery scheme and kickback scheme as the Sigelman and Hammarskjold complaints.  However, the information only charges one count of conspiracy to violate the FCPA and to commit wire fraud.

The Weisman information further states as follows.

“On or about September 28, 2010, at board meeting of PetroTiger, Executive A [Sigelman] stated that he and others were dealing with non-transparent commercial practices in Colombia.  On or about September 28, 2010, at the board meeting … in response to a question about whether Executive A was upholding PetroTiger’s Code of Business Principles, which included a prohibition on bribery, Executive A stated that he was.”

The Weisman information also contains a forfeiture allegation seeking forfeiture of approximately $52,000 (the amount of the alleged kickback Weisman received).

In the DOJ’s release, Acting Assistant Attorney General Mythili Raman stated:

“We have said – repeatedly and emphatically – that foreign corruption, whether committed by companies or by the individuals entrusted to run those companies, will not be tolerated.   And, our track record in vigorously enforcing the FCPA has shown that message to be undeniably true.  The charges unsealed today against two former CEOs of PetroTiger and the guilty plea announced today of the former General Counsel reaffirm our clear message that we will prosecute corruption and fraud wherever we find it.   Bribery distorts what should be a level playing field and deprives corporations and governments of funds that should instead be used to strengthen those institutions.   Today’s announcement should be a reminder to CEOs and other executives who seek to corrupt the system at the expense of honest businesses:   we are not going away.”

U.S. Attorney Paul Fishman of the District of New Jersey stated:

“Bribery of public officials, whether at home or abroad, corrupts business opportunity and undermines trust in government.  The under-the-table deals alleged in today’s charges are not an acceptable way of doing business.”

Special Agent in Charge Aaron Ford of the FBI’s Newark Division stated:

“The FBI is committed to pursuing those who disrupt the level playing field to which companies in the U.S. and around the world are entitled.  We will continue to investigate these matters by working with law enforcement agencies, both foreign and domestic, to ensure that both corporations and executives who bribe foreign officials for lucrative contracts are punished.”

The DOJ’s release further states:

“The department has worked closely with and has received significant assistance from its law enforcement counterparts in the Republic of Colombia and greatly appreciates their assistance in this matter.   The department also thanks the Republic of the Philippines, including the Bureau of Immigration, for its assistance in this matter.   Significant assistance was also provided by the Criminal Division’s Office of International Affairs.”

One Win, One Loss

The conviction last week of Lindsey Manufacturing Inc. (see here for the prior post) was indeed the first instance of a company being tried and convicted on FCPA violations – as noted in the DOJ’s release (here).

However, contrary to numerous media reports, it was not the first instance of a company putting the DOJ to its burden of proof in an FCPA trial.

That first occurred in 1990-1991 when Harris Corporation (and certain of its executives) prevailed in an FCPA trial.

Thus, the DOJ’s record in corporate FCPA trials is one win, one loss.

This post summarizes the Harris Corporation enforcement action and includes information gleaned from original source newspaper accounts.

*****

In 1990, Harris Corporation (“Harris”), John D. Iacobucci, and Ronald L. Schultz were charged in a criminal indictment (here) filed in U.S. District Court – Northern District of California.

As alleged in the indictment, Harris was a Delaware publicly-traded corporation headquartered in Melbourne, Florida and through its Digital Telephone Systems (“DTS”) division it manufactured telephone switching systems. Iacobucci was the Vice President and General Manager of DTS and Schultz was, at various times, Director of Human Relations and Facilities at DTS, Director of Administration at DTS and responsible for Contracts Administration.

Robert O’Hara (an unindicted co-conspirator – more on O’Hara below) was the President and sole stock-holder of Polo Associations Corporation, Inc. – a Delaware corporation created by O’Hara “to engage in the business of advising telecommunications companies of ways to obtain business in Latin American countries, particularly Colombia.”

The conduct at issue involved “The Empress Nacional de Telecomunicaciones or Telecom” an alleged “instrumentality of the Government of Colombia responsible for the operation of telex services, maritime communications, and long distance and international telephone and telegraph services within the country of Colombia.” According to the indictment, “Telecom was an instrumentality of the Government of Colombia within the meaning of the FCPA.” However, as detailed below, none of the improper payments at issue were alleged to have been paid to Telecom officials.

The indictment charged that Harris, Iacobucci, Schultz and O’Hara conspired to violate the FCPA by paying and authorizing the payment of money to O’Hara “while knowing that a portion of such money” would be offered or given, directly or indirectly, to “foreign officials, that is, officials of the Government of Colombia” in order to influence the officials to award government telecommunications contracts to Harris in violation of the FCPA. The indictment further charged a conspiracy to violate the FCPA’s books and records provisions.

According to the indictment, part of the conspiracy was that Harris retained O’Hara “as a consultant based upon the representation of O’Hara that he had connections with officials of the Government of Colombia that he would use to assist” Harris in obtaining telecommunications contracts. According to the indictment, Harris agreed to pay O’Hara a 10% commission of the value of any telecommunications contracts entered into between Harris and Telecom.

The indictment does not allege that any payments went to officials of Telecom, but rather that payments went to a “member of the Camara de Representates (CDR), the national legislative of Colombia;” a local Colombian company “that was owned in part by a foreign official, that is, a member of the CDR;” and “various officials of the Government of Colombia.”

The indictment alleged specific meetings and documents that set into motion the bribery scheme.

In addition to the conspiracy charge, the indictment also charged substantive FCPA anti-bribery and FCPA books and records offenses.

Original source newspaper reports from the time detail as follows.

Theodore S. Greenberg, deputy chief of the Fraud Section of the Criminal Division, stated upon issuance of the indictment – “The department continues to view violations of the Foreign Corrupt Practices Act as serious matters and will pursue them accordingly.”

A statement from John Hartley, Chairman and Chief Executive of Harris, stated as follows. “We believe that these charges are based upon a distorted view of the facts, and they represent a radical departure from existing enforcement policies. We have cooperated fully with the Justice Department in its investigation of the allegations, providing clear evidence refuting the charges.”

At the time of the indictment, Harris Corp. was ranked 57th among Department of Defense contractors in terms of total dollar volume of contracts awarded.

Harris, Iacobucci, and Schultz put the DOJ to its burden of proof and the criminal trial began on March 4, 1991. The San Francisco Examiner stated that “the trial is significant because the Justice Department prosecutes only a few such foreign bribery cases a year.”

The same article contained the following background on the case. “The government’s case is based on the testimony of a whistle-blower who handed over company documents to the FBI and a consultant who has pleaded guilty to helping Harris Corp. falsify its records. […] The defendants insist that they authorized only legitimate consulting payments to secure Colombia’s business and claim that the government’s case rests on trumped-up charges by a disgruntled employee. […] At a pretrial hearing, U.S. District Judge Charles A. Legge rejected a request by defense attorneys to exclude dozens of Harris Corp. documents from the trial. They claim that [the whistleblower] stole the documents on behalf of the FBI. […] A key prosecution witness is Robert O’Hara, a consultant who is based in New York. He pleaded guilty in August to a charge of aiding Harris Corp. with falsifying its financial records.”

On March 19, 1991, Judge Legge, “after hearing the prosecution’s case … granted a verdict of acquittal … the defense was not called upon to present its case.” The San Francisco Chronicle stated as follows. “Shortly after the government rested its case, U.S. District Judge Charles Legge of San Francisco ruled from the bench that ‘no reasonable jury’ could convict the company nor its executives on any of the five bribery-related counts for which they were indicted. Citing insufficient evidence, Legge said the government had failed to show any intent by the defendants to enter into a criminal conspiracy. Legge also said it was the first time in his six years on the federal bench that he had dismissed a criminal case at mid-trial for lack of evidence.” The Chronicle called the dismissal a “stunning defeat for the Justice Department” after a 12-member jury heard two weeks of testimony by prosecution witnesses.

The Chronicle further stated as follows. “The acquittal also reinforced the Justice Department’s poor track record of prosecutions in overseas bribery cases. Federal prosecutors have won only two dozen convictions under the Foreign Corrupt Practices Act of 1977 since the law was adopted more than a decade ago.”

Hartley (the above referenced Chairman and Chief Executive of Harris) stated as follows. “We’re very pleased that our Digital Telephone Systems Division and its employees have been vindicated, but we believe the charges should never have been brought in the first place. The Justice Department’s case was based upon a distorted view of the facts and represented a radical departure from existing enforcement policies. As a result, American taxpayers have been burdened with unnecessary litigation costs, and Harris has incurred more than $3 million in legal fees, spent many hundreds of hours of our people’s time, and suffered a substantial disruption of the corporation’s business to prove an absence of wrongdoing that should have been apparent from the beginning. The case has also placed a heavy strain on our two employees named in the indictment.”

Michael Fayad, a lawyer for Harris, stated as follows. “[Judge Legge] decided to dismiss the case for all of the same reasons we had pointed out to the Department of Justice early on, prior to indictment … that there was no bribe, no contract, no agreement to pay a bribe, no corrupt intent.”

Charles Bryer, Schultz’s lawyer, stated as follows. “The case was paper-thin, built on a con man’s story and a disgruntled employee’s vengeance. We were conned to pay some money that we thought was going to be used for a legitimate purpose.”

According to newspaper accounts, DOJ prosecutor Scott MacKay said the government brought the case in good faith – “We’re disappointed with the judge’s ruling. We feel that we presented a good case, but we accept the judge’s ruling.”

Today, Harris Corporation is alive and well. See here for its webpage.

As to O’Hara, as suggested above, he pleaded guilty to related charges in the Eastern District of N.Y. before the Harris et. al trial. However, after the California directed verdict of acquittal, but before his sentencing, O’Hara sought to withdraw his guilty plea. The trial court judge denied his motion and concluded that the acquittal of O’Hara’s alleged co-conspirators was not a “fair and just reason” sufficient to allow O’Hara to withdraw his guilty plea. O’Hara appealed and the Second Circuit affirmed (See 960 F.2d 11).

*****

If non-prosecution and deferred prosecution agreements existed in 1990, would Harris have resolved the enforcement action via such a resolution vehicle? Likely yes. Yet Harris and the individual defendants all prevailed at trial.

Was there anything wrong with this prior era when NPAs and DPAs were not an option in an FCPA enforcement action? I submit no and believe that abolishing NPAs and DPAs in the FCPA context should be subject to serious debate and discussion. For more on this issue (see here).

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