In Sentencing Naaman, Judge Huvelle Dismisses DOJ’s Rhetoric And Refuses To Make Naaman The “Poster Child” The DOJ Would Like
FCPA sentencing transcripts are interesting and informative reads. Although there have been several recent FCPA trials, sentencing remains one of the few areas of FCPA enforcement in which someone other than the DOJ passes judgment on a FCPA defendant. Although the DOJ has secured a few long sentences recently (see here), general trends demonstrate that sentencing judges often do not see FCPA enforcement actions the same way the DOJ does.
Case in point, Judge Ellen Huvelle’s (D.D.C.) recent sentence of Ousama Naaman, the former agent of Innospec. See here for the prior post regarding Naaman’s 2010 plea. As noted in this prior post, the DOJ recommended a 90-month sentence for Naaman. However, as noted in this DOJ release, Judge Huvelle gave Naaman a 30-month sentence. That is a meaningful rejection of the DOJ’s position in-and-of-itself.
It is clear from reading the transcript that the DOJ wanted Judge Huvelle to follow its recommendation to establish a benchmark for future cases. Indeed, the DOJ has frequently made this argument in prior sentencing hearings ( i.e. Judge you need to give a stiff sentence because what you do in this case will affect future individual sentences).
During the hearing Nathaniel Edmonds (DOJ) stated as follows. “[W]hat this Court does with respect to Mr. Naaman will set a benchmark of what other courts will do, and that has an impact.” […] [W]e are bringing more of these enforcement efforts, other judges will look to what this court does with respect to Mr. Naaman and then sentence others below him if they believe their conduct is not as egregious.”
The DOJ then cited the usual statistics regarding corruption. “[T]he World Bank estimates that corruption is three percent of the world economy; a trillion dollars of bribes every single year. That is not something that the U.S. Government, even working with all of our foreign partners around the world, can scratch the surface in enforcing. The only way to try to change the corrupt conduct, to try to change the behavior is to change businesses, to change individuals from conducting, from choosing to commit these crimes of choice.”
Judge Huvell then stated as follows. “This analogy is not apt. And I don’t mean to suggest it’s like drugs, but, you know, the American companies want to do the business, and they engage in these practices to get the business and hire people to help them get the business. It’s like the demand in this country for drugs. We are not willing to give up operating in these countries, to say the least; nor should we. But you know, you are looking at a way to solve the problem that is somewhat limited in your vision, it seems to me. I mean, I cannot take this position that I, in some way, am really solving a large, worldwide problem of corruption. If you go to any other part of the world, the American companies want to participate, and they engage in practices that we have outlawed for good reason. I understand that. But just — I am not going to take on my shoulders what you are trying to put. I just don’t see it that way.”
Edmonds then stated as follows. “Let me just state very clearly that we have gone from a nascent fight against corruption where the Department of Justice was doing it essentially by itself, where we have now broadened that where Russia has passed new laws. China has passed new laws. I would not say that our vision, the U.S. Department of Justice’s vision, is short. It would say it’s long-term. This is not a project which is going to be five years. It is not a project that’s ten years. This is a project which is thirty years. And that Your Honor, I think, is the most important thing to remember, that your sentence with Mr. Naaman will last beyond any period of incarceration that Mr. Naaman faces, that what you have here will serve as precedent for the U.K., because the U.K. will key off the decisions and the sentence that you have for Mr. Naaman …”.
Judge Huvell refused to bear the cross the DOJ wanted her to bear just because some other judges in the world might follow her lead. Judge Huvell then stated as follows. “It is a mixed, sort of complicated situation. I, for one, have traveled a lot in this world, and it is very complicated to say that our morality is necessarily that of other peoples. And I don’t suggest that we should not try. But to say that in the early 2000’s, that I should ignore context, that because Iraq has contributed — or collaborated with us in order to clean it up — [Naaman] cannot be the poster child that Mr. Edmonds [DOJ] would like.”
Naaman was represented by Abbe Lowell (Chaborune & Park – here), Peter Clark (Cadwalader, Wickersham & Taft – here), and James Common (McDermott, Will & Emery – here).
Bribery At The Racetrack
[This post is part of a periodic series regarding “old” FCPA enforcement actions]
The FCPA enforcement action against Sam Wallace Company Inc. (“Wallace”) was a first in several regards. It was the first FCPA enforcement action involving both a DOJ and SEC component (all prior enforcement actions were either SEC only or DOJ only) and it was the first FCPA enforcement action involving criminal FCPA books and records charges.
In 1981, the SEC filed a complaint against Wallace (a Texas based construction company), Robert Buckner (Chairman of the Board of Wallace, CEO of Wallace, and a Director of Wallace) and Alfonso Rodriguez (Executive Vice President of Wallace, Regional Manager of various Wallace subsidiaries, and a Director of Wallace). The conduct at issue focused on “payments from Wallace bank accounts totaling at least $1.391 million to a certain foreign official to aid Wallace in procuring and maintaining certain contracts and billings with a certain foreign government.” According to the SEC complaint, the defendants “disguised and concealed such payments on Wallace’s books and records by utilizing, or causing to be utilized, certain false accounting entries which did not reflect the true nature and purpose of, and falsely described the expenditures used in the making of these payments to a certain foreign official.” The SEC complaint for permanent injunction and certain ancillary relief charged FCPA anti-bribery violations as well as a variety of other securities law violations such as Section 10b-5 and filing false reports and proxy statements with the SEC. Without admitting or denying the SEC’s allegations, Wallace agreed to establish a Special Committee of its Board to investigate the matters alleged in the SEC’s complaint and to file the report with the Court and the SEC.
In 1983, the DOJ filed a criminal information against Wallace containing more detail than the SEC’s complaint. According to the DOJ, the recipient of the bribe payments was “John H. O’Halloran, then chairman of the Trinidad and Tobago Racing authority” and the payments were made “in order to obtain and retain a contract to construct the grandstand and receiving building portion of the Caroni Racetrack Project in Trinidad.” The information charges that Wallace, aided and abetted by certain of its officers and employees, caused the Sam P. Wallace & Co. of P.R. Inc. (a wholly owned subsidiary of Wallace whose earnings were consolidated with the financial reports of Wallace) to “create fictitious purchase orders to purported suppliers for the purpose of concealing the withdrawal of corporate funds in order” to pay bribes to O’Halloran. Among other charges, the information charges violations of the FCPA’s books and records provisions. Wallace pleaded guilty and was ordered to pay a criminal fine of $530,000.
In 1983, the DOJ also filed a criminal information against Rodriguez. In the information, the DOJ alleged that the “Trinidad and Tobago Racing Authority was an agency of the government of the Republic of Trinidad and Tobago and was an instrumentality of the Trinidad and Tobago government.” The information charged FCPA anti-bribery violations and Rodriguez pleaded guilty. His sentence was suspended and he was placed on probation for two years and ordered to pay a $10,000 fine.
See here for original source documents from the SEC’s and DOJ’s enforcement action.
For more on the “foreign official” – Johnny O – see here; for recent news regarding the Caroni racetrack, see here.
Record Setting – Esquenazi Sentenced to 15 Years, Rodriguez to 7 Years
Yesterday, in the Southern District of Florida (a district quickly earning the distinction of handing out the toughest FCPA sentences in the country – see here), Judge Jose Martinez sentenced Joel Esquenazi to a record-setting 15 years (see here) and co-defendant Carlos Rodriguez to 7 years (see here) . The previous record for an FCPA sentence was in April 2010 when Charles Jumet was sentenced to a then record 7.25 years (67 months on an FCPA charge, 20 months on a false statement charge).
In the DOJ’s release (here), Assistant Attorney General Lanny Breuer stated as follows. “This sentence – the longest sentence ever imposed in an FCPA case – is a stark reminder to executives that bribing government officials to secure business advantages is a serious crime with serious consequences. A company’s profits should be driven by the quality of its goods and services, and not by its ability and willingness to pay bribes to corrupt officials to get business. As today’s sentence shows, we will continue to hold accountable individuals and companies who engage in such corruption.”
Esquenazi and Rodriguez were two of the defendants in the so-called Haiti Teleco case, the largest FCPA enforcement action in history (minus the manufactured Africa Sting case) in terms of individual defendants – 12. As noted in this prior post, the Haiti Teleco case stands in stark contrast to many corporate FCPA enforcement actions (enforcement actions that sometimes involve tens or hundreds of millions of dollars in bribe payments) that often yield no individual enforcement actions. Indeed, as noted in this prior post, since 2008 approximately 70% of corporate DOJ FCPA enforcement actions have not (at least yet) resulted in any DOJ charges against company employees.
It is likely that this case will now move to a next stage. Among other things, the case involved a “foreign official” challenge (see here for the prior post) as well as the baffling declaration / revised declaration of Haiti’s Prime Minister (see here for the prior post).
With several individual FCPA defendants currently exercising their constitutional right to a jury trial (Esquenazi and Rodriguez were convicted by a jury), what effect will this record-setting sentence have?
46 Months For Jorge Granados
After suffering its fair share of recent FCPA sentencing setbacks (see here, here, and here for instance), the DOJ largely got the sentence it was seeking (five years) earlier this week in the S.D. of Florida as Judge Joan Lenard sentenced Jorge Granados to 46 months in prison followed by 2 years of supervised release. Unlike in certain of the cases where judges significantly rejected DOJ sentencing requests, the DOJ issued a press release (here) in connection with Granados’s sentence.
As detailed in this prior post, Granados (the founder, Chief Executive Officer and Chairman of the Board of Latin Node between 1999 and 2007) was criminally charged in December 2010 for his role in an alleged bribery scheme involving Hondutel “the wholly state-owned telecommunications authority in Honduras, established under Honduran law and headquartered in Tegucigalpa, Honduras.” According to the indictment, Hondutel’s operations “were overseen by another Honduran government entity, Comision Nacional de Telecomunicaciones.” The indictment charged one count of conspiracy to violate the FCPA’s anti-bribery provisions, twelve counts of FCPA anti-bribery violations, one count of money laundering conspiracy, and five counts of money laundering.
In May (see here), Granados pleaded guilty to 1 count of conspiracy to violate the FCPA and, in exchange, the DOJ agreed to dismiss the remaining 18 counts. Granados’s co-defendant Manuel Caceres (a senior executive of Latin Node) pleaded guilty in May prior to Granados and testified as a cooperating witness in the Granados sentencing hearing. Caceres is to be sentenced on November 28th and two other defendants in a related case (Manuel Salvoch and Juan Pablo Vasquez) are to be sentenced in December.
In arguing for a sentence below the advisory guidelines range, John Wylie (counsel to Granados) asserted so-called “imperfect coercion” and stated as follows. “Mr. Granados’ entire livelihood, his company, and the substantial investment put into both were jeopardized by the corruption of Hondutel. Mr. Granados was put between a rock and hard place: comply with Hondutel’s demands for additional payments or shut down the business in Honduras after almost a decade of establishing it there. If LatiNode failed to meet Hondutel’s demands, the Hondutel officials would effectively shut down LatiNode because they controlled the telecommunications market in Honduras and set the rules. It was the corrupt officials at Honduras that created and drove the anti-competitive market that, at a minimum, made LatiNode feel as though it had to give the corrupt officials what they wanted to survive in the market.”
The DOJ, in reply, stated that Granados’s request pursuant to Section 5K2.12 of the Sentencing Guidelines was off-base because he did not claim “physical injury, substantial damage to property or similar injury” if he refused the bribe demands. The DOJ stated as follows. “Rather, Defendant – who did not even live in Honduras but resided in Florida, where his business was based – simply asserts that his own and his company’s economic well-being would have been affected by his refusal to authorize the bribe payments.” The DOJ also pointed out that Granados neglected to cite a sentence in Section 5K2.12’s policy statement that “personal financial difficulties and economic pressures upon a trade or business do not warrant a downward departure.”
The 46 month sentence of Granados is one of the most harsh individual sentences in FCPA history. It is believed that the top 6 list includes: Charles Edward Jumet (87 months – including 20 months for a false statement charge ), Juan Diaz (57 months), Granados (46 months), John Warwick (37 months) Christian Sapsizian (30 months) and Antonio Perez (24 months). Jumet and Warwick were both sentenced in the W.D. of Virginia, all others in the S.D. of Florida – where several additional FCPA defendants (in addition to Solvach and Vasquez) are scheduled to be sentenced.
A “Foreign Official” Fights Back
The Foreign Corrupt Practices Act addresses the payment of bribes, not the receipt of bribes.
For instance, in U.S. v. Castle, 925 F.2d 831 (5th Cir. 1991), the court was called upon to consider whether “foreign officials” who are excluded from prosecution under the FCPA itself, could nevertheless be prosecuted under the general conspiracy statute (18 USC 371) for conspiring to violate the FCPA. The court held that “foreign officials” could not be prosecuted for conspiring to violate the FCPA and adopted the rationale set forth in the trial court opinion (see 741 F.Supp. 116). That rationale was that Congress, in passing the FCPA, only chose to punish one party to the bribe agreement and the DOJ could not therefore “override the Congressional intent not to prosecute foreign officials for their participation in the prohibited acts” through use of the conspiracy statute. The trial court stated as follows. “The drafters of the [FCPA] knew that they could, consistently with international law, reach foreign officials in certain circumstances. But they were equally well aware of, and actively considered, the ‘inherent jurisdictional, enforcement, and diplomatic difficulties’ raised by the application of the bill to non-citizens of the United States.” The trial court observed that prosecution and punishment of “foreign officials” (in the Castle case alleged Canadian “foreign officials”) “will be accomplished by the government which most directly suffered the abuses allegedly perpetrated by its own officials, and there is no need to contravene Congress’ desire to avoid such prosecutions by the United States.” For those of you scoring at home, Castle represents a DOJ loss in a contested FCPA matter.
In recent years, however, the DOJ has used other laws in an attempt to reach “foreign officials.” This trend has been profiled here and here. For instance, in January 2010, in connection with the Gerald and Patricia Green FCPA enforcement action, a criminal indictment was unsealed against Juthamas Siriwan and Jittisopa Siriwan. According to the indictment, Juthamas “was the senior government officer of the Tourism Authority of Thailand (TAT)” and she is the “foreign official” the Greens were convicted of bribing. Jittisopa is the daughter of the “foreign official” and also alleged to be an “employee of Thailand Privilege Card Co. Ltd.” an entity controlled by TAT and an alleged “instrumentality of the Thai government.” The charges against the Siriwans were not FCPA charges, but largely conspiracy to money launder and “transporting funds to promote unlawful activity.”
As detailed in this Wall Street Journal Corruption Currents story by Joe Palazzolo, the Siriwans are fighting back. On behalf of the Siriwans, lawyers at Kelley Drye & Warren LLP recently field this motion to dismiss to the indictment.
In summary, the Siriwans state as follows. “This is the first judicial challenge to a novel prosecutorial approach the Government recently developed to charge foreign officials allegedly involved in corruption. That approach is aimed at overcoming a fundamental FCPA limitation. The FCPA does not criminalize a foreign public official’s receipt of a bribe. Nor can the Government employ an FCPA conspiracy charge against a foreign public official. Accordingly, these new enforcement initiatives require expansive interpretations [of] “promotion money laundering” [under the Money Laundering Control Act].” The Siriwans state as follows. “Congress has extensively amended the FCPA, yet it deliberately has not extended FCPA liability to foreign officials. If the Government wishes to extend U.S. criminal penalties to foreign officials accepting a bribe, it must go back to Congress, rather than employ dubious charging tactics to evade the direct and repeated congressional choice not to apply FCPA criminal liability to such officials.”
As noted in Palazzolo’s article, the DOJ has yet to respond to Siriwans’ motion and U.S. District Judge George Wu (C.D. of California) has scheduled a hearing on the motion for October 20th.
In a development that goes straight to a point raised by the Castle court, Thailand’s National Counter-Corruption Commission (NCCC) has reportedly found sufficient grounds to believe that Juthamas Siriwan received money from the Greens and that Jittisopa Siriwan was an accomplice in the bribery case. The NCCC has reportedly forwarded its conclusion to the Thai Attorney-General for legal action against the Siriwans. For more, see here from the Bangkok Post.
The Siriwan’s challenge is the latest in “this year of FCPA judicial scrutiny.” Previously this year, there was the first judicial challenge to the DOJ’s “foreign official” interpretation that made extensive use of the FCPA’s legislative history (see here); the first dd-3 judicial challenge (see here); the first victim petition under the FCPA (see here); and the first Travel Act judicial challenge (see here).
*****
In a related development (see here), the DOJ has dropped its appeal of Gerald and Patricia Green’s sentence. As detailed in this prior post, in September 2009, Gerald and Patricia Green were found guilty by a federal jury of substantive FCPA violations, conspiracy to violate the FCPA, and other charges. After several sentencing delays, in August 2010 (see here), Judge Wu rejected the DOJ’s 10 year sentencing request for both Gerald and Patricia Green and sentenced the Greens to six months in prison, followed by three years probation. In its sentencing brief, the DOJ urged the court to “disregard defendants’ efforts to obscure the landscape of FCPA sentencing, which generally reflects significant prison terms for convicted individuals.” I asked at the time whether the “landscape of FCPA sentencing” truly reflected “significant prison terms” as stated by the DOJ – a statement even more true now (see the FCPA Sentences tab under the Search page).
I was surprised to learn that the DOJ was appealing the Green sentences and I am thus not surprised to learn that the DOJ has dropped its appeal. In short, do you think the DOJ wants anything FCPA related before the 9th Circuit?