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Judge (Again) Significantly Rejects DOJ’s Recommendation In Sentencing Bobby Elkins

By on October 25, 2010 in Alliance One International, Bobby Elkin, FCPA Sentences

If the above title sounds familiar, it is.

Last month, the title read “Judge (Again) Significantly Rejects DOJ’s Recommendations in Sentencing Nexus Defendants” (see here). As noted in the prior post, the DOJ sought a 14-17 year sentence for lead defendant Nam Nguyen, but the judge sentenced him to 16 months (plus 2 years of supervised release). Further, the DOJ sought multi-year sentences for two defendants, but the judge sentenced them to probation.

Last week, the DOJ sought another multi-year sentence and again the sentencing judge rejected the recommendation and sentenced the defendant to probation.

There is a clear trend developing.

The DOJ may be charging more individuals with FCPA violations, and those individuals may be pleading guilty (perhaps because of the “carrots” and “sticks” the DOJ possesses), but when it comes time to sentencing, judges are viewing these cases much differently than the DOJ.

In August, Bobby Jay Elkin Jr. pleaded guilty to a one count criminal information charging him with conspiracy to violate the FCPA. (See here for the prior post). Elkin was Country Manager for Dimon International Kyrgyzstan (DIK), a wholly-owned subsidiary of Dimon Inc. (Dimon and Standard Commercial Corporation merged to form Alliance One International in 2005). According to the information, Elkin conspired and agreed with Dimon, DIK, and others to pay and authorize payment of bribes to “officials of state-owned enterprises and other public officials in Kyrgyzstan in order to secure business for” Dimon and DIK.

Although the sentencing memoranda were filed under seal, this report from the Roanoke Times indicates that the DOJ was seeking a 38 month sentence for Elkin.

Time out said Judge Jackson Kiser.

According to the Roanoke Times, Judge Kiser noted, that in making the improper payments, “Elkin faced a choice of either you do this or lose your job.”

Plus, Judge Kiser said, the CIA routinly bribes Afghan warlords, but the CIA’s conduct is not illegal. According to the Roanoke Time, Judge Kiser said that this parallel “sort of goes to the morality of the situation.”

It appears that these two factors, plus Elkin’s cooperation, motivated Judge Kiser to sentence Elkins to three year’s probation (plus a $5,000 fine).

Moreover, Judge Kiser “said he would waive the usual travel restrictions of probation to allow Elkin to return to Kyrgyzstan and resume his job” for a Turkish tobacco company.

*****

In April, Elkin was also charged by the SEC (see here).

For more on the related Alliance One enforcement action (see here).

The Other Leaf Drops

By on August 5, 2010 in Alliance One International, Bobby Elkin, FCPA Jurisprudence, Kyrgyzstan, Obtain or Retain Business, Permits / Licenses / Customs / Tax, Tobacco Industry, U.S. v. Kay, Universal Corporation

The other tobacco leaf dropped for Bobby Jay Elkin Jr. this week.

In April (see here), the SEC charged Elkin, and others, with civil FCPA anti-bribery violations for authorizing, directing and making improper payments to various Kyrgyzstan officials in connection with tobacco business in that country.

This week, Elkin pleaded guilty to a one count criminal information charging him with conspiracy to violate the FCPA. The allegations in the information largely mirror the SEC’s allegations in the April enforcement action. See here for the DOJ release, here for the criminal information, and here for the plea agreement.

Elkin was Country Manager for Dimon International Kyrgyzstan (DIK), a wholly-owned subsidiary of Dimon Inc. Dimon and Standard Commercial Corporation merged to form Alliance One International in 2005. Dimon, Standard Commercial and Alliance One are referred to as Companies A, B, and C in the criminal information and DIK is referred to as the Kyrgyz Subsidiary.

According to the information, Elkin conspired and agreed with Dimon, DIK, and others to pay and authorize payment of bribes to “officials of state-owned enterprises and other public officials in Kyrgyzstan in order to secure business for” Dimon and DIK.

The officials included “Kyrgyz Official A,” “the Akims” and the “Kyrgyz Tax Inspection Police.”

According to the information, Kyrgyz Official A served as the “General Director of the Tamekisi” “an agency and instrumentality of the [Kyrgyz] government [established] to manage and control the government-controlled shares of the tobacco processing facilities throughout Kyrgyzstan.” According to the information, the Tamekisi agreed to issue a license to Dimon to process and export tobacco and that from October 1996 through at least February 2004 Elkin and others personally delivered $2.6 million in cash payments on behalf of Dimon and DIK to the official. The information charges that these payments were intended by Elkin and others to “influence acts or decisions” of the official in his official capacity and to secure Dimon’s “continued access to the tobacco processing facilities controlled by the Tamekisi.”

According to the information, an Akim is a head of Kyrgyz local government with “authority over the sale of tobacco by the growers” within a specific municipality or geographic area. The information charges that beginning in 1996 “it became necessary for [DIK and Elkin] to obtain approval from local Akims to purchase tobacco from the growers in each area. According to the information, several of the Akims demanded payment of a “commission” from Elkin “in order to secure the relevant Akim’s approval” for DIK to purchase tobacco from local growers. The information charges that from January 1996 to at least March 2004 Elkin and others personally delivered “numerous cash payments” on behalf of Dimon and DIK “to the Akims of five different municipalities totaling approximately $254,262.” According to the information, “the payments to the Akims were bribes, intended to influence the acts and decisions of the Akims and to secure [DIK’s] continued ability to purchase tobacco from growers in the muncipalities controlled by the Akims.”

As to the Kyrgyz Tax Inspection Police, the information charges that “during periodic audits” of DIK, the police assessed penalties and threatened to shut down DIK. According to the information, from March 2000 to March 2003, Elkin and others “made approximately nine cash payments to officers of the Kyrgyz Tax Inspection Police totaling approximately $82,850 in order to influence the acts and decisions” of the police and to secure DIK’s “continued ability to conduct its business in Kyrgyzstan.”

What about Alliance One?

The company stated in its recent annual report (here) that it has reached an agreement in principle with the DOJ and the SEC and that its estimated “probable loss” in an enforcement action will be $19.45 million in disgorgement, fines and penalties.

The tobacco industry is proving to be fertile ground for FCPA enforcement.

See here for what Universal Corporation, a Richmond, Virgina based tobacco producer, had to say about its discussions with the DOJ and SEC as to its previously disclosed FCPA matters.

*****

As portrayed in the DOJ’s criminal information and the SEC’s prior enforcement action, carrying on a tobacco business in Kyrgyzstan appears to have a wild-west component to it.

Extortionate payments, facilitating payments, and payments made to obtain or retain business. These are all points on the same continuum. The first two do not violate the FCPA, payments made to obtain or retain business do.

What does the FCPA’s “obtain or retain business” element mean?

The only circuit court decision on this key FCPA element is U.S. v. Kay, 359 F.3d 738, 740 (5th Cir. 2004). The Fifth Circuit, like the trial court, concluded that the FCPA’s “obtain or retain business” language was ambiguous and it thus analyzed the FCPA’s legislative history.

After reviewing the legislative history, the Fifth Circuit was convinced that Congress intended to prohibit a range of payments wider than only those that directly influence the acquisition or retention of government contracts. The Fifth Circuit held that making payments to a “foreign official” to lower taxes and custom duties in a foreign country can provide an unfair advantage to the payer over competitors and thereby assist the payer in obtaining and retaining business. The court concluded that there was “little difference” between these type of payments and traditional FCPA violations in which a company makes payments to a “foreign official” to influence or induce the official to award a government contract.

However, the Fifth court emphatically stated that not all such payments to a “foreign official” outside the context of directly securing a foreign government contract violate the FCPA; it merely held that such payments “could” violate the FCPA. The court recognized that “there are bound to be circumstances” in which a custom or tax reduction merely increases the profitability of an existing profitable company and thus, presumably, does not assist the payer in obtaining or retaining business.

The court specifically stated:

“…if the government is correct that anytime operating costs are reduced the beneficiary of such advantage is assisted in getting or keeping business, the FCPA’s language that expresses the necessary element of assisting in obtaining or retaining business would be unnecessary, and thus surplusage – a conclusion that we are forbidden to reach.”

Did the payments at issue in the Elkin enforcement action “merely increase the profitability of an existing profitable company.”?

Kyrgyzstan, Thailand, Tobacco, and Piranha Fishing

By on April 29, 2010 in 2010 Enforcement Actions, Baxter Myers, Bobby Elkin, Individual Enforcement Action, Kyrgyzstan, SEC Enforcement Action, Thailand, Thomas Reynolds, Tobacco Industry

The SEC announced today (see here) an FCPA enforcement action involving “multiple payments of bribes to foreign officials in Kyrgyzstan and Thailand by senior executives and employees of Dimon, Inc. (“Dimon”) and Standard Commercial Corporation (“Standard”), predecessor companies of Alliance One International, Inc. (“Alliance One”), during the period from 1996 through 2004 in violation of the Foreign Corrupt Practices Act…”

In 2005, Dimon and Standard merged to form Alliance One (see here) and its stock is listed on the New York Stock Exchange.

Kyrgyzstan

According to the SEC complaint (see here), “from 1996 through 2004, Dimon International Kyrgyzstan (“DIK”), a wholly-owned subsidiary of Dimon, paid more than $3 million in bribes to Kyrgyzstan government officials in order to purchase Kyrgyz tobacco for resale to Dimon’s largest customers.”

The complaint alleges that “these payments were made to various government officials, including officials of the JSC GAK Kyrgyztamekisi (“Tamekisi”) [an entity established by the Kyrgyz government that had authority to issue and control licenses for the fermentation and export of tobacco] and local public official (“Akims”)” and “DIK also made improper payments to Kyrgyzstan tax officials.”

According to the compliant: (i) defendant Bobby Elkin Jr., Dimon’s country manager, “authorized, directed, and made these bribes in Kyrgyzstan through a DIK bank account under his name (the “Special Account);” (ii) defendant Baxter Myers, Dimon’s Regional Financial Director, “authorized all fund transfers from a Dimon subsidiary’s bank account to the Special Account;” and (iii) defendant Thomas Reynolds, Dimon’s International Controller, “formalized the accounting methodology used to record the payments made from the Special Account for purposes of internal reporting by Dimon.”

The complaint alleges that in September 1996 “the Kyrgyzstan government imposed a requirement that all exporters of fermented tobacco have an export license,” and that “Tamekisi acted as the issuing authorize and controlled the issuance of export licenses, thus effectively controlling all tobacco purchases in Kyrgyzstan.”

According to the complaint, Elkin “periodically delivered bags filled with $100 bills to a high-ranking Tamekisi official” and that from 1996 to 2004, Elkin, on behalf of Dimon, “paid more than $2.6 million to a high-ranking Tamekisi official…” The complaint also alleges that Elkin “also paid bribes to local government officials in Kyrgyzstan known as the Akims, who controlled the tobacco regions.” The complaint says that “DIK needed the support and consent from each local Akim in order to continue to purchase tobacco from local growers or agricultural collectives” and that “as governors, Akims had the power and influence to prevent the purchase of tobacco in the region, even if a company had an export license.” The complaint also states that “Akims could also send the police to block the entrance to buying stations or install a lock box to prevent the transfer of tobacco.” According to the complaint, “Elkin authorized and paid more than $260,000 to the Akims…”

Finally (at least as to Kyrgyzstan), the complaint details how DIK was “frequently subjected to audits by Kyrgyz tax officials” and that “during one audit, the tax officials determined that DIK failed to submit two reports to the tax office.” Accordingly, the complaint states that the tax officials imposed an approximate $172,000 fine against DIK and the “tax authorities also threatened to seize DIK’s bank accounts and tobacco inventory for tax violations.” However, according to the complaint, “the tax authorities later offered to reduce the tax penalties levied against DIK in exchange for a cash payment.” The complaint then alleges that Elkin “made a cash payment to the tax authorities” and that from 1996 through 2004 Elkin, on behalf of Dimon, “paid approximately $82,850 to Kyrgyz tax officials.”

According to the complaint, although the Special Account used to make the above-described payments “was funded by a Dimon subsidiary in the United Kingdom, the financial reporting on the Special Account by that subsidiary, and all other consolidated subsidiaries, went directly to Dimon’s corporate headquarters in the United States…”

Thailand

The complaint also alleges that “from 2000 to 2003, Dimon paid bribes of approximately $542,590 to government officials of the Thailand Tobacco Monopoly (“TPM”) in exchange for obtaining approximately $9.4 million in sales contracts.” According to the complaint, defendant Tommy Williams, Dimon’s Senior Vice President of Sales, “directed the sales of tobacco from Brazil and Malawi to the TTM through Dimon’s agent in Thailand” and that he “authorized the payment of bribes to TTM officials and characterized the payments as commissions paid to Dimon’s agent in Thailand.”

The complaint alleges that a “portion of Dimon’s selling price to the TTM” included “kickbacks paid as commissions through Dimon’s agent to certain members of the TTM in exchange for the sales contracts.” The complaint alleges that these bribes to the TTM were authorized “by Dimon’s U.S. and Brazilian personnel,” in particular Williams.

The complaint also alleges that “Williams also knew about a purported business trip to Brazil that actually was a sightseeing trip arranged by Dimon and others for TTM officials.” According to the complaint, the “sightseeing trip occurred in May 2000 and included, among other things, trekking in the Amazon jungle, piranha fishing, and visits to Argentina and various Brazilian waterfalls.” The complaint also alleges that in 2002 Williams arranged a trip for a TTM delegation to travel from Bangkok to Brazil “purportedly to look at tobacco blends and samples.” According to the complaint, “the return portion of the TTM delegation’s trip included a one-week stay in Madrid and Rome that was unrelated to the inspection and purchase of tobacco by the TTM.”

Based on the above conduct, the SEC charged Elkin, Myers, Reynolds, and Williams for violating the SEC’s antibribery provisions and for aiding and abetting violations of the FCPA’s internal controls and books and records provisions.

According to the SEC release, “without admitting or denying the allegations” in the complaint, Elkin, Myers, Reynolds, and Williams consented to the entry of final judgments permanently enjoining violations of the FCPA. Myers and Reynolds also agreed to pay a civil monetary penalty of $40,000 each.

The SEC release notes that the settlement with Elkin “takes into account his cooperation” with the SEC’s investigation and “acknowledges of the assistance” of the DOJ and the FBI.

*****

This is the second SEC FCPA enforcement action of the year which seems, according to the facts, to be based, in whole or in part, on extortion or something close to it. For a previous post on the NATCO enforcement action (see here). In addition, earlier this week I had a post “Facilitating Payments or Bribes” (see here). The Kyrgyzstan facts would seem relevant to that issue.

The FCPA, as part of the securities laws, has a statute of limitations of five years. The conduct at issue occured between 1996 and 2004. Perhaps there was a tolling agreement in place or perhaps this is another example where it is difficult to square black-letter law concepts with an FCPA enforcement action.

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