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Africa Sting – Press Release Parade

By on January 27, 2010 in Africa Sting

As indicated in a prior post (here), the Africa Sting charges, at this point, only involve individuals.

However, these individuals are employees, executives, and in some cases owners of business organizations and under respondeat superior principles the organization can be accountable for the illegal acts of its employees and agents.
This is not to suggest that prosecution of the organizations employing the indicted individuals is likely or even probable; rather the ultimate issue will be one of prosecutorial discretion applying the Principles of Federal Prosecution of Business Organizations (see here).

With that in mind, it is interesting to see the different ways in which the various business organizations are “publicly speaking” on this issue. Many of the business organizations involved are small and the websites do not have a separate news or press release tab or otherwise address the issue.

In the public statements available, you will see that the organizational responses fall across a wide spectrum from solemn yet forceful, to combative and rambling, to short and diplomatic.

ALS Technologies Inc.

Employer of Daniel Alvirez and Lee Allen Tolleson.

Yesterday, the company released this statement (here).

“A Message from Founder, Owner, and Chairman of the Board, David Alvirez”

I would first like to say thank you to all those who know Linda and me for your continuing support.

As everyone in our community knows, A.L.S. has been a good corporate citizen and a strong contributor to the community and the economic well being of Arkansas citizens. A.L.S. has always – and will continue – to operate and support the fine people of this community. It was my intention to share the facts of the case but I have been instructed that I cannot because they are facts in an on going investigation but when the facts are revealable we will prevail.

The federal government has alleged that a manager at our company engaged in illegal activity. These charges will be dealt with in a court of law.

For years A.L.S. has sold its products to many foreign governments and businesses and has conducted these transactions in compliance with all federal, state and local laws. Each international transaction requires State Department or Department of Commerce approval and without exception, every transaction conducted by A.L.S has had proper authorization to move forward.

The management of A.L.S Technologies had no information that there was anything questionable about any of their transactions with the foreign governments. A.L.S. is a law-abiding family business, and having faith in our judicial system will see our people back in good standing soon.

We appreciate your continued support, encouragement, and prayers as we navigate through this situation.”

Heavy Metal Armory / Machinegun.com / The Gun Search.com LLC

Entities associated with Andrew Bigelow.

Last weekend, the entities released this statement (here).

“Statement on FBI Sting Operation

Heavy Metal Armory has operated legally and within the confines of the law for many many years. Look around this site for yourself. Here you’ll find information everywhere on the correct and legal manner in which we and this industry should operate within the law. We have always taken great pride in doing things correctly and is the only way we believe defense exports should be accomplished, within the law.

While we cannot comment on the details of the case, we can say the following:

The recent FBI / DOJ undercover sting operation which entrapped many executives from many different countries is a clear-cut case of overzealous law enforcement looking to grandstand by targeting law abiding citizens who have no history whatsoever of this sort of alleged activity and in many cases actually fought to improve accountability in the industry to the benefit of law enforcement.

The person who caused this entire mess is Richard Bistrong who is a former Armor Holdings vice president. Mr Bistrong was caught providing more than $4.4 million in bribes to foreign officials including officials of the UN in an ongoing pattern for many many years. His subsequent firing by Armor Holdings and law enforcement contact was never reported. During due diligence process before meeting with Mr. Bistrong, there was no record of his known criminal activities on any of the debarred persons lists nor through background checks which would have alerted industry to a potential issue with this individual such as on the 7 debarred persons/entities lists here on our site. Had law enforcement acted on criminal prosecution of this individual as they should have, this information would have caused his listing on one of the aforementioned alert lists and we are doubtful anyone indicted would have even spoken to Mr. Bistrong for any reason. Mr. Bistrong, then a known criminal and con-man was engaged by law enforcement to spend the next years, yes YEARS, setting up anyone he could come into contact with in the industry.

We thank everyone who has shown support during these difficult times and trust that everyone will listen closely to what is said in court and not believe the media hype. There is so much more to this than most can possibly imagine.”

Protective Products of America, Inc.

Employers of R. Patrick Caldwell and Stephen Gerard Giordanella.

Last week, the company released this statement (here) (relevant portions only).

“Protective Products of America, Inc., a leading manufacturer and
distributor of advanced products in ballistics protection, announced today an internal investigation into certain allegations against its Chief Executive Officer, R. Patrick Caldwell, being brought by the U.S. government. Mr. Caldwell was one of 22executives and employees of different companies in the military and law enforcement products industry charged in a criminal indictment with violating the Foreign Corrupt Practices Act. The Company noted that no charges have been filed against PPA, and Mr. Caldwell is the only present employee of PPA to be implicated in the investigation. An internal investigation regarding the allegations has been commenced by the Company’s Audit Committee, which is comprised solely of independent directors.

Pending the outcome of its internal investigation, Mr. Caldwell will be on administrative leave from his position as Chief Executive Officer and as a member of the Board of Directors.”

Smith and Wesson Holding Corporation

Employer of Amaro Goncalves.

On the day the indictments were announced, the company, a public-company issuer, released this statement (here).

“Smith & Wesson(R) Holding Corporation, parent company of Smith & Wesson Corp., today made the following statement in response to Justice Department enforcement actions that were announced today regarding one of its employees.

Through media reports today, we became aware of the Justice Department enforcement actions which were taken yesterday and which made reference to an employee of our company. We have no information beyond what has been reported and are prepared to cooperate fully with law enforcement in their investigation into this matter.”

*****

The organizations employing the indicted individuals are not the only ones with a float in this press release parade.

Yesterday, the FBI released a statement (here) equating the undercover operation to a “ruse [that] played out with all the intrigue of a spy novel.”

Africa Sting – Entrapment?

By on January 26, 2010 in Africa Sting, Guest Posts

As previously indicated (here) a key FCPA issue presented in the Africa Sting indictments is whether offering to bribe or paying a bribe to a fictitious “foreign official” or a real, but non-participating “foreign official” can constitute a substantive FCPA violation given the influence and induce language in the statute.

Another obvious legal issue raised by the Africa Sting indictments is entrapment.

This is an area of law that is a bit “outside of my strike zone” so I went to the bullpen.

On the mound, Dru Stevenson, a Professor of Law at South Texas College of Law (here). With several entrapment publications (here), Professor Stevenson drops in today for a guest post on the law of entrapment and the legal landscape facing the Africa Sting defendants.

*****

There are two versions of the entrapment defense, the “subjective test” (which is the majority rule, and focuses on the defendant’s predisposition) and the “objective test,” (favored by the Model Penal Code and about 15 states, and focused on the egregiousness of the government’s conduct). Given that this “Africa Sting” case is in federal court (brought under a federal statute, the FCPA), the court will have to apply the subjective test, because the United States Supreme Court adopted this rule in a series of five cases spread over several decades.

All federal courts use the subjective test; so this case will focus on the defendant’s “predisposition” rather than the actual government conduct in the case. The conduct of the FBI or their agents (including non-agency individuals recruited to act as informants or recruiters for the sting operation) will matter only to the extent that it sheds light on how much persuasion was necessary to convince the defendant(s) to violate the law, because this is one factor in showing “predisposition.” The same is true for the “inducement” or enticement (in this case, substantial kickbacks or bribes) involved – it will not really matter except to the extent that it suggests the defendant would never have committed the crime “but for” the undercover agent’s inducement.

Other factors that can show “predisposition” by the defendant are a history of committing similar acts, the alacrity/resistance with which the defendant responded to the undercover agent’s proposition, and the amount of time it took to entangle the defendant in the illegal activity. The subjective test is really a “but-for” test: “but for” the government’s inducement, the defense must show, the culprit would never have pursued such a course of action. It is important to keep this idea distinct from the notion of opportunity. The subjective test does not ask whether it was wrong for the government to provide an opportunity, or even if the undercover agents were deceptive or somewhat unethical in the approach that they used. It is a question of the defendant’s predisposition, which relates to both character and willingness, not opportunity. The subjective test looks at the defendant’s subjective preferences, choices, and history.

This is an uphill battle for defendants in sting operations, because the sting itself was planned out ahead of time to catch the defendant “in the act” with plenty of documentation about the time, place, and manner in which the crime occurred (stings are often on video!). It takes a lot of creativity and charisma to convince a jury that the defendant was actually not inclined to commit the act that he did in fact commit. The conventional wisdom among defense attorneys and legal scholars is that the entrapment defense usually does not work, and there is empirical evidence suggesting that fewer and fewer defendants use it each year.

There is also a significant hazard with raising the entrapment defense in federal court: the defendant’s criminal history becomes admissible evidence at the trial, where it otherwise might be excluded completely. Normally, the federal rules of evidence prohibit prosecutors from introducing the defendant’s prior convictions, because this could be so prejudicial for jurors (they might punish the defendant again for his previous crimes, regardless of his guilt under the present charges). With the entrapment defense, however, the defendant has put his own “predisposition” into issue in the case, arguing that he would never have committed the crime but for the government’s pressure. This opens the door for the prosecutor to submit the defendant’s “rap sheet” or “priors” to rebut his assertion that he lacked the predisposition to commit the crime.

The entrapment defense is, in fact, our country’s primary way of regulating sting operations. On a secondary level, the internal, administrative regulation of sting operations comes from the U.S. Attorney General’s Guidelines on Federal Bureau of Investigation Undercover Operations, which set rules for sting operations that the Federal Bureau of Investigation (the “FBI”) may conduct. The rules (see here) are the subject of modifications every few years, at the discretion of the Attorney General, and the last modification occurred in 2002, under John Ashcroft, mostly in response to the 9/11 terrorist attacks and the reactionary “War on Terror” that ensued thereafter. These Guidelines help illuminate the type of planning that went into this sting operation, but provide no remedies whatsoever for a defendant who is the victim of entrapment. The Guidelines, however, are a contributing factor to the difficulty of prevailing with an entrapment defense – the FBI knows the rules, is required to plan the sting operation carefully before proceeding or obtaining funding, and will generally plan the operation so that they steer clear of providing a potential entrapment defense to their targets.

A final note that may be relevant for these FCPA cases: there is no such thing as “private entrapment,” and even the notion of “vicarious entrapment” gets little traction in the federal courts. By private entrapment, I mean solicitation to commit a crime by someone who is not working for the government – that is, a false friend setting you up to get caught committing a crime, or even a fellow criminal who makes an “offer you cannot refuse.” If the defendant was induced to commit the crime by a private actor, not working for the FBI, no entrapment defense is available. “Vicarious entrapment” is similar: this is the situation where a defendant was recruited to commit a crime by another defendant, who might actually have a valid entrapment defense. In other words, suppose the FBI really crossed the line and recruited otherwise-innocent Defendant A, who was not predisposed to commit the crime but was overwhelmed by the undercover agent’s pressure or enticements; Defendant A might have a valid entrapment defense. If, however, Defendant A went and recruited his ever-willing colleague, Defendant B, into the conspiracy, Defendant B does NOT have a valid entrapment defense. Defendant A’s entrapment claim is non-transferable.

FCPA Undercover

By on January 25, 2010 in Africa Sting, Greens, Shu Quan-Sheng, Undercover Investigations, William Jefferson

The Africa Sting case is indeed the largest and most dramatic use of pro-active, undercover investigative techniques in an FCPA investigation.

However, contrary to numerous reports and even statements attributed to DOJ officials, the Africa Sting case is not the first time that pro-active, undercover investigative techniques have been used in an FCPA investigation. In other words, this is not a new development as demonstrated below.

Shu Quan-Sheng

In September 2008, Shu Quan-Sheng (a naturalized U.S. citizen and President, Secretary, and Treasurer of AMAC International (“AMAC”), a high tech company located in Virginia with an office in Beijing, China) was charged in a criminal complaint (see here and here) with, among other things, offering bribes to Chinese “foreign officials” in violation of the FCPA.

An affidavit (see here) in support of the criminal complaint by an FBI special agent describes several pro-active, undercover investigative methods including court authorized electronic surveillance and physical surveillance. Among other things, the affidavit describes several phone conversations Shu participated in connection with the bribery scheme.

Shu plead guilty to FCPA violations (among other charges) and was sentenced to 51 months in prison. (see here).

Gerald and Patricia Green

In January 2008, Gerald and Patricia Green, owners and operators of Film Festival Management (a private Los Angeles based private entertainment company) were criminally indicted for conspiring to bribe an official with the Tourism Authority of Thailand (TAT) and for making improper payments to the TAT official in violation of the FCPA. (see here and here).

The criminal charges were supported by an affidavit (see here) from an FBI special agent which describes several pro-active undercover investigative methods, including a multiple agent trip to Thailand to witness Mr. Green meeting with the Thai “foreign official.”

In September 2009 (see here), the Greens were found guilty by a federal jury of substantive FCPA violations, conspiracy to violate the FCPA, and other charges. The Greens are scheduled to be sentenced in March 2010.

William Jefferson

In June 2007, then U.S. Congressman William Jefferson was criminally indicted (see here and here). The charges included substantive FCPA violations and conspiracy.

According to numerous media sources (see here), the FBI affidavit released in connection with the investigation describes several pro-active, undercover investigative techniques including cooperating witnesses wearing FBI wires and video surveillance.

In August 2009, Jefferson was acquitted of substantive FCPA charges by a federal jury, but convicted of a wide range of other charges. (see here for more on the Jefferson case). In November 2009, Jefferson was sentenced to 13 years in prison and he remains free on bail pending his appeal.

WrageBlog (see here) has also identified two other previous instances of pro-active, undercover investigative techniques employed in connection with FCPA investigations.

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

By on January 23, 2010 in 2010 Enforcement Actions, Africa Sting, DOJ Enforcement Action, FCPA Related Charges, Individual Enforcement Action, Netherlands, Nigeria, Richard Bistrong, United Nations

“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.

Indicting a “Foreign Official” – Part II

By on January 22, 2010 in FCPA Related Charges, Foreign Official, Greens, Siriwan, Thailand

Yes, there is FCPA news other than the Africa Sting case.

In connection with the Green case (see here), an indictment was recently unsealed (see here) 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.”

Incidentally, the Green’s sentencing (which was to occur today) in which the government is essentially seeking a life sentence for Mr. Green based on FCPA, as well as other convictions and factors, was postponed until March. For more on that issue, see here.

As noted in the first Indicting a “Foreign Official” post a month ago (see here), the FCPA only covers “bribe-payers, not “bribe-takers.”

Thus, like the prior indictment against the alleged Haiti “foreign officials” (Robert Antoine and Jean Rene Duperval), the charges against the Siriwans are not FCPA charges, but largely conspiracy to money launder and “transporting funds to promote unlawful activity.”

However, unlike Antoine and Duperval who are alleged to have U.S. bank accounts which were used in the connection with the bribery scheme, the Siriwan’s bank accounts were located in Singapore, the United Kingdom, and the Isle of Jersey.

There are however facts alleged in the Siriwan indictment which suggest a U.S. nexus. The indictment alleges that the Greens did on occasion “arrange for cash payments to be made directly to Juthamas Siriwan, including during her trips to Los Angeles, California.” The indictment further alleges that Juthamas Siriwan “sent and caused to be sent to co-conspirator Gerald Green a facsimile on TAT letterhead providing wire instructions for transferring funds.” Finally, the indictment also alleges that “co-conspirator Patricia Green received instructions to divide ‘commission’ payments owed to defendant Juthamas Siriwan into wire transfer to three separate accounts.” Although the indictment does not say, it is presumed that the facsimile and instructions were sent to the U.S.

The “transporting funds to promote unlawful activity” charges (two – eight) of the indictment rely on 18 USC 1956(a)(2)(A) which reads in pertinent part:

“(2) Whoever transports, transmits, or transfers, or attempts to transport, transmit, or transfer a monetary instrument or funds from a place in the United States to or through a place outside the United States or to a place in the United States from or through a place outside the United States

(A) with the intent to promote the carrying on of specified unlawful activity

shall be sentenced to a fine of not more than $500,000 or twice the value of the monetary instrument or funds involved in the transportation, transmission, or transfer, whichever is greater, or imprisonment for not more than twenty years, or both.”

The specified unlawful activity alleged in the indictment is “namely, bribery of a foreign official” in violation of the FCPA; “bribery of a public official of Thailand” in violation of Thai law; and the “misappropriation, theft, or embezzlement of public funds by or for the benefit of a public official” in violation of Thai law.

In November 2009, Attorney General Eric Holder stated (see here) that the U.S. was committed to recovering funds obtained by “foreign officials” through bribery and the indictment seeks forfeiture of approximately $1.7 million in the foreign bank accounts.

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