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.
Friday Roundup
Coming attractions, monitor talk, LatinNode related individual sentences, just who are those “gestores,” scholarship of note, and Supreme Court quotables. It’s all here in the Friday roundup.
Coming Attractions
This prior post contained FCPA practitioner Homer Moyer’s discussion of industry sweeps. Industries that have been subjected to industry sweeps or are reportedly in the middle of industry sweeps include: oil and gas, pharmaceutical / medical devices, and financial services.
Add Hollywood film studies to the list.
Reuters reports (here) that the SEC “has sent letters of inquiry to at least five movie studios in the past two months, including News Corp’s 20th Century Fox, Disney, and DreamWorks Animation” that “ask for information about potential inappropriate payments and how the companies dealt with certain government officials in China.”
The New York Times (here) also reported on the letters of inquiry and stated that the SEC “has begun an investigation into whether some of Hollywood’s biggest movie studios have made illegal payments to officials in China to gain the right to film and show movies there.”
In other disclosure news, Turkcell Iletisim Hizmetleri A.S. (Turkcell), Turkey’s only New York Stock Exchange listed company, recently disclosed in an SEC filing (here) as follows. “Some of [the countries the company operates in] also suffer from relatively high rates of fraud and corruption. For example, allegations have been made regarding improper payments relating to the operations of KCell, a mobile operator in Kazakhstan and 51% subsidiary of Fintur Holdings B.V., in which we hold a 41.45% stake, while TeliaSonera holds the remainder. The allegations were discussed by Turkcell’s Board of Directors, which requested an independent investigation of the allegations made. TeliaSonera initiated an independent investigation as agreed by the Fintur Board. The Turkcell Board has been informed that to date there has not been substantiated any such allegations and the Fintur Board informs us that it has completed its own investigation. Since no assurance can be given that there will not be further requests for investigation, we remain vigilant on this matter.”
In other disclosure news, in October 2006, the SEC informed the Bristol Myers Squibb Company that it had begun a formal inquiry into the activities of certain of the company’s German pharmaceutical subsidiaries and its employees and/or agents. The company previously disclosed that “the SEC’s inquiry encompasses matters formerly under investigation by the German prosecutor in Munich, Germany, which have since been resolved,” that the inquiry concerns potential violations of the FCPA and that “the company is cooperating with the SEC.” Yesterday, in a 10-Q filing, the company stated as follows. “In March, 2012, the Company received a subpoena from the SEC. The subpoena, issued in connection with an investigation under the FCPA, primarily relates to sales and marketing practices in various countries. The Company is cooperating with the government in its investigation of these matters.”
According to my tally, over the past two months, approximately 15 companies have newly disclosed, or been linked to, FCPA scrutiny. See here for the prior post “The Sun Rose, a Dog Barked, and a Company Disclosed FCPA Scrutiny.” (And no, Wal-Mart is not included in this list, the company disclosed its FCPA scrutiny in December 2011).
Hercules Offshore disclosed better news in its 10-Q filing yesterday. The company stated as follows. “On April 4, 2011, the Company received a subpoena issued by the Securities and Exchange Commission (“SEC”) requesting the delivery of certain documents to the SEC in connection with its investigation into possible violations of the securities laws, including possible violations of the Foreign Corrupt Practices Act (“FCPA”) in certain international jurisdictions where the Company conducts operations. The Company was also notified by the Department of Justice (“DOJ”) on April 5, 2011, that certain of the Company’s activities were under review by the DOJ. On April 24, 2012, the Company received a letter from the DOJ notifying the Company that the DOJ has closed its inquiry into the Company regarding possible violations of the FCPA and does not intend to pursue enforcement action against the Company. The DOJ indicated that its decision to close the matter was based on, among other factors, the thorough investigation conducted by the Company’s special counsel and the Company’s compliance program. The Company, through the Audit Committee of the Board of Directors, intends to continue to cooperate with the SEC in its investigation. At this time, it is not possible to predict the outcome of the SEC’s investigation, the expenses the Company will incur associated with this matter, or the impact on the price of the Company’s common stock or other securities as a result of this investigation.”
For the second straight day, I say kudos to the DOJ. Yet, I also ask on consecutive days – would anything really change with an FCPA compliance defense? As I note in “Revisiting a Foreign Corrupt Practices Act Compliance Defense” (here) the DOJ already recognizes a de facto FCPA compliance defense albeit in opaque, inconsistent and unpredictable ways. Thus, an FCPA compliance defense accomplishes, among other things, the policy goal of removing factors relevant to corporate criminal liability from the opaque, inconsistent, and unpredictable world of DOJ decision making towards a more transparent, consistent, and predictable model best accomplished through a compliance defense amendment to the FCPA.
Monitor Talk
As discussed in this prior post, in March Biomet resolved an FCPA enforcement action involving $22.8 million in combined fines and penalties ($17.3 million via a DOJ deferred prosecution agreement, and $5.5 million via a settled SEC civil complaint). Pursuant to the DPA, Biomet agreed to engage an independent compliance monitor “for a period of not less than 18 months” and to provide periodic reports to the DOJ regarding remediation and implementation of the enhanced compliance measures as described in an attachment to the DPA.
As evidence that investor concern regarding FCPA issues does not end on enforcement action day, during a recent earnings conference call, an analyst asked Biomet CEO Jeff Binder the following question.
“I guess just with regard to the DOJ settlement that was announced for the FCPA potential violations, I’m just wondering — I guess you’re going to have an 18-month monitoring period. So I assume that would only apply to your international business? And then maybe even within the international business, would that only apply to certain regions where there have been problems found? And then what sort of a pricing — sorry, not pricing, but cost impact do you expect from that monitoring? Is it something material or not?”
Binder responded as follows. “Yes. You’re correct that the monitorship will apply to our businesses outside the United States, but the monitors purview is broad outside the United States. The monitor has the ability to take a look at our businesses across the world. The monitor will do a risk assessment upfront. They’ll understand where our issues have been and they’ll take a look at our processes. They’ll develop that risk assessment. They’ll come up with a work plan that’s based on that risk assessment. And we’ll take it from there. We don’t expect that additional expenses for the monitor will be material to the business. DOJ and SEC require the candidates for the monitorship to submit budgets of the projected services for their work. And I’d just say that the amounts that were set forth in those budgets are not material, and we don’t anticipate significant internal expenses associated with the monitorship.”
LatiNode Individual Sentences
As noted in this DOJ release, in April 2009 LatiNode, a privately held Florida corporation, pleaded guilty to violating the Foreign Corrupt Practices Act in connection with improper payments in Honduras and Yemen and agreed to pay a $2 million criminal penalty. Thereafter, several of its former executives – Jorge Granados, Manuel Caceres, Manuel Salvoch, and Juan Vasquez were criminally charged and pleaded guility.
Earlier this week Caceres (former vice president of business development at LatiNode) and Vasquez (a former senior commercial executive at LatiNode) were sentenced. U.S. District Court Judge Joan Lenard (S.D. of Fl.) sentenced Caceres to 23 months followed by 1 year supervised release – the DOJ sought a 36 month sentence. U.S. District Court Judge Patrricia Seitz (S.D. of Fl.) sentenced Vasquez to 3 years probation, community service, home detention and monitoring and ordered him to pay a $7,500 criminal fine – the DOJ originally sought a 36 month sentence and recently stated that it “would not oppose a sentence for Vasquez that was less than the sentence for Caceres and Salvoch [who is yet to be sentenced].”
As noted in this prior post, in September 2011, Granados was sentenced to 46 months in prison.
“Gestores”
The New York Times article suggested that many of the Wal-Mart Mexican payments at issue were routed through Mexican gestores. Just who are those “gestores.”? I found this article from CBS of interest. The article states as follows. “A visit to any government office is likely to bring the sighting of a well-dressed man carrying reams of documents who will glide past the long lines, shake hands with the official behind the counter and get ushered into a backroom, where his affairs presumably get a fast-track service. The suspicion is these go-betweens funnel a portion of the fees they charge clients to corrupt officials to smooth the issuance of permits, approvals and other government stamps. In a country where laws on zoning rules, construction codes and building permits are vague or laxly enforced, the difference between opening a store quickly and having it held up for months may depend on using a gestor.”
Scholarship of Note
Pre-Wal-Mart, the FCPA conversation of the spring focused on charitable contributions in the context of the Wynn-Okada dispute. See here, here and here for the prior posts. Other posts have noted (see here) that, strange as it may sound, the FCPA’s anti-bribery provisions are only implicated when something of value is provided, directly or indirectly, to a foreign official to influence the official in obtaining or retaining business. The FCPA’s anti-bribery provisions are not implicated when the thing of value is provided to a foreign government itself. Other prior posts (here and here) have discussed Dodd-Frank Act Section 1504’s Resource Extraction Disclosure Provisions.
Given my prior writings on these issues, I was pleased when Emory University School of Law student Francesca Pisano sent me the student comment “Anti-Corruption Law & Corporate Philanthropy: Rethinking the Regulations” (here) selected for publication in a forthcoming issue of the Emory Law Journal.
The abstract states as follows.
“When the 2010 earthquake hit Port-au-Prince, Haiti, U.S. companies donated over $146.8 million to the relief effort. Despite this impressive display of global engagement, commentators suggested that the US anti-corruption laws had discouraged corporations from greater involvement. Even with the laws in force, however, reports of corruption in the relief effort soon surfaced, derailing Haiti’s recovery. Foreign aid that feeds corruption will never achieve sustainable growth, but development efforts will similarly fail if U.S. anti-corruption laws discourage corporate philanthropy. This comment analyzes the application of two U.S. anti-corruption laws, the Foreign Corrupt Practices Act (“FCPA”) and the Dodd-Frank Section 1504, to international corporate charity. It shows how the FCPA’s ambiguous nature has the unfortunate effect of being both over- and under-inclusive, discouraging bona fide charity while at the same time failing to capture corrupt donations. The recently-enacted Dodd-Frank Section 1504 has great potential, but the SEC’s proposed rules have created a loophole to allow corruption to continue if hidden in corporate charity. This comment proposes a modification to FCPA enforcement: creating a Safe Harbor Option. This will offer businesses the opportunity to “buy” a rebuttable presumption of legitimacy for their charitable donations by publically disclosing the payments, projects, and recipients of their philanthropy. Granting a presumption of legitimacy to disclosed donations will ameliorate many of the over-inclusive aspects of the FCPA. The increased disclosure will allow the public to monitor corporate charity and question suspicious gifts, ameliorating the under-inclusive aspects of FCPA enforcement. This comment also argues that Section 1504 should be defined expansively to prevent charity from being used to circumvent the congressional goals of increasing transparency and combating corruption. If properly defined, Section 1504 is an excellent example of regulation through disclosure and transparency, rather than prohibitions.”
Supreme Court Quotable
This recent post discussed non-FCPA caselaw that touched upon issues relevant to the recent “foreign official” challenges. Last week, the Supreme Court issued its opinion (here) in Mohamad v. Palestinian Authority concerning the scope of the Torture Victim Protection Act. The Court, in an opinion authored by Justice Sotomayor held that the term “individual” in the TVPA encompasses only natural persons, and thus the law does not impose liability against corporatons. In her opinion, Justice Sotomayor’s stated, among other things, as follows.
“Congress remains free, as always, to give the word [individual] a broader or different meaning. But before we will assume it has done so, there must be some indication Congress intended such a result.”
“We add only that Congress appeared well aware of the limited nature of the cause of action it established in the Act.”
“The text of the TVPA convinces us that Congress did not extend liability to organizations, sovereign or not. There are no doubt valid arguments for such an extension. But Congress has seen fit to proceed in more modest steps in the Act, and it is not the province of this Branch to do otherwise.”
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I went to Walmart last night. After completing my purchase and before exiting the store, I stopped, looked around, and thought, wow, what a week!
A good weekend to all.
Potpourri
“Can Someone Please Turn On the Lights”
Former U.S. Attorney General Michael Mukasey (here – currently at Debevoise & Plimpton and active in the FCPA reform movement on behalf of the Chamber of Commerce) and James Dunlop (here – Jones Day) recently published “Can Someone Please Turn On the Lights? Bringing Transparency to the Foreign Corrupt Practices Act” (here). Published in Engage, a publication of the Federalist Society, the article asserts as follows.
” … [The] unobjectionable vision [of the FCPA] has virtually disappeared in a miasma of aggressive prosecutions by the Justice Department … The FCPA is almost never litigated in court. Public companies are the typical FCPA target, and such defendants are rarely positioned to litigate criminal charges, or even risk indictment, given (among other things) the substantial risk of federal contract debarment in many industries. The same is often true for individuals, most of whom face substantial prison time if convicted and who are thus unwilling to hang their hopes on uncertain interpretive arguments. As a result, the FCPA has had almost no judicial oversight, with the result that corporations trying to comply with its mandates find they are fighting corruption in the dark, their quest for standards confined to making mitigation arguments in prosecutors’ offices. This has enabled the FCPA’s enforcers, the Justice Department, and the Securities and Exchange Commission, to ‘win’ most FCPA cases through plea bargains or settlements, in which regulators set the terms, and into which regulators import their capacious constructions of the FCPA. This regulatory latitude has, in turn, transformed the FCPA into a catch-all for illicit conduct abroad, no matter how removed the target of the enforcement action is from the underlying offense. As Professor Mike Koehler has put it, ‘the FCPA means what the enforcement agencies say it means.'”
The article next states that “because the FCPA will never be heavily litigated—thus depriving the courts of the opportunity to clarify its murky text—Congress must speak clearly about what conduct does and does not violate the FCPA.” The article then largely tracks the reform proposals originally set forth in the Chamber sponsored white paper “Restoring Balance” (here).
Regardless of your views on FCPA reform, the Mukasey, Dunlop article is well written, extensively footnoted, and should find a place on your reading stack.
Checking in on the Carson Case
This previous post highlighted the Carson defendants recent motion to suppress (here) and motion to dismiss (here).
In substance, the motion to suppress argued that “from the outset of [Control Component Inc’s] CCI’s internal investigation in August 2007, CCI, through its counsel Steptoe & Johnson LLP (“Steptoe”), worked hand-in-hand with DOJ to investigate the matters at issue in this case.” The motion further argued as follows. “The DOJ and CCI essentially agreed to a private information-sharing arrangement between them. With this agreement in place, CCI selectively disclosed only information CCI believed inculpated Defendants and DOJ did not seek additional information.” According to the motion, “the collaborative nature of DOJ’s and CCI’s relationship provided both parties benefits, to the detriment of Defendants …”.
Last week the DOJ filed (here) its opposition brief. In summary, the DOJ asserts as follows. “Only state actors can violate a defendant’s Fifth Amendment rights, and the evidence shows that the Company’s actions were not the result of any pressure or influence from the government sufficient to convert the Company’s lawyers to state actors.”
The government submitted in camera the notes of Mark Mendelsohn, then Deputy Chief of the DOJ’s Fraud Section, reflecting his summary of the Company’s voluntary disclosure and many of the factual issues in dispute concern e-mails between Steptoe & Johnson and Mendelsohn. As to these e-mails, the DOJ states as follows. “These e-mails show no nexus between the Company and the government. Instead, they show a company in cooperative mode informing the government of what is transpiring in its internal investigation. [….] At no time did the government direct the actions of Steptoe/CCI. The government did not instruct the company who to interview or what questions to ask. In fact, the government provided no direction or instruction as to the conduct of the interviews.”
Citing caselaw that purports to show that a company’s efforts to cooperate with the government do not transform it into an arm of the state, the DOJ states that a company’s voluntary disclosure coupled with DOJ policy regarding a company’s cooperative efforts does not equate to state action and that finding state action “on these facts alone would be unprecedented and unwarranted, the effect of which would be to turn the cooperating company into a government agent in every case. There is no precedent for such an outcome.”
The DOJ also filed last week (here) its opposition to the motion to dismiss which mostly focused on due process / discovery issues.
Common Ground
Recently, Ann Hollingshead, writing on Global Financial Integrity’s (GFI) blog (here), made a spot-on observation regarding the type of “petty corruption” (or what I will call “harassment bribery”) common throughout the world. Hollingshead stated as follows.
“But this type of corruption is pervasive and deeply entrenched in the culture of many nations. It makes life difficult for citizens trying to live their lives and carry out what should be ordinary tasks. And in many countries—like India for example—where paying a bribe is illegal, the corrupt official forces everyday citizens to choose between completing your transaction and complying with the law. It is in this way that systematic corruption creates both a power imbalance and a forced cooperative between those demanding the bribe and those paying it.” (emphasis added).
I agree and the same is precisely the point I argue in “Revisiting a Foreign Corrupt Practices Act Compliance Defense” (here) as to a specific reason, among others, warranting an FCPA compliance defense. Like Hollingshead, I too focus on India and note as follows. “Recent FCPA enforcement actions concerning business conduct in India demonstrate that harassment bribery is common and that companies operating in India face – just as locals face – difficult conditions simply to get things done.” I further note that “companies seeking to do business in many foreign countries are often funneled into an arbitrary world of low-paying civil servants who frequently supplement their meager salaries through bribe payments condoned in the host country.”
It is encouraging to see that proponents of an FCPA compliance defense and opponents on an FCPA compliance defense seem to at least agree on the business conditions present in many foreign markets giving rise to discussion of an FCPA compliance defense.
Hollinghead’s comments on GFI’s blog would seem drastically different from GFI’s previous statements concerning the general issue. Previously, in connection with the June 2011 House FCPA hearing, GFI (and others) release a statement (here) that stated as follows. “If a company is found to be in violation of the FCPA, then the existence of a company’s compliance program must not have prevented the acts of bribery. So why should the existence of their compliance program be a defense to the charge of bribery?”
Basurto Sentenced to Time Served
As detailed in this prior post, Fernando Maya Basurto was charged along with John Joseph O’Shea. Unlike O’Shea, who decided to put the DOJ to its burden of proof – and when he did he prevailed (see here), Basurto (the principal of the Mexican company that performed work for ABB’s business unit on its contracts with CFE) pleaded guilty.
The DOJ release (here) stated as follows. “Basurto pleaded guilty … to a one-count information charging him for his role in the conspiracy. In his plea, Basurto admitted that while he acted as a sales representative for the Texas business unit, he conspired with others to make corrupt payments to CFE officials, helped launder the bribe monies, and engaged in a cover up to obstruct the investigations of the Department of Justice and the SEC. Basurto also admitted that he submitted false invoices and helped fabricate correspondence in contemplation of federal investigations into the bribery.”
As part of his plea agreement, Basurto agreed to cooperate with the DOJ in its prosecution of O’Shea and Basurto was a key DOJ witness at O’Shea’s trial. However, the presiding judge, Judge Lynn Hughes (S.D. Tex.), stated, in dismissing the FCPA charges against O’Shea, that Basurto knew ” almost nothing” and that his answers “were abstract and vague, generally relating to gossip.”
Last week, Hughes granted the DOJ’s request and sentenced Basurto to time served. As noted by Christopher Matthews (here – Wall Street Journal Corruption Currents), Basurto was arrested in April 2009 and was released on bail in July 2011, according to court records.
Haiti Teleco Roundup
Last week, the DOJ announced (here) that Jean Rene Duperval (a former director of international relations for Haiti Teleco) was “convicted by a federal jury on all counts for his role in a scheme to launder bribes paid to him by two Miami-based telecommunications companies.”
Assistant Attorney General Lanny Breuer stated as follows. “Mr. Duperval was convicted by a Miami jury of laundering $500,000 paid to him as part of an elaborate bribery scheme. As the director of international relations for Haiti’s state-owned telecommunications company, Duperval doled out business in exchange for bribes and then used South Florida shell companies to conceal his crimes. This Justice Department is committed to stamping out corruption wherever we find it.” Duperval is scheduled to be sentenced on May 21st.
The Haiti Teleco case (minus the manufactured and now former Africa Sting case) is the largest in FCPA history in terms of defendants charged – 13. Below is a brief summary of the actions.
Individuals Charged With FCPA and/or Related Offenses
Antonio Perez. In April 2009, Perez pleaded guilty to conspiracy to violate the FCPA. As noted in this prior post, in January 2010, he was sentenced to 24 months in prison.
Juan Diaz. In May 2009, Diaz pleaded guilty to conspiracy to violate the FCPA. As noted in this prior post, in July 2010, he was sentenced to 57 months in prison.
Jean Fourcand. As noted in this DOJ release, in February 2010, Fourcand pleaded guilty to one count of money laundering for receiving and transmitting bribe monies in the Haiti Teleco scheme. In May 2010, Fourcard was sentenced to 6 months in prison.
Joel Esquenazi and Carlos Rodriguez. As noted in this prior post, in August 2011, Esquenazi and Rodriguez were convicted by a jury for conspiracy to violate the FCPA, FCPA violations, and other offenses. As noted in this prior post, in October 2011, Esquenazi was sentenced to 180 months in prison and Rodriguez was sentenced to 84 months in prison. As noted below, Esquenazi and Rodriguez are appealing their convictions to the 11th Circuit.
Marguerite Grandison. As noted in this DOJ release, in December 2009, Grandison was charged with one count of conspiracy to violate the FCPA and commit wire fraud, seven counts of FCPA violations, one count conspiracy to commit money laundering and 12 counts of money laundering. According to a recent docket search, in February 2012, Grandison entered a not guilty plea and shortly thereafter the docket states as follows – “docket restricted/sealed until further notice.”
Washington Vasconez Cruz, Amadeus Richers and Cecilia Zurita. These individuals (associated with Cinergy Telecommunications) are fugitives according to the DOJ.
“Foreign Officials” Charged With Non-FCPA Offenses
Duperval – see above.
Patrick Joseph. As noted in this prior post, the former director of international relations at Haiti Teleco pleaded guilty in February 2012 to conspiracy to commit money laundering. In July 2012, he was sentenced to 366 days in prison.
Robert Antoine. As noted in this prior post, the former director of international affairs at Haiti Teleco pleaded guilty in March 2010 to conspiracy to commit money laundering. In June 2010, he was sentenced to 48 months in prison.
Entity Charged
Cinergy Telecommunications. As noted in this prior post, in February the DOJ moved to dismiss charges against Cinergy because it is a non-operational entity with no assets of any real value.
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Carlos Rodriguez and Joel Esquenazi are appealing their convictions to the 11th Circuit. See here for the prior post regarding Rodriguez and his appellate counsel. Recently, T. Markus Funk and Michael Sink (here and here of Perkins Coie) began representing Esquenazi in connection the appeal. Funk, a former federal prosecutor in Chicago and US State Department lawyer co-chairs the ABA’s Global Anti-Corruption Task Force (here).
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This prior post discussed Haiti Teleco’s other preferred providers – namely IDT Corp. and Fusion Telecommunications – and linked to a recent Wall Street Journal article titled the “Looting of Haiti Teleco.” The WSJ article was shortly countered with this post by Lucy Komisar.
Testing Innocence
By now you have probably heard that various Bonny Island bribery defendants were sentenced last week. As noted in this DOJ release:
Albert Stanley (a former chairman and CEO of Kellogg, Brown & Root, Inc.) was sentenced to 30 months in prison, ordered to serve three years of supervised release and to pay $10.8 million in restitution to KBR, the victim of a separate kickback scheme Stanley engaged in;
Jeffrey Tesler (a U.K. citizen and agent of the TSKJ joint venture at the center of the bribery scheme) was sentenced to 21 months in prison, followed by two years of supervised release, and ordered to pay a $25,000 fine in addition to previously forfeiting approximately $149 million.
Wojciech Chodan (a U.K. citizen and former salesman at KBR’s U.K. subsidiary) was sentenced to 1 year of probation and ordered to pay a $20,000 fine in addition to previously forfeiting approximately $727,000.
The Bonny Island bribery conduct the defendants were charged in was massive in scope and involved a decade-long scheme to bribe Nigerian officials to obtain engineering, procurement and construction contracts at Bonny Island Nigeria valued at more than $6 billion.
As detailed in this previous post, the corporate Bonny Island bribery enforcement actions resulted in approximately $1.6 billion in DOJ/SEC fines and penalties. The DOJ’s press release announcing the sentences states as follows. “Today’s prison sentences for Mr. Stanley and Mr. Tesler mark another important step in our prosecution of those responsible for a massive bribery scheme involving engineering, procurement and construction contracts in Nigeria. These sentences reflect not only the defendants’ illegal acts, but also their substantial cooperation with the government. As a result of this investigation, three individuals have been convicted of FCPA-related crimes, and five companies in four countries have paid substantial penalties and undertaken significant efforts to enhance their compliance programs. This case shows the importance the department places on putting an end to foreign bribery.”
Two people that probably have not heard of last week’s Bonny Island bribery sentences are Joel Esquenazi and Carlos Rodriguez – two of the defendants in the Haiti Teleco enforcement action. As noted in this prior post, in October 2011, Esquenazi was sentenced to 15 years in prison and Rodriguez was sentenced to 7 years in prison.
Was the conduct that Esquenazi and Rodriguez engaged in more egregious than the Bonny Island bribery conduct engaged in by Stanley, Tesler, and Chodan?
Not even close. According to the DOJ, Esquenazi and Rodriguez participated in a scheme in which their employer, Terra Telecommunications Inc. paid $890,000 to shell companies to be used for bribes to Haiti Teleco officials to receive preferred telecommunications rates.
So what did Esquenazi and Rodriguez do to receive a significantly longer sentence than the defendants charged in connection with one of the largest bribery schemes ever under the FCPA?
Esquenazi and Rodriguez tested their innocence. They exercised their constitutional right to a trial, put the DOJ to its burden of proof, and were convicted by a jury (their appeals are pending).
Professor Ellen Podgor notes in White Collar Innocence: Irrelevant in the High Stakes Risk Game (here) as follows. “Our existing legal system places the risk of going to trial, and in some cases even being charged with a crime so high, that innocence and guilt no longer become the real considerations;” rather, “maneuvering the system to receive the least onerous consequences may ensure the best result for the accused party, regardless of innocence.” In the article, Professor Podgor details several stories involving disparate criminal sanctions and states “the real moral of these stories is not whether the punishment was warranted, but rather the appropriateness of the level of risk that one has to take to proceed to trial, and the chilling effect of the high risk caused by the ―trial penalty.” Podgor notes that “iinnocence becomes irrelevant as the real question becomes whether it is worth the risk of testing an innocence claim.”
Esquenazi and Rodriguez were found guilty by a jury. However, the greatest factor in their sentences is likely that they tested their innocence. In contrast, Stanley, Tesler, Chodan pleaded guilty and cooperated (although Tesler and Chodan did fight extradition for several years) and received substantially shorter sentences for engaging in much more egregious conduct.
Is this justice or is this merely knowing how to play a game? Were Stanley, Tesler, and Chodan sentenced too lightly or were Esquenazi and Rodriguez sentenced too harshly? What is the message sent to future FCPA individual defendants who might want to test their innocence?