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Friday Roundup

Nigeria drops charges against Dick Cheney after Halliburton reportedly pays $250 million; James Giffen is sad, though not bitter; an Iraqi Oil for Food prosecution … in Scotland; International Anti-Corruption Day is “marred”; and another voice joins “the FCPA simply means what the enforcement agencies say it means” chorus … it’s all here in the Friday Roundup.

Charges Against Cheney in Nigeria Dropped

On December 7th, Nigerian authorities apparently filed criminal charges against Dick Cheney, and others, in connection with the Bonny Island bribery scheme. As discussed in this prior post, Cheney was CEO of Halliburton from 1995 until 2000. In February 2009, Halliburton, Kellogg Brown & Root LLC, and KBR Inc. agreed to pay $579 million in combined DOJ/SEC FCPA enforcement action to resolve charges related to Bonny Island. According to the DOJ, the improper conduct took place between 1994 and 2004. The case remains the largest ever FCPA enforcement action against a U.S. company.

Farida Mzamber Waziri, the executive chairwomen of Nigeria’s Economic and Financial Crimes Commission stated, “Dick Cheney was head of Halliburton” “There’s no way such amount of money would’ve been moved to bribe Nigeria without his approval and without his knowledge, this is what we’re saying.” (See here for a video).

In a swift conclusion to the matter, it is been reported (see here among other places) that Nigeria has dropped charges against Cheney after his former employer, Halliburton, agreed to pay a $250 million fine. According to the report, the sum consists of $120 million in penalties and the repatriation of $130 million.

According to this report in the U.K. Telegraph, former U.S. President George H.W. Bush and former Secretary of State James Baker helped in the negotiations.

A Halliburton spokesman is quoted as saying “we have no comment to make on this.”

Sad, But Not Bitter

David Glovin (Bloomberg) recently sat down with James Giffen and penned this article. For more on the Giffen enforcement action and its mysterious conclusion see here for numerous prior posts.

Giffen is sad, though not bitter about what he terms the DOJ’s “selective” prosecution of him and he asks “in whose interest was the investigation in the first place.” Given Giffen’s “public authority” defense, much of the case focused on classified documents. Not even Giffen’s lawyer, William Schwartz (here) had access to many of the documents – one person did and that was Judge William Pauley (S.D.N.Y.) “who made his feelings known.” (see here).

Wehr Group

Glasgow, Scotland based engineering firm Wehr Group plc (here) recently pleaded guilty to two charges of breaching UN sanctions in connection with a number of UN sanctioned Iraqi Oil for Food contracts awarded between 2000 and 2002. As noted in the company’s release (here), “following the guilty plea, Weir has been subject to a confiscation order in the sum of £13,945,962. In addition it has been fined £3 million.” For more see here.

International Anti-Corruption Day “Marred”

Raymond Baker (here), the Director of Global Financial Integrity, says here that “this year’s International Anti-Corruption Day [was] marred by a U.S. Chamber of Commerce attempt to weaken the Foreign Corrupt Practices Act.” In November, the Chamber released a paper (here) authored by Andrew Weissman and Alixandra Smith titled “Restoring Balance – Proposed Amendments to the Foreign Corrupt Practices Act.”

According to Baker, “the short answer” to various issues raised by the current era of FCPA enforcement is simple: “don’t bribe anyone, whether she/he is a public official, a private citizen, or someone in between.”

Gee, thanks for that guidance, problem solved!

The FCPA’s Big Lesson

Richard Cassin, creator of the FCPA Blog and a pioneer of the FCPA’s blogosphere, hit the ball out of the park with this recent column for Ethisphere.

Among other things, Cassin writes as follows: “I know there’s practically no FCPA-related case law, no precedent to follow, no stare decisis to light the way. So the FCPA is pretty much what the enforcement agencies say it is. And that’s what’s so very different and difficult about it. It’s what I call the FCPA’s Big Lesson.”

*****

A good weekend to all.

Friday Roundup

Nigeria drops charges against Dick Cheney after Halliburton reportedly pays $250 million; James Giffen is sad, though not bitter; an Iraqi Oil for Food prosecution … in Scotland; International Anti-Corruption Day is “marred”; and another voice joins “the FCPA simply means what the enforcement agencies say it means” chorus … it’s all here in the Friday Roundup.

Charges Against Cheney in Nigeria Dropped

On December 7th, Nigerian authorities apparently filed criminal charges against Dick Cheney, and others, in connection with the Bonny Island bribery scheme. As discussed in this prior post, Cheney was CEO of Halliburton from 1995 until 2000. In February 2009, Halliburton, Kellogg Brown & Root LLC, and KBR Inc. agreed to pay $579 million in combined DOJ/SEC FCPA enforcement action to resolve charges related to Bonny Island. According to the DOJ, the improper conduct took place between 1994 and 2004. The case remains the largest ever FCPA enforcement action against a U.S. company.

Farida Mzamber Waziri, the executive chairwomen of Nigeria’s Economic and Financial Crimes Commission stated, “Dick Cheney was head of Halliburton” “There’s no way such amount of money would’ve been moved to bribe Nigeria without his approval and without his knowledge, this is what we’re saying.” (See here for a video).

In a swift conclusion to the matter, it is been reported (see here among other places) that Nigeria has dropped charges against Cheney after his former employer, Halliburton, agreed to pay a $250 million fine. According to the report, the sum consists of $120 million in penalties and the repatriation of $130 million.

According to this report in the U.K. Telegraph, former U.S. President George H.W. Bush and former Secretary of State James Baker helped in the negotiations.

A Halliburton spokesman is quoted as saying “we have no comment to make on this.”

Sad, But Not Bitter

David Glovin (Bloomberg) recently sat down with James Giffen and penned this article. For more on the Giffen enforcement action and its mysterious conclusion see here for numerous prior posts.

Giffen is sad, though not bitter about what he terms the DOJ’s “selective” prosecution of him and he asks “in whose interest was the investigation in the first place.” Given Giffen’s “public authority” defense, much of the case focused on classified documents. Not even Giffen’s lawyer, William Schwartz (here) had access to many of the documents – one person did and that was Judge William Pauley (S.D.N.Y.) “who made his feelings known.” (see here).

Wehr Group

Glasgow, Scotland based engineering firm Wehr Group plc (here) recently pleaded guilty to two charges of breaching UN sanctions in connection with a number of UN sanctioned Iraqi Oil for Food contracts awarded between 2000 and 2002. As noted in the company’s release (here), “following the guilty plea, Weir has been subject to a confiscation order in the sum of £13,945,962. In addition it has been fined £3 million.” For more see here.

International Anti-Corruption Day “Marred”

Raymond Baker (here), the Director of Global Financial Integrity, says here that “this year’s International Anti-Corruption Day [was] marred by a U.S. Chamber of Commerce attempt to weaken the Foreign Corrupt Practices Act.” In November, the Chamber released a paper (here) authored by Andrew Weissman and Alixandra Smith titled “Restoring Balance – Proposed Amendments to the Foreign Corrupt Practices Act.”

According to Baker, “the short answer” to various issues raised by the current era of FCPA enforcement is simple: “don’t bribe anyone, whether she/he is a public official, a private citizen, or someone in between.”

Gee, thanks for that guidance, problem solved!

The FCPA’s Big Lesson

Richard Cassin, creator of the FCPA Blog and a pioneer of the FCPA’s blogosphere, hit the ball out of the park with this recent column for Ethisphere.

Among other things, Cassin writes as follows: “I know there’s practically no FCPA-related case law, no precedent to follow, no stare decisis to light the way. So the FCPA is pretty much what the enforcement agencies say it is. And that’s what’s so very different and difficult about it. It’s what I call the FCPA’s Big Lesson.”

*****

A good weekend to all.

The Giffen Gaffe – The Final Chapter

The original 2003 indictment (here) charged James Giffen with “making more than $78 million in unlawful payments to two senior officials of the Republic of Kazakhstan in connection with six separate oil transactions, in which the American oil companies Mobil Oil, Amoco, Texaco and Phillips Petroleum acquired valuable oil and gas rights in Kazakhstan.”

Giffen’s defense?

Partly that his actions were taken with the knowledge and support of the Central Intelligence Agency, the National Security Council, the Department of State and the White House. The DOJ did not dispute the fact that Giffen had frequent contacts with senior U.S. intelligence officials or that he used his ties within the Kazakh government to assist the United States. With the court’s approval, Giffen sought discovery from the government to support such a public authority defense and much of the delay in the case was due to the government’s resistance to such discovery and who was entitled to see such discovery.

In August, the case took a mysterious turn when Giffen agreed to plead guilty (here) to a one-paragraph superseding indictment charging a misdemeanor tax violation.

The case ended Friday in a Manhattan court room.

U.S. District Court Judge William Pauley called Giffen a Cold War hero, imposed no jail time, and stated that the case should never had been brought in the first place.

It’s the Giffen Gaffe, the biggest blunder in the history of the FCPA.

Today’s post is from Steve LeVine who was present in Judge Pauley’s courtroom on Friday. LeVine writes “The Oil and The Glory” For Foreign Policy (here) and the below is reprinted with his permission.

*****

James Giffen, the oil dealmaker at the center of what was once the largest foreign bribery case in U.S. history, is officially a free man.

The 69-year-old former oil adviser to Kazakhstan’s president, accused of diverting $78 million from oil companies to the Kazakh government, waited out more than a dozen federal prosecutors and sat through some two dozen court appearances and five trial dates over the course of seven years. Today, the effort paid off. Three months after prosecutors announced a stunning capitulation, dropping all foreign bribery, money laundering, and fraud charges against Giffen in exchange for a guilty plea on a misdemeanor tax charge, U.S. District Judge William Pauley ordered no prison time and no fines in sentencing proceedings at a Manhattan courthouse.

In handing down the non-sentence, Pauley seemingly validated the argument to which Giffen’s lawyers had clung since 2003: that whatever crimes Giffen had allegedly committed occurred while he was a highly valued foreign asset of the American intelligence. “Suffice it to say, Mr. Giffen was a significant source of information to the U.S. government and a conduit of secret information from the Soviet Union during the Cold War,” Pauley said today.

Giffen may have been lesser-known than the other businessmen-cum-criminal-defendants of recent decades, but he was equally colorful, a swaggering, coarse-talking, heavy-drinking womanizer and a charismatic fixture on the Caspian Sea. He arrived in Kazakhstan in 1992, but the trajectory that ultimately landed him there began in 1969, when he started traveling to Moscow as an aide to a Connecticut metals trader. Giffen worked his way up to become a major player in a U.S-Soviet business association with top-level political ties in both Washington and Moscow. When the Soviet Union collapsed in 1991, business in Russia dried up, and Giffen moved on to Kazakhstan, which was quickly becoming one of the hottest oil plays on the planet.

Giffen managed to ingratiate himself with a man he called The Boss: Kazakh President Nursultan Nazarbayev. He became Nazarbayev’s chief oil negotiator and, prosecutors alleged, his personal banker. While honchoing some of the era’s biggest oil deals, he also diverted some $78 million in payments made to Kazakhstan by now-dead companies like Mobil, Amoco, and Texaco into Swiss and other bank accounts that he set up in the name of Nazarbayev, other senior Kazakh officials, and their relatives, prosecutors alleged. (U.S. diplomats said that Nazarbayev, an unindicted co-conspirator in the case, so dreaded being tarnished by a Giffen conviction that both he and his envoys pleaded repeatedly for the George W. Bush Administration to order the case dropped.)

The case seemed open and shut, since the prosecutors presented a detailed paper trail — provided by a Swiss magistrate — of Giffen slicing payments into tiny discrete pieces for transfer into secret Swiss bank accounts, rather than shifting them as a whole, a classic method of money laundering. Even at their most voluble and expansive in court, Giffen’s lawyers made no attempt openly to dispute the prosecution’s facts. They simply kept repeating that, whatever Giffen may have done, he was taking orders from the Kazakh government — a sovereign state entitled to its own ideas of legality — and otherwise serving the patriotic interests of the Central Intelligence Agency.

It was an audacious defense that many thought verged on the preposterous. For one thing, CIA officers of the era deny that Giffen was anything of the sort — he walked into CIA headquarters on his own volition and talked to agency officers about Kazakhstan, they said, but that was very different from being a trusted asset on an informal assignment. In short, they asserted, Giffen was simply another dude talking.

The CIA, however, appears to have refused to hand over many — if any — documents sought by the defense. Judge Pauley had ruled that such documents were obligatory if Giffen were to have access to his rights to adequately defend himself. So the prosecution was left with having to drop the charges.

In his sentencing remarks, Pauley said that he had had access to classified documents that no one else in the courtroom had seen, and that they largely validated Giffen’s claims. “He was one of the only Americans with sustained access to” high levels of government in the region, Pauley said. “These relationships, built up over a lifetime, were lost the day of his arrest. This ordeal must end. How does Mr. Giffen reclaim his reputation? This court begins by acknowledging his service.”

*****

For additional coverage see here (David Glovin – Bloomberg) and here (Larry Neumeister – AP).

For Giffen’s contribution to FCPA case law (see here).

Giffen’s Contribution to FCPA Case Law

Notwithstanding its mysterious conclusion, the Giffen enforcement action was instructive because it represented a rare instance in which an FCPA defendant mounted an aggressive legal defense. As a result, the long enforcement action yielded FCPA case law, even though the issues subjected to judicial scrutiny did not involve core FCPA elements.

So what did we learn from the Giffen case law?

For starters, we learned that just because the DOJ charges it, does not mean that the charge is legally viable.

As I explored in this prior post, in addition to the FCPA charges, the original indictment also alleged that Giffen’s actions violated 18 USC 1346 by depriving the citizens of Kazakhstan of the honest services of their government officials – one of the more curious “tag-a-long” charges ever in an FCPA enforcement action.

In 2004, Giffen moved to dismiss portions of the charges that alleged a scheme to deprive the citizens of Kazakhstan of the honest services of their government officials. He asserted that application of the honest services fraud theory of Section 1346 to Kazakhstan impermissibly extended the mail and wire fraud statutes to cover activities beyond the original intent of Congress.

Judge William Pauley of the Southern District of New York agreed and granted Giffen’s motion to dismiss portions of the charges that alleged a scheme to deprive the citizens of Kazakhstan of the honest services of their government officials. See U.S. v. Giffen, 326 F.Supp.2d 497 (S.D.N.Y. 2004).

In so holding, Judge Pauley stated that the DOJ offered “the slenderest of reeds to support its expansive interpretation.” Among other things, Judge Pauley noted that the DOJ could not point to “any decision where a court upheld application of the honest services theory in an international setting involving a foreign government and its citizens.”

When the DOJ pointed to “two 25-year old indictments” charging a similar theory, Judge Pauley noted that the DOJ “has not unearthed any published decision on the issue” and that the DOJ “conceded that there were no court decisions addressing the validity of the two 25-year old indictments.” Judge Pauley further stated that just because certain U.S. Attorneys were able to obtain indictments “under an intangible rights theory, grounded between a foreign government and its citizenry, is not the kind or quality of precedent this Court need consider.”

Judge Pauley concluded that “Congress did not intend that the intangible right to honest services encompasses bribery of foreign officials in foreign countries” and that “application of Section 1346 to Giffen [was] unconstitutional.”

In the prior post, I noted that many current FCPA legal theories are similarly not supported by any case law or other meaningful precedent or guidance.

I then posed the question – if challenged would a judge (like Judge Pauley in Giffen) conclude that the DOJ offered the “slenderest of reeds” to support many of its expansive FCPA interpretations?

I asked – what case law would the DOJ cite to support certain of its aggressive interpretations (such as employees of seemingly “commercial” enterprises being “foreign officials” under the FCPA)? Would DOJ not have to concede that there are no court decisions addressing the validity of certain of its interpretations? Would the DOJ point to prior enforcement actions settled by companies or individuals to support many of its enforcement theories? If so, presumably a judge would similarly state “this is not the kind of precedent” I need to consider.

We also learned during the Giffen enforcement action that an act of state doctrine is near impossible to properly assert in an FCPA enforcement action. In addition to claiming that his actions were taken with the knowledge and support of the Central Intelligence Agency, the National Security Council, the Department of State and the White House, Giffen also asserted that he was acting as an official of the Kazakh government and thus, under the act of state doctrine, the court was precluded from considering the validity of Kazakh law and the officials acts of its leaders.

However, Judge Pauley stated that the act of state doctrine has a territorial dimension in that it is limited to acts done within the applicable foreign state in the exercise of government authority. Because the Giffen allegations, like most FCPA allegations, did not relate solely to conduct within Kazakhstan, Judge Pauley concluded that the act of state doctrine did not bar Giffen’s prosecution. For instance, and among other things, the indictment alleged that Giffen transferred funds from Swiss bank accounts.

Six Months For The Greens … Plus The Friday Roundup

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. According to the DOJ release (see here) the Los Angeles-area film executives were found guilty of engaging in “sophisticated bribery scheme that enabled the defendants to obtain a series of Thai government contracts, including valuable contracts to manage and operate Thailand’s yearly film festival.”

As noted in the DOJ release:

“The conspiracy and FCPA charges each carry a maximum penalty of five years in prison, and each of the money laundering counts carries a maximum penalty of up to 20years in prison. The false subscription of a U.S. income tax return carries a maximum penalty of three years in prison and a fine of not more than $100,000.”

Sentencing was originally set for December 17, 2009, was delayed several times, and, at one point, was removed from the calendar altogether (see here).

U.S. District Court Judge George Wu of the Central District of California reportedly wanted to learn more about other FCPA sentences as well as Mr. Green’s health issues.

The DOJ requested a 10 year sentence for both Gerald and Patricia Green.

The DOJ stated that the “court must decline defendants’ remarkable invitation to join the wholesale speculation of FCPA ‘pundits’ as to whether corporate settlements are ‘shielding’ to corporate executives from punishment.”

In closing, 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.”

According to this report, Judge Wu yesterday sentenced the Greens, before a packed courtroom, to six months in prison, followed by three years probation (six months of which must be served as home confinement).

According to the report, Judge Wu “also set a restitution figure of $250,000” but “if the Greens, who have had their accounts frozen and assets seized since being arrested in 2007, can prove that none of the $1.8 million they paid in bribes to Thai officials can be recovered, then they will only have to pay $3,000 in restitution.”

Does the “landscape of FCPA sentencing” truly reflect “significant prison terms” as stated by the DOJ?

True, any prison term is significant for a defendant and his/her family and friends.

But with a top sentence of 60 months (Charles Jumet – see here), the 366 day sentence for Frederic Bourke in November 2009 (see here), the 15 month sentence for Jason Edward Steph and the 366 day sentence for Jim Bob Brown both in January 2010 (see here) and now the 6 month sentence for the Greens – is this yet another instance in which DOJ’s FCPA rhetoric does not match reality?

*****

H-P news that does not involve its former CEO, what others are saying about the Giffen Gaffe, SciClone’s stock drop, and Siemens $1 billion customer … it’s all here in the Friday roundup.

H-P Inquiry Escalates

According to a story in today’s Wall Street Journal by David Crawford, the DOJ “has asked Hewlett-Packard Co. to provide a trove of internal records as part of an international investigation into allegations that H-P executives paid bribes in Russia, according to people familiar with the investigations.”

According to the story, the DOJ request “came after German prosecutors complained H-P had refused to provide them with all of the records they requested” and after “H-P initially argued that the German request for bookkeeping records, some of which are five years old, imposed an ‘undue hardship’ on the company.”

The article indicates that the DOJ “asked H-P to comply voluntarily with the request and hasn’t subpoenaed the records” and that “H-P has yet to provide some records” but is “cooperating with the investigations.” According to H-P, the investigation
“involves people that have largely left the company and matters that happened as much as seven years ago.”

What Others Are Saying About Giffen

It’s been one week since the Giffen Gaffe (see here).

Here is what others are saying about the enforcement action that began with charges that James Giffen made “more than $78 million in unlawful payments to two senior officials of the Republic of Kazakhstan in connection with six separate oil transactions”, yet ended with a misdemeanor tax violation against Giffen and an FCPA anti-bribery charge against a functionally defunct entity (The Mercator Corporation -in which Giffen was the principal shareholder, board chairman, and chief executive officer) focused merely on two snowmobiles.

Scott Horton, writing at Harper’s Magazine (see here) noted that “[t]he outcome is a huge embarrassment to federal prosecutors, who had invested a decade in resources in the effort to convict Giffen of FCPA and related violations.”

Horton, who has been following the case for years, highlighted how the “case has been the focus of political manipulation concerns for years” and closed with this paragraph:

“Kazakhs have long claimed that their government’s strategy of resolving the Giffen case by using the right levers with the American administration–a process that led them to hire former attorneys general and high-profile retired prosecutors, private investigators, and public-relations experts–would be successful. The outcome in the Giffen case appears to ratify that view. The notion of an independent, politically insulated criminal-justice administration in America has just taken another severe hit.”

Steve LeVine, author of The Oil and The Glory page at Foreign Policy, noted (here) that the Giffen resolution is “a considerable comedown for the federal government” and that Giffen’s lawyer “understood correctly that he could set up a collision between the Justice Department and the CIA in which the latter would probably prevail.”

The FCPA and Stock Price

What affect, if any, does an FCPA disclosure or resolution have on a company’s stock price?

It’s an issue I’ve explored before (see here) and best I can tell the evidence is inconclusive and the answer is – it depends.

In the case of a company that does business almost exclusively in China disclosing an FCPA inquiry focused on China, the answer is that disclosure of the FCPA inquiry matters – and quite a bit.

On Monday, SciClone Pharmaceuticals Inc., a Delaware company based in California, disclosed in a 10-Q filing (here) as follows:

“On August 5, 2010 SciClone was contacted by the SEC and advised that the SEC has initiated a formal, non-public investigation of SciClone. In connection with this investigation, the SEC issued a subpoena to SciClone requesting a variety of documents and other information. The subpoena requests documents relating to a range of matters including interactions with regulators and government-owned entities in China, activities relating to sales in China and documents relating to certain company financial and other disclosures. On August 6, 2010, the Company received a letter from the DOJ indicating that the DOJ was investigating Foreign Corrupt Practices Act issues in the pharmaceutical industry generally, and had received information about the Company’s practices suggesting possible violations.”

SciClone’s business is focused primarily on China with 90+% of its revenue derived from China sales. Thus, it is not surprising that an FCPA inquiry focused on China had a material impact on the company’s stock price.

As noted in this Reuters story, news of the FCPA inquiry sent SciClone’s shares, at one point, down 41% to a 52 week low.

Siemens $1 Billion Customer

In December 2008, Siemens agreed to pay $800 million in combined U.S. fines and penalties to settle FCPA charges for a pattern of bribery the DOJ termed “unprecedented in scale and geographic scope.” According to the DOJ, for much of Siemens’ operations around the world, “bribery was nothing less than standard operating procedure.”

The Siemens enforcement action remains the largest FCPA settlement ever (even though Siemens itself was not charged with FCPA anti-bribery violations).

On the one year anniversary of the Siemens enforcement action, I ran a post – Siemens – The Year After (see here) which highlighted how the U.S. government continues to do substantial business with the company it charged with engaging in a pattern of bribery “unprecedented in scale and geographic scope.”

This U.S. government business has helped Siemens outperform its competitors in a difficult recessionary environment and much of the company’s recent success is the direct result of government stimulus programs around the world.

Using Recovery.gov (a U.S. government website designed “to allow taxpayers to see precisely what entities receive Recovery money ..”), I highlighted how several Siemens’ business units have been awarded several dozen contracts funded by U.S. taxpayer stimulus dollars.

It is against this backdrop that Paul Glader’s recent piece in the Wall Street Journal “Siemens Seeks More U.S Orders” caught my eye.

According to the article, Siemens Corp. (the U.S. division of Siemens) currently brings in about $1 billion a year from the U.S. government, a figure the division hopes to double by 2015.

Eric Spiegel, chief executive of Siemens Corp., is quoted in the article as saying: “[o]ne of the beauties of the federal-government spending is it didn’t drop off during the recession.”

To that, I’ll add that one of the unfortunate beauties of engaging in bribery the U.S. government terms “unprecedented in scale and geographic scope” is no slow down in U.S. government contracts in the immediate aftermath of the enforcement action.

It’s one of the FCPA greatest headscratchers – FCPA violaters are and remain some of the U.S. government’s biggest suppliers and contracting partners.

As I’ve noted in numerous prior posts, efforts are underway to try to change this. See here, here and here.

*****

A good weekend to all.

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