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Will There Be An SEC FCPA Trial?

Judicial Decision

The Foreign Corrupt Practices Act is nearing its 40th anniversary.

Yet, the SEC is believed to have never prevailed in an FCPA enforcement action when put to its ultimate burden of proof.

This post highlights recent developments in the SEC’s long-standing FCPA enforcement action against former Magyar Telekom executives Elek Straub, Andras Balogh, and Tamas Morvai. The case was brought in December 2011 and recently U.S. District Court Judge Richard Sullivan seemed poised to deny competing motions for summary judgment stating during a recent oral argument “I do think we’re going to have a trial here.”

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FCPA Flash – A Conversation With Paul Calli

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The new FCPA Professor contains a new feature – the FCPA Flash podcast.

The goal of FCPA Flash is to provide, in an audio format, the same fresh, candid and informed commentary about the Foreign Corrupt Practices Act and related topics as readers have come to expect from the written posts on FCPA Professor.

This FCPA Flash episode is a conversation with Paul Calli.

Calli has done something few FCPA practitioners have done, and that is on behalf of a client, put the DOJ to its burden of proof in an FCPA case. Like other such instances of defense counsel doing just that, Calli prevailed on behalf of his client and in the podcast Calli discusses the DOJ’s rather dismal FCPA trial court record and what it says about the DOJ’s modern FCPA enforcement program and how the DOJ measures success.

FCPA Flash is sponsored by the Red Flag Group. The Red Flag Group assists companies in developing and maintaining efficient and effective corporate governance and compliance programs, and has a proven track record in providing integrity due diligence investigations in 194 countries.

The DOJ’s Seeming Unwillingness To Accept Its Recent FCPA Trial Court Debacles

Not Hearing

Failure is a basic element of the human condition.

Thus when a failure occurs, one is often judged by whether one takes ownership of the failure or whether one offers excuses for the failure.

Against the backdrop of yet another DOJ FCPA trial court debacle in the recent Sigelman matter (see here for the prior post), the DOJ seems to have adopted the later approach.

In this recent Bloomberg article titled “Plea Deals Are Easy, Juries Are Hard,” a DOJ spokesman states:

“FCPA cases, by their very nature, often require proof of criminal acts carried out in foreign countries. While obtaining foreign evidence—documents and witnesses—poses particular challenges in FCPA cases, the department remains committed to working with its domestic and foreign law enforcement partners to continue to bring successful prosecutions against the individuals who bribe foreign officials and the companies they work for.”

The inability to obtain foreign evidence to secure an individual FCPA criminal conviction seemingly has little to do with the DOJ’s recent trial court debacles.

For instance, the Sigleman matter originated in a corporate voluntary disclosure (in which a company gift wraps witness statements, relevant e-mails, etc. for the DOJ).  Moreover, during the Sigelman trial it was revealed that the alleged “foreign official” bribe recipient was openly in the United States (he even visited Disney World), but the DOJ made no effort to prevent his exit from the U.S. Moreover, as highlighted in this prior post, the trial court judge in the Sigelman matter blasted the DOJ and its oft-stated rhetoric about the purported difficulty of prosecuting FCPA cases.

The Sigelman matter was not the only recent DOJ FCPA trial court debacle in which the inability to obtain foreign evidence seemingly had little to do with the DOJ’s failure.

For instance, the Africa Sting enforcement action resulted from a multiple-year undercover investigation with a cooperator that had pleaded guilty to real-world FCPA offenses.  During the course of its investigation, the DOJ amassed, among other things, the following evidence according to its discovery filing.

“615 audio and video recordings of more than 150 meetings;”

“5,287 recorded telephone calls between the defendants and the cooperating witness … and between the defendants and undercover FBI agents;”

“nearly 3,000 pages of text messages from the telephone [the cooperator] used in connection with the undercover operation;”

“materials seized during the 13 search warrants executed in connection with the undercover investigation relating to the defendants” including a total of “approximately 242,000 pages of documents,” “electronic media, including desktop computers, laptop computers, USB drives, zip discs, memory cards and DVDs, among other items, seized during the searches,” and “photographs taken in connection with the search warrants and logs of those photographs, as well as search diagrams and seizure inventories.”

The reason the Africa Sting enforcement failed was not because of any difficulty in obtaining foreign evidence, but rather the quality of the evidence the DOJ obtained, the DOJ’s legal theories and – in the words of the jury foreperson – a belief among the jury that the “defendants had acted in good faith and the FBI/DOJ in bad faith.” Indeed, in the words of the presiding judge, part of the DOJ’s failure was attributable to conduct “that [has] no place in a federal courtroom.”

Similarly, the DOJ’s FCPA trial court debacle in the Lindsey Manufacturing enforcement action (in which the company and two executives were criminally charged) was not due to the inability to secure foreign evidence.  Indeed, the DOJ offered sufficient evidence to secure a trial court conviction, a conviction that was short lived though because of numerous instances of prosecutorial misconduct.  In the words of the presiding judge the misconduct was “so varied and occur[ed] over so lengthy a period … that they add up to an unusual and extreme picture of a prosecution gone badly awry.”

Like the recent Sigelman action, the DOJ’s 2012 trial against John O’Shea also originated in a corporate voluntary disclosure with the DOJ also having the assistance of a cooperating witness.  However, that trial ended with the judge granting a defense motion of acquittal after the DOJ’s case.  In doing so, the trial court judge stated:  “the problem here is that the principal witness against Mr. O’Shea … knows almost nothing.”

In short, the recent DOJ FCPA trial court debacles seemingly had little to do with the purported difficulties of obtaining foreign evidence, but rather were the result of aggressive legal theories, sloppy and unprofessional investigations, and jury resentment.

The notion that the DOJ is somehow disadvantaged in a criminal FCPA trial vis-a-vis the defense is outlandish.  The DOJ has the full information gathering resources of the government and among other things benefits from mutual legal assistance treaties, government to government cooperation, and often corporate voluntary disclosures and cooperating witnesses.

Rather, it is the individual defendant who is often disadvantaged as the defense does not have access or the same type of access to the above information and materials. Indeed, in most FCPA trials individuals are facing two adversaries – the DOJ and the cooperating company.

The concern that individual defendants would be disadvantaged in FCPA criminal trials was so prominent during the FCPA’s legislative history that Representative Bob Eckhardt (a leader on the FCPA in the House) insisted on the original FCPA containing the so-called Eckhardt Amendment.

As explained in this prior post, the Eckhardt Amendment basically stated that an individual could only be found liable for FCPA violations to the extent his corporate employer was also found liable.

After the DOJ lost an individual enforcement action against George McLean in the early 1980’s (the first time the DOJ was put to its burden of proof in an FCPA enforcement action) the DOJ convinced Congress to eliminate the Eckhardt Amendment in the 1988 amendments to the FCPA.

 

U.S. v. Sigelman – Just The Latest DOJ FCPA Trial Debacle

Sigelman

In the words of the DOJ “our recent string of successful prosecutions of corporate executives [in FCPA cases] is worth highlighting.”

In the minds of others, “FCPA prosecutorial overreach by the Department of Justice (DOJ) is a myth.”

And now for some cold-hard facts.

Since September 2011, the DOJ has been put to its burden of proof at trial four times in FCPA enforcement actions.  As highlighted in this post, each instance was a trial court debacle for the DOJ.

The most recent debacle of course was U.S. v. Sigelman (the facts and circumstances of which most readers are presumed to know given recent events, but if not see herehere and here for prior posts.)

Sigelman was no aberration and the remainder of this post highlights the other three most recent instances of the DOJ being put to its burden of proof in an FCPA trial.

Africa Sting (2011-2012)

In January 2010, the DOJ announced criminal charges against 22 executives and employees of companies in the military and law enforcement products industry for engaging in a scheme to pay bribes to the minister of defense of an African country.  However, there was no actual involvement from any minister of defense, rather it was a manufactured sting operation.  Given the number of defendants, four separate trials were scheduled.

The first Africa Sting trial started in May 2011 and involved four defendants.  At the close of the DOJ’s case, Judge Richard Leon dismissed a substantive FCPA charge against one defendant (Pankesh Patel), dismissed another substantive FCPA charge against another defendant (Lee Tolleson) and dismissed the money laundering count against all defendants (Patel, Tolleson, Andrew Bigelow, and John Weir).  In July 2011, Judge Leon declared a mistrial as to all remaining counts against all defendants.

The second Africa Sting trial began in September 2011.  At the close of the DOJ’s case, Judge Leon dismissed the conspiracy charge against all defendants (John Mushriqui, Jeana Mushriqui, Patrick Caldwell, Stephen Giordanella, John Godsey, and Mark Morales).  Because Giordanella faced only that conspiracy charge, he was exonerated.  The trial proceeded, the charges went to the jury, the jury deliberated, and in January 2012, the jury found two defendants (Caldwell and Godsey) not guilty.  The jury hung as to the remaining defendants, and once again Judge Leon declared a mistrial as to all remaining counts against the remaining defendants.

Shortly after conclusion of the second trial, the jury foreman published this guest post on FCPA Professor and shortly thereafter the DOJ moved to dismiss with prejudice the criminal charges against all of the remaining defendants including those initially charged but not yet tried (Helmie Ashiblie, Yochanan Cohen, Amaro Goncalves, Saul Mishkin, David Painter, Lee Wares, Ofer Paz, Israel Weisler and Michael Sacks).  The next day, Judge Leon granted the motion to dismiss and stated (see here) “this appears to be the end of a long and sad chapter in the annals of white collar criminal enforcement.”

Lindsey Manufacturing et al (2011)

In 2010, the DOJ charged Lindsey Manufacturing Co. and two of its executives (company CEO Keith Lindsey and company CFO Steve Lee) with FCPA offenses for their alleged roles in a conspiracy to pay bribes to alleged Mexican “foreign officials.”  In May 2011, Lindsey Manufacturing, Lindsey, and Lee were found guilty of various FCPA charges after a five-week jury trial.  (See here).

However, after months of post-trial legal wrangling, in December 2011 Judge Howard Matz (C.D. Cal.) vacated the convictions and dismissed the indictment after finding numerous instances of prosecutorial misconduct.  In the words of Judge Matz, the instances of misconduct were so varied and occurred over such a long time “that they add up to an unusual and extreme picture of a prosecution gone badly awry.”  (See here).

John O’Shea (2012)

In November 2009, John O’Shea was charged with FCPA and related offenses for allegedly making improper payments to alleged Mexican “foreign officials.”  O’Shea mounted a defense and proceeded to trial.  In January 2012, following the DOJ’s case, Judge Lynn Hughes (S.D. Tex.) dismissed the FCPA charges against O’Shea.  In doing so, Judge Hughes stated:  ”The problem here is that the principal witness against Mr. O’Shea … knows almost nothing.”  (See here).  During the trial, Judge Hughes also admonished other aspects of the DOJ’s case stating:   “I don’t know what was presented to the Grand Jury, but … the Government should have been prepared before they brought the charges to the Grand Jury. It’s something you have to prove. And you shouldn’t indict people on stuff you can’t prove.”  (See here).

To read more about the Africa Sting, O’Shea and Lindsey Manufacturing cases see the article “What Percentage of DOJ FCPA Losses Is Acceptable?

There are numerous civil society organizations devoted to bribery and corruption topics that are vocal about current trends.

Where is the civil society concern about the string of DOJ FCPA trial court debacles? After all, these debacles are effecting real people, with real families, with real reputations.

Does anyone care?

In Sentencing Sigelman, Judge Irenas Blasts The DOJ

Judge Irenas

Foreign Corrupt Practices Act sentencing transcripts often make for interesting reads.

After all, sentencing is a judicial function and the transcripts provide a rare glimpse of someone other than the enforcement agencies weighing in on issues relevant to FCPA enforcement.

In sentencing Joseph Sigelman to probation after the DOJ effectively pulled its case early in the trial after its star witness admitted to making false statements on the stand (see here and here for prior posts), Judge Irenas dished up a few zingers.

See here for the sentencing transcript.

For starters, Judge Irenas chided the DOJ for acting inconsistent with the plea agreement it negotiated a day before sentencing in which the DOJ stated that the parties agreed that Sigelman’s sentence should be “a range from a non-custodial term of probation up to 12 months and one day of incarceration.”  Judge Irenas wondered why then the DOJ’s sentencing brief asserted that anything less than a year sentence would be unreasonable.  At one point, Judge Irenas stated “I feel like I am being played.” At pg. 25 of the transcript, Judge Irenas says “probation is appropriate. By def—you agreed to that. You can’t back off that. And your brief really does back off that.”

Of further note, at pgs. 22-23 of the transcript as highlighted below, Judge Irenas  blasted oft-stated DOJ rhetoric about the purported difficulty of prosecuting FCPA cases.  (Note: Mr. Stokes is DOJ FCPA Unit Chief Patrick Stokes and Duran is David Duran the alleged Colombian “foreign official” allegedly bribed).

MR. STOKES: In a complex white-collar case, certainly in a FCPA case, where there are numerous difficulties to obtaining evidence overseas, there are often opinions—we are often—the government is in a position of obtaining evidence from overseas, from years past, obtaining witnesses from overseas, and because of the complex and difficult nature of building these cases, we think that—

THE COURT: Well, I mean, that’s a general statement. The fact of the matter is, Duran was over in this country, in fact, wanted to stay here, if he could have arranged it. And he was, in a sense, in your control. I mean, he was

cooperating with you. Wasn’t cooperating with the defense.

MR. STOKES: Your Honor—

THE COURT: So I don’t know what difficulty you’re exactly talking about. You had PetroTiger through the investigation done by Sidley & Austin, basically dumped—dumped the case in your lap.

MR. STOKES: So—

THE COURT: You know, I mean, so you could talk generally how difficult this is. There may have been certain legal issues, but—what was difficult? What was the particular difficulty here? You had—

MR. STOKES: Sure.

THE COURT: —two co-conspirators pled guilty early on cooperating, alleged co-conspirators. You had Duran, here right in the country talking to you. It was not as if, you know, he was hiding somewhere in the jungle of Colombia to avoid—he actually wanted to be here. And then you had Sidley & Austin, turned over thousands and thousands of—I think it was 4,000 pages. I can’t remember the number, but it was some very large number of documents, and had done—you know, and Sidley does this kind of work in other context. I mean, they know what they’re doing, and they—you know, and they did all this investigation.

You know, you tell me as a general matter, it’s hard to prove Foreign Corrupt Practices Act. I guess as a generic form of—

MR. STOKES: Absolutely, Your Honor.

THE COURT: —that’s difficult. But in this case, what was the difficulty?

MR. STOKES: And, Your Honor, there’s ample Third Circuit case law, Supreme Court case law, and otherwise on the point of general deterrence. And the point I’m making is simply a general point, that the white — complex white-collar financial crimes are difficult to prove, FCPA cases are difficult to prove, and so, therefore, we believe that a sentence of incarceration is — sends an important message in —

THE COURT: Well, I guess they haven’t been in my court because I tried several. I tried a nine and-a-half-month criminal white-collar case, in which I gave the longest tax fraud sentence ever given, twice what Al Capone got, for someone who was engaged in a tax fraud trial. I’ve done three or four —

MR. STOKES: And we certainly support that.

THE COURT: I’ve done three or four big white-collar cases, all resulted in convictions and all resulted in substantial sentences.

MR. STOKES: Absolutely.

THE COURT: I don’t know what you’re talking about.

MR. STOKES: So, Your Honor, the point we’re making is again —

THE COURT: You chose not to complete the trial, not me.

MR. STOKES: Of course. Of course, Your Honor. And the point we’re making is that Mr. Sigelman has admitted the crime —

THE COURT: In some form, you’re going to have to explain why, but maybe not here.

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