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Africa Sting – “Individual 1” Identified … and Charged … In a Different Case

“Individual 1” – a key player in each of the Africa Sting indictments (see here) has been identified by the New York Times (see here) as Richard T. Bistrong, a former employee of Armor Holdings. (Armor Holdings, a former publicly-traded company, is currently a subsidiary of BAE Systems).

In an ironic twist, Bistrong was charged today in a criminal information (see here) with conspiracy – not for his role in the Africa Sting case – but a wholly separate bribe scheme.

The information charges Bistrong with conspiracy to violate the FCPA’s antibribery provisions, books and records provisions, and the International Emergency Economic Powers Act and related Export Administration Regulations.

The conspiracy is broad in scope and includes charges that Bistrong conspired with others: (i) to obtain for his employer, United Nations body armor contracts (valued at $6 million) by causing his employer to pay $200,000 in commissions to an agent while knowing that the agent would pass along a portion of that money to a United Nations procurement officer (a “foreign official” per the FCPA) to cause the officer to award the contracts; (ii) to obtain for his employer, a $2.4 million pepper spray contract with the National Police Services Agency of the Netherlands by paying a Dutch agent approximately $15,000 while knowing that the agent would pass along some of that money to a procurement officer with the Police Services Agency to influence the contract; (iii) to obtain for his employer (although it was never obtained), a contract to sell fingerprint ink pads to the Independent National Elections Commission of Nigeria by making kickback payments to a commission official indirectly through an intermediary company.

As the New York times notes, a “criminal information is typically filed when the defendant has waived indictment and is negotiating a plea agreement.”

The New York Times story concludes by describing the abrupt end to today’s court hearing.

Africa Sting – The Charges

Set forth below is a summary of the 16 indictments announced yesterday charging 22 individuals in connection with the “Africa Sting.”

The Africa Sting case charges individuals across a wide business spectrum.

It involves individuals employed by large companies and small companies; private companies and publicly-traded companies. It involves Chief Executive Officers, Sales Managers, and even a General Counsel. It involves U.S. citizens, U.K. citizens, an Israeli citizen, and a pair of siblings. It involves agents and consultants, and of course, undercover FBI agents posing as representatives of an imaginary Minister of Defense of an African country.

At present, this case only involves individuals.

However, as indicated by Assistant Attorney General Breuer in yesterday’s DOJ release (here) the investigation is “ongoing” and you can bet that many of the companies which employ these individuals are “lawyering up” as past FCPA enforcement actions demonstrate the corporate enforcement actions or investigations often, but not always, precede or follow individual enforcement actions.

As to any potential corporate enforcement action, the websites of several of the companies employing the indicted individuals make specific reference to the company being a U.S. General Services Administration vendor. “Under guidelines issued by the Office of Management and Budget, a person or firm found in violation of the FCPA may be barred from doing business with the Federal government.” (see here).

However, this sanction (to my knowledge) has never been used against an FCPA violator – not even Siemens (see here). Thus, should corporate enforcement actions ensue, this will be an interesting issue to follow.

Given that one of the individuals indicted is employed by a public-company issuer, the SEC may also be interested in that company from, at the very least, an FCPA books and records and internal control perspective.

Given the number of individuals indicted, and the motivations for pleading under the Sentencing Guidelines, it would seem inevitable that one or more individuals will soon “flip” and cooperate with the government thereby potentially complicating the defenses of the remaining individuals.

All charges have been filed in the U.S. District Court for the District of Columbia and assigned to Judge Richard J. Leon (see here).

As evident below, each of the indictments generally follow the same template, allege the core conduct, and charge the same offenses, including conspiracy to violate the FCPA and substantive FCPA violations.

At present, the indictments are only allegations and the individuals are presumed innocent. There is, of course, a very human event in this case and the lives of the indicted individuals (and countless more when you include family and friends) were turned upside down this week.

Stay tuned for a future post as to the “questions” raised by these indictments.

Daniel Alvirez and Lee Allen Tolleson

Alvirez (see here for his background) is described in the indictment as “the President of Company A, an Arkansas company based in Bull Shoals, Arkansas, that manufactured and sold law enforcement and military equipment.”

The company is ALS Technologies, Inc. (see here for its background and here for the company’s press releases on this issue).

According to the indictment, Tolleson “was the Director of Acquisitions and Logistics.”

According to the indictment, between approximately May 2009 – December 2009, Alvirez and Tolleson “would participate in meetings and have discussions” in which Individual 1 (a “business associate of Alvirez and Tolleson” (as well as most the other indicted individuals) and an “former Vice President of International Sales for a company that manufactured and supplied law enforcement and military equipment to law enforcement and military customers around the world”) “said that a friend of his, who was a self-employed sales agent” was tasked by the Minister of Defense of an African country “with obtaining various defense articles for outfitting” the country’s presidential guard.

According to the indictment, “in reality, the self-employed sales agent” was an undercover FBI special agent “posing as a representative of the Minister of Defense” of the African country.

According to the indictment, an object of the scheme was for Alvirez and Tolleson to obtain and attempt to obtain business for their company and themselves by making corrupt payments to the “sales agent” (the undercover FBI agent) who was “consulting” on a sale by the company to the Minister of Defense.

Pursuant to this arrangement, the indictment alleges that Aliverz and Tolleson would agree to pay the “sales agent” “a 20% ‘commission’ in connection with two contract to sell grenades and grenade launchers to the Minister of Defense” “knowing that half of the ‘commission’ was intended to be paid as a bribe to the Minister of Defense” and “half was intended to be split between” Individual 1 and the “sales agent” “as a fee for their corrupt services.”

According to the indictment, money for these payments would be generated through inflating the true price of the grenades and grenade launchers by 20%.

As part of the scheme, the indictment alleges that Alvirez and Tolleson would pay this “commission” into the “sales agent” U.S. bank account “knowing that half of the commission was intended to be paid outside of the United States as a bribe to the Minister of Defense.”

According to the indictment, the business deal was worth approximately $15 million and “would involve several suppliers.” The indictment alleges that on or about May 13, 2009, Alvirez and Tolleson agreed to proceed with the deal per the above-described arrangements and that Alvirez and Tolleson then proceeded to inflate the price quotations, wire the commission, and otherwise take action in furtherance of the deal.

The indictment alleges that on or about October 5, 2009, Alvirez and Tolleson were told by another FBI special agent “posing as a procurement officer” for the African country’s Minister of Defense and “who purportedly reported directly to the Minister of Defense” (the Second FBI Agent) that the “Minister of Defense was pleased with the grenade launchers” sent and the “commission the Minister of Defense had received.” The FBI special agent then allegedly told Alvirez and Tolleson “that the Minister of Defense had given his approval to proceed” with the second phase of the deal. According to the indictment, Alvirez and Tolleson then executed two copies “of the corrupt purchase agreement.”

Based on this core conduct, the indictment charges Alvirez and Tolleson with, among other things, conspiracy to violate the FCPA and two substantive FCPA violations.

Helmie Ashiblie

Ashiblie is described in the indictment as the “Vice President and Founder of Company A, a company that was based in Woodbridge, Virginia, and was in the business of supplying tactical bags and other security-related articles for law enforcement agencies and governments worldwide.”

That company (see here) is i-Shot, Inc.

The allegations against Ashiblie are substantively similar to the above allegations against Alvirez and Tolleson, but involved two contracts to sell “tactical bags”. The indictment alleges that Ashiblie agreed to proceed with the deal and that he then proceeded between August – November 2009 to inflate the price quotations, wire the commission, and otherwise take action in furtherance of the deal.

The indictment also alleges that on or about October 5, 2009, Ashiblie was also told by the Second FBI Agent that the “Minister of Defense was pleased with the tactical bags” sent and the “commission the Minister of Defense had received.” The FBI agent then allegedly told Ashiblie “that the Minister of Defense had given his approval to proceed” with the second phase of the deal. According to the indictment, Ashiblie then executed an additional purchase agreement and sent “thirteen tactical bags for the purpose of having the tactical bags forwarded” to the African country.

Based on this core conduct, the indictment charges Ashiblie with, among other things, conspiracy to violate the FCPA and four substantive FCPA violations.

Ofer Paz

Paz is described in the indictment as a citizen of Israel and the “President and Chief Executive Officer of Company A, an Israel-based company that acts as a sales agent for companies in the law enforcement and military products industries.”

That company is M. Paz Logistics Ltd. (see here).

The allegations against Paz are substantively similar, but involved two contracts to sell “explosives detection kits.” The indictment alleges that Paz agreed to proceed with the deal and that he then proceeded between May – September 2009 to inflate the price quotations, wire the commission, and otherwise take action in furtherance of the deal.

The indictment also alleges that on or about October 5, 2009, Paz was also told by the Second FBI Agent that the “Minister of Defense was pleased with the explosives detection kits” sent and the “commission the Minister of Defense had received.” The FBI agent then allegedly told Paz “that the Minister of Defense had given his approval to proceed” with the second phase of the deal. According to the indictment, Paz then executed the “corrupt purchase agreement.”

Based on this core conduct, the indictment charges Paz with, among other things, conspiracy to violate the FCPA and three substantive FCPA violations.

Andrew Bigelow

Bigelow is described in the indictment as the “Managing Partner and Director of Government Programs for Company A, a company that was based in Sarasota, Florida, and was in the business of selling machine guns, grenade launchers, and other small arms and accessories.”

That company has been identified in media reports as The Gunsearch.com LLC (see here).

The allegations against Bigelow are substantively similar, but involved two contracts to sell “M4 carbine rifles.” The indictment alleges that Bigelow agreed to proceed with the deal and that he then proceeded between May – September 2009 to inflate the price quotations, wire the commission, and otherwise take action in furterance of the deal.

The indictment also alleges that on or about October 5, 2009, Bigelow was also told by the Second FBI Agent that the “Minister of Defense was pleased with the M4 rifles” sent and the “commission the Minister of Defense had received.” The FBI agent then allegedly told Bigelow “that the Minister of Defense had given his approval to proceed” with the second phase of the deal. According to the indictment, Bigelow then executed the “corrupt purchase agreement.”

Based on this core conduct, the indictment charges Bigelow with, among other things, conspiracy to violate the FCPA and two substantive FCPA violations.

R. Patrick Caldwell and Stephen Gerard Giordanella

Caldwell is described in the indictment as the former “Senior Vice President of Sales and Marketing for Company A, a Florida corporation headquartered in Sunrise, Florida, that designed and manufactured concealable and tactical body armor.” According to the indictment, in September 2009, “Caldwell was named Chief Executive Officer of Company A.”

That company is Protective Products of America, Inc. (see here) and (here) for Caldwell’s profile. Of note, Caldwell formerly “served as Deputy Assistant Director, Office of Protective Operations, U.S. Secret Service.”

According to the indictment, Giordanella “was the Chief Executive” of Protective Products “until his resignation on or about March 18, 2009” and from then until at least December 2, 2009 he was a “consultant” for the company.

The allegations against Caldwell and Giordanella are substantively similar, but involved two contracts to sell “body armor plates” The indictment alleges that Caldwell and Giordanella agreed to proceed with the deal and that they then proceeded between May – September 2009 to inflate the price quotations, wire the commission, and otherwise take action in furterance of the deal.

The indictment also alleges that on or about October 5, 2009, Caldwell was also told by the Second FBI Agent that the “Minister of Defense was pleased with the body armor plates” sent and the “commission the Minister of Defense had received.” The FBI agent then allegedly told Caldwell “that the Minister of Defense had given his approval to proceed” with the second phase of the deal. According to the indictment, Caldwell then executed the “corrupt purchase agreement.”

Based on this core conduct, the indictment charges Caldwell and Giordanella with, among other things, conspiracy to violate the FCPA. Caldwell is additionally charged with two substantive FCPA violations.

Haim Geri

Geri is described in the indictment as “the President of Company A, a company based in North Miami Beach, Florida, that serves as a sales agent for companies in the law enforcement and military products industries.”

That company appears to be M.G.S. International Consulting, Inc.

The allegations against Geri are substantively similar, but involved two contracts to sell “the Corner Shot – a special purpose gun accessory that can be used to observe and shoot targets around a corner.” The indictment alleges that Geri agreed to proceed with the deal and that he then proceeded between May – June 2009 to inflate the price quotations, wire the commission, and otherwise take action in furterance of the deal.

The indictment also alleges that on or about October 5, 2009, Geri was also told by the Second FBI Agent that the “Minister of Defense was pleased with the Corner Shot units” sent and the “commission the Minister of Defense had received.” The FBI agent then allegedly told Geri “that the Minister of Defense had given his approval to proceed” with the second phase of the deal. According to the indictment, Geri then executed the “corrupt purchase agreement.”

Based on this core conduct, the indictment charges Geri with, among other things, conspiracy to violate the FCPA and two substantive FCPA violations.

Saul Mishkin

Mishkin is described in the indictment as “the owner and Chief Executive Officer of Company A, a Florida company headquartered in Aventura, Florida, that sold law enforcement and military equipment.”

That company appears to be International Security and Defence Systems (see here).

The allegations against Mishkin are substantively similar, but involved two contracts to sell “riot control suits.” The indictment alleges that Mishkin agreed to proceed with the deal and that he then proceeded between May – September 2009 to inflate the price quotations, wire the commission, and otherwise take action in furterance of the deal.

The indictment also alleges that on or about October 5, 2009, Mishkin was also told by the Second FBI Agent that the “Minister of Defense was pleased with the riot control suits” sent and the “commission the Minister of Defense had received.” The FBI agent then allegedly told Mishkin “that the Minister of Defense had given his approval to proceed” with the second phase of the deal. According to the indictment, Mishkin then executed the “corrupt purchase agreement.”

The Mishkin indictment contains the additional allegation that he was “advised by his attorney that the deal could violate the laws of the United States.” The indictment further alleges that Mishkin then tried to sell the riot control suits indirectly through Individual 1’s company and also contains the allegation that Mishkin also tried to sell “Ready to Eat Meal kits” to Individual 1 pursuant to the same original deal structure even though Mishkin “previously had been advised by his attorney that such a deal could violate the laws of the United States.”

Based on this core conduct, the indictment charges Mishkin with, among other things, conspiracy to violate the FCPA and one substantive FCPA violations.

John Mushriqui and Jeana Mushriqui

John Mushriqui is described in the indictment as “the owner and Director of International Development for Company A, a Pennsylvania company [located in Upper Darby] that was in the business of manufacturing and exporting bulletproof vests and other law enforcement and military equipment.”

Jeana Mushriqui is described as “the General Counsel and United States manager of Company A and the sister of John Mushriqui.”

That company is Mushriqui Consulting LLC (see here).

The allegations against the Mushriquis are substantively similar, but involved two contracts to sell “bulletproof vests.” The indictment alleges that Mushriquis agreed to proceed with the deal and that they then proceeded between May – September 2009 to inflate the price quotations, wire the commission, and otherwise take action in furterance of the deal.

The indictment also alleges that on or about October 5, 2009, the Mushriquis were also told by the Second FBI Agent that the “Minister of Defense was pleased with bulletproof vests” sent and the “commission the Minister of Defense had received.” The FBI agent then allegedly told the Mushriquis “that the Minister of Defense had given his approval to proceed” with the second phase of the deal. According to the indictment, the Mushriquis then executed the “corrupt purchase agreement.”

Based on this core conduct, the indictment charges the Mushriquis with, among other things, conspiracy to violate the FCPA and five substantive FCPA violations.

Jonathan Spiller

Spiller is described in the indictment as the “owner and President of Company A, a Florida company that was in the business of providing consulting services for companies in the law enforcement and military equipment industries.” According to the indictment, “Spiller was also the owner and manager of Company B, a Florida company that was in the business of marketing and selling law enforcement and military equipment. Company A and B were both located in Ponte Vedra Beach, Florida.”

The allegations against Spiller are substantively similar, but involved contracts to sell “rifle-mounted cameras and tactical vehicles.” The indictment alleges that Spiller agreed to proceed with the deal and that he then proceeded between May – September 2009 to inflate the price quotations, wire the commission, and otherwise take action in furterance of the deal.

The indictment also alleges that on or about October 5, 2009, Spiller was also told by the Second FBI Agent that the “Minister of Defense was pleased” with the equipment sent and the “commission the Minister of Defense had received.” The FBI agent then allegedly told Spiller “that the Minister of Defense had given his approval to proceed” with the second phase of the deal. According to the indictment, Spiller then executed the “corrupt purchase agreement.”

Based on this core conduct, the indictment charges Spiller with, among other things, conspiracy to violate the FCPA and two substantive FCPA violations.

John Benson Wier III

Wier is described in the indictment as the “President of Company A, a Florida company headquartered in St. Petersburg, Florida, that sold tactical and ballistic equipment.”

That company is SRT Supply Inc. (see here).

The allegations against Wier are substantively similar, but involved two contracts to sell “laser grips, which are laser sights for handguns.” The indictment alleges that Wier agreed to proceed with the deal and that he then proceeded between May – June 2009 to inflate the price quotations, wire the commission, and otherwise take action in furterance of the deal.

The indictment also alleges that on or about October 5, 2009, Wier was also told by the Second FBI Agent that the “Minister of Defense was pleased with the laser grips” sent and the “commission the Minister of Defense had received.” The FBI agent then allegedly told Wier “that the Minister of Defense had given his approval to proceed” with the second phase of the deal. According to the indictment, Wier then executed the “corrupt purchase agreement.”

Based on this core conduct, the indictment charges the Wier with, among other things, conspiracy to violate the FCPA and two substantive FCPA violations.

Amaro Goncalves

Goncalves is described in the indictment as “the Vice President of Sales for Company A, a United States company headquartered in Springfield, Massachusetts. Company A was a world-wide leader in the design and manufacture of firearms, firearm safety/security products, rifles, firearms systems, and accessories. The shares of Company A were publicly traded on the NASDAQ stock exchange.”

That company is Smith and Wesson Holding Corporation (see here and here for its press release).

The allegations against Goncalves are substantively similar, but involved two contracts to sell “pistols.” The indictment alleges that Goncalves agreed to proceed with the deal and that he then proceeded between May – September 2009 to inflate the price quotations, wire the commission, and otherwise take action in furterance of the deal.

The indictment also alleges that on or about October 6, 2009, Goncalves was also told by the Second FBI Agent that the “Minister of Defense was pleased with the pistols” sent and the “commission the Minister of Defense had received.” The FBI special agent then allegedly told Goncalves “that the Minister of Defense had given his approval to proceed” with the second phase of the deal. According to the indictment, Goncalves then executed the “corrupt purchase agreement.”

Based on this core conduct, the indictment charges Goncalves with, among other things, conspiracy to violate the FCPA and three substantive FCPA violations.

Pankesh Patel

Patel is described in the indictment as a United Kingdom citizen and the “Managing Director of Company A, a United Kingdom company that acts as a sales agent for companies in the law enforcement and military products industries.”

The allegations against Patel are substantively similar, but involved two contracts to sell “uniforms.” The indictment alleges that Patel agreed to proceed with the deal and that he then proceeded between May – September 2009 to inflate the price quotations, wire the commission, and otherwise take action in furterance of the deal.

The indictment also alleges that on or about October 5, 2009, Goncalves was also told by the Second FBI Agent that the “Minister of Defense was pleased with the uniforms” sent and the “commission the Minister of Defense had received.” The FBI agent then allegedly told Patel “that the Minister of Defense had given his approval to proceed” with the second phase of the deal. According to the indictment, Patel then executed the “corrupt purchase agreement.”

Based on this core conduct, the indictment charges Patel with, among other things, conspiracy to violate the FCPA and two substantive FCPA violations.

John Gregory Godsey and Mark Frederick Morales

Godsey is described in the indictment as “the owner of Company A, a Georgia company based in Decatur, Georgia, that was in the business of selling ammunition and other law enforcement and military equipment.” Morales is described as “a busines associate of Godsey” who “worked with him on deals involving Company A.”

The allegations against Godsey and Morales are substantively similar, but involved two contracts to sell “ammunition.” The indictment alleges that Godsey and Morales agreed to proceed with the deal and that they then proceeded between May – September 2009 to inflate the price quotations, wire the commission, and otherwise take action in furterance of the deal.

The indictment also alleges that on or about October 5, 2009, Godsey and Morales were also told by the Second FBI Agent that the “Minister of Defense was pleased with the ammunition” sent and the “commission the Minister of Defense had received.” The FBI agent then allegedly told Godsey and Morales “that the Minister of Defense had given his approval to proceed” with the second phase of the deal. According to the indictment, Godsey then executed the “corrupt purchase agreement.”

Based on this core conduct, the indictment charges Godsey and Morales with, among other things, conspiracy to violate the FCPA and two substantive FCPA violations.

David Painter and Lee Wares

Painter is described in the indictment as a United Kingdom citizen and “the Chairman of Subsidiary A, a company based in the United Kingdom that was in the business of marketing armored vehicles.” Wares is also described as a United Kingdom citizen and the “Director of Subsidiary A.”

According to the indictment, “the parent company of Subsidiary A” is a company based in Cincinnati, Ohio that “produces security products.”

The allegations against Painter and Ware are substantively similar, but involved two contracts to sell “night vision goggles (NVGs) and armored vehicles.” The indictment alleges that Painter and Ware agreed to proceed with the deal and that they then proceeded between May – September 2009 to inflate the price quotations, wire the commission, and otherwise take action in furterance of the deal.

The indictment also alleges that on or about October 5, 2009, Painter and Ware were also told by the Second FBI Agent that the “Minister of Defense was pleased with the NVGs” sent and the “commission the Minister of Defense had received.” The FBI agent then allegedly told Painter and Ware “that the Minister of Defense had given his approval to proceed” with the second phase of the deal. According to the indictment, Painter and Ware then executed the “corrupt purchase agreement.”

Based on this core conduct, the indictment charges Painter and Ware with, among other things, conspiracy to violate the FCPA and three substantive FCPA violations.

Israel Weisler and Michael Sacks

Weisler is described in the indictment as an “owner and Chief Executive Officer of Company A, a Kentucky company that was in the business of designing, manufacturing, and selling armor products, including body armor. Company A’s business was located in Stearns, Kentucky.” Sacks, a citizen of the United Kingdom, is described as a “co-owner and co-Chief Executive Officer of Company A.”

That company is U.S. Cavalry Inc. (see here). Of note, according to the company’s website, is that the company “set upon a quest to earn a General Services Administration Contract to ease the procurement process for our customers at GSA-authorized federal, military and state agencies. The GSA Contract allows these customers to ensure they pay a fair, predetermined price for the equipment they need.”

The allegations against Weisler and Sacks are substantively similar, but involved two contracts to sell “body armor.” The indictment alleges that Weisler and Sacks agreed to proceed with the deal and that they then proceeded between May – June 2009 to inflate the price quotations, wire the commission, and otherwise take action in furterance of the deal.

The indictment also alleges that on or about October 5, 2009, Weisler and Sacks were also told by the Second FBI Agent that the “Minister of Defense was pleased with the body armor” sent and the “commission the Minister of Defense had received.” The FBI agent then allegedly told Weisler and Sacks “that the Minister of Defense had given his approval to proceed” with the second phase of the deal. According to the indictment, Weisler and Sacks then executed the “corrupt purchase agreement.”

Based on this core conduct, the indictment charges Weisler and Sacks with, among other things, conspiracy to violate the FCPA and four substantive FCPA violations.

Yochanan Cohen

Cohen is described in the indictment as the “Chief Executive Officer of Company A, a company based in San Francisco, California, that was in the business of manufacturing security equipment, including body armor and hard armor ballistic plates.”

That company is Highcom Security Inc. (see here). The company’s website indicates that it is a certified General Services Administrator vendor.

The allegations against Cohen are substantively similar, but involved two contracts to sell “Level IV ballistic plates, which is a type of body armor.” The indictment alleges that Cohen agreed to proceed with the deal and that he then proceeded between May – August 2009 to inflate the price quotations, wire the commission, and otherwise take action in furterance of the deal.

The indictment also alleges that on or about October 5, 2009, Cohen was also told by the Second FBI Agent that the “Minister of Defense was pleased with the ballistic plates” sent and the “commission the Minister of Defense had received.” The FBI special agent then allegedly told Cohen “that the Minister of Defense had given his approval to proceed” with the second phase of the deal. According to the indictment, Cohen then executed the “corrupt purchase agreement.”

Based on this core conduct, the indictment charges Cohen with, among other things, conspiracy to violate the FCPA and three substantive FCPA violations.

Historically Massive Sting Operation

Back in November, Assistant Attorney General Lanny Breuer, in a speech (see here) before an FCPA audience said that “[a]lthough many of these cases come to us through voluntary disclosures, which we certainly encourage and will appropriately reward, I want to be clear: the majority of our cases do not come from voluntary disclosures. They are the result of pro-active investigations ….”

Today, the DOJ announced (here) the indictment of 22 (no that is not a typo) “executives and employees of companies in the military and law enforcement products industry” for engaging in a scheme to bribe foreign officials to obtain and retain business.

Per the DOJ release, the 16 unsealed indictments “represent the largest single investigation and prosecution against individuals in the history of DOJ’s enforcement of the FCPA.”

Just how pro-active was this investigation?

According to the release, the “indictments allege that the defendants engaged in a scheme to pay bribes to the minister of defense for a country in Africa.”

However, there was a catch.

There was “no actual involvement from any minister of defense.”

Rather, the defendants “allegedly agreed to pay a 20 percent ‘commission’ to a sales agent who the defendants believed represented the minister of defense for a country in Africa in order to win a portion of a $15 million deal to outfit the country’s presidential guard.”

Just who was the sales agent?

An undercover FBI agent, according to the release.

The names of the indicted individuals as well as the indictments can be found here. Each of the indictments allege substantive FCPA violations, conspiracy to violate the FCPA, and conspiracy to engage in money laundering.

All but one of the individuals was arrested yesterday in Las Vegas. The other was recently arrested in Miami.

In the same November 2009 speech, Breuer noted that the FBI – FCPA specific squad was “growing in size and in expertise” and the release notes that the “investigation is the first large-scale use of undercover law enforcement techniques to uncover FCPA violations…”

Point taken, as the DOJ release notes that “approximately 150 FBI agents executed 14 search warrants” in locations across the country in its investigation.

The DOJ also release suggests that this massive alleged bribery scheme is also being investigated on both sides of the Atlantic as the “United Kingdom’s City of London Police executed seven search warrants in connection with their own investigations into companies involved in the foreign bribery conduct that formed the basis for the indictments.”

Stay tuned for more specifics in this massive case – which I will refer to as “Africa Sting.”

Lighthouses and Buoys – Part II

Earlier this week, the DOJ announced (see here) the indictment of John Warwick, the former President of Ports Engineering Consultants Corporation. Warwick is charged (see here) with conspiracy to pay bribes to former Panamanian officials to obtain contracts to maintain lighthouses and buoys along Panama’s waterways. The substance of the allegations against Warwick are substantively similar to the previous charges against Warwick’s co-conspirator Charles Jumet (see here for the prior post). As noted in that post, Jumet pleaded guilty.

*****

I hate to be a Grinch this time of year, but why does DOJ continually use the term “foreign government official” in its charging documents when that term/element doesn’t even appear in the FCPA? (see para. 1 of the indictment). For more on the incorrect/inconsistent use of this key FCPA term see here.

Lack of Pride (And That CITGO Sign Too)

If the SEC were to put titles on its complaints, the above may be fitting for the complaint released (see here) earlier this week against Bobby Benton (the former Vice President, Western Hemisphere Operations for Pride International, Inc.).

In its complaint (see here), the SEC alleges that “Benton was responsible for, among other things, ensuring that Pride conducted its Western Hemisphere operations in compliance with the FCPA, that adequate controls were in place to prevent illegal payments, and that the company’s books and records were accurate.”

Despite this position, the SEC alleges that: (i) “Benton authorized the payment of $10,000 to a third party, believing that all or a portion of the funds would be given by the third party to a Mexican customs official in return for favorable treatment by the official regarding certain customs deficiencies identified during a customs inspection of a Pride supply boat; (ii) “Benton learned that a customs agent engaged by Pride’s Mexican subsidiaries paid approximately $15,000 to a Mexican customs official to ensure that the export of a rig would not be delayed due to customs violations; and (iii) Benton concealed the bribe payments made by the manager of the Venezuelan branch of a French subsidiary of Pride from Pride’s internal and external auditors by “redact[ing] references to the Venezuelan payments in an action plan responding to an internal audit report.”

The SEC further alleges that “[d]espite his knowledge, and in one instance authorization, of the Venezuelan and Mexican bribes, Benton signed two false certifications in connection with audits and reviews of Pride’s financial statements denying any knowledge of bribery.” The financial results of the Mexican and Venezuelan entities were consolidated with Pride’s for purposes of financial reporting.

The “foreign officials” involved are Mexican customs officials / customs agents and an official of Petroleos de Venezuela S.A. (PDVSA), the Venezuelan state-owned oil company.

Based on the above conduct, the SEC charged Benton with violating the FCPA’s antibribery provisions, aiding and abetting FCPA violations, and aiding and abetting violations of the FCPA’s books and records and internal control provisions.

Most SEC FCPA enforcement actions (whether against a company or an individual) are settled on the same day the civil complaint is filed. Not so in this case and the SEC complaint notes that Benton asserted his 5th amendment privilege against self-incrimination when subpoenaed to testify by the SEC. Will the SEC actually be put to its burden of proof in an FCPA case?

Pride International’s most recent disclosure on this issue is in its 10-Q filed on November 2, 2009 (see here – pgs. 17-18). As noted in the disclosure, what began as an inquiry into Latin America operations has spawned into a substantial worldwide review of the company’s operations.

*****

The Benton complaint mentions Petroleos de Venezuela S.A. (PDVSA), the Venezuelan state-owned oil company.

The DOJ/SEC’s interpretation of the “foreign official” element of an FCPA anti-bribery violation is well known by now – all employees of state-owned or state-controlled entities (SOEs), such as PDVSA, are “foreign officials” regardless of title or position.

Further, all employees of SOE wholly-owned subsidiaries are considered “foreign officials” under this interpretation. In fact, a business entity does not even need to be majority owned by a SOE for its employees to be considered “foreign officials” by DOJ/SEC (see the KBR/Halliburton enforcement action (see here paras 13-14) where officers and employees of Nigeria LNG Limited (NLNG) are deemed “foreign officials” despite the fact that NLNG is owned 51% by a consortium of private multinational oil companies (see here).

Applying DOJ/SEC’s untested and unchallenged interpretation to PDVSA can, well, let’s just say it can lead to some rather weird results.

Why?

One of PDVSA’s wholly-owned subsidiaries is Citgo Petroleum Corporation (“CITGO”) (see here).

Thus, under DOJ/SEC’s view, all CITGO employees are “foreign officials” under the FCPA regardless of title or position.

This despite the fact that CITGO is a Delaware corporation based in Houston.

In other words, CITGO is both subject to the FCPA and all of its employees (under the DOJ/SEC interpretation) are “foreign officials.” How’s that for a little mental gymnastics.

At the very least, this gives readers something to think about the next time they attend a ball game at Fenway Park (see here).

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