David Painter’s Story
Their names are known by many, their stories by few. Behind every Foreign Corrupt Practices Act enforcement action against an individual is a human story.
As noted in “What Percentage of DOJ FCPA Losses is Acceptable” (here) bringing criminal charges and marshalling the full resources of law enforcement agencies against an individual is an awesome power that our government possesses. That power alters the lives of real people and their families, sidetracks real careers, empties real bank accounts in mounting a defense, and causes often irreversible damage to real reputations.
David Painter has experienced this awesome power and felt its real effects. In January 2010, David Painter was one of the twenty-two defendants charged in the Africa Sting case. See here for the DOJ release. Painter was among the group of Africa Sting defendants criminally charged, but the charges against him and others were dismissed after the DOJ suffered defeats and other setbacks in the first two trials and after the jury foreman in the second Africa Sting trial made this guest post on FCPA Professor.
This recent article from the U.K. Daily Mail tells Painter’s story.
The story tells how Painter (a U.K. citizen and former chief executive of Surrey based 3S – Security Support Solutions Ltd.) was taken down by an FBI SWAT team who thrust their semi-automatic rifles through his car door in Las Vegas, handcuffed him, and led him away at gunpoint. Painter said “it was like having a bomb dropped on your life. There is a dark side to our world, a place beyond our control where governments and their agents can do what they want. My life is the flotsam left in the wake of America’s obsession with policing the world. I have never contravened the rigorous controls and laws in my line of business.” Painter adds “after I was arrested I felt as if I’d just dropped off the radar of my real life, as though I’d disappeared into the American prison system and would never be discovered. I had no access to an international telephone or money, no lawyer, no useful communication from my own government. I got one visit from a British consular official in Las Vegas who had come to check up on my medical welfare.”
The story tells of Painter’s five week journey through the U.S. prison system (he was moved from Las Vegas to San Bernadino, California and from there on ‘Con Air’ to Oklahoma, from Oklahoma he was shuttled to Harrisburg, Pennsylvania, from where he was driven to his arraignment and bail hearing in Washington DC). According to the article, “he slept on a concrete floor; was stripped naked, bent over and searched in public; shared an open latrine in a cell with two dozen inmates and was handcuffed, shackled and chained at the waist when he was moved.” Painter said “There were moments of humor, but it was mostly a matter of survival. I was locked in cells with up to 90 other men, from Mafia types and Hispanic drug barons to fathers who’d committed mortgage fraud. I learned not to ask to watch the news, not to snore, not to be embarrassed about my body and to zone out. It was rough. I saw men being pepper-sprayed. I went hungry and thirsty and was perpetually cold. The whole experience is designed to make you feel precisely what you are: crushable.”
Yet Painter declined to plea bargain. In the story, he states as follows. “My dramatic arrest and the way I was treated in prison was to soften me up for a plea bargain. Ninety per cent of people in my situation accept one because of the almost insurmountable odds against fighting the limitless resources of the DOJ. But I am not the kind of man to perjure myself in court. I could not confess to something I had not done. We sold our home and cashed up the fruits of a lifetime of work to fund the fight.”
Indeed, the story tells of Painter selling his home and liquidating his assets and pensions to pay for his legal fees. As detailed in the story, in May 2010, Painter was permitted to go home to the U.K. to his wife and two children. There “he worked on his defense as he would a job.”
The story closes by noting that David Painter and his family are “slowly righting the ship.” Painter says, “I tell the story of the Gabon deal and think, you couldn’t make it up. But, of course, they did.”
Africa Sting – DOJ Moves To Dismiss Charges Against Spiller, Geri And Alvirez
[This post has been updated]
In February, when Judge Richard Leon granted the DOJ’s motion to dismiss charges against the remaining Africa Sting defendants (see here for the prior post), an open question was what would happen to Jonathan Spiller, Haim Geri and Daniel Alvirez. All three defendants previously plead guilty to a charge of conspiracy to violate the FCPA, a charge Judge Leon dismissed as to all defendants in the second Africa Sting trial in December 2011. In addition, Alvirez also plead guilty to non-sting, real-world conduct related to the Republic of Georgia.
The question has been answered.
Earlier today, the DOJ moved (see here) to dismiss, with prejudice, the Africa Sting charges against Spiller, Geri, and Alvirez. Moreover, the DOJ moved to dismiss, without prejudice, the Republic of Georgia charges against Alvirez. The DOJ filing states as follows. “The government has also concluded that it is in the interests of justice not to prosecute defendant Alvirez on the Georgia conspiracy count at this time, but rather to continue the investigation of that and related conduct. Following such investigation, the government will determine whether to bring criminal charges relating to the conduct.”
Asa Hutchinson (here – Asa Hutchinson Law Group) counsel for Alvirez stated as follows. “We applaud the government’s decision to dismiss all charges in the interest of justice. This case in its entirety was plagued with problems. The government recognized those problems and acted fairly to dismiss all remaining charges. We are hopeful and expectant that the dismissal will end this case.”
Ken Wainstein (here – O’Melveny & Myers) counsel for Spiller stated as follows. “We are very gratified that the Justice Department prosecutors ended their case against Mr. Spiller. This was a difficult decision for them—one of many difficult decisions faced by Mr. Spiller and the prosecutors throughout this case—and I admire them for getting to the fair and just result. Jonathan Spiller is a good man, and it is only right that he be cleared of these charges.” Spiller stated as follows. “I am so glad that this painful episode in my life is now over and that the government decided to do the right thing in dismissing the charges against me. I have tried all along to do what I felt was right and all I want now is to go on with my life. Thank you to everyone that has stood by me and believed in me through this process, especially my lawyers, my friends, and my fiancée.”
Eric Bruce and Matthew Menchel (here and here – Kobre & Kim) counsel for Geri stated as follows. “We commend the Department of Justice in making the appropriate decision to dismiss all charges against Mr. Geri. It would have been a grave injustice for Mr. Geri to be branded a felon as a result of this failed sting operation. Haim Geri is a good and decent man, who can now put this unfortunate chapter behind him and start rebuilding his life.”
During today’s hearing on the DOJ’s motion, a knowledgeable source informed that Judge Leon indicated he will grant the motion and defense counsel and the DOJ are working to prepare an order for Judge Leon to sign dismissing the charges (as noted above) and vacating the prior guilty pleas.
When Judge Leon grants the motion, the DOJ’s record in the Africa Sting case (a case Assistant Attorney General Lanny Breuer called a “turning point”) will be 0-22.
See here for my recent publication “What Percentage of DOJ FCPA Losses is Acceptable?” To borrow from Justice Potter Stewart’s classic reasoning in Jacobellis v. Ohio, I don’t know what level of DOJ FCPA losses is acceptable and the answer may be indefinable. But I know it when I see it, and the number and magnitude of DOJ’s recent FCPA losses is unacceptable.
Friday Roundup
A week (so far) without a new disclosure, quotable, and from the archives. It is all here in the Friday roundup.
Is It Possible?
Granted the week is not yet over, but thus far this week there has not been a new FCPA disclosure. The past three weeks, I have (somewhat tongue in cheek) noted – what seems like – new FCPA related disclosures every week. See here and here for prior posts.
While not a new FCPA disclosure, Total S.A. did indicate as follows in a recent Form 6-K filing.
“In 2003, the United States Securities and Exchange Commission (SEC) followed by the Department of Justice (DoJ) issued a formal order directing an investigation in connection with the pursuit of business in Iran, by certain oil companies including, among others, TOTAL. The inquiry concerns an agreement concluded by the Company with a consultant concerning a gas field in Iran and aims to verify whether certain payments made under this agreement would have benefited Iranian officials in violation of the Foreign Corrupt Practices Act (FCPA) and the Company’s accounting obligations. Investigations are still pending and the Company is cooperating with the SEC and the DoJ. In 2010, the Company opened talks with U.S. authorities, without any acknowledgement of facts, to consider an out-of-court settlement as it is often the case in this kind of proceeding. Late in 2011, the SEC and the DoJ proposed to TOTAL out-of-court settlements that would close their inquiries, in exchange for TOTAL’s committing to a number of obligations and paying fines. As TOTAL was unable to agree to several substantial elements of the proposal, the Company is continuing discussions with the U.S. authorities. The Company is free not to accept an out-of-court settlement solution, in which case it would be exposed to the risk of prosecution in the United States.”
Quotable
A collection of recent statements by DOJ officials concerning its recent trial setbacks and the future of FCPA enforcement.
See here from Reuters quoting Charles Duross (DOJ FCPA Unit Chief) as saying. “I know there is a lot of commentary out there about what this portends for the FCPA program, the use of certain law enforcement techniques. I would caution everybody not to draw too much from that. In terms of pursuing cases moving forward, I don’t think a lot is going to change.”
See here from Wall Street Journal Corruption Currents quoting Nathaniel Edmonds (DOJ) as saying – “the Department of Justice is going to continue to fight corruption, we’re committed to it, and we’re in it for the long haul.”
See here from the Blog of Legal Times quoting Edmonds as saying – FCPA violations are “not a regulatory offense. It’s a criminal violation. You cannot assume it’s a cost of doing business. People go to jail…it’s not just a regulatory fine.” The Blog of Legal Times also quotes Kara Brockmeyer (SEC FCPA Unit Chief) as saying “you can never stamp out someone who wants to pay a bribe somewhere … but if a company has strong internal controls, they can find the problem and fix it quickly.”
Meanwhile, Brockmeyer’s predecessor, Cheryl Scarboro (who left the SEC for private practice last summer – see here for the prior post) said in this recent Q&A with Trustlaw as follows. “There hasn’t been much litigation in this area and so if a particular area of a statute is open to interpretation, then typically the DOJ or the SEC will interpret it themselves and those are in the settled context.” After referencing the recent foreign official challenges, Scarboro states as follows. “But I think that it is correct (to say) that there is very little guidance as it relates to decided court cases in this area and that it leaves certain key areas open to interpretation.” Scarboro also recently co-authored a Law360 article (here) titled “Mounting Pressure for FCPA Reform.”
From the Archives
It was inappropriate when issued on January 26, 2010. Looking back it perhaps foreshadowed future difficulties. It is the FBI’s press release in the Africa Sting case (see here). It states that the “ruse played out with all the intrigue of a spy novel” and then on January 18, 2010 “we arrested them.” The release closed as follows. “You never know, that individual willing to take a bribe may really be an undercover FBI agent.” For the rest of the story, see this recent story in the Washington Post.
Friday Roundup
Reader mail, an Olympic loophole, this week’s disclosure(s), the SEC speaks, and so do executives … it’s all here in the Friday Roundup.
Reader Mail
At times, even I ask myself why I spend countless hours maintaining a free website. Then I receive an e-mail from a reader such as the one below (the reader encouraged me to share it) and I keep writing.
“I just wanted to thank you for your blog. My son-in-law, [former Africa Sting defendant], was involved in the sting case.
After his arrest we found your website and learned alot from it. We had never heard of the fcpa before all of this happened. Your site was the most informative and easy for nonlawyers to understand. I would check it everyday for updates! It was my lifeline! Thank you again for writing so much about the case. I’m just glad it is over and life can go back to normal.
Sincerely,
[Relative of former Africa Sting defendant]”
Olympic Loophole
A recent article in the Wall Street Journal (A Battle for Mongolia’s Copper Lode – Feb. 22nd) reminded me of a post lost in the unpublished archives.
Last August, Rio Tinto PLC, which manages the Oyu Tolgoi mine in Mongolia, announced (here) that the company “signed an agreement with the Mongolian National Olympic Committee (MNOC) to be a Gold Partner sponsor for the Mongolian National Team competing at the London 2012 Olympic and Paralympic Games.” In the release, Rio Tinto Country Director Mongolia, David Paterson, stated “we are sponsoring the National Olympic Team as part of our long-term commitment to Mongolia and Oyu Tolgoi.” The release further stated as follows. “Rio Tinto’s Olympic sponsorship is just one of many ways the company is contributing to Mongolia’s development. For example, Rio Tinto invests in numerous programmes that assist regional and local communities and young Mongolians in the areas of education and training, local procurement practices and sustainable development.”
An August 2011, Wall Street Journal article discussing Rio Tinto’s sponsorship states that Mongolia “is a key battleground for mining companies, which are vying to extract its rich mineral deposits” and that the Oyu Tolgoi project “is expected to yield 1.2 billion metric tons of copper and 650,000 ounces of gold a year in its first 10 years, as well as silver and other metals.”
For more on Rio Tinto’s involvement at Oyu Tolgoi, see here from the company’s website.
On one level, engaged corporate citizens with a committment to community welfare and development is a good thing and ought to be encouraged.
But, on another level, and FCPA jurisdictional issues aside (although Rio Tinto’s ADR’s are traded on a U.S. exchange), is a company’s sponsorship of a country’s Olympic team any less problematic than a company providing a laptop computer or an expensive bottle of wine to an employee of a state-owned or state-controlled enterprise? What about pre-paid gifts cards (oops, getting ahead of myself, that is coming up next)? Such instances have never been the sole basis for an FCPA enforcement action, but such allegations (or those similar) are frequently included in FCPA enforcement actions suggesting that the enforcement agencies do indeed view such conduct as problematic.
Strange as it may sound, the FCPA’s anti-bribery provisions are only implicated when something of value is provided, directly or indirectly, to a foreign official to influence the official in obtaining or retaining business. The FCPA’s anti-bribery provisions are not implicated when the thing of value is provided to a foreign government itself. Even the DOJ recognizes this. See here for DOJ Opinion Procedure Release 09-01 in which the DOJ states that the proposed course of conduct “fall[s] outside the scope of the FCPA in that the [thing of value] will be provided to the foreign government, as opposed to individual government officials …”.
Is this an FCPA loophole? If so, ought it be closed?
This Week’s Disclosure(s)
Back to those pre-paid gift cards.
On Feb. 16th in this prior post, I commented (somewhat tongue-in-cheek) that every week another company seems to be disclosing FCPA scrutiny. So far two weeks have passed and there have been two new disclosures. This week’s disclosure is from W.W. Grainger Inc. (consistently ranked as one of the “world’s most admired companies” by Forbes). In a recent SEC filing, the company (a broad-line distributor of maintenance, repair and operating supplies and other related products and services) stated as follows.
“The Company is conducting an inquiry into alleged falsification of expense accounts submitted by employees in certain sales offices of Grainger China LLC, a subsidiary of the Company. In the course of the investigation the Company learned that sales employees may have provided prepaid gift cards to certain customers. The extent and value of the gift cards are subject to further inquiry. The Company’s investigation includes determining whether there were any violations of laws, including the U.S. Foreign Corrupt Practices Act. Consequently, on January 24, 2012, the Company contacted the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) to voluntarily disclose that the Company was conducting an internal investigation, and agreed to fully cooperate and update the DOJ and SEC periodically on further developments. The Company has retained outside counsel to assist in its investigation of this matter. Because the investigation is on-going, the Company cannot predict at this time whether any regulatory action may be taken or any other potential consequences may result from this matter.”
Finally on the disclosure front, in August 2011, Brucker Corp. made an FCPA disclosure concerning its Brucker Optics subsidiary in China. Recently, the company further disclosed as follows.
“As previously reported, in 2011 the Audit Committee of our Board of Directors commenced an internal investigation, with the assistance of independent outside counsel and an independent forensic consulting firm, in response to certain anonymous communications received by us alleging improper conduct in connection with the China operations of our Bruker Optics subsidiary. The Audit Committee’s investigation, which included a review of compliance by Bruker Optics and its employees in China and Hong Kong with the requirements of the Foreign Corrupt Practices Act (FCPA) and other applicable laws and
regulations, has been completed. The investigation found evidence indicating that payments were made that improperly benefited employees or agents of government-owned enterprises in China. The investigation also has found evidence that certain employees of Bruker Optics in China and Hong Kong failed to comply with our corporate policies and standards of conduct. As a result, we have taken personnel actions, including the termination of certain individuals. We have also terminated our business relationships with certain third party agents, implemented an enhanced FCPA compliance program, and strengthened the financial controls and oversight at our subsidiaries operating in China and Hong Kong. We have also initiated a review of the China operations of our other subsidiaries, which is being conducted with the assistance of an independent audit firm.
“In the fiscal year ended December 31, 2011, $4.3 million was recorded for legal and other professional services incurred related to the internal investigation of these matters.”
As noted in Brucker’s initial filing, in 2010, the China operations of Bruker Optics accounted for less than 2.5 percent of the Company’s consolidated net sales and less than 1.0 percent of its consolidated total assets.
SEC Speaks
The Subject to Inquiry Blog published by McGuireWoods has this post regarding the recent SEC Speaks event. Regarding anti-corruption enforcement, the post states as follows.
The Commission now has a “cross-border group” charged with ferreting out corruption in corporations that trade on US exchanges, but are headquartered abroad. The group is particularly interested in the accounting policies and financial disclosures of cross-border companies, many of which rely on “small US audit firms.” As a result, the SEC is leaning on audit firms, which the SEC regards as “gatekeepers.” To that end, the SEC issued guidance in 2010 and again in 2012, advising that they conduct risk-based analyses of their overseas clients. According to Kara Brockmeyer, head of the SEC’s FCPA Unit, the SEC has seen a spike in Form 8-K reports of accounting irregularities, as well as a jump in Rule 10A reports. She expects additional 10A reports to flow in through the Office of the Whistleblower.
Brockmeyer noted that the SEC is also devoting significant resources to Foreign Corrupt Practices Act (FCPA) enforcement. The SEC’s FCPA Unit is focusing heavily on international cooperation, teaming with regulators around the world. She highlights the FCPA Unit’s cooperation with Switzerland, Russia, and China, each of which recently enacted anticorruption laws. The FCPA Unit brought 20 FCPA enforcement cases 2011, including 19 against companies and one against an individual. Brockmeyer cautioned, however, that the 2011 numbers should not be seen as a model. Indeed, in 2012 the SEC has already charged 14 individuals with FCPA violations, compared with only five companies charged.
From the Executive’s Mouth
Some excerpts from earnings conference calls that caught my eye.
From Bill Utt (President, CEO and Chairman of KBR Inc.) during a recent call. “I would also like to report that in February KBR successfully concluded our three-year independent corporate monitorship related to KBR’s 2009 plea under the US Foreign Corrupt Practices Act case. Overall, the engagement with our corporate monitor was a positive experience for KBR. We remain committed to consistently doing the right thing every time, and our commitment to compliance is a fundamental part of KBR’s culture. In fact, our compliance programs are paying off in terms of new work as we were recently awarded an international project where our compliance program was a differentiating factor in KBR securing the work.”
From Kevin Royal (Senior VP, CFO of Maxwell Technologies) during a recent call. “Now I would like to provide an update regarding the shareholder derivatives. As we have disclosed in past public filings in 2010, two shareholders had alleged that certain of our past and current officers and directors failed to prevent us from violating the US Foreign Corrupt Practices Act, or FCPA. It is important to note that the Company is only a nominal defendant in this suit. In December 2011 mediation was held and a proposed settlement was reached wherein $3 million would be paid to plaintiff’s counsels, with $2.7 million to be paid by our insurance carrier, and $290,000 would be paid by the Company. In addition, we would be required to insure that certain corporate governance measures are in place and in force. The agreement is subject to among other things, court approval and notice to our shareholders. Without admitting any wrongdoing, the defendants to this suit are willing to enter into this settlement in order to expedite resolution of the matter, and to relieve the defendants and the Company from further financial burden. We are pleased that this suit is near final settlement, and look forward to putting this matter behind us.” [For a recent post on FCPA-related civil litigation titled “A Purpose or Parasitic” – see here].
From Bernard Duroc-Danner (President and CEO of Weatherford International in response to a question about the company’s FCPA inquiry) “Well, there’s not a lot to say about, that I can say, about the DOJ process. To a degree, I think it fell off the screen as it were. For us it moves slowly, that’s all I can tell you. So, I don’t have much of an update that I can tell you. And actually even if I could, I wouldn’t have much of an update period.”
*****
On that note, a good weekend to all.
Africa Sting – In The Words Of Judge Leon
Yesterday’s post contained a roundup of Africa Sting coverage and statements, including a few reported sentences Judge Leon made when dismissing charges against the remaining Africa Sting defendants.
This post sets forth in full the substance of Judge Leon’s statement.
“This appears to be the end of a long and sad chapter in the annals of white collar criminal enforcement. Unlike takedown day in Las Vegas, however, there will be no front page story in the New York Times or the Post for that matter tomorrow reflecting the government’s decision today to move to dismiss the charges against the remaining defendants in this case. Funny isn’t it what sells newspapers.
The good news, however, is that for these defendants, agents, prosecutors, defense counsel and the Court we can get on with our professional and personal lives without the constant strain and burden of three to four more eight week trials hanging over our heads.
I for one hope this very long, and I’m sure very expensive, ordeal will be a true learning experience for both the Department and the FBI as they regroup to investigate and prosecute FCPA cases against individuals in the future.
Two years ago, at the very outset of this case I expressed more than my fair share of concerns on the record regarding the way this case has been charged and was being prosecuted. Later, during the two trials that I presided over I specifically commented again on the record regarding the government’s very, very aggressive conspiracy theory that was pushing its already generous elasticity to its outer limits. Of course, in the second trial that elastic snapped in the absence of the necessary evidence to sustain it.
In addition, in that same trial, I expressed on a number of occasions my concerns regarding the way this case had been investigated and was conducted especially vis-a-vis the handling of Mr. Bistrong. I even had an occasion, sadly, to chastise the government in a situation where the government’s handling of the discovery process constituted sharp practices that have no place in a federal courtroom.
Notwithstanding all of this water over the dam, and there has been a lot of water, I’m happy to see and I applaud the Department for having the wisdom and courage of its convictions to face up to the limitations of its case as revealed in the past 26 weeks of trial and the courage to do the right thing under the circumstances.
Having served at the higher levels of the Department, I know that that was not an easy decision. They never are, when so much has been invested, and the agents and the prosecutors are so convinced of the righteousness of their position. I for one however am confident this will be in the end a positive, if not painful, lesson that results in better prosecutions of individuals in the future under the FCPA. As for the defendants, I hope the healing process is a swift one and that they get back to their normal lives in the very near future.
Finally, I would be remiss if I did not comment on the tireless and spirited effort by the defense counsel from all over the country who came here to try these very lengthy and complicated cases under difficult circumstances and some even pro bono. Their hard work and effective advocacy are a testament to how strong our criminal defense bar is nationwide.
As so without further adieu I grant the government’s motion to dismiss. The defendants are excused.”