Is BAE’s Monitor Independent?
As has been widely reported (see here and here among other places) David Gold has been appointed to be BAE’s corporate monitor.
Gold (here) is a partner at Herbert Smith LLP, a leading U.K. based law firm, a firm Gold has been associated with for 37 years and will continue to be associated with until his retirement on April 30, 2011.
BAE is a client of Herbert Smith, as the firm candidly acknowledged in this release announcing Gold’s appointment.
In the release, Herbert Smith states:
“This appointment is a mark of some distinction not only for David, reflecting as it does his international standing as one of the City’s leading lawyers, but also for Herbert Smith.”
Herbert Smith should have plenty of institutional knowledge as to many of the facts prompting the need for BAE’s monitor in the first place.
Why?
Because Herbert Smith previously represented Saudi Prince Bandar – the person at the epicenter of BAE’s alleged Saudi bribery scheme – the same bribery scheme that makes up the bulk of the DOJ’s bribery, yet no bribery allegations against BAE (see here).
A June 8, 2007 article in The Guardian (London) details how “Prince Bandar released a statement through his London solicitors Herbert Smith” the same day an article appeared in the Guardian titled “BAE accused of secretly paying £1 billion to Saudi Prince”.
On June 9, 2007, The Guardian detailed how “lawyers for Prince Bandar, the Saudi royal who received £1bn from BAE, accepted last night that he had spent $17m (£8.6m) on refurbishing one of his palaces, using cash from the US accounts concerned.” The article states, “[b]ut his lawyers, Herbert Smith, said that as the palace in Riyadh was an official residence, there was nothing illegal or untoward spending money out of a Saudi official defence ministry account held at Riggs Banks in Washington DC.”
In a June 13, 2007 article, The Guardian further notes how “the multi-milllionaire prince has hired for his defence the city lawyers Herbert Smith.”
So it turns out that BAE’s monitor is a lawyer who has been with Herbert Smith for 3 years – and will continue to be with Herbert Smith until his retirement – the same firm that represents BAE and the same firm that represented Saudi Prince Bandar the unnamed, yet widely reported, recipient of certain of BAE’s payments as set forth in the DOJ’s bribery, yet no bribery criminal information (see here).
Why does this matter?
Because the DOJ-BAE plea agreement (see here – Appendix C) requires an “independent corporate monitor.” The plea agreement states that this individual shall have “sufficient independence from [BAE] to ensure effective and impartial performance of the Monitor’s duties …”
Not only did the DOJ approve of David Gold as BAE’s monitor, but so too did the U.K. government – at least that is what the plea agreement requires.
So, what do you think? Is BAE’s monitor independent?
Friday Roundup
Writer’s cramp at the DOJ, the well fed U.K. Ministry of Defence officials, and a potential cost-savings due diligence tool … it’s all here in the Friday roundup.
Writer’s Cramp at the DOJ?
When Charles Paul Edward Jumet was sentenced in April to 87 months in prison for FCPA and related offenses, the DOJ issued a press release the same day (see here).
When John Warwick was sentenced in June to 37 months in prison for conspiracy to violate the FCPA, the DOJ issued a press release the same day (see here).
When Juan Diaz was sentenced in July to 57 months in prison for conspiracy to violate the FCPA, the DOJ issued … you got it … a press release the same day (see here).
All three instances represented, in FCPA terms at least, a harsh sentence.
So what happens when a sentencing judge rejects the DOJ’s ten year sentencing recommendation and instead sentences the defendants to six months in prison?
Well, let’s just say that the DOJ appears to have experienced a sudden case of writer’s cramp.
As indicated in this prior post, on August 12th, U.S. District Court Judge George Wu of the Central District of California rejected the DOJ’s requested ten year prison sentence for Gerald and Patricia Green and sentenced the couple to six months in prison.
It’s not like the DOJ hasn’t been issuing press releases throughout this case (see here and here), but apparently when a judge materially disagrees with the DOJ, it is time to stop the presses.
Or perhaps it was a mere oversight in which case the DOJ will soon issue a release.
Well Fed U.K. Ministry of Defence Officials
The Guardian recently ran a story that caught my eye.
Written by Rob Evans, the article (see here) details how BAE Systems “regularly wined and dined mandarins and senior military officers.”
The article also claims that BAE Systems “frequently gives jobs to politicians and civil servants in a ‘revolving door’ after they have left public service, including officials who negotiated multi-million pound deals with the company” and that “MoD secretly lobbied to end the Serious Fraud Office’s investigation into allegations that BAE bribed foreign politicians and officials to secure large contracts.”
An MoD spokesman is quoted in the article as saying “It is vital for the MoD to maintain a close relationship with the defence industry to ensure that we have the best equipment for our armed forces. All the meetings are subject to strict guidelines.”
Due Diligence Co-Op Programme
I don’t often highlight the latest in FCPA compliance services, but Red Flag Group’s new offering seemed to make sense to me – plus it is a service that would seem to lead to cost savings for companies.
The ad (here) asks a simple question: “tired of paying full price for the same due diligence report that another company ordered just a few months ago?”
If you answered yes to this question, you may be interested in Red Flag Group’s Due Diligence Co-Op Programme, also explained in the ad.
*****
A good weekend to all.
Friday Roundup
The Bribery Act is not the only thing delayed in the U.K., where in the world is James Tillery, Thai authorities looking into Alliance One and Universal Corp bribe recipients, and corporate directors appear satisfied … it’s all here in the Friday roundup.
BAE U.K. Plea Agreement Delayed
In a recent article in The Times (London), Alex Spence and David Robertson report that the BAE – SFO plea agreement “is unlikely to come before the courts for approval before November.”
In February (see here) the SFO announced that it “reached an agreement with BAE Systems that the company will plead guilty” to the offense of “failing to keep reasonably accurate accounting records in relation to its activities in Tanzania.” The SFO resolution was controversial given that BAE was viewed by many to have engaged in bribery around the world.
The Times reports “that the SFO fears that a judge may now refuse to approve the BAE settlement or increase the penalties imposed on the company.” The article indicates that “BAE, which has always denied bribery, is understood to be frustrated by the slow progress of the SFO case, but the delay is not thought to have had an impact on the company’s operations.”
James Tillery
In December 2008, James Tillery, a former executive of Willbros International Inc., and Paul Novak, a consultant to the company, were criminally charged “in connection with a conspiracy to pay more than $6 million in bribes to government officials in Nigeria and Ecuador …” (see here).
In November 2009, Novak pleaded guilty to one count of conspiracy to violate the FCPA and one substantive count of violating the FCPA (see here).
Tillery has apparently been hanging out in Nigeria, but is now apparently in custody according to various Nigerian news outlets. According to the sources, “Tillery was believed to have been handed over by officials of Interpol to officials of the US Federal Bureau of Investigation (FBI).”
Apparently this occurred “without the knowledge of Attorney-General of the Federation and Minister of Justice, Mr. Mohammed Adoke, who is supposed to be notified before such action is taken. Under section 6 of the Extradition Act, a request for extradition is supposed to be sent to the AGF who is supposed to arraign such a deportee before a magistrate court and upon the declaration of the magistrate, the deportee is deported accordingly.”
Then it was reported that Tillery’s extradition “was stopped by immigration officials at the Murtala Muhammed International Airport, Lagos because he did not have a travel document.”
Then Tillery’s Nigerian lawyer apparently stepped in and said that the attempted extradition was a “grave assault on the sovereignty of Nigeria” and a violation of Nigeria’s Extradition Act because Tillery renounced his U.S. citizenship and became a Nigerian by naturalization in 2009. Thus, the lawyer argued that the U.S. needed to follow legal steps in Tillery’s extradition.
Then it was reported that Justice Abang Okon of the Federal High Court in Lagos ordered the Federal Government to halt its alleged plan to extradite Tillery from Nigeria to the U.S.
For more on Willbros Group and other individuals involved in related enforcement actions (see here and here).
Thai Authorities Investigating Alliance One / Universal Corp. Bribe Recipients
Earlier this month, the DOJ and SEC announced a joint FCPA enforcement action against tobacco companies Alliance One International Inc. and Universal Corporation. Certain of the allegations against both companies involved bribe payments to “Thai government officials to secure contracts with the Thailand Tobacco Monopoly (TTM), a Thai government agency, for the sale of tobacco leaf.” (See here).
In this prior post, I noted that it is potentially embarrassing for a foreign country to have “one of its own” profiled in a U.S. FCPA enforcement action. With increasing frequency, the end result is that the alleged “foreign official” bribe recipient becomes the subject of an “in-country” investigation.
As noted in this Bangkok Post article:
“A local investigation is expected into US allegations that Thailand Tobacco Monopoly staff accepted US$1.93 million (62 million baht) in bribes to buy Brazilian tobacco. The Department of Special Investigation has asked the Finance Ministry to file a complaint against the TTM staff so it can look into the allegations. DSI director-general Tharit Pengdit told the Bangkok Post yesterday the Finance Ministry, which supervises the state-owned cigarette maker, should file a complaint with the DSI so it can look into the US claims. […] Sathit Limpongpan, permanent secretary for finance, said his ministry would work with the Justice Ministry to seek information from the US Justice Department and would conduct an initial investigation.”
Corporate Directors Are Satisfied
According to a recent legal survey by Corporate Board Member and FTI Consulting (see here), 90% of directors “are satisfied with their in-house legal department’s management” of FCPA issues.
A good weekend to all.
The Giffen Gaffe
Perhaps one day the true story will be told about the DOJ’s prosecution of James Giffen.
I don’t pretend to know what happened behind the scene other than to know that something significant occurred behind the scene.
That conclusion is compelled when an original indictment (see here) charging “Giffen with making more than $78 million in unlawful payments to two senior officials of the Republic of Kazakhstan in connection with six separate oil transactions, in which the American oil companies Mobil Oil, Amoco, Texaco and Phillips Petroleum acquired valuable oil and gas rights in Kazakhstan” is resolved via a one-paragraph superseding information (see here) charging a misdemeanor tax violation.
Sure, DOJ can say that it prosecuted a functionally defunct entity, The Mercator Corporation – in which Giffen was the principal shareholder, board chairman, and chief executive officer – with violating the FCPA’s anti-bribery provisions. Yet that criminal information (see here) merely alleges that “Mercator caused the purchase of two snowmobiles that were shipped to Kazakhstan for delivery to KO-2” (a senior official of the Kazakh Government).
You read that correctly.
From an FCPA perspective this entire, nearly decade-long prosecution, was reduced to allegations about two snowmobiles for a Kazakh official.
So what was that something significant that occurred behind the scene?
I don’t know.
But I do know this.
Part of Giffen’s defense was that his actions were taken with the knowledge and support of the Central Intelligence Agency, the National Security Council, the Department of State and the White House. The DOJ did not dispute the fact that Giffen had frequent contacts with senior U.S. intelligence officials or that he used his ties within the Kazakh government to assist the United States. With the court’s approval, Giffen sought discovery from the government to support such a public authority defense and much of the delay in the case was due to the government’s resistance to such discovery and who was entitled to see such discovery.
Perhaps it was that public airing of the information in these documents would be embarrassing to the U.S. government or impact U.S. foreign relations with a key oil and gas producing country.
If so, it is troubling to think that our government condones bribery, when done with the approval or the wink and nod of government officials, while aggressively prosecuting commercial actors – often times based on untested and dubious legal theories.
For the record, Giffen pleaded guilty (see here) last Friday to a one-count criminal information charging him with willfully failing to supply information on tax returns regarding foreign bank accounts in violation of 26 USC 7203. The information charges, and Giffen pleaded guilty to, filing a U.S. individual income tax return which failed to report that he maintained an interest in, and signature and other authority over, a bank account in Switzerland in the name of Condor Capital Management, a British Virgin Islands corporation he controlled. In pleading guilty, Giffen also relinquished right, title and interest he may have had, directly or indirectly, in several named Swiss bank accounts.
Pursuant to the plea agreement, Giffen’s sentencing range will be 0 to 6 months and the applicable fine range will be $250 to $5,000.
For the record, Mercator also pleaded guilty (see here) last Friday to a one-count criminal information charging it with violating the FCPA’s anti-bribery provisions. According to the information, Mercator “advised Kazakhstan in connection with various transactions related to the sale by Kazakhstan of portions of its oil and gas wealth.” The information alleges that between 1995 and 2000 Mercator was paid approximately $67 million in success fees for its work in assisting the Kazakh Ministry of Oil and Gas Industries develop a strategy for foreign investment in the oil and gas sector and coordinating the negotiation of numerous oil and gas transactions. The information charges that certain senior officials of the Kazakh government (including KO-2) had the authority to hire and pay Mercator and that Mercator was therefore “dependant upon the goodwill” of the officials. The one-paragraph statutory allegation merely states that Mercator “caused the purchase of two snowmobiles that were shipped to Kazakhstan for delivery to KO-2.”
As indicated in the plea agreement, the DOJ and Mercator could not agree on whether the 1998 Sentencing Guidelines or the 2009 Sentencing Guidelines apply – an issue that will be left for the court to decide. If the 2009 guidelines apply, the plea agreement sets forth a fine range of $650,000 to $1.3 million. If the 1998 guidelines apply, the plea agreement sets forth a fine range of $30,000 to $60,000.
Whether Mercator’s and/or Giffen’s actions were indeed taken with the knowledge and support of the Central Intelligence Agency, the National Security Council, the Department of State and the White House, the following paragraph from the Mercator plea agreement would seem relevant:
“Because the offense involved an elected official or a public official in a high-level decision-making or sensitive position, the offense level is increased 4 levels pursuant to U.S.S.G. 2C1.1(b)(3).”
That provision (see here) defines “public official” to include, among other categories, an individual “in a position of public trust with official responsibility for carrying out a government program or policy; acts under color of law or official right; or participates so substantially in government operations as to possess de facto authority to make governmental decisions.”
DOJ releases in FCPA enforcement actions are typically peppered with get-tough, this sends a message type of language. The release (see here) in the Giffen / Mercator enforcement action does not contain any quotes from DOJ officials.
William Schwartz of Cooley Godward Kronish LLP (here), a former Assistant United States Attorney in the United States Attorney’s Office for the Southern District of New York where he was Deputy Chief of the Criminal Division, represented both Giffen and Mercator.
So, what to make of the Giffen Gaffe.
It seems that Giffen prevailed not because of the facts or the law, but because he possessed significant leverage over the government in that he asserted his actions were taken with the knowledge and support of the Central Intelligence Agency, the National Security Council, the State Department and the White House.
Few FCPA defendants can make a similar claim. Thus, resolution of the Giffen case would seem to have little or no effect on the nuts and bolts of future FCPA enforcement actions.
Yet, resolution of the Giffen case does raise some troubling issues as to the DOJ’s enforcement of the Foreign Corrupt Practices Act.
For starters, the Giffen case and the Frederick Bourke case (see here for prior posts) generally marked the beginning of the FCPA’s resurgence. Regardless of the outcome of Bourke’s Second Circuit appeal, the trial phase ended with the sentencing judge saying:
“After years of supervising this case, it’s still not entirely clear to me whether Mr. Bourke is a victim or a crook or a little bit of both.”
In both the Giffen and Bourke cases, the DOJ made spectacular allegations only to see these enforcement actions end with a whimper.
The Giffen resolution would also seem embarrassing for the Justice Department which actively preaches the transparency and anti-corruption gospel message around the world while calling on other countries to increase enforcement of their own bribery laws.
However, what does it say about transparency in our country when a case that begins with criminal allegations of more than $78 million in unlawful payments to senior Kazakh officials ends with a misdemeanor tax violation and a largely meaningless FCPA enforcement action against a functionally defunct entity focused merely on two snowmobiles?
The Giffen resolution should further enrage segments of the business community that justifiably see a double standard in that certain business practices seem tolerated when done in connection with government business or policy, yet aggressively prosecuted, often times based on untested and dubious legal theories, when done in connection with a purely commercial transaction.
The Giffen Gaffe is troubling enough in isolation.
Coupled with another bribery blunder from approximately six months ago, it is an open question whether the government’s enforcement of the FCPA, to borrow a parliamentary phrase, would survive a no-confidence vote.
In February, the DOJ alleged (see here) that BAE, the largest defense contractor in Europe and the fifth largest in the U.S. as measured by sales, “provided substantial benefits” “through various payment mechanisms both in the territorial jurisdiction of the U.S. and elsewhere” to a Saudi official “in a position of influence” to award fighter jet deals. The DOJ stated that BAE “provided support services to the [Saudi official] while in the territory of the U.S.” and that these benefits “included the purchase of travel and accommodations, security services, real estate, automobiles and personal items.” The DOJ alleged that over $5 million in invoices for benefits provided to the Saudi official were submitted by just one BAE employee during a one year period. Yet resolution of the BAE enforcement action contained no FCPA charges.
Sure the U.S. may prosecute the most bribery cases in terms of shear numbers compared to other countries.
Yet, as is becoming increasingly obvious, many of those cases are settled via privately negotiated resolution vehicles that are not subjected to any meaningful judicial scrutiny and are based on dubious and untested legal theories.
On the flip side, when allegations of egregious or widespread bribery are alleged, the charges are not even FCPA anti-bribery violations.
Before another U.S. government official goes abroad to spread the anti-corruption gospel, preach transparency, and question other countries commitment to prosecuting bribery, it would seem that our government and Justice Department first need to examine its own enforcement of the FCPA.
Year Two … Plus The Friday Roundup
I missed my own anniversary, the anniversary of FCPA Professor that is.
On July 17, 2009, I formally launched FCPA Professor with this Mission Statement.
Approximately 220 posts later, year two has arrived and the mission remains the same.
It is a pleasure to make frequent deliveries to the marketplace of ideas. FCPA Professor is read worldwide by a diverse group of readers and I thank you for making this space a part of your day.
Now for the Friday roundup.
BAE U.K. Settlement Still Pending
BAE’s bribery, yet no bribery U.S. settlement has long been signed, sealed and delivered. See here and here for more. Yet things are taking a bit longer on the other side of the Atlantic according to this report from a U.K. financial website.
According to the report, Serious Fraud Office director Richard Alderman has admitted “that legal challenges by anti-arms campaigners, and the need to get the case’s extensive documentation in order, have seen the conclusion of the bribery investigation put off until autumn at the earliest.”
With the lashing the SFO took in the Innospec enforcement action (see here), the SFO understandably wants to get this one right.
The BAE U.K. settlement is not the only event that has been delayed. As highlighted in this post from earlier week so too is the new U.K. Bribery Act.
Business is Booming
Furthering the notion that anti-bribery and compliance work is an industry in and of itself, the San Jose Business Journal reports in this recent piece that business is booming – and not just among law firms – as the article profiles Deloitte and KPMG.
The article touches upon certain topics highlighted by others, including Nathan Vardi in this Forbes piece, and Steve Pearlstein in this Washington Post piece.
Noble and Nigeria
A recent post (see here) described Nigeria as a challenging market and highlighted a recent report that found that one in three companies reported paying a bribe to Nigerian public officials in undertaking administrative tasks. The post talked about facilitation payments, which are allowed by the FCPA – at least as written, yet highlighted the many FCPA enforcement actions seemingly based on facilitating payments.
Throw a pending enforcement action against Noble Corporation into that mix.
Here is what the company said in its recent 8-K filing:
“In 2007, we began, and voluntarily contacted the SEC and the U.S. Department of Justice (“DOJ”) to advise them of, an internal investigation of the legality under the FCPA and local laws of certain reimbursement payments made by our Nigerian affiliate to customs agents in Nigeria. The SEC and the DOJ have indicated that they believe that violations of the FCPA occurred and will seek civil and/or criminal sanctions against us, including monetary penalties, and may include additional sanctions against us and/or certain of our employees, as well as additional changes to our business practices and compliance programs. We could also face fines or sanctions in relevant foreign jurisdictions.
We consider the matter relating to the Nigeria investigation to be ongoing and cannot predict (a) when it will conclude, (b) whether either the SEC or the DOJ will open its own proceeding to investigate this matter, or (c) if a proceeding is opened, what potential sanctions, penalties or other remedies these agencies may seek. Based on information obtained to date, we believe it is probable that we will pay an amount to settle this matter with the DOJ and SEC. Given that the matter is not finally resolved, we cannot predict with certainty what amount we will pay in civil and criminal fines and penalties; however, as of June 30, 2010, we accrued approximately $5.1 million relating to this ongoing matter. Any of the sanctions as a result of the Nigerian investigation or any other future violation of the FCPA or similar law could have a material adverse effect on our business or financial condition and could damage our reputation and ability to do business, to attract and retain employees and to access capital markets.
Frontier identified certain payments totaling approximately $35,000 made by one of its former agents to Nigeria immigration officials in 2009 and reported this matter to the DOJ as a possible violation of the FCPA. We reviewed this matter as part of our diligence investigation of Frontier. The DOJ has not indicated what, if any, action it may take with respect to such payments, although the DOJ could seek civil and/or criminal sanctions against Frontier. Upon closing the Frontier acquisition, we would be responsible for such sanctions as well as any other sanctions relating to violations of applicable laws by Frontier, except to the extent that they may be covered by indemnities contained in the merger agreement with Frontier. Any such sanctions could have a material adverse effect on our business or financial condition.”