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Individual DOJ Prosecutions By The Numbers

Since 2005, the DOJ has charged 79 individuals with FCPA criminal offenses. (2005 – 1 individual) (2006 – 6 individuals) (2007 – 8 individuals) (2008 – 12 individuals) (2009 – 19 individuals) (2010 – 31 individuals including 22 in the Africa Sting case) (2011 – as of 9/20 – 2 individuals).

An analysis of the numbers reveals some interesting points.

Since 2008, 64 individuals have been charged; but 22 individuals were in the Africa Sting case; 8 individuals (minus the “foreign officials” charged) were in the Haiti Teleco case; 8 individuals were in the Control Components case; 4 individuals were in the Lindsey Manufacturing case; 4 individuals were  in the Hondutel case; and 4 individuals were in the Nexus Technologies case).

In other words, 60% of the individuals charged by the DOJ since 2008 have been in just three cases and 78% of the individuals charged by the DOJ since 2008 have been in just six cases.

Considering that there has been 42 “core” corporate DOJ FCPA enforcement actions (NPAs, DPAs, Pleas, or Convictions) since 2008, this is a rather remarkable statistic.  Of the 42 “core” corporate DOJ FCPA enforcement actions, 30 (or 71%) have not  (at least yet) resulted in any DOJ charges against company employees.

During this era of the FCPA’s resurgence, the DOJ has consistently stated that prosecution of individuals is a “cornerstone” of its FCPA enforcement strategy.  Yet, the above numbers paint a different picture – at least in certain enforcement actions.  What type of enforcement actions?  What other items of note can be gleaned from these statistics?  Stay tuned for additional analysis of individual DOJ FCPA prosecutions.

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Note, unlike some others, I keep my FCPA statistics using the “core” approach.  Thus, for instance, the Siemens DOJ enforcement action was 1 “core” enforcement action even if the DOJ entered into separate agreements with Siemens AG, Siemens Argentina, Siemens Bangladesh, and Siemens Venezuela. 

 

 

46 Months For Jorge Granados

After suffering its fair share of recent FCPA sentencing setbacks (see here, here, and here for instance), the DOJ largely got the sentence it was seeking (five years) earlier this week in the S.D. of Florida as Judge Joan Lenard sentenced Jorge Granados to 46 months in prison followed by 2 years of supervised release.  Unlike in certain of the cases where judges significantly rejected DOJ sentencing requests, the DOJ issued a press release (here) in connection with Granados’s sentence.

As detailed in this prior post, Granados (the founder, Chief Executive Officer and Chairman of the Board of Latin Node between 1999 and 2007) was criminally charged in December 2010 for his role in an alleged bribery scheme involving Hondutel “the wholly state-owned telecommunications authority in Honduras, established under Honduran law and headquartered in Tegucigalpa, Honduras.” According to the indictment, Hondutel’s operations “were overseen by another Honduran government entity, Comision Nacional de Telecomunicaciones.”  The indictment charged one count of conspiracy to violate the FCPA’s anti-bribery provisions, twelve counts of FCPA anti-bribery violations, one count of money laundering conspiracy, and five counts of money laundering.

In May (see here), Granados pleaded guilty to 1 count of conspiracy to violate the FCPA and, in exchange, the DOJ agreed to dismiss the remaining 18 counts.  Granados’s co-defendant Manuel Caceres (a senior executive of Latin Node) pleaded guilty in May prior to Granados and testified as a cooperating witness in the Granados sentencing hearing.   Caceres is to be sentenced on November 28th and two other defendants in a related case (Manuel Salvoch and Juan Pablo Vasquez) are to be sentenced in December.

In arguing for a sentence below the advisory guidelines range, John Wylie (counsel to Granados) asserted so-called “imperfect coercion” and stated as follows.  “Mr. Granados’ entire livelihood, his company, and the substantial investment put into both were jeopardized by the corruption of Hondutel.  Mr. Granados was put between a rock and hard place:  comply with Hondutel’s demands for additional payments or shut down the business in Honduras after almost a decade of establishing it there.  If LatiNode failed to meet Hondutel’s demands, the Hondutel officials would effectively shut down LatiNode because they controlled the telecommunications market in Honduras and set the rules.  It was the corrupt officials at Honduras that created and drove the anti-competitive market that, at a minimum, made LatiNode feel as though it had to give the corrupt officials what they wanted to survive in the market.”

The DOJ, in reply, stated that Granados’s request pursuant to Section 5K2.12 of the Sentencing Guidelines was off-base because he did not claim “physical injury, substantial damage to property or similar injury” if he refused the bribe demands.  The DOJ stated as follows.  “Rather, Defendant – who did not even live in Honduras but resided in Florida, where his business was based – simply asserts that his own and his company’s economic well-being would have been affected by his refusal to authorize the bribe payments.”  The DOJ also pointed out that Granados neglected to cite a sentence in Section 5K2.12’s policy statement that “personal financial difficulties and economic pressures upon a trade or business do not warrant a downward departure.”

The 46 month sentence of Granados is one of the most harsh individual sentences in FCPA history.  It is believed that the top 6 list includes:  Charles Edward Jumet (87 months – including 20 months for a false statement charge ), Juan Diaz (57 months),  Granados (46 months), John Warwick (37 months)  Christian Sapsizian (30 months) and Antonio Perez (24 months).  Jumet and Warwick were both sentenced in the W.D. of Virginia, all others in the S.D. of Florida – where several additional FCPA defendants (in addition to Solvach and Vasquez) are scheduled to be sentenced.

 

A “Foreign Official” Fights Back

The Foreign Corrupt Practices Act addresses the payment of bribes, not the receipt of bribes.

For instance, in U.S. v. Castle, 925 F.2d 831 (5th Cir. 1991), the court was called upon to consider whether “foreign officials” who are excluded from prosecution under the FCPA itself, could nevertheless be prosecuted under the general conspiracy statute (18 USC 371) for conspiring to violate the FCPA.  The court held that “foreign officials”  could not be prosecuted for conspiring to violate the FCPA and adopted the rationale set forth in the trial court opinion (see 741 F.Supp. 116).   That rationale was that Congress, in passing the FCPA, only chose to punish one party to the bribe agreement and the DOJ could not therefore  “override the Congressional intent not to prosecute foreign officials for their participation in the prohibited acts” through use of the conspiracy statute.  The trial court stated as follows.  “The drafters of the [FCPA] knew that they could, consistently with international law, reach foreign officials in certain circumstances. But they were equally well aware of, and actively considered, the ‘inherent jurisdictional, enforcement, and diplomatic difficulties’ raised by the application of the bill to non-citizens of the United States.”  The trial court observed that prosecution and punishment of “foreign officials” (in the Castle case alleged Canadian “foreign officials”) “will be accomplished by the government which most directly suffered the abuses allegedly perpetrated by its own officials, and there is no need to contravene Congress’ desire to avoid such prosecutions by the United States.”  For those of you scoring at home, Castle represents a DOJ loss in a contested FCPA matter.

In recent years, however, the DOJ has used other laws in an attempt to reach “foreign officials.”  This trend has been profiled here and here.  For instance, in January 2010, in connection with the Gerald and Patricia Green FCPA enforcement action, a criminal indictment was unsealed against Juthamas Siriwan and Jittisopa Siriwan.  According to the indictment, Juthamas “was the senior government officer of the Tourism Authority of Thailand (TAT)” and she is the “foreign official” the Greens were convicted of bribing.  Jittisopa is the daughter of the “foreign official” and also alleged to be an “employee of Thailand Privilege Card Co. Ltd.” an entity controlled by TAT and an alleged “instrumentality of the Thai government.”  The charges against the Siriwans were not FCPA charges, but largely conspiracy to money launder and “transporting funds to promote unlawful activity.”

As detailed in this Wall Street Journal Corruption Currents story by Joe Palazzolo, the Siriwans are fighting back.  On behalf of the Siriwans, lawyers at Kelley Drye & Warren LLP recently field this motion to dismiss to the indictment.

In summary, the Siriwans state as follows.  “This is the first judicial challenge to a novel prosecutorial approach the Government recently developed to charge foreign officials allegedly involved in corruption.  That approach is aimed at overcoming a fundamental FCPA limitation.  The FCPA does not criminalize a foreign public official’s receipt of a bribe.  Nor can the Government employ an FCPA conspiracy charge against a foreign public official.  Accordingly, these new enforcement initiatives require expansive interpretations [of] “promotion money laundering” [under the Money Laundering Control Act].”  The Siriwans state as follows.  “Congress has extensively amended the FCPA, yet it deliberately has not extended FCPA liability to foreign officials.  If the Government wishes to extend U.S. criminal penalties to foreign officials accepting a bribe, it must go back to Congress, rather than employ dubious charging tactics to evade the direct and repeated congressional choice not to apply FCPA criminal liability to such officials.”

As noted in Palazzolo’s article, the DOJ has yet to respond to Siriwans’ motion and U.S. District Judge George Wu (C.D. of California) has scheduled a hearing on the motion for October 20th.

In a development that goes straight to a point raised by the Castle court, Thailand’s National Counter-Corruption Commission (NCCC) has reportedly found sufficient grounds to believe that Juthamas Siriwan received money from the Greens and that Jittisopa Siriwan was an accomplice in the bribery case.  The NCCC has reportedly forwarded its conclusion to the Thai Attorney-General for legal action against the Siriwans.  For more, see here from the Bangkok Post.

The Siriwan’s challenge is the latest in “this year of FCPA judicial scrutiny.”  Previously this year, there was the first judicial challenge to the DOJ’s “foreign official” interpretation that made extensive use of the FCPA’s legislative history (see here); the first dd-3 judicial challenge (see here); the first victim petition under the FCPA (see here); and the first Travel Act judicial challenge (see here).

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In a related development (see here), the DOJ has dropped its appeal of Gerald and Patricia Green’s sentence.  As detailed in this prior post, in September 2009, Gerald and Patricia Green were found guilty by a federal jury of substantive FCPA violations, conspiracy to violate the FCPA, and other charges.  After several sentencing delays, in August 2010 (see here), Judge Wu rejected the DOJ’s 10 year sentencing request for both Gerald and Patricia Green and sentenced the Greens to six months in prison, followed by three years probation.  In its sentencing brief, the DOJ urged the court to “disregard defendants’ efforts to obscure the landscape of FCPA sentencing, which generally reflects significant prison terms for convicted individuals.”  I asked at the time whether the “landscape of FCPA sentencing” truly reflected “significant prison terms” as stated by the DOJ – a statement even more true now (see the FCPA Sentences tab under the Search page).

I was surprised to learn that the DOJ was appealing the Green sentences and I am thus not surprised to learn that the DOJ has dropped its appeal.  In short, do you think the DOJ wants anything FCPA related before the 9th Circuit?

 

Who Commits Fraud?

That is the question KPMG addresses in this recent report “Who Is The Typical Fraudster?”  The study seeks to “identify patterns among individuals who have committed acts of fraud” and is based on research from “348 actual fraud investigations conducted by KPMG member firms in 69 countries.” Although not FCPA specific, the KPMG report identifies several fraud trends and indicators relevant to FCPA compliance.

The KPMG report notes that  “typically, a fraudster is perceived as someone who is greedy and deceitful by nature,” however KPMG’s analysis found that “many fraudsters work within entities for several years without committing any fraud, before an influencing factor – financial worries, job dissatisfaction, aggressive targets, or simply an opportunity to commit fraud – tips the balance.”

According to the study, the “typical fraudster” is between the ages of 36 and 45, followed next by individuals between 46 and 55 years old.  In terms of gender, men are the more likely perpetrators of detected fraud.  According to KPMG, “the survey’s finding that men commit more fraud than women seems a reflection on the gender make-up of companies generally” and the “gender gap in fraud perpetration may reflect women’s under-representation in senior management positions and, as a consequence, fewer opportunities to commit fraud.”

In terms of job function, the KPMG report finds that people most often entrusted with a company’s sensitive information are able to override controls and thus are statistically more likely to become perpetrators.  The report found that “most people involved in committing fraud work in the finance function” followed by those in the “chief executive’s / managing director’s office,” followed by those in “operations and sales.”

Other findings of note from the KPMG report include the following. 

“One of the most significant findings of this survey is the very large increase in cases involving the exploitation of weak internal controls by fraudsters – up from 49 percent in 2007 to 74 percent in 2011.  The difficult economic climate may be partially to blame.  Tighter budgets are forcing some companies to cut costs in their control environments.  Less robust controls, and fewer resources to monitor controls, allow for greater exploitation by fraudsters.  Although necessary to preserve profits, such cost cutting should be balanced with effective risk management.”

“Many frauds continue to be exposed by formal or informal whistleblowing mechanisms.  In 2007, companies were alerted to fraud by whistleblowers in one-quarter of cases, with complaints coming from customers or suppliers accounting for a further 13 percent.  In 2011, formal internal whistleblower reports accounted for 10 percent of detections while anonymous tip-offs were responsible for uncovering 14 percent of frauds.  A further 8 percent of frauds were identified due to customer or supplier complaints while 6 percent came in response to issues raised by third parties, including banks, tax authorities, regulators, competitors, or investors.  That one in seven frauds is now discovered by chance puts question marks over the effectiveness of controls and management review at detecting and preventing fraud.  […]  The upshot is that companies seem to depend increasingly on the good conscience of staff or third parties, on accidental discovery or, in a few cases, on confessions, to identify potential fraud.”

“The number of fraud cases preceded by a red flags rose to 56 percent of cases in 2011, from 45 percent in 2007.  However, instances where action was taken following the initial red flag fell massively.  Just 6 percent of initial red flags were acted on in the 2011 analysis, compared with almost one-quarter (24 percent) in 2007.  Companies are failing to read and to act quickly on the warning signs.  Ignored red flags are a license for perpetrators to carry on operating and a missed opportunity for the business to detect or prevent fraud and to reduce losses and associated costs.”

“Fraud now takes longer to detect – up from an average 2.9 years from inception to detection in 2007 to 3.4 years in the 2011 analysis.”  “In Asia […] the duration of fraud prior to detection is longest – on average five years – with 16 percent of frauds going undetected for ten years or more.  This is possibly because employees in Asia tend not to challenge their superiors or to rock the boat as much as in Western Europe or North America …”.

Breuer On The DOJ’s “Comprehensive Approach To Fighting Corruption”

Last month, Assistant Attorney General Lanny Breuer delivered the Franz-Hermann Brüner Memorial Lecture at the World Bank and focused his remarks on the DOJ Criminal Division’s “comprehensive approach to fighting corruption.” (See here for the transcript).

This post provides an overview of Breuer’s remarks.

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“Corruption corrodes the public trust in countries rich and poor, and has particularly negative effects on emerging economies. When a developing country’s public officials routinely abuse their power for personal gain, its people suffer tremendously. At a concrete level, roads are not built, schools lie in ruin, and basic public services go unprovided. At a more abstract, but no less important, level, political institutions lose legitimacy, threatening democratic stability and the rule of law, and people begin to lose hope that they will ever be able to improve their lot. As the President put it last week, you cannot reach your potential when you “cannot start a business without paying a bribe.””

“There are of course many ways in which the U.S. government addresses the problem of corruption abroad. As the head of Criminal Division, I want to focus on three: our criminal prosecution efforts; our work to build the prosecutorial and law enforcement capacity of foreign nations; and our emerging focus on recovering and repatriating the proceeds of foreign official corruption.”

As to criminal prosecution efforts, after highlighting recent corruption cases involving federal, state, and local officials, Breuer talked about the FCPA. He stated as follows.

“The FCPA was the first effort of any nation to specifically criminalize the act of bribing foreign officials. The statute was enacted in the wake of the Watergate scandal, which led to the resignation of President Richard Nixon in 1974 and resulted in a dramatic plunge in Americans’ overall trust in government.”

“In 1976, following certain prosecutions for illegal use of corporate funds arising out of Watergate, the U.S. Securities and Exchange Commission issued a report in which it determined that foreign bribery by U.S. corporations was “serious and sufficiently widespread to be a cause for deep concern.” S.E.C. investigations revealed that hundreds of U.S. companies had made corrupt foreign payments involving hundreds of millions of dollars. With this background, the Senate concluded that there was a strong need for anti-bribery legislation in the United States. “Corporate bribery is bad business,” the Senate Banking Committee said in its report on the legislation. “In our free market system it is basic that the sale of products should take place on the basis of price, quality, and service. Corporate bribery is fundamentally destructive of this basic tenet.””

“That was true then, and it’s true now. And over the two-plus years of this Administration, we have dramatically increased our enforcement of the FCPA. The numbers speak for themselves. In 2004, the Justice Department charged two individuals under the Act and collected around $11 million in criminal fines. In 2005, we charged five individuals and collected around $16½ million. By contrast, in 2009 and 2010 combined, we charged over 50 individuals and collected nearly $2 billion.”

“And we are only moving forward. Earlier this month, we secured the first jury conviction ever against a corporation in an FCPA case. The case, which also resulted in trial verdicts against the company’s president and its CFO, involved a scheme to pay bribes to Mexican government officials at CFE, a state-owned utility company.”

“Last week, the former CEO of a Miami-based telecommunications company pleaded guilty to conspiring to pay bribes to government officials in Honduras in connection with a scheme to secure contracts from Hondutel, the state-owned telecommunications authority. Last month, the former vice-president of sales for Europe, Africa, and the Middle East at the multi-national valve company Control Components Inc., or CCI, pleaded guilty to conspiring to bribe government officials in Saudi Arabia, Qatar, and other countries.”

” … [T]he point is this: FCPA enforcement matters. When U.S. businesspersons, foreign executives, and even foreign officials know that they risk liability under the FCPA and related statutes, behavior changes. In addition to motivating U.S. and foreign corporations to change the way they do business – something that I believe is already happening – the threat of liability can help corporations resist corrupt demands from foreign officials, which can lead the officials themselves to alter their practices. Beyond that, through our FCPA enforcement, we are also sending a signal to ordinary people – […] across the globe – that we stand with you: we support you in your desire to have fair and transparent institutions, and to have the chance to compete in marketplaces large and small.”

As to the DOJ’s “emerging focus on recovering and repatriating the proceeds of foreign official corruption,” Breuer talked about the DOJ’s “new Kleptocracy Asset Recovery Initiative.”

He stated as follows.

“The goal of the Kleptocracy Asset Recovery Initiative, which Attorney General Holder announced last July and which my team and I have been working to build over the past year, is to identify the proceeds of foreign official corruption, forfeit them, and repatriate the recouped funds for the benefit of the people harmed.”

“In the context of a criminal prosecution, a court can order forfeiture, upon conviction, as part of the defendant’s sentence. Thus, for example, if we were to bring a criminal case against a kleptocrat in the United States, we would be able to seek criminal forfeiture of his or her stolen assets.”

“Often, however, it may be impractical or impossible to bring a criminal prosecution against a kleptocrat. He or she may be immune from prosecution, beyond the jurisdiction of the United States, or otherwise unavailable. In these circumstances, the Kleptocracy Team can bring a civil forfeiture action to recover the stolen property. This is sometimes referred to internationally as non-conviction based confiscation.”

“The Kleptocracy Team recently brought its first cases, and we expect more to come in the near future. Let me provide a specific example. Diepreye Solomon Peter Alamieyeseigha, also known as DSP, was the elected governor of the oil-producing Bayelsa State in Nigeria from 1999 until his impeachment in 2005. According to court papers, DSP’s official salary for this entire period was approximately $81,000, and his declared income from all sources during the period was approximately $248,000. Nevertheless, as governor, DSP accumulated enormous wealth through corruption and other illegal activities. He acquired at least four properties in the United Kingdom worth approximately $8.8 million, he had money in bank accounts around the world, and he also acquired property in the United States. When he was ultimately arrested at Heathrow Airport in 2005, the Metropolitan Police Service in London found approximately $1.6 million in cash in his house.”

“In March and April of this year, we brought two separate civil forfeiture actions to recover over $1,000,000 in what we allege are DSP’s ill-gotten gains. In Maryland, we are seeking forfeiture of a private residence worth more than $600,000, and in Massachusetts we are seeking forfeiture of close to $400,000 in a Fidelity brokerage account.”

“We were able to bring these cases, even though DSP long ago absconded to Nigeria, because the law permits us to bring a civil action against the corrupt proceeds themselves rather than against the person to whom they belong.”

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A good weekend to all.

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