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“Get The Business, I Don’t Want To Know How”

By on May 28, 2013 in 1989 – 1997 Enforcement Actions, David Janasik, DOJ Enforcement Action, FCPA Related Charges, FCPA Sentences, Goodyear, Individual Enforcement Action, Iraq, Tire Industry

[This post is part of a periodic series regarding “old” FCPA enforcement actions]

In 1989 the DOJ charged (see here) Goodyear International Corp., a subsidiary of Goodyear Tire & Rubber Co., with FCPA anti-bribery violations.  The two-paragraph information states, in pertinent part, as follows.

“[In 1984] Goodyear International corruptly used the U.S. mails to convey a check, in payment of an invoice for bogus advertising expenses in the amount of $167,429, in furtherance of an offer, payment and promise to pay money in the aggregate amount of $981,124, to an official of the Government of Iraq, to induce said official to use his influence to affect and influence an act of the Government of Iraq, to wit, the purchase of truck tires manufactured by the defendant, in order to obtain and retain business with the Government of Iraq.”

Goodyear International pleaded guilty (see here for the plea agreement) to the information and was ordered to pay a fine of $250,000 (see here).

The “Statement of Facts Supporting the Guilty Plea” (see here) makes for an interesting read.

The conduct at issue focused on David Janasik (a regional export manager for Goodyear International) and his relationships with certain alleged Iraqi officials.  According to the statement of facts, an Iraqi official told Janasik that Goodyear International’s competitors “had been willing to pay cash ‘commissions’ to the official in order to ensure a ‘good relationship’ between those companies and the Iraqi government’s purchasing organization.  The same official then “explained to Janasik that absent such payments Goodyear International could hope for only very limited business from” the government.  The statement of facts indicate, however, that “Janasik told [the official] that such payments were against [company] policy and that he did not feel that he could do business on those terms.”

Thereafter, according to the statement of facts, Janasik told Goodyear International’s Assistant Director for Export Operations of the payment demand and the Assistant Director for Export Operations, in turn, discussed the payment demand with Goodyear International’s Regional Director for Europe / Vice President who stated, with respect to Janasik’s contact in Iraq, “get the business, I don’t want to know how.”

According to the statement of facts, Janasik then carried out the scheme by using Goodyear International’s advertising manager for Greece – who has once operated an advertising agency in Iraq – to arrange for false invoices to be prepared billing Goodyear for Arab language advertising purportedly placed in Baghdad newspapers.

According to this New York Times article, “Goodyear auditors uncovered the scheme in 1985 and immediately reported it to the Justice Department for prosecution.” Interestingly, according to other media reports, Charles F.C. Ruff, a lawyer for Goodyear, said “I don’t think by any measure the company blesses everything that was said in the statement of facts.”

According to media reports,  Janasik pleaded guilty to federal income tax charges in connection with the bribery scheme, cooperated in the DOJ’s investigation, and was sentenced to two years’ probation and a $10,000 fine.

An Important FCPA Case You’ve Likely Never Heard About

By on May 7, 2012 in 1989 – 1997 Enforcement Actions, AEA Aircraft Recovery, Alfredo Duran, DOJ Enforcement Action, Dominican Republic, Facilitating Payments, FCPA Jurisprudence, FCPA Sentences, FCPA Trials, Foreign Nationals, Individual Enforcement Action, Joaquin Pou, Jose Guasch, Obtain or Retain Business, Robert Gurin

Last week (here) I noted, in connection with Wal-Mart’s potential FCPA exposure, that the enforcement theory that payments outside the context of foreign government procurement fall under the FCPA’s anti-bribery provisions has been subjected to judicial scrutiny three times.  After summarizing those three instances, I noted that the scorecard was as follows:  US – 1; Defendants – 2; or if you prefer US – .5; Defendants – 2.5 (recognizing that the 5th Circuit decision in Kay is equivocal).

Last week in doing some research, I stumbled upon a fourth instance where this enforcement theory was subjected to judicial scrutiny.

The result?  DOJ lost.

Thus, the scorecard is as follows when an enforcement agency is put to its burden of proof on the enforcement theory that payments outside the context of foreign government procurement fall under the FCPA’s anti-bribery provisions:  US – 1; Defendants – 3; or if you prefer US – .5; Defendants – 3.5 (again recognizing that the 5th Circuit decision in Kay is equivocal).

This 1990 FCPA enforcement action is so obscure it was not even cited in any of the decisions of the other challenges which occurred between 2002-2004.   For instance, in the Kay trial court decision in 2002, the court stated that it was confronting an issue of first impression in the federal courts.

Below is a summary of U.S. v. Alfredo Duran.

AEA Aircraft Recovery (“AEA”) was a division of Summerland Engineering Corp. (a Florida corporation) and engaged in the business of recovery of seized aircraft.  The sole shareholder of Summerland was Robert Gurin.

In 1989, the DOJ charged Joaquin Pou (a Dominican Republic citizen and an agent of AEA, Summerland and Gurin), Alfredo Duran (a U.S. citizen and agent of AEA, Summerland, and Gurin)  and Jose Guasch (a U.S. citizen and agent of AEA, Summerland, and Gurin) with conspiracy to violate the FCPA’s anti-bribery provisions.  See here for the criminal indictment.  In a criminal information (see here) the DOJ also charged Robert Gurin.

According to the charging documents, the defendants conspired to make payments to officials of the Dominican Republic in order to obtain the release of two aircraft seized by the government of the Dominican Republic.  The charging documents then proceed to set forth various acts in furtherance of the conspiracy.

Gurin and Guasch pleaded guilty and Pou (a citizen of the Dominican Republic) became a fugitive.  Gurin was sentenced to 5 years probation and 100 hours of community services and Guasch was sentenced to 4 years probation, 1 month of house arrest and 75 hours of community service.

Duran, a former Florida state Democratic Party chairman, pleaded not guilty and put the DOJ to its burden of proof at trial.  At the close of the DOJ’s case, he filed a motion for judgment of acquittal (see here).  Duran argued that “no reasonable jury could find that the purpose of any of the alleged intended payments was to assist […] in obtaining or retaining business” and that the government “has failed to adduce sufficient evidence to prove any intended payments were not facilitating or expediting payments for the purpose of expediting or securing routine governmental action (i.e. grease payments).”

The motion stated that “the legislative history to the 1977 Act makes clear that the evil redressed by the Act was the use of bribery by U.S. corporations to obtain contracts for the sale of good or services to foreign countries.”  The motion then referenced that in 1988 Congress “created an exception for expediting or facilitating payments for the purpose of securing routine governmental action.”  The motion stated, “by clear implication, payments in respect of the awarding of procurement contracts of the foreign government are the type of payments targeted” by the FCPA.

The motion then stated as follows.  “The evidence, taken in the light most favorable to the government, shows at best that payments were to be made to Joaquin Pou and, through him, to unidentified Dominican government officials for the purpose of obtaining the release of a single aircraft to its owner.  Clearly, this is not what Congress intended by the phrase obtaining or retaining business …  The fact that this intended payment may have indirectly benefited Gurin’s business by facilitating the release of an aircraft does not establish the type of direct business purpose contemplated by the statute.”  Duran argued that “the government has failed to establish that the intended payments in this case were for the specific purpose of obtaining or retaining business … and, accordingly, a judgment of acquittal should be entered.

Turning next to facilitating payments, the motion argued that “the government bears the burden of disapproving that the payment was not a ‘facilitating or expediting payment” and that had “Congress intended the ‘facilitating or expediting payment exception’ to be an affirmative defense, it would have placed it” in the portion of the FCPA containing affirmative defenses.  The motion stated as follows.  “By its nature, therefore, the exception creates an additional element which the government must disprove beyond a reasonable doubt to establish the crime.”  The motion then goes through the legislative history of facilitating payments and how in the original FCPA the concept was imbedded in the definition of “foreign official” and how in 1988 Congress created the stand-alone facilitating payment exception.

As to the evidence at trial, the motion stated as follows.  “Here the evidence introduced by the prosecution is only consistent with a finding that the purpose of the alleged intended payments was to facilitate or expedite the release of an aircraft.  The Defendant had been told by an undercover government informant that there was no legal holds upon the aircraft.  He was led to believe that neither the Dominican Republic nor any other government held any legal claim to or right in the aircraft.  He understood that it was simply a straightforward matter of expediting the release of an aircraft on behalf of the owner.  Any intended payment was simply for the purpose of hurrying along a bureaucratic process.  The purpose of the alleged intended payment was to expedite a routine governmental action.  Consequently, no reasonable jury could conclude that the Defendant agreed upon an illegal objective.”

Elsewhere, the motion stated as follows.  “The facts simply show that the army of the Dominican Republic had no discretion in the matter of the release of the aircraft, and that some government officials were simply trying to line their pockets outside of their official capacities.”  Further the motion stated as follows.  “There was no decision-making process in this case, the facts merely demonstrate a ministerial or clerical matter involving the processing of government papers and the automatic release of the aircraft.”

On April 17, 1990, U.S. District Court Judge Jame Kehoe granted a judgment of acquittal (see here).

Original source media accounts note that  Judge Kehoe said “the government failed to prove the charges against [Duran] were a crime under the Foreign Corrupt Practices Act.”  According to media reports, Judge Kehoe refused a government request to stay acquittal while prosecutors appealed.  Duran is reported as stating, “I feel that I have been throughly vindicated.  I was ready to take the stand in my own defense.  I am very happy.”

An additional dynamic in the case was that Pou fled the U.S. and Judge Kehoe agreed with the defense that all evidence concerning Pou should be excluded from the case.

According to media reports, the case began when the Government used an informant to pose as an agent for the owner of a drug plane seized by the Dominican military.    Media reports suggest that the government was investigating Gurin in light of allegations he had bribed high-ranking military officials in the Dominican Republic and other Caribbean countries to recover drug planes.

One Win, One Loss

By on May 16, 2011 in 1989 – 1997 Enforcement Actions, Colombia, Deferred Prosecution Agreements, FCPA Jurisprudence, FCPA Trials, Harris Corporation, John Iacobucci, Non-Prosecution Agreement, Ronald Schultz

The conviction last week of Lindsey Manufacturing Inc. (see here for the prior post) was indeed the first instance of a company being tried and convicted on FCPA violations – as noted in the DOJ’s release (here).

However, contrary to numerous media reports, it was not the first instance of a company putting the DOJ to its burden of proof in an FCPA trial.

That first occurred in 1990-1991 when Harris Corporation (and certain of its executives) prevailed in an FCPA trial.

Thus, the DOJ’s record in corporate FCPA trials is one win, one loss.

This post summarizes the Harris Corporation enforcement action and includes information gleaned from original source newspaper accounts.

*****

In 1990, Harris Corporation (“Harris”), John D. Iacobucci, and Ronald L. Schultz were charged in a criminal indictment (here) filed in U.S. District Court – Northern District of California.

As alleged in the indictment, Harris was a Delaware publicly-traded corporation headquartered in Melbourne, Florida and through its Digital Telephone Systems (“DTS”) division it manufactured telephone switching systems. Iacobucci was the Vice President and General Manager of DTS and Schultz was, at various times, Director of Human Relations and Facilities at DTS, Director of Administration at DTS and responsible for Contracts Administration.

Robert O’Hara (an unindicted co-conspirator – more on O’Hara below) was the President and sole stock-holder of Polo Associations Corporation, Inc. – a Delaware corporation created by O’Hara “to engage in the business of advising telecommunications companies of ways to obtain business in Latin American countries, particularly Colombia.”

The conduct at issue involved “The Empress Nacional de Telecomunicaciones or Telecom” an alleged “instrumentality of the Government of Colombia responsible for the operation of telex services, maritime communications, and long distance and international telephone and telegraph services within the country of Colombia.” According to the indictment, “Telecom was an instrumentality of the Government of Colombia within the meaning of the FCPA.” However, as detailed below, none of the improper payments at issue were alleged to have been paid to Telecom officials.

The indictment charged that Harris, Iacobucci, Schultz and O’Hara conspired to violate the FCPA by paying and authorizing the payment of money to O’Hara “while knowing that a portion of such money” would be offered or given, directly or indirectly, to “foreign officials, that is, officials of the Government of Colombia” in order to influence the officials to award government telecommunications contracts to Harris in violation of the FCPA. The indictment further charged a conspiracy to violate the FCPA’s books and records provisions.

According to the indictment, part of the conspiracy was that Harris retained O’Hara “as a consultant based upon the representation of O’Hara that he had connections with officials of the Government of Colombia that he would use to assist” Harris in obtaining telecommunications contracts. According to the indictment, Harris agreed to pay O’Hara a 10% commission of the value of any telecommunications contracts entered into between Harris and Telecom.

The indictment does not allege that any payments went to officials of Telecom, but rather that payments went to a “member of the Camara de Representates (CDR), the national legislative of Colombia;” a local Colombian company “that was owned in part by a foreign official, that is, a member of the CDR;” and “various officials of the Government of Colombia.”

The indictment alleged specific meetings and documents that set into motion the bribery scheme.

In addition to the conspiracy charge, the indictment also charged substantive FCPA anti-bribery and FCPA books and records offenses.

Original source newspaper reports from the time detail as follows.

Theodore S. Greenberg, deputy chief of the Fraud Section of the Criminal Division, stated upon issuance of the indictment – “The department continues to view violations of the Foreign Corrupt Practices Act as serious matters and will pursue them accordingly.”

A statement from John Hartley, Chairman and Chief Executive of Harris, stated as follows. “We believe that these charges are based upon a distorted view of the facts, and they represent a radical departure from existing enforcement policies. We have cooperated fully with the Justice Department in its investigation of the allegations, providing clear evidence refuting the charges.”

At the time of the indictment, Harris Corp. was ranked 57th among Department of Defense contractors in terms of total dollar volume of contracts awarded.

Harris, Iacobucci, and Schultz put the DOJ to its burden of proof and the criminal trial began on March 4, 1991. The San Francisco Examiner stated that “the trial is significant because the Justice Department prosecutes only a few such foreign bribery cases a year.”

The same article contained the following background on the case. “The government’s case is based on the testimony of a whistle-blower who handed over company documents to the FBI and a consultant who has pleaded guilty to helping Harris Corp. falsify its records. […] The defendants insist that they authorized only legitimate consulting payments to secure Colombia’s business and claim that the government’s case rests on trumped-up charges by a disgruntled employee. […] At a pretrial hearing, U.S. District Judge Charles A. Legge rejected a request by defense attorneys to exclude dozens of Harris Corp. documents from the trial. They claim that [the whistleblower] stole the documents on behalf of the FBI. […] A key prosecution witness is Robert O’Hara, a consultant who is based in New York. He pleaded guilty in August to a charge of aiding Harris Corp. with falsifying its financial records.”

On March 19, 1991, Judge Legge, “after hearing the prosecution’s case … granted a verdict of acquittal … the defense was not called upon to present its case.” The San Francisco Chronicle stated as follows. “Shortly after the government rested its case, U.S. District Judge Charles Legge of San Francisco ruled from the bench that ‘no reasonable jury’ could convict the company nor its executives on any of the five bribery-related counts for which they were indicted. Citing insufficient evidence, Legge said the government had failed to show any intent by the defendants to enter into a criminal conspiracy. Legge also said it was the first time in his six years on the federal bench that he had dismissed a criminal case at mid-trial for lack of evidence.” The Chronicle called the dismissal a “stunning defeat for the Justice Department” after a 12-member jury heard two weeks of testimony by prosecution witnesses.

The Chronicle further stated as follows. “The acquittal also reinforced the Justice Department’s poor track record of prosecutions in overseas bribery cases. Federal prosecutors have won only two dozen convictions under the Foreign Corrupt Practices Act of 1977 since the law was adopted more than a decade ago.”

Hartley (the above referenced Chairman and Chief Executive of Harris) stated as follows. “We’re very pleased that our Digital Telephone Systems Division and its employees have been vindicated, but we believe the charges should never have been brought in the first place. The Justice Department’s case was based upon a distorted view of the facts and represented a radical departure from existing enforcement policies. As a result, American taxpayers have been burdened with unnecessary litigation costs, and Harris has incurred more than $3 million in legal fees, spent many hundreds of hours of our people’s time, and suffered a substantial disruption of the corporation’s business to prove an absence of wrongdoing that should have been apparent from the beginning. The case has also placed a heavy strain on our two employees named in the indictment.”

Michael Fayad, a lawyer for Harris, stated as follows. “[Judge Legge] decided to dismiss the case for all of the same reasons we had pointed out to the Department of Justice early on, prior to indictment … that there was no bribe, no contract, no agreement to pay a bribe, no corrupt intent.”

Charles Bryer, Schultz’s lawyer, stated as follows. “The case was paper-thin, built on a con man’s story and a disgruntled employee’s vengeance. We were conned to pay some money that we thought was going to be used for a legitimate purpose.”

According to newspaper accounts, DOJ prosecutor Scott MacKay said the government brought the case in good faith – “We’re disappointed with the judge’s ruling. We feel that we presented a good case, but we accept the judge’s ruling.”

Today, Harris Corporation is alive and well. See here for its webpage.

As to O’Hara, as suggested above, he pleaded guilty to related charges in the Eastern District of N.Y. before the Harris et. al trial. However, after the California directed verdict of acquittal, but before his sentencing, O’Hara sought to withdraw his guilty plea. The trial court judge denied his motion and concluded that the acquittal of O’Hara’s alleged co-conspirators was not a “fair and just reason” sufficient to allow O’Hara to withdraw his guilty plea. O’Hara appealed and the Second Circuit affirmed (See 960 F.2d 11).

*****

If non-prosecution and deferred prosecution agreements existed in 1990, would Harris have resolved the enforcement action via such a resolution vehicle? Likely yes. Yet Harris and the individual defendants all prevailed at trial.

Was there anything wrong with this prior era when NPAs and DPAs were not an option in an FCPA enforcement action? I submit no and believe that abolishing NPAs and DPAs in the FCPA context should be subject to serious debate and discussion. For more on this issue (see here).

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