Tesler Pleas to Bonny Island Bribery Charges
Last Friday, the DOJ announced (here) that Jeffrey Tesler, a U.K. citizen and licensed solicitor who was recently extradited to the U.S., pleaded guilty before U.S. District Judge Keith P. Ellison (S.D. of Texas) to one count of conspiracy to violate the FCPA and one count of violating the FCPA.
In February 2009, Tesler (a former consultant to Kellogg, Brown & Root Inc. and its joint venture partners – Technip, Snamprogetti and JGC Corporation of Japan – in in the Bonny Island, Nigeria project) was charged via an 11 count indictment (1 count conspiracy to violate the FCPA and 10 counts of substantive FCPA violations) (see here) for his role in the massive Bonny Island, Nigeria bribery scheme.
According to the DOJ release announcing Tesler’s plea:
“Tesler admitted that from approximately 1994 through June 2004, he and his co-conspirators agreed to pay bribes to Nigerian government officials, including top-level executive branch officials, in order to obtain and retain the EPC contracts. The joint venture hired Tesler as a consultant to pay bribes to high-level Nigerian government officials and hired a Japanese trading company to pay bribes to lower-level Nigerian government officials. During the course of the bribery scheme, the joint venture paid approximately $132 million in consulting fees to a Gibraltar corporation controlled by Tesler and more than $50 million to the Japanese trading company. Tesler admitted that he used the consulting fees he received from the joint venture, in part, to pay bribes to Nigerian government officials.”
As part of his plea agreement (here), Tesler agreed to forfeit $148,964,568 to the U.S. – an amount which “represents proceeds traceable” to the charges Tesler pleaded guilty. The forfeiture amount is the largest individual forfeiture in the FCPA’s history. Tesler is to be sentenced on June 22, 2011.
In December 2009, Tesler’s co-defendant Wojciech Chodan pleaded guilty to conspiracy to violate the FCPA (see here for the prior post). Chodan faces a maximum penalty of 60 months in prison and as part of his plea agreement he agreed to forfeit $726,885. Chodan is to be sentenced on April 27, 2011.
Both Tesler and Chodan reported to KBR’s former CEO Albert Jack Stanley who pleaded guilty in September 2008 to conspiracy to violate the FCPA and conspiracy to commit mail and wire fraud (see here). Stanley’s plea agreement (here) contemplates a $10.8 million restitution payment and a sentence of 84 months.
For a summary of the corporate entities previously settling Bonny Island bribery charges see here. In January 2011, JGC (the remaining joint venture partner that has not yet settled) disclosed that it was in discussions with the DOJ to resolve its exposure via an agreement that would require it to pay approximately $218 million.
For additional coverage of Tesler’s plea see here from Bloomberg and here for certain questions raised by the FCPA Blog as to the forfeiture amount.
Tesler Pleas to Bonny Island Bribery Charges
Last Friday, the DOJ announced (here) that Jeffrey Tesler, a U.K. citizen and licensed solicitor who was recently extradited to the U.S., pleaded guilty before U.S. District Judge Keith P. Ellison (S.D. of Texas) to one count of conspiracy to violate the FCPA and one count of violating the FCPA.
In February 2009, Tesler (a former consultant to Kellogg, Brown & Root Inc. and its joint venture partners – Technip, Snamprogetti and JGC Corporation of Japan – in in the Bonny Island, Nigeria project) was charged via an 11 count indictment (1 count conspiracy to violate the FCPA and 10 counts of substantive FCPA violations) (see here) for his role in the massive Bonny Island, Nigeria bribery scheme.
According to the DOJ release announcing Tesler’s plea:
“Tesler admitted that from approximately 1994 through June 2004, he and his co-conspirators agreed to pay bribes to Nigerian government officials, including top-level executive branch officials, in order to obtain and retain the EPC contracts. The joint venture hired Tesler as a consultant to pay bribes to high-level Nigerian government officials and hired a Japanese trading company to pay bribes to lower-level Nigerian government officials. During the course of the bribery scheme, the joint venture paid approximately $132 million in consulting fees to a Gibraltar corporation controlled by Tesler and more than $50 million to the Japanese trading company. Tesler admitted that he used the consulting fees he received from the joint venture, in part, to pay bribes to Nigerian government officials.”
As part of his plea agreement (here), Tesler agreed to forfeit $148,964,568 to the U.S. – an amount which “represents proceeds traceable” to the charges Tesler pleaded guilty. The forfeiture amount is the largest individual forfeiture in the FCPA’s history. Tesler is to be sentenced on June 22, 2011.
In December 2009, Tesler’s co-defendant Wojciech Chodan pleaded guilty to conspiracy to violate the FCPA (see here for the prior post). Chodan faces a maximum penalty of 60 months in prison and as part of his plea agreement he agreed to forfeit $726,885. Chodan is to be sentenced on April 27, 2011.
Both Tesler and Chodan reported to KBR’s former CEO Albert Jack Stanley who pleaded guilty in September 2008 to conspiracy to violate the FCPA and conspiracy to commit mail and wire fraud (see here). Stanley’s plea agreement (here) contemplates a $10.8 million restitution payment and a sentence of 84 months.
For a summary of the corporate entities previously settling Bonny Island bribery charges see here. In January 2011, JGC (the remaining joint venture partner that has not yet settled) disclosed that it was in discussions with the DOJ to resolve its exposure via an agreement that would require it to pay approximately $218 million.
For additional coverage of Tesler’s plea see here from Bloomberg and here for certain questions raised by the FCPA Blog as to the forfeiture amount.
SFO Flexing It Muscle Even Without the Bribery Act
In previous statements (see here for instance) U.K. officials have said that it would be wrong to assume that the U.K. was ignoring bribery issues prior to passage of the Bribery Act.
Case(s) in point – the recent enforcement actions announced by the Serious Fraud Office against MK Kellogg Ltd. and Mabey & Johnson directors.
MK Kellogg Ltd.
Yesterday, the SFO announced (here) that M.W. Kellogg Limited (“MKWL”) has been ordered to pay “just over £7 million [approximately $11.2 million] in recognition of sums it is due to receive which were generated through the criminal activity of third parties.”
This SFO enforcement action has been expected for some time, as noted in this previous post from October 2009.
MKWL was the entity that originally formed the TSKJ consortium the focus of the Bonny Island bribery scandal. See this post for current enforcement statistics as to KBR/Halliburton, Technip, and Snamprogetti / ENI.
MKWL is currently a wholly-owned subsidiary of KBR and as noted in this previous post as well as KBR’s release (here) Halliburton has indemnification obligations to KBR in connection with the SFO enforcement action of “55% of such penalties, which is KBR’s beneficial ownership interest in MWKL.”
According to the SFO release, “the SFO recognized that MKWL took no part in the criminal activity that generated the funds” but that the “funds due to MKWL are share dividends payable from profits and revenues generated by contracts obtained through bribery and corruption undertaken by MWKL’s parent company and others.” The SFO release notes that “MWKL was used by the parent company and was not a willing participant in the corruption.”
As noted in the SFO release, the court order against MKWL was pursuant to the Proceeds of Crime Act 2002. What is the Proceeds of Crime Act? See this piece from John Rupp (Covington & Burling).
Richard Alderman, the Director of the SFO, stated in the release: “our goal is to prevent bribery and corruption or remove any of the benefits generated by such activities – this case demonstrates the range of tools we are prepared to use.”
Mabey & Johnson Directors
In July 2009, the SFO brought an enforcement action against Mabey & Johnson Ltd. (a U.K. company that designs and manufacturers steel bridges). The conduct at issue involved allegations (that the company voluntarily disclosed) that it sought to influence decision-makers in public contracts in Jamaica and Ghana between 1993 and 2001. The prosecution also involved breaches of United Nations sanctions in connection with the Iraq Oil for Food program.
It was the first ever prosecution against a U.K. company for overseas corruption. See here and here for the prior post.
On February 10th, the SFO announced (here) that “two former directors … of Mabey & Johnson Ltd. [Charles Forsyth and David Mabey] have been found guilty of inflating the contract price for the supply of steel bridges in order to provide kickbacks to the Iraqi government of Saddam Hussein.”
According to the release, at the time of the offense, Forsyth was the Managing Director of Mabey & Johnson and Mabey was the Sales Director. The release notes that Richard Gledhill, a Sales Manager for contracts in Iraq, previously pleaded guilty. According to the release, all individuals are to be sentenced on February 23rd.
The U.S. has prosecuted numerous companies in connection with Iraqi Oil-For-Food fraud. See here for such allegations in the ABB matter, here for such allegations in the Innospec matter, here for such allegations in the General Electric matter.
However, these prosecutions have generally been corporate only prosecutions with few related enforcement actions against individuals.
In just its single Mabey & Johnson prosecution, the SFO would appear to have prosecuted more individuals than the U.S. has in its approximately 15 Iraqi Oil for Food corporate enforcement actions combined.
Bonny Island Bribery Developments
As reported elsewhere earlier this week (see here among other places), JGC Corporation of Japan (here) is close to resolving an FCPA enforcement action. JGC is the fourth joint venture partner along with KBR, Technip and Snamprogetti in the TSKJ consortium (a consortium originally formed by M.W. Kellogg) involved in the Bonny Island, Nigeria project.
In a disclosure earlier this week (here) the company stated:
“JGC and DOJ have been engaged in discussions about a potential resolution of the investigation relating to JGC. It was confirmed at the meeting of JGC’s board of directors held on January 31, 2011 that the Board has approved a potential resolution of the investigation. Based on this approval, JGC recognized a provision for the cost estimated for such a resolution, which will be appropriated as a financial loss in the 3rd Quarter Financial Result. The amount of such loss is 17.8 billion Japanese yen [approximately $218 million]”.
The expected JGC settlement would thus fall in the Top Ten FCPA enforcement actions of all time (see here for the FCPA Blog’s current list) and would bump the total amount of corporate fines and penalties U.S. authorities have collected in Bonny Island bribery cases to approximately $1.52 billion.
See here for my current Bonny Island bribery statistics.
How will JGC’s expected settlement affect KBR (a company, along with its current or former affiliated entities, that has already paid $579 million in U.S. fines and penalties in connection with Bonny Island)?
In early January, KBR announced (here) that it “completed the acquisition of the 44.94 percent share interest in M.W. Kellogg Limited (MWKL) previously held by JGC Corporation. With the completion of the transaction, MWKL, which was previously an affiliate of both companies since 1992, is again a wholly-owned KBR subsidiary.”
During a January 13th earnings call, Sue Carter (KBR – Senior VP and CFO) stated as follows:
“Also in regards to MWKL, included in the transaction is an estimate of JGC’s share of the ongoing [Serious Fraud Office] investigation. Any potential liabilities at this point are only estimated. Therefore any financial impact pending an actual outcome in the investigation will be trued up positive or negative.”
During the Q&A, William Utt (KBR – Chairman, President and CEO) was asked “can you tell us what kind of risks are structured in the MWKL deal? I mean, you have indemnification clauses for FCPA from Halliburton on your original stake. Do you have a similar clause with JGC?” He responded as follows: “Well I think the indemnification from Halliburton goes towards any financial penalties associated with the SFO investigation and as Sue commented, we’ve already factored that into the purchase price with JGC subject to a true-up.”
As Halliburton disclosed in its Oct. 22, 2010 10-Q filing, its indemnification obligations to KBR in connection with the SFO investigation “is limited to 55% of such penalties, which is KBR’s beneficial ownership interest in MWKL.”
Chodan’s 9% Plea Agreement
If one were to categorize “successful” FCPA enforcement actions or DOJ “wins” and “losses” in FCPA enforcement actions, how does one categorize a plea agreement in which the defendant agrees to plead guilty to 9% of the original charges?
In February 2009, Wojciech Chodan (along with Jeffrey Tesler) was charged with one count of conspiracy to violate the FCPA’s anti-bribery provisions and ten counts of substantive FCPA anti-bribery violations in connection with the massive Bonny Island, Nigeria bribery case. (See here).
Earlier this week, the DOJ announced (here) that Chodan agreed to plead guilty to the one conspiracy charge. What you will not see in the DOJ’s release is that, in exchange, the DOJ agreed to dismiss the other 10 charges (i.e. 91% of the original charges) assuming the court accepts the plea agreement. (See here for the plea agreement).
Who is Wojciech Chodan?
As reflected in the plea agreement and original indictment, Chodan is a United Kingdom citizen who “was a commercial vice president (a non-officer position) and then, beginning in 1999, a consultant for M.W. Kellogg Ltd., which was a United Kingdom subsidiary of The M.W. Kellogg Company and then Kellogg, Brown & Root, Inc. (collectively KBR).”
Chodan reported to KBR’s CEO, Albert Jackson Stanley, among others. (In August 2008, Stanley pleaded guilty (see here) to conspiracy to violate the FCPA and conspiracy to commit mail and wire fraud.).
According to the plea agreement, Chodan assisted KBR and its three partners in the so-called TSKJ joint venture obtain engineering, procurement, and construction (“EPC”) contracts (collectively valued at over $6 billion) to build liquefied natural gas facilities on Bonny Island.
According to the plea agreement, between 1994 and June 2004 “Chodan agreed with Stanley and others to pay bribes to Nigerian government officials in order for TSKJ, KBR, and others to obtain and retain the EPC contracts to build the Bonny Island Project.” The plea agreement states that “Chodan knew that it was unlawful under U.S. law to bribe foreign government officials.”
According to the plea agreement, Chodan “recommended and agreed to the hiring of Jeffrey Tesler and Tri-Star Investments Ltd. (“Tri-Star) by TSKJ, expecting that Tesler and Tri-Star would pay bribes to high-level Nigerian government officials to assist TSKJ, KBR, and others in winning the EPC contracts to build the Bonny Island Project.” Also, according to the plea agreement, Chodan “recommended and agreed to the hiring of a global trading company headquartered in Tokyo, Japan (“Consulting Company B”) by TSKJ, expecting that Consulting Company B would pay bribes to lower level Nigerian government officials to assist TSKJ, KBR, and others in winning the EPC contracts to build the Bonny Island Project.”
The factual basis for the guilty plea states that “Chodan and his co-conspirators committed acts in furtherance of the scheme […] in Houston, Texas, however, the factual basis for the guilty plea does not provide any further detail on this issue.
As noted in the DOJ release, Chodan “faces a maximum penalty of 60 months in prison on the conspiracy charge” and “as part of his plea agreement, Chodan agreed to forfeit $726,885.”
Andrew Lourie (here – who “served in various high-level positions with the U.S. Department of Justice, including as Principal Deputy Assistant Attorney General and Chief of Staff for the Criminal Division and as Chief of the Public Integrity Section”) represents Chodan.
For an overview of prior Bonny Island enforcement actions – see here.