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A Reminder Why Congress Chose To Exempt Facilitating Payments From The Reach Of The FCPA’s Anti-Bribery Provisions


The State Department recently released this Investment Climate Statement for the Dominican Republic. It caught my eye not because the Dominican Republic is a prominent market for U.S. business, but rather because information in the statement provides a nice reminder why Congress chose to exempt facilitation payments from the reach of the FCPA’s anti-bribery provisions.

In pertinent part, the statement reads:

“Foreign investors report numerous systemic problems in the Dominican Republic and cite a lack of clear, standardized rules by which to compete and a lack of enforcement of existing rules. Complaints include allegations of widespread corruption; requests for bribes; delays in government payments; weak intellectual property rights enforcement; bureaucratic hurdles; slow and sometimes locally biased judicial and administrative processes, and non-standard procedures in customs valuation and classification of imports. Weak land tenure laws and government expropriations without due compensation continue to be a problem. The public perceives administrative and judicial decision-making to be inconsistent, opaque, and overly time-consuming. Corruption and poor implementation of existing laws are widely discussed as key investor grievances.”

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Odebrecht / Braskem Bribery Schemes Net Approximate $420 Million FCPA Enforcement Action


Yesterday, the DOJ and SEC announced (here and here) a Foreign Corrupt Practices Act enforcement action against Odebrecht S.A. (a Brazilian holding company) and Braskem S.A. (a Brazil-based petrochemical company in which Odebrecht owns 50.1% of the voting shares, 38.1% of the total share capital and which Odebrecht “effectively controlled” according to the DOJ). Braskem has American Depositary Receipts registered with the SEC and traded on the NYSE and thus the enforcement action also included an SEC component.

Perhaps because of the less than clear DOJ release (clear once one actually reads the original source documents), this action is being reported in various places as a $3.5 billion FCPA enforcement action. While that figure represents the overall global settlement amount (Brazil and Swiss law enforcement also brought related actions), yesterday’s action was most certainly not a $3.5 billion FCPA enforcement action. Not even close.

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Embraer Bribery Schemes Result In Net $187 Million FCPA Enforcement Action


Yesterday, the DOJ and SEC announced resolution of a Foreign Corrupt Practices Act enforcement action against Embraer, a Brazil-based aircraft manufacturer with American Depositary Shares listed on the New York Stock Exchange.

According to the DOJ and SEC, Embraer engaged in bribery schemes between 2008 through 2011 in the Dominican Republic, Saudi Arabia, and Mozambique in which the company approved bribe payments, through various third-parties, to various alleged “foreign officials.” According to the DOJ and SEC, Embraer’s wholly-owned U.S. subsidiary was active in the bribery schemes including by making payments from its New York based bank account. In addition, the enforcement action also involved improper conduct in India between 2005 and 2009. In total, the government alleges that Embraer made approximately $84 million as a result of the improper conduct.

The enforcement action involved a DOJ component in which the company agreed to pay a criminal penalty of approximately $107.3 million and an SEC component in which the company agreed to pay $83.8 million in disgorgement and $14.4 million in prejudgment interest. The SEC agreed to credit a disgorgement amount that Embraer agreed to pay to Brazilian authorities and this filing suggests that disgorgement amount is approximately $18.6 million. Thus, the net FCPA settlement amount was approximately $187 million.

This post goes in-depth into the enforcement action by summarizing the approximate 115 pages of resolution documents.

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One Of The More Dubious FCPA Enforcement Actions Of All-Time

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

If one were to compile a list of the most dubious Foreign Corrupt Practices Act enforcement actions of all-time, near the top of the list would be the DOJ’s 1994 enforcement action against Vitusa Corporation and its President Denny Herzberg.

In this criminal information, the DOJ alleged that Vitusa (a New Jersey corporation engaged in the business of selling commodities and other goods) “entered into a lawful contract to sell milk powder to the Government of the Dominican Republic.”

The DOJ then alleged as follows.

“Although Vitusa delivered the milk powder to the Government of the Dominican Republic, the Dominican government did not pay Vitusa promptly for the milk powder received and, in fact, maintained an outstanding balance due for an extended period of time.  Vitusa, therefore, made various efforts to collect the outstanding balance due, including contacting officials of the United States and Dominican Governments to obtain their assistance in securing payment in full.”

According to the DOJ, “during the pendency of the contract, Servio Tulio Mancebo (a citizen of the Dominican Republic) communicated to Herzberg a demand made by a foreign official [a senior official of the Government of the Dominican Republic] which called for the payment of a ‘service fee’ to that official in return for the official using that official’s influence to obtain the balance due to Vitusa for the milk powder contract from the Dominican Government.”

According to the DOJ, “Herzberg agreed to Mancebo’s proposal that Vitusa would pay a ‘service fee’ indirectly to the foreign official.”  Thereafter, the DOJ alleged that the Government of the Dominican Republic made payment of $63,905.12 to Vitusa on the contract, but that following Herzberg’s instruction, “Mancebo retained $20,000 from that payment.”

According to the DOJ, Vitusa and Herberg knew “that all or a portion of the money would be given to the foreign official for the purpose of inducing the official to use that official’s position and influence with the Government of the Dominican Republic in order to obtain and retain business, that is, full payment of the balance due for Vitusa’s prior sale of milk powder to the Government of the Dominican Republic.”

Based on the above allegations, the DOJ charged Vitusa with violating the FCPA’s anti-bribery provisions.

Based on the same allegations, the DOJ also charged Herzberg with violating the FCPA’s anti-bribery provisions.  (See here for the DOJ’s Statement of Facts).

Vitusa pleaded guilty and agreed to pay a $20,000 criminal fine (see here).

Herzberg also pleaded guilty and was placed on two years probation (see here).  Herzberg was also ordered to pay a $5,000 criminal fine, but the judgment notes that “this fine shall be applied to the $20,000 fine to be paid by Vitusa Corp.”

In the DOJ’s sentencing document (as to both Vitusa and Herberg – see here and here) the DOJ stated:

“The unlawful payments to the foreign official were made in order to obtain payment of a legitimate and lawful obligation owed by the Government of the Dominican Republic to Vitusa.  There was no loss to any party and no individual victim exists.”

See here Vitusa Corp.’s current website.

FCPA aficionados know that the Vitusa / Herzberg action is not the only FCPA enforcement action in which an enforcement agency alleged that payments in connection with securing a bona fide receivable violated the anti-bribery provisions.  See here for the prior post on the SEC’s 2010 FCPA enforcement action against Joe Summers.

An Important FCPA Case You’ve Likely Never Heard About

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.

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