DOJ Announces FCPA Enforcement Action Against Former CEO’s and General Counsel Of PetroTiger
Yesterday the DOJ announced FCPA and related charges against former executives of PetroTiger Ltd., a British Virgin Islands oil and gas company with operations in Colombia and offices in New Jersey, “for their alleged participation in a scheme to pay bribes to foreign government officials in violation of the FCPA, to defraud PetroTiger, and to launder proceeds of those crimes.”
The individuals charged were former co-CEOs of PetroTiger Joseph Sigelman and Knut Hammarskjold and former general counsel Gregory Weisman.
According to the DOJ release, Sigelman and Hammarskjold “were charged by sealed complaints filed in the District of New Jersey on Nov. 8, 2013” and “Hammarskjold was arrested Nov. 20, 2013, at Newark Liberty International Airport” and “Sigelman was arrested on Jan. 3, 2014, in the Philippines and appeared [yesterday] in Guam before a U.S. Magistrate Judge” and “will have an initial appearance in New Jersey federal court on a date to be determined.” According to the release, Weisman “pleaded guilty on Nov. 8, 2013, to a criminal information charging one count of conspiracy to violate the FCPA and to commit wire fraud.”
Sigelman
This criminal complaint, charges Sigelman with conspiracy to violate the FCPA’s anti-bribery provisions as well as three substantive FCPA charges. The FCPA charges are based on allegations that Sigelman and others made at least four transfers of money in the approximate amount of $333,500 to an account in Colombia of a “foreign government official in Colombia.”
Elsewhere, the complaint identifies the foreign official as “an official at Ecopetrol [who] had influence over the approval and award of contracts by Ecopetrol, including the Mansarovar Contract.” Ecopetrol is alleged to be “the state-owned and state-controlled petroleum company in Colombia” and the complaint states as follows.
“Ecopetrol was created by national law, and it was required by law that Colombia conserve, at a minimum, eighty percent of the shares in circulation, with voting rights. During the relevant time period, Colombia controlled 89.9% of Ecopetrol’s outstanding capital stock, and held the right to elect the majority of the members of the company’s board of directors. Ecopetrol’s board of directors included the Minister of Mines and Energy, the Minister of Finance, and the Director of the National Planning Agency of Colombia. Ecopetrol was responsible for approving contracts to drill or perform services on oil fields in Colombia, including the Mansarovar Contract.”
The complaint also refers to the official’s wife and states that “the Official’s Wife purportedly provided finance and management related consulting services for PetroTiger [when] in reality, the Official’s Wife served as a conduit for bribe payments to the Official.”
Under the heading “Bribery Scheme,” the complaint alleges that Sigelman and other PetroTiger executives [Hammarskjold and Weisman] “attempted to secure the Mansarovar Contract” and “because Ecopetrol had ultimate authority for approving projects and contracts to perform oil-related services in Colombia, Sigelman [and the other executives] were required to obtain approval from Ecopetrol for the Mansarovar Contract.”
According to the complaint, Sigelman and others “in order to secure Ecopetrol’s approval for the Mansarovar Contract,” “paid bribes to the Official, who had the ability to influence the approval process.”
The complaint states that Sigelman and others “attempted to conceal the bribes by funneling the payments through the Official’s Wife and by falsely claiming in documents that the payments were for finance and management consulting services that the Official’s Wife purportedly performed for PetroTiger.” The complaint further states that “when transfers to the bank account in the name of the Official’s Wife failed as a result of incorrect account information,” Sigelman and others “transferred the money directly to a bank account in the name of the Official.”
According to the complaint, PetroTiger was successful in “obtaining Ecopetrol’s approval, and secured the Mansarovar Contract” which was valued “at approximately $39.6 million, and has resulted in a gross profit to date, of approximately $3.5 million.”
The Sigelman complaint also charges one count of conspiracy to commit money laundering and one count of conspiracy to commit wire fraud. These charges are based, in pertinent part, on allegations that an owner of a company “being acquired by Sigelman and others” transferred approximately $262,000 “as part of an illegal kickback scheme” to Sigelman’s bank account and that Sigelman then “divided up the money and transferred portions of the money” to other PetroTiger executives. According to the complaint, Sigelman and the others “did not disclose to their investing partners that they were receiving a kickback in exchange for the additional money that the investing partners would be paying in connection with the acquisition of the Target Company. As a result, the investing partners were deprived of money and property and the honest services of” Sigelman and others. According to the complaint, this “Target Company” was “an oil services company with operations in Colombia” that PetroTiger acquired in 2009 for approximately $53 million.
Hammarskjold
This criminal complaint also charges Hammarskjold with conspiracy to violate the FCPA’s anti-bribery provisions as well as three substantive FCPA charges based on the same conduct alleged in the Sigelman complaint.
The Hammarskjold complaint also charges one count of conspiracy to commit money laundering and one count of conspiracy to commit wire fraud based on the same kickback scheme alleged in the Sigelman complaint.
Weisman
This criminal information alleges the same bribery scheme and kickback scheme as the Sigelman and Hammarskjold complaints. However, the information only charges one count of conspiracy to violate the FCPA and to commit wire fraud.
The Weisman information further states as follows.
“On or about September 28, 2010, at board meeting of PetroTiger, Executive A [Sigelman] stated that he and others were dealing with non-transparent commercial practices in Colombia. On or about September 28, 2010, at the board meeting … in response to a question about whether Executive A was upholding PetroTiger’s Code of Business Principles, which included a prohibition on bribery, Executive A stated that he was.”
The Weisman information also contains a forfeiture allegation seeking forfeiture of approximately $52,000 (the amount of the alleged kickback Weisman received).
In the DOJ’s release, Acting Assistant Attorney General Mythili Raman stated:
“We have said – repeatedly and emphatically – that foreign corruption, whether committed by companies or by the individuals entrusted to run those companies, will not be tolerated. And, our track record in vigorously enforcing the FCPA has shown that message to be undeniably true. The charges unsealed today against two former CEOs of PetroTiger and the guilty plea announced today of the former General Counsel reaffirm our clear message that we will prosecute corruption and fraud wherever we find it. Bribery distorts what should be a level playing field and deprives corporations and governments of funds that should instead be used to strengthen those institutions. Today’s announcement should be a reminder to CEOs and other executives who seek to corrupt the system at the expense of honest businesses: we are not going away.”
U.S. Attorney Paul Fishman of the District of New Jersey stated:
“Bribery of public officials, whether at home or abroad, corrupts business opportunity and undermines trust in government. The under-the-table deals alleged in today’s charges are not an acceptable way of doing business.”
Special Agent in Charge Aaron Ford of the FBI’s Newark Division stated:
“The FBI is committed to pursuing those who disrupt the level playing field to which companies in the U.S. and around the world are entitled. We will continue to investigate these matters by working with law enforcement agencies, both foreign and domestic, to ensure that both corporations and executives who bribe foreign officials for lucrative contracts are punished.”
The DOJ’s release further states:
“The department has worked closely with and has received significant assistance from its law enforcement counterparts in the Republic of Colombia and greatly appreciates their assistance in this matter. The department also thanks the Republic of the Philippines, including the Bureau of Immigration, for its assistance in this matter. Significant assistance was also provided by the Criminal Division’s Office of International Affairs.”
Did Richard Liedo Win Or Lose?
[This post is part of a periodic series regarding “old” FCPA enforcement actions]
This previous post highlighted the 1989 Foreign Corrupt Practices Act enforcement action against NAPCO International in connection with military sales to the Republic of Niger. The previous post noted that the DOJ also criminally charged the Vice President of the Aerospace Division of NAPCO and that this individual exercised his constitutional right to a jury trial and put the DOJ to its burden of proof.
That person was Richard Liedo and his enforcement action is worthy of its own post.
Among other things, the Liebo enforcement action resulted in a rare appellate FCPA decision, and an often overlooked one at that given that the court concluded that a jury could find that a subordinate who acted at his supervisor’s direction in providing a thing of value to a foreign official lacked “corrupt” intent.
In this lengthy 62 page criminal indictment, the DOJ charged Liebo in connection with the same bribery scheme alleged in the NAPCO action. In pertinent part, the DOJ alleged that in connection with aircraft sales to Niger, Liebo conspired with others to violate the FCPA by making payments or authorizing payments of money to “officials of the Government of Niger, that is, Tahirou Barke Doka [the First Counselor of the Embassy of Niger in Washington, D.C.] and Captain Ali Tiemogo [Chief of Maintenance for the air force component of the Niger Ministry of Defense] and “Fatouma Mailelel Boube and Amadou Mailele, both relatives of Tiemogo, while knowing that all or a portion of such money would be offered, given or promised, directly or indirectly, to foreign officials, namely Barke and Tiemogo” for the purpose of “influencing the acts and decisions of Barke and Tiemogo in their official capacities, and inducing them to use their influence with the Ministry of Defense.”
In addition to the conspiracy charge (count 1), the DOJ also charged Liebo with 10 counts of violating the FCPA’s anti-bribery provisions (counts 2 – 11), one count of violating the FCPA’s books and records provisions (count 12), three counts of aiding and abetting in the preparation of false corporate income tax returns (counts 13 – 15), and five counts of making false statements to the Defense Security Assistance Agency (DSAA) of the U.S. Department of Defense in connection with the sales (counts 16 – 20).
Liebo exercised his constitutional right to a jury trial and put the DOJ to its burden of proof.
The jury considered 19 charges against Liebo (on the first day of trial, the court granted the DOJ’s motion to dismiss one of the false statement charges) and he was acquitted of 17 charges. The only charges Liebo was convicted of was one count of violating the FCPA’s anti-bribery provisions and one count of making a false statement to DSAA. The FCPA charge related to the payment of $2,028 “for the airline tickets purchased for Barke’s wedding and honeymoon travel.”
As noted in this judgment, Liebo was sentenced to 18 months in federal prison. However, as noted in a Trace Compendium entry, “Liebo only served two of the 18 months, having petitioned for, and eventually received, a retrial.”
As noted in this Eighth Circuit opinion, Liebo appealed and argued on appeal that “his convictions should be reversed because of insufficient evidence and because the district court erred in instructing the jury” and that the “district court abused its discretion by denying his motion for a new trial based on newly discovered evidence.”
As to the FCPA anti-bribery charge Liebo was found guilty on, he argued on appeal that: (1) there was insufficient evidence to show that the airline tickets were given to obtain or retain business; and (2) that there was no evidence to show that his gift of honeymoon tickets was done corruptly.
After setting forth the standard of review (i.e. considering the evidence in the light most favorable to the government with all reasonable inferences and credibility determinations made in support of the jury’s verdict), the court stated as follows as to obtain or retain business.
“There is sufficient evidence that the airplane tickets were given to obtain or retain business. Tiemogo testified that the President of Niger would not approve the contracts without his recommendation. He also testified that Liebo promised to “make gestures” to him before the first contract was approved, and that Liebo promised to continue to “make gestures” if the second and third contracts were approved. There was testimony that Barke helped Liebo establish a bank account with a fictitious name, that Barke used money from that account, and that Barke sent some of the money from that account to Tiemogo. Barke testified that he understood Liebo deposited money in the account as “gestures” to Tiemogo for some “of the business that they do have together.”
Although much of this evidence is directly relevant to those counts on which Liebo was acquitted, we believe it appropriate that we consider it in determining the sufficiency of evidence as to the counts on which Liebo was convicted.
[…]
Moreover, sufficient independent evidence exists that the tickets were given to obtain or retain business. Evidence established that Tiemogo and Barke were cousins and best friends. The relationship between Barke and Tiemogo could have allowed a reasonable jury to infer that Liebo made the gift to Barke intending to buy Tiemogo’s help in getting the contracts approved. Indeed, Tiemogo recommended approval of the third contract and the President of Niger approved that contract just a few weeks after Liebo gave the tickets to Barke. Accordingly, a reasonable jury could conclude that the gift was given “to obtain or retain business.”
As to corrupt intent, the court stated as follows.
“Liebo also contends that the evidence at trial failed to show that Liebo acted “corruptly” by buying Barke the airline tickets. In support of this argument, Liebo points to Barke’s testimony that he considered the tickets a “gift” from Liebo personally. Liebo asserts that “corruptly” means that the offer, payment or gift “must be intended to induce the recipient to misuse his official position….” […] Because Barke considered the tickets to be a personal gift from Liebo, Liebo reasons that no evidence showed that the tickets wrongfully influenced Barke’s actions.
We are satisfied that sufficient evidence existed from which a reasonable jury could find that the airline tickets were given “corruptly.” For example, Liebo gave the airline tickets to Barke shortly before the third contract was approved. In addition, there was undisputed evidence concerning the close relationship between Tiemogo and Barke and Tiemogo’s important role in the contract approval process. There was also testimony that Liebo classified the airline ticket for accounting purposes as a “commission payment.” This evidence could allow a reasonable jury to infer that Liebo gave the tickets to Barke intending to influence the Niger government’s contract approval process. We conclude, therefore, that a reasonable jury could find that Liebo’s gift to Barke was given “corruptly.” Accordingly, sufficient evidence existed to support Liebo’s conviction.”
As to Liebo’s argument on appeal that the “district court abused its discretion by denying his motion for a new trial based on newly discovered evidence,” Liebo noted that “two months after his conviction, a NAPCO employee provided Liebo with a memorandum showing [a superior’s] approval to the charge of the airline tickets.” Liebo argued that the discovery of this evidence warranted a new trial. In support, Liebo argued that “he was acquitted on all other bribery counts for which there was evidence that the payment in question was approved [by a superior]. Liebo argued that evidence of a superior’s approval of the wedding trip was a determinative factor in the jury’s verdict by “pointing to a question sent out by the jury during their deliberations asking whether there was ‘any information regarding authorization for payment of wedding trip.'”
After noting that motions for a new trial based on newly discovered evidence are looked upon with disfavor, the court also noted that “courts have granted a new trial based on newly discovered evidence especially when the evidence supporting the defendant’s conviction is weak.”
The court closed its opinion as follows.
“[T]he evidence against Liebo, while sufficient to sustain the conviction, was not overwhelming. Indeed, we believe that the company president’s approval of the purchase of the tickets is strong evidence from which the jury could have found that Liebo acted at his supervisor’s direction and therefore, did not act “corruptly” by giving the tickets to Barke. Furthermore, we are highly persuaded that the jury considered such approval pivotal, especially in light of the question it submitted to the court during its deliberations and its acquittal of Liebo on the other bribery counts in which evidence of approval existed. Accordingly, we hold that the district court clearly abused its discretion in denying Liebo’s motion for a new trial.”
In the re-trial, Liebo was convicted of aiding and abetting FCPA anti-bribery violations and making a false statement to the DSAA. He was then sentenced to three years probation, two months home detention, and 400 hours of community service.
Based on all of the above, the question is raised – did Richard Liedo win or lose when he put the DOJ to its burden of proof?
In this the exam grading season, I know where I come out when the one with the burden is 90% unsuccessful.
In Depth On The Weatherford Enforcement Action
Last week, the DOJ and SEC announced (here and here) that Switzerland-based oil and gas services company Weatherford International agreed to resolve a Foreign Corrupt Practices Act enforcement action based primarily on alleged conduct by its subsidiaries in Angola, the Middle East, and in connection with the Iraq Oil for Food program. The enforcement action has been expected for some time (as noted in this prior post, in November the company disclosed that it had agreed in principle to the settlement announced last week).
The enforcement action involved a DOJ criminal information against Weatherford Services Ltd. resolved via a plea agreement, a criminal information against Weatherford International Ltd. (“Weatherford”) resolved via a deferred prosecution agreement, and a SEC settled civil complaint against Weatherford. [Note, the SEC enforcement action also alleged violations of the books and records and internal controls provisions in regards to commercial transactions with various sanctioned countries in violation of U.S. sanction and export controls laws. The DOJ – or other government entities – also alleged such conduct, but in resolution documents separate and apart from the FCPA resolution documents highlighted below].
Weatherford agreed to pay approximately $153 million to resolve its alleged FCPA scrutiny ($87 million to resolve the DOJ enforcement action and $66 million to resolve the SEC enforcement action). The Weatherford action is the 8th largest FCPA settlement of all-time (see here for the top ten FCPA settlements).
DOJ
Weatherford Services Ltd.
Weatherford Services (“WSL”), incorporated in Bermuda, is identified as a wholly-owned subsidiary of Weatherford International that “managed most of Weatherford’s activities in Angola.”
The conduct at issue involved “two schemes to bribe Sonangol officials to obtain or retain business.”
Sonangol is alleged to be a “government-owned and controlled corporation” of the Angolan government. The information specifically states:
“Sonangol was the sole concessionaire for exploration of oil and gas in Angola, and was solely responsible for the exploration, production, manufacturing, transportation, and marketing of hydrocarbons in Angola. Sonangol was run by a board of directors established by governmental decree in 1999. Each member of the board was also appointed or renewed in their position by governmental decree. Because Sonangol was wholly owned, controlled, and managed by the Angolan government, it was an ‘agency’ and ‘instrumentality’ of a foreign government and its employees were ‘foreign officials'” under the FCPA.
According to the information, the first bribery scheme “centered around a joint venture which WSL and other Weatherford employees established with two local Angolan entities.” The information alleges that “Angolan Officials 1, 2, and 3 (described as “high-level, senior officials of Sonangol” with influence over contracts) controlled and represented one of the entities” and that a “relative of Angolan Official 4 (described as a “high-level, senior official of Angola’s Ministry of Petroleum” with influence over contracts entered into by the Angolan government) controlled and represented the other.”
The information alleges that the “joint venture began because WSL sought a way to increase its share of the well screens market in Angola” and states that “WSL learned that Sonangol was encouraging oil services companies to establish a well screens manufacturing operations in Angola with a local partner.” Thereafter, “a high-level Weatherford executive sent Angolan Official 1 a letter expressing Weatherford’s intent to form a well screens manufacturing operation in Angola with a local partner and requesting Sonangol’s participation in the process.”
The information next alleges that “Angolan Official 1 advised WSL that Sonangol had selected local partners for WSL and that Sonangol would support the joint venture.” According to the information:
“… the parties agreed that two local Angolan entities (“Angolan Company A” and Angolan Company B”) would be WSL’s joint venture partners. Angolan Officials 1, 2 and 3 conducted all business with WSL on behalf of Angolan Company A. Angolan Company B was owned in part by the daughter of Angolan Official 4.”
According to the information, “certain WSL and Weatherford employees knew from the outset of discussions regarding the joint venture that the members of Angolan Company A included a Sonangol employee and Angolan Official 3’s wife, while Angolan Company B’s members included Angolan Official 4’s daughter and son-in-law.”
According to the information, “prior to entering into the joint venture, neither Weatherford nor WSL conducted any meaningful due diligence of either joint venture partner.” The information specifically alleges that Weatherford Legal Counsel A (a citizen of the U.S. and a Senior Corporate Counsel at Weatherford from 2004 to 2008) reached out to a law firm “to discuss whether partnering with the Angolan companies raised issues under the FCPA,” but that Weatherford Legal Counsel A “did not follow the advice” that had been provided to him. In addition, the information alleges that Weatherford Legal Counsel A “falsely told [another] outside counsel that the joint venture had been vetted and approved by another outside counsel, when, in fact, no outside law firm ever conducted such vetting or gave such approval.”
The information alleges that WSL signed the final joint venture agreement with Angolan Company A and Angolan Company B in 2005, but that “neither Angolan Company A nor Angolan Company B provided any personnel or expertise to the joint venture, nor did they make any capital contributions.”
According to the information:
“In 2008, Angolan Company A and Angolan Company B received joint venture dividends for 2005 and 2006, including on revenues received in 2005 [before the joint venture agreement was executed]. […] In total, the joint venture paid Angolan Company A $689,995 and paid Angolan Company B $136,901.”
The information alleges that “prior to the distribution of joint venture dividends, WSL executives knew that Angolan officials were directing the distribution of those dividends.”
According to the information, “WSL benefitted from the joint venture arrangement” in the following ways: “Sonangol began taking well screens business away from WSL’s competitors, even when a competitor was supplying non-governmental companies, and awarding it to WSL” and “WSL received awards of business for which its bids were, by its own admission, not price competitive.”
The second bribery scheme alleged in the information relates to the “Cabinda Region Contract Renewal” in which WSL allegedly “bribed Angolan Official 5 (described as “a Sonangol official with decision-making authority in Angola’s Cabinda region”) so that he would approve the renewal of a contract under which WSL provided oil services to a non-governmental oil company in the Cabinda region of Angola.” The information alleges that even though the contract was between WSL and a non-governmental company, Angolan law required “that it be approved by Sonangol before being finalized” and that “Angolan Official 5 was the Sonangol official responsible for approving or denying the renewal contract.”
The information alleges that Angolan Official 5 solicited the bribe and that “WSL executives agreed to pay the bribe Angolan Official 5 had demanded” even though a prior WSL Manager had refused to pay it. According to the information, WSL made the payments to Angolan Official 5 through the Freight Forwarding Agent (described as a Swiss Company who provided freight forwarding and logistics services in Angola) who had previously paid bribes on behalf of WSL.”
As to the Freight Forwarding Agent, the information alleges that WSL retained the agent via a consultancy agreement in which the agent rejected a specific FCPA clause, but that “WSL and Weatherford acquiesced by removing the FCPA clause and inserting a clause requiring the Freight Forwarding Agent to ‘comply with all applicable laws, rules, and regulations issued by any governmental entity in the countries of business involved.” According to the information, “WSL generated sham purchase orders for consulting services the Freight Forwarding Agent never performed, and the Freight Forwarding Agent, in turn, generated sham invoices for those non-existent services.” The information alleges that the Freight Forwarding Agent passed money on to Angolan Official 5.
Based on the above, the information charges WSL with one count of violating the FCPA’s anti-bribery provisions and specifically invokes the dd-3 prong of the statute applicable to “persons” other than issuers or domestic concerns.
Pursuant to the plea agreement, WSL agreed to pay a criminal fine in the amount of $420,000.
Weatherford International
The Weatherford information largely focuses on the company’s internal accounting controls and alleges as follows.
“Weatherford, which operated in an industry with a substantial corruption risk profile, grew its global footprint in large part by purchasing existing companies, often themselves in countries with high corruption risks. Despite these manifest corruption risks, Weatherford knowingly failed to establish effective corruption-related internal accounting controls designed to detect and prevent corruption-related violations, including FCPA violations, prior to 2008.
Prior to 2008, Weatherford failed to institute effective internal accounting controls, including corruption-related due diligence on appropriate third parties and business transactions, limits of authority, and documentation requirements. This failure was particularly acute when it came to third parties, including channel partners, distributors, consultants, and agents. Weatherford failed to establish effective corruption-related due diligence on third parties with interaction with government officials, such as appropriately understanding a given third party’s ownership and qualifications, evaluating the business justification for the third party’s retention in the first instance, and establishing and implementing adequate screening of third parties for derogatory information. Moreover, Weatherford failed to implement effective controls for the meaningful approval process of third parties. Weatherford also did not require, in practice, adequate documentation supporting retention and in support of payments to third parties, such as appropriate invoices and purchase orders.
Prior to 2008, Weatherford did not have adequate internal accounting controls and processes in place that effectively evaluated business transactions, including acquisitions and joint ventures, for corruption risks and to investigate those risks when detected. Moreover, following the establishment of joint ventures and certain other business transactions, Weatherford did not appropriately implement its policies and procedures to ensure an effective internal accounting control environment through proper integration.
Prior to 2008, Weatherford also did not have an effective internal accounting control system for gifts, travel, and entertainment. In practice, expenses were not typically adequately vetted to ensure that they were reasonable, bona fide, or properly documented.
These issues were exacerbated by the fact that, prior to 2009, a company as large and complex as Weatherford – with its substantial risk profile – did not have a dedicated compliance officer or compliance personnel. Although Weatherford promulgated an anti-corruption policy that it made available on its internal website, it did not translate that policy into any language other than English, and it did not conduct anti-corruption training.
Prior to 2008, Weatherford did not have an effective system for investigating employee reporting of ethics and compliance violations. If an employee’s ethics questionnaire response indicated an awareness of payments or offers of payments to foreign officials or of undisclosed or unallocated funds, Weatherford did not have a protocol in place to perform any further investigation into the alleged corruption. As a matter of practice, in fact, Weatherford did not conduct additional investigation of such allegations. Prior to 2004, Weatherford did not require any employee to complete any kind of ethics questionnaire.
Further, Weatherford lack effective mechanisms to control its many foreign subsidiaries’ activities to ensure that they maintained internal accounting controls adequate to detect, investigate, or deter corrupt payments made to government officials.”
Under the heading “corrupt conduct” the information alleges – in summary form – as follows:
“Due to Weatherford’s failure to implement such internal accounting controls, a permissive and uncontrolled environment existed within Weatherford in which employees of certain of its wholly owned subsidiaries in Africa and the Middle East were able to engage in various corrupt conduct over the course of many years, including both bribery of foreign officials and fraudulent misuse of the United Nations’ Oil for Food Program.”
Thereafter, the information contains nine paragraphs of allegations that track the Angola allegations in the WSL information.
In addition, the information contains allegations about another alleged “scheme, in the Middle East, from 2005 through 2011” in which “employees of another Weatherford subsidiary [Weatherford Oil Tool Middle East Limited (WOTME) – described as a British Virgin Islands corporation headquartered in Dubai that was a wholly-owned subsidiary of Weatherford and responsible for managing most of Weatherford’s activities in North Africa and the Middle East] awarded improper ‘volume discounts’ to a distributor who supplied Weatherford products to a government-owned national oil company, believing those discounts were being used to create a slush fund with which to make bribe payments to decision makers at the national oil company.”
According to the information, “officials at the national oil company had directed WOTME to sell goods to the company through this particular distributor” and the information alleges:
“Prior to entering into the contract with the distributor, neither WOTME nor Weatherford conducted any due diligence on the distributor, despite (a) the fact that the Distributor would be furnishing Weatherford goods directly to an instrumentality of a foreign government; (b) the fact that a foreign official had specifically directed WOTME to contract with that particular distributor, and (c) the fact that executives at WOTME knew that a member of the country’s royal family had an ownership interest in the distributor.”
According to the information, “between 2005 and 2011, WOTME paid approximately $15 million in volume discounts to the distributor” that were “recorded in WOTME’s general ledger under a heading titled “Volume Discount Account.”
The information next contains four paragraphs of allegations relevant to the Iraq Oil for Food program and how Weatherford’s “failure to implement effective internal accounting controls also permitted corrupt conduct relating” to the program.
In a summary allegation, under the heading “Profits from the Corrupt Conduct in Africa and the Middle East” the information states:
“Due to Weatherford’s failure to implement internal accounting controls, an environment existed within Weatherford in which employees of certain of its wholly owned subsidiaries in Africa and the Middle East were able to engage in various corrupt business transactions, which conduct earned profits of $54,486,410, which were included in the consolidated financial statements that Weatherford filed with the SEC.”
Based on the above conduct, the information charges Weatherford with violating the FCPA’s internal controls provisions – specifically – that Weatherford knowingly:
“(a) failed to implement, monitor, and impose internal accounting controls and to maintain their effectiveness; (b) failed adequately to train key personnel to implement internal accounting controls to detect and avoid illegal payments and to identify and deter violations of those controls; (c) failed to monitor and control the financial transactions of its subsidiaries, in a manner that provided reasonable assurances that its subsidiaries’ transactions were executed in accordance with management’s general and specific authorization; (d) failed to monitor and control the financial transactions of its subsidiaries, in a manner that provided reasonable assurances that its subsidiaries’ transactions were recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and any other criteria applicable to such statements; (e) failed to maintain a sufficient system for the selection and approval of, and performance of corruption-related due diligence on, third party business partners and joint venture partners, which, in turn, permitted corrupt conduct to occur at subsidiaries; (f) failed to investigate appropriately and respond to allegations of corrupt payments and discipline employees involved in making corrupt payments; (g) failed to take reasonable steps to ensure the company’s compliance and ethics program was followed, including training employees, and performing monitoring to detect criminal conduct; (h) failed to maintain internal accounting controls sufficient to prevent a subsidiary from entering into a joint venture agreement to funnel improper benefits to, and receive preferential treatment from, foreign government officials; (i) failed to maintain internal accounting controls sufficient to prevent a subsidiary from making payments to a channel partner not authorized by contract knowing there was a substantial likelihood that those payments were used to make corrupt payments; and (j) failed to maintain internal accounting controls sufficient to prevent kickbacks paid to the government of Iraq by a subsidiary.”
The charge against Weatherford was resolved via a DPA in which the company admitted, accepted, and acknowledged that it was responsible for the acts of its officers, directors, employees, and agents as charged in the information.
The DPA has a term of three years and under the heading “relevant considerations” it states:
“The Department enters into this Agreement based on the individual facts and circumstances presented by this case and the Company. Among the facts considered were the following: (a) the Company’s cooperation has been, on the whole, strong, including conducting an extensive worldwide internal investigation, voluntarily making U.S. and foreign employees available for interviews, and collecting, analyzing, and organizing voluminous evidence and information for the Department, including the production of more than 3.8 million pages of data; (b) the Company has engaged in extensive remediation, including terminating the employment of officers and employees responsible for the corrupt misconduct of its subsidiaries, establishing a Compliance Officer position that is a member of the Company’s executive board, as well as a compliance office of approximately 38 full-time compliance professionals, including attorneys and accountants, that the Compliance Officer oversees, conducting more than 30 anti-corruption compliance reviews in many of the countries in which it operates, enhancing its anti-corruption due diligence protocol for third-party agents and consultants, and retaining an ethics and compliance professional to conduct an assessment of the Company’s ethics and compliance policies and procedures designed to ensure compliance with the FCPA and other applicable anti-corruption laws; (c) the Company has committed to continue to enhancing its compliance program and internal accounting controls …; (d) the Company has already significantly enhanced, and is committed to continue to enhance, its compliance program and internal controls …; and (e) the Company has agreed to continue to cooperate with the Department in any ongoing investigation …”
Pursuant to the DPA, the advisory Sentencing Guidelines range for the conduct at issue was $87.2 million to $174.4 million. The DPA states that the monetary penalty of $87.2 million “is appropriate given the facts and circumstances of this case, including the nature and extent of the Company’s criminal conduct, the Company’s extensive cooperation, and its extensive remediation in this matter.”
The DPA specifically states that “any criminal penalties that might be imposed by the Court on WSL in connection with WSL’s guilty plea to a one-count Criminal Information charging WSL with violations of the FCPA, and the plea agreement entered into simultaneously, will be deducted from the $87.2 million penalty agreed to under this Agreement.”
Pursuant to the DPA, Weatherford agreed to review its existing internal controls, policies and procedures regarding compliance with the FCPA and other applicable anti-corruption laws. The specifics are detailed in Attachment C to the DPA. The DPA also requires Weatherford to engage a corporate compliance monitor for ”a period of not less than 18 months from the date the monitor is selected.” The specifics, including the Monitor’s reporting obligations to the DOJ, are detailed in Attachment D to the DPA.
As is common in FCPA corporate enforcement actions, the DPA contains a “muzzle clause” prohibiting Weatherford or anyone on its behalf from “contradicting the acceptance of responsibility by the company” as set forth in the DPA.
In the DOJ’s release, Acting Assistant Attorney General Mythili Raman stated:
“Effective internal accounting controls are not only good policy, they are required by law for publicly traded companies – and for good reason. This case demonstrates how loose controls and an anemic compliance environment can foster foreign bribery and fraud by a company’s subsidiaries around the globe. Although Weatherford’s extensive remediation and its efforts to improve its compliance functions are positive signs, the corrupt conduct of Weatherford International’s subsidiaries allowed it to earn millions of dollars in illicit profits, for which it is now paying a significant price.”
Valerie Parlave, Assistant Director in Charge of the FBI’s Washington Field Office, stated:
“When business executives engage in bribery and pay-offs in order to obtain contracts, an uneven marketplace is created and honest competitor companies are put at a disadvantage. The FBI is committed to investigating corrupt backroom deals that influence contract procurement and threaten our global commerce.”
SEC
The SEC’s complaint (here) is largely based on the same core set of facts alleged in the above DOJ action.
In summary fashion, the complaint alleges:
“Between at least 2002 and July 2011, Weatherford and its subsidiaries authorized bribes and improper travel and entertainment intended for foreign officials in multiple countries to obtain or retain business or for other benefits. Weatherford and its subsidiaries also authorized illicit payments to obtain commercial business in Congo and authorized kickbacks in Iraq to obtain United Nations Oil for Food contracts. Weatherford realized over $59.3 million in profits from business obtained through the use of illicit payments.”
As to the additional Congo allegations, the complaint states:
“In addition to bribery schemes involving Angolan government officials, WSL made over $500,000 in commercial bribe payments through the Swiss Agent to employees of a commercial customer, a wholly-owned subsidiary of an Italian energy company, between March 2002 and December 2008.
[…]
WSL mischaracterized the bribe payments as legitimate expenses on its books and records. Bank account records and a U.S. brokerage account statement show that among the recipients were two employees of the commercial customer who were responsible for awarding contracts to WSL. Weatherford obtained profits of$1,304,912 from commercial business in Congo relating to payments made by Swiss Agent.”
The SEC complaint also contains allegations concerning conduct in Algeria and Albania.
Under the heading “Improper Travel and Entertainment in Algeria,” the complaint alleges:
Weatherford also provided improper travel and entertainment to officials of Sonatrach, an Algerian state-owned company, that were not justified by a legitimate business purpose. The improper travel and entertainment to Sonatrach officials include:
• June 2006 trip by two Sonatrach officials to the FIFA World Cup soccer tournament in Hanover, Germany;
• July 2006 honeymoon trip of the daughter of a Sonatrach official; and
• October 2005 trip by a Sonatrach employee and his family to Jeddah, Saudi Arabia, for religious reasons that were improperly booked as a donation
In addition, on at least two other occasions, Weatherford provided Sonatrach officials with cash sums while they were visiting Houston. For example, in May 2007, Weatherford paid for four Sonatrach officials, including a tender committee official, to attend a conference in Houston. Prior to the trip, a Weatherford finance executive sent an email to a Weatherford officer requesting $10,000 cash to be advanced to a WOTME employee without providing any explanation tor the cash advance. The request was approved and a portion of the funds was provided to the tender committee official. There is no evidence the cash was used for legitimate business or promotional expenses. In connection with a December 2007 trip by three Sonatrach officials traveling to Houston, a Weatherford finance employee questioned the propriety of a WOTME employee’s request for a $14,000 cash advance in connection with the trip. The finance employee’s concern was disregarded and the request was ultimately approved at high levels within Weatherford and a portion of the funds was provided to the officials. In total, Weatherford spent $35,260 on improper travel, entertainment and gifts for Algerian officials from May 2005 through November 2008 that were recorded in the company’s books and records as legitimate expenses.”
Under the heading “Improper Payments to Albanian Tax Authorites,” the complaint alleges:
“From 2001 to 2006, the general manager and financial manager at a Weatherford Italian subsidiary, WEMESP A, misappropriated over $200,000 of company funds, a portion of which was improperly paid to Albanian tax auditors. WEMESPA’s general manager and financial manager misappropriated the funds by taking advantage of Weatherford’s inadequate system of internal accounting controls. They misreported cash advances, diverted payments on previously paid invoices, misappropriated government rebate checks and received reimbursement of expenses that did not relate to business activities, such as golf equipment and perfume.
[…]
In addition to the cash payments, in 2005, after a regime shift in Albania, the Country Manager provided three laptop computers for the tax director and two members of Albania’s National Petroleum Agency, which the WEMESPA executives approved and misrecorded in the books and records.”
Under the heading “Misconduct During the Investigation and Subsequent Remediation Efforts,” the complaint states:
“Certain conduct by Weatherford and its employees during the course of the Commission staffs investigation compromised the investigation. These activities involved the failure to provide the staff with complete and accurate information, resulting in significant delay. In one instance, the staff sought information concerning the Iraq Country Manager who signed letters agreeing to pay bribes to Iraqi officials during the Oil for Food Program. The staff was informed that the Country Manager was missing or dead when, in fact, he remained employed by Weatherford. In at least two instances, email was deleted by employees prior to the imaging of their computers. On another occasion, Weatherford failed to secure important computers and documents and allowed potentially complicit employees to collect documents subpoenaed by the staff. Subsequent to the misconduct, Weatherford greatly improved its cooperation and engaged in remediation efforts, including disciplining employees responsible for the misconduct, establishing a high level Compliance Officer position, significantly increasing the size of its compliance department, and conducting numerous anti-corruption reviews in many of the countries in which it operates.”
Under the heading “Anti-Bribery Violations,” the complaint states in pertinent part:
“Weatherford’s conduct in the Middle East and Angola violated [the FCPA’s anti-bribery provisions]. From 2005 through 2011, Weatherford authorized $11.8 million in payments to national oil company officials through a distributor intended to wrongfully influence national oil company decision makers to obtain and retain business. Weatherford also violated [the anti-bribery provisions] when it retained the Swiss Agent to funnel bribes to a Sonangol official to obtain the Cabinda contract. Weatherford similarly violated [the anti-bribery provisions] by bribing other Sonangol officials via the joint venture in return for contracts and preferential treatment.”
Under the heading “Failure to Maintain Books and Records,” the complaint states in pertinent part:
“Weatherford, directly and through its subsidiaries, also violated [the books and records provisions] when it made numerous payments and engaged in many transactions that were incorrectly described in the companys books and records. In the Middle East, for example, the money given to a distributor to be used as bribes was reflected in Weatherford‘s books and records as legitimate volume discounts. In Angola and Congo, payments to foreign officials and others were described as legitimate consulting fees rather than bribe payments. Payments to Sonangol executives through the joint venture were misrecorded as legitimate dividend payments.”
Under the heading “Failure to Maintain Adequate Internal Controls,” the complaint states in pertinent part:
“Weatherford violated [the internal controls provisions] by failing to devise and maintain an adequate system of internal accounting controls. The violations were widespread and involved conduct at Weatherford’s headquarters as well as at numerous subsidiaries. Executives, managers and employees throughout the organization were aware of the conduct, which lasted a decade. Weatherford paid millions of dollars to consultants, agents and joint venture partners without adequate due diligence. Weatherford approved cash payments to Algerian officials traveling to Houston without any justification for the payments. Employees made payments to agents without regard to grants of authority and, on some occasions, without even receiving an invoice. In Italy, internal accounting controls were ineffective, allowing executives to embezzle and pay bribes for years.
In the Middle East, the company failed on several occasions to perform due diligence on the distributor it used, despite the fact that the agent was imposed upon them by a national oil company official and would be selling to a government entity. The use of large volume discounts was not routinely reviewed. […] Weatherford also failed to provide FCPA … training. While Weatherford did require certain employees to complete a yearly ethics questionnaire seeking instances of alleged misconduct, Weatherford failed to investigate or even review the responses.”
As noted in the SEC’s release, Weatherford agreed to pay approximately $65.6 million to the SEC, including an approximate $1.9 million penalty assessed in part for lack of cooperation early in the investigation.
In the SEC’s release, Andrew Ceresney (Co-Director of the SEC’s enforcement division) stated:
“The nonexistence of internal controls at Weatherford fostered an environment where employees across the globe engaged in bribery and failed to maintain accurate books and records. They used code names like ‘Dubai across the water’ to conceal references to Iran in internal correspondence, placed key transaction documents in mislabeled binders, and created whatever bogus accounting and inventory records were necessary to hide illegal transactions.”
Kara Brockmeyer (Chief of the SEC’s FCPA Unit) stated:
“Whether the money went to tax auditors in Albania or officials at the state-owned oil company in Angola, bribes and improper payments were an accustomed way for Weatherford to conduct business. While the profits may have seemed bountiful at the time, the costs far outweigh the benefits in the end as coordinated law enforcement efforts have unraveled the widespread schemes and heavily sanctioned the misconduct.”
Joseph Warin (Gibson Dunn) represented Weatherford.
In this statement, Bernard Duroc-Danner (Weatherford’s Chairman, President and CEO) stated:
“This matter is now behind us. We move forward fully committed to a sustainable culture of compliance. With the internal policies and controls currently in place, we maintain a best-in-class compliance program and uphold the highest of ethical standards as we provide the industry’s leading products and services to our customers worldwide.”
On the day of the enforcement action, Weatherford’s shares closed up approximately 1.2%.
Foreign Military Sales Lead To FCPA Enforcement Action
[This post is part of a periodic series regarding “old” FCPA enforcement actions]
In 1989, the DOJ criminally charged Minnesota based military equipment and supplies company Venturian Corporation, along with its wholly-owned subsidiary NAPCO International, with conspiracy to violate the Foreign Corrupt Practices Act, substantive FCPA offenses (anti-bribery, books and records and internal controls), as well as various tax fraud offenses.
The conduct at issue was in connection with the Foreign Military Sales (FMS) program in which the U.S. government made loans to certain foreign governments to finance the purchase of defense items of U.S. origin. The Defense Security Assistance Agency (DSAA), an agency of the U.S. Department of Defense, was responsible for directing, administering, and supervising FMS loans. In connection with the FMS program, contractors and commercial suppliers were required to certify, among other things, that: (i) “commissions would be paid only to bona fide employees or agencies which neither exerted or proposed to exert improper influences to solicit or obtain the contact;” and (ii) “no rebates, gifts or gratutities contrary to U.S. law have been or would be given to officers, officials or employees of the purchaser …”.
The conduct at issue concerned the Republic of Niger, a foreign nation qualified to receive FMS loan assistance from the DSAA, specifically Tahirou Barke Doka (the First Counselor of the Embassy of Niger in Washington, D.C.) and Captain Ali Tiemogo (Chief of Maintenance for the air force component of the Niger Ministry of Defense).
According to the detailed 50-page information, Niger entered into a contract with Dornier GmbH (a West German aircraft maintenance company) to perform maintenance on Nigerien C-130’s. However, according to the indictment, “the Government of Niger had insufficient funds to pay for Dornier’s services and Dornier sought to affiliate with a U.S. contractor so that the Government of Niger could qualify” for the FMS program.
Thereafter, NAPCO, acting in cooperation with Dornier, began negotiations with the Government of Niger for a contract to furnish replacement parts and to perform maintenance on two C-130 transport aircraft owned by the airforce of the Government of Niger. Four contracts, in the approximate amount of $2.4 million, were entered into between NAPCO and the Government of Niger.
The information alleges that NAPCO conspired with others to violate the FCPA by making payments or authorizing payments of money to “officials of the Government of Niger, that is, Counselor Tahirou Barke Doka and Captain Ali Tiemogo” and “Fatouma Mailelel Boube and Amadou Mailele, both relatives of Tiemogo, while knowing that all or a portion of such money would be offered, given or promised, directly or indirectly, to foreign officials, namely Barke and Tiemogo” for the purpose of “influencing the acts and decisions of Barke and Tiemogo in their official capacities, and inducing them to use their influence with the Ministry of Defense.”
The information further alleged that NAPCO “falsely represent[ed] to DSAA the identifies of NAPCO’s agents, misrepresenting the percentages of contract funds paid and to be paid to non-U.S. suppliers and filing misdated invoices.”
According to the information, the aggregate amount of bribes paid to Barke and Tiemogo was approximately $131,000. In addition, the information alleges that Barke “traveled from Washington, D.C. to Niger for his wedding and subsequent honeymoon in Paris, Stockholm and London, using tickets charged to a NAPCO account.”
The information further alleges that NAPCO and others used various methods to conceal the conspiracy such as “preparing and using bogus commission agreements,” “creating a fictitious commission agent,” using the names of Mailele and Boube “in order to conceal the payment of bribes,” “falsely representing to DSAA that Mailele and Boube were NAPCO’s agents “when these persons were not its agents, had performed no services for NAPCO, and had acted solely as the intermediaries for Tiemogo and Barke for the purpose of concealing the bribe payments.
In addition to the conspiracy charge and a substantive FCPA charges, the information also alleges that NAPCO filed false and fraudulent U.S. tax returns which “falsely claimed certain deductions for the payment of agent commissions.”
NAPCO pleaded guilty to the above charges (see here for the plea agreement). As noted in the plea agreement, the DOJ and the company settled on a fine amount in the “aggregate amount of $1 million in satisfaction of its criminal and civil fines, penalties, taxes and restitution.” The amount consisted of the following: $785,000 for the criminal charges set forth in the information, $140,000 in restitution “for full payment of its civil tax liability to the DSSA for appropriate crediting to the FMS account of Niger,” and $75,000 restitution to the IRS for full payment of all criminal and civil tax liabilities.
The plea agreement notes that the DOJ will not prosecute NAPCO for “Napco’s contracts with Egypt,” “alleged United States Customs violations arising from the sale of misidentified radios to the Government of Egypt and to other countries;” or “FCPA violations arising from the transactions evidenced in the documents Napco produced to the Yellow Grand Jury.”
The plea agreement further states:
“The Department of Justice will advise the Department of Defense, Defense Logistics Agency, which is the suspension and debarment authority in this matter, of the facts learned during the government’s investigation of Napco; Napco’ s cooperation during the investigation; and the importance of this prosecution in the government’s efforts towards eradicating fraud in the Foreign Military Sales program.”
The above settlement terms are set forth in this judgment.
According to original source media reports, the DSSA “uncovered the fraud when it checked the name of one of the agents with the government of Niger.” Media reports quoted Theodore Greenberg (Deputy Chief DOJ Fraud Section) as follows: “[money from the FMS program] is to be used for the military preparedness of certain governments; that, of course, is important to our national security.” Media reports quoted Peter Clark (DOJ FCPA Unit) as follows: “the object of the program is to be getting the biggest bank for the buck – not to pay illegal bribes.”
(See here for NAPCO’s current company website).
(The FMS program is still an active program of the Defense Department – see here).
In addition to the enforcement action against NAPCO / Venturian, the DOJ also brought an injunctive action against Dornier. Of note, the DOJ described Dornier (a German company) as an “agent of NAPCO” and thus a “domestic concern” under the FCPA. As to relevant jurisdiction allegations, the DOJ alleged that a Dornier employee Axel Kurth, had telephone conversations with NAPCO employees in Minnesota and that Kurth traveled in the U.S. “where he met with officers of NAPCO” to discuss the alleged improper payments. Without admitting or denying the DOJ’s allegations, Dornier consented to a permanent injunction prohibiting future FCPA violations.
In addition, the DOJ criminally charged the Vice President of the Aerospace Division of NAPCO. That individual exercised his constitutional right to a jury trial, put the DOJ to its burden of proof, and the results and ultimate outcomes will be explored in a future post.
From Siriwan To Gonzalez: Why The DOJ Altered The Way It Charges Alleged Corrupt Foreign Officials
Today’s post is from Mike Dearington, a 2013 Vanderbilt law grad who will soon start his practice career. Dearington has previously authored several FCPA Professor guest posts on the Siriwan matter.
*****
As the Wall Street Journal reported in March, the court in United States v. Siriwan has issued a stay of the case in order to await resolution of the Thai government’s prosecution of defendant Juthamas Siriwan. A recently released transcript of the March hearing, which details the court’s reasons for the stay, suggests a strategic shortcoming in the DOJ’s charging tactics in the case. The shortcoming may explain why the DOJ, after Siriwan, altered the way it charged an allegedly corrupt foreign official in a similar case, Gonzalez.
Siriwan Background
In 2009, prosecutors charged Juthamas Siriwan, former governor of Tourism Authority of Thailand, as well as her daughter Jittisopa, with awarding lucrative contracts to two Hollywood movie executives in exchange for kickbacks. (See here for the prior post). Because foreign officials are outside the scope of the FCPA, prosecutors charged Juthamas Siriwan under the MLCA (Money Laundering Control Act). The indictment cited two theories of specified unlawful activity: promotion of (i) violations of the US Foreign Corrupt Practices Act and (ii) violations of Thai law. Under the MLCA, FCPA violations expressly constitute specified unlawful activity, 18 U.S.C. § 1956(c)(7)(D), and violations of Thai law may constitute specified unlawful activity by virtue of being an “offense against a foreign nation involving . . . bribery of a public official, or the misappropriation, theft, or embezzlement of public funds by or for the benefit of a public official,” 18 U.S.C. § 1956(c)(7)(B)(iv). But when the defendant is the foreign official, as in Siriwan, neither theory is well settled under federal law.
Questions about the FCPA theory of money laundering predominated a January 2012 hearing in Siriwan. At that hearing, the court suggested preliminary disapproval of the theory, noting the FCPA’s affirmative legislative policy of exempting foreign officials from its reach. See, e.g., Castle; Gebardi. The government countered that it had not charged the defendant under the FCPA statute and instead was charging money laundering in promotion of FCPA violations, a distinct crime (citing Bodmer).
During the March 2013 hearing, however, discussion shifted to the prosecution’s second theory of money laundering, where an “offense against a foreign nation” is the purported specified unlawful activity.
March 2013 Siriwan Hearing: Court Continues Stay Until Resolution of Thai Prosecution
During the March 2013 hearing on defendants’ motion to dismiss, the court was conspicuously reluctant to decide questions of Thai law, when it could instead wait until Thailand decides those questions itself: “I don’t understand how I could attempt to discover what Thai law is, the ins and outs of Thai law to make that type of determination.” The court opined:
“[E]specially when there are very serious issues, it behooves the court to be somewhat cautious in this regard. And, again, it seems to me that what will happen in Thailand will inform this court as to what this court’s proper response should be to the motion to dismiss. And I do not feel that it is my obligation to do that which can be done through a prosecution in Thailand as to Thai law. [I]t behooves me to wait and see even for no other reason that I can say, at least, they are experts in Thailand as to what Thai law is.”
Additionally, the court averred that an acquittal in Thailand would weaken the government’s money-laundering charge based on promotion of crimes against Thailand. The court speculated that, in the event Thailand acquits the defendant of the very conduct that constitutes specified unlawful activity under the MLCA charge, the government is “going to be precluded from making that argument because the Thai government will have said they haven’t violated Thai law . . . .”
The government did not concede this point, instead cautioning that, in the event of an acquittal in Thailand, the government “would want to reevaluate” its position. The government added that the MLCA charges would still stand under the FCPA theory of money laundering.
Gonzalez: The DOJ Alters Its Charging Tactics After Siriwan
The Siriwan court’s reluctance to decide questions of Thai law before resolution of Thailand’s domestic enforcement means a concomitant delay of the government’s case in the United States. And if prosecutors continue to charge money laundering in promotion of an offense against a foreign nation, thereby implicating foreign law, district courts may repeatedly decide to stay the cases until the foreign nation has resolved its charges against the official. In practice, charging a foreign official with money laundering where the specified unlawful activity is a violation of another country’s law can pose a “trial within a trial” problem; that is, the district court may decide to cautiously await that country’s direct prosecution of the offense before adjudicating a money-laundering charge in the United States predicated on that offense. The latter complication seems to have occurred in Siriwan.
In addition to the delay, when a court awaits the foreign nation’s prosecution, it renders ineffective the government’s prosecution for money laundering predicated on the foreign offense. For instance, if Thailand acquits Siriwan, it will be difficult for prosecutors in the United States to then prove that Siriwan intended to promote an offense against Thailand. On the other hand, if Thailand convicts Siriwan, imprisonment in Thailand may further delay extradition to the United States.
But the government seems to have learned all this from Siriwan. In March 2013, prosecutors in United States v. Gonzalez charged Venezuelan “foreign official” Maria Gonzalez with money laundering in a kickback scheme similar to the one in Siriwan. Specified unlawful activity charged in the criminal complaint consisted of violations of the FCPA, like in Siriwan, but did not include an offense against Venezuela. Thus, the court will not need to defer to resolution of a foreign prosecution of Gonzalez to decide the merits of the government’s case on a motion to dismiss.
Furthermore, prosecutors departed from Siriwan by adding a new charge: violations of the Travel Act. The Travel Act prohibits travelling or using the mail in interstate or foreign commerce with intent to promote unlawful activity. See 18 U.S.C. § 1952(a)(3)(A). Such unlawful activity, defined in § 1952(b), includes bribery under the laws of the United States or any state thereof in which it is committed. The Gonzalez criminal complaint cites New York State Penal Law sections 180.00 and 180.05, which criminalize commercial bribery. Based on the facts alleged in Siriwan, prosecutors could probably have charged Juthamas Siriwan with violating the Travel Act, based on California Penal Code section 641.3, which criminalizes commercial bribery. Naturally, these predicate unlawful activities raise no difficulties of interpreting foreign law, and federal courts are competent at deciding questions of state law.
Attorney General Holder’s Personal Stake in Siriwan and Gonzalez
Attorney General Holder has a personal stake in seeing money-laundering cases predicated on “an offense against a foreign nation involving . . . bribery of a public official” succeed. This is because Holder, as Deputy Attorney General in the Clinton administration, was instrumental in amending the MLCA so that it included this provision in its list of specified unlawful activity.
During the Clinton administration, Holder co-chaired the Money Laundering Steering Committee. As co-chair, Holder oversaw implementation of the National Money Laundering Strategy of 2000, one of five annual strategies mandated by the “Money Laundering and Financial Crimes Strategy Act of 1998.” The 2000 Strategy Report urged passage of the Money Laundering Act of 2000, a bill that would have added bribery of a public official to the MLCA’s list of specified unlawful activity. (The addition would have satisfied Article 7 of the OECD Convention on Combatting Bribery of Foreign Public Officials in International Business Transactions.) Although the bill failed to pass, Congress resurrected the provision in 2001 under section 315 of Title III of the USA PATRIOT Act (codified at 18 U.S.C. § 1956(c)(7)(B)(iv)).
Presciently, the provision was intended to fill the very “loophole” at issue in Siriwan and Gonzalez. The 2000 report observed that:
“At present, . . . a foreign public official who accepts bribes or embezzles money and then launders the proceeds through a U.S. bank is not subject to a U.S. money laundering prosecution. The new provision will close that loophole, which severely limits the ability of the United States to investigate and prosecute the laundering of foreign criminal proceeds through financial institutions in the United States.”
Fast forward to 2009, and it is unsurprising that the DOJ, under Holder’s leadership, pursued Siriwan under the “offense against a foreign nation involving . . . bribery of a public official” provision that he helped develop.
But after the provision has caused substantial delays in Siriwan, it is equally unsurprising that the DOJ sidelined the provision in Gonzalez. That decision underscores the inefficacy of charging a specified unlawful activity that turns on a foreign offense, which can be better analyzed in a foreign court. Moreover, Gonzalez undoubtedly put the DOJ in the uncomfortable position of abandoning a strategy Holder helped develop earlier in his career at the DOJ.