DOJ Prosecution Of Individuals: The Public – Private Divide?
Yesterday’s post (here) noted that since 2005, the DOJ has charged 79 individuals with FCPA criminal offenses.
As the below list demonstrates, 55 of the 79 individuals charged (70%) were employees or otherwise affiliated with private business entities. Of the 64 individuals charged since 2008, 50 of the 64 individuals charged (78%) were employees or otherwise affiliated with private business entities. This is striking statistic given that 37 of the 42 (88%) “core” corporate DOJ FCPA enforcement actions since 2008 were against publicly traded corporations.
I recognize that the Africa Sting case can skew statistics, so let’s pretend that manufactured case never occurred. The numbers would then be as follows: (i) 57 individuals charged with FCPA criminal offenses since 2005; 33 of the 57 individuals (58%) were employees or otherwise affiliated with private business entities; (ii) 42 individuals charged with FCPA criminal offenses since 2008; 28 of the 42 individuals (66%) were employees or otherwise affiliated with private business entities. Still a striking statistic given that 37 of the 42 (88%) “core” corporate DOJ enforcement actions since 2008 have been against publicly traded corporations.
Individuals Charged With FCPA Criminal Offenses Since 2005 (Employer / Affiliation)
Bold = employed or affiliated with a private business entity
Yaw Osei Amoako, Steven Ott, Roger Young (employees of ITXC Corp. – a publicly traded corporation)
Steven Head (employee of Titan Corp. – a publicly traded corporation)
Christian Sapsizian, Edgar Acosta (employees of Alcatel S.A. / subsidiary / affiliate – a publicly traded corporation)
Jim Bob Brown, James Tillery, Paul Novak, Jason Steph (employees of subsidiaries of Willsbros Group Inc. – a publicly traded corporation)
Si Chan Wooh (employee of Schnitzer Steel – a publicly traded corporation)
Richard Novak (employed by private individuals who owned and operated several internet-based businesses)
Faheem Salam (employed by Titan Corp. – a publicly traded corporation)
Gerald Green, Patricia Green (owners / operators of several private companies)
William Jefferson (as relevant to FCPA charges – agent / participate in several private business entities)
Leo Winston Smith, Martin Eric Self (employees of Pacific Consolidated Industries LP – a private business entity)
Shu Quan Sheng (owner of AMAC International Inc., but acting on behalf of French Company A – a publicly traded corporation)
Misao Hioki (employee of Bridgestone Corporation – a publicly traded corporation)
Nam Nguyen, Joseph Lukas, Kim Nguyen, An Nguyen (employees / agents of Nexus Technologies – a private business entity)
Albert Jack Stanley, Jeffrey Tesler, Wojciech Chodan (employees / agents of KBR Inc., – a publicly traded corporation and/or other publicly traded corporations)
Richard Morlock, Stuart Carson, Hong Carson, Paul Cosgrove, David Edmonds, Flavio Ricotti, Han Yong Kim (employees of Control Components Inc. – a private business entity)
Ousama Naaman (agent of Innospec – a publicly traded corporation)
John Jospeh O’Shea, Fernando Maya Basurto (employee / agent of ABB Ltd. – a publicly traded corporation)
Charles Paul Edward Jumet, John Warwick (employees of Ports Engineering Consultants Corporation – a private business entity)
Jorge Granados, Manuel Caceres, Juan Pablo Vasquez, Manuel Salvoch (employees of Latin Node Inc. – a private business entity)
Juan Diaz, Antonio Perez, Joel Esquenazi, Carlos Rodriguez, Marguerite Grandison, Jean Fourcand, Washington Vasconez Cruz, Amadeus Richers (employees / agents of Terra Telecommunications Corp., Telecom Consulting Services Corp., and JD Locator Services, Inc. – all private business entities)
Enrique Faustino Aguilar, Angela Maria Gomez Aguilar, Keith Lindsey, Steve Lee (employees / agents of Lindsey Manufacturing Corp. – a private business entity)
Richard Bistrong (employee of Armor Holdings Inc. – a publicly traded corporation)
Amaro Goncalves [employee of Smith & Wesson – a publicly traded corporation], John Mushriqui, Jeanna Mushriqui, David Painter, Lee Wares, Pankesh Patel, Ofer Paz, Israel Weisler, Michael Sacks, John Bensor, Haim Geri, Yochanan Choan, Saul Mishkin, R. Patrick Caldwell, Stephen Giordanella, Andrew Bigelow, Helmie Ashiblie, Daniel Alvirez, Lee Allen Tolleson, John Gregory Godsey, Mark Morales [employee of Allied Defense Group – a publicly traded corporation], Jonathan Spiller (unless otherwise noted – all employees of private business entities)
Bobby Elkin (employee of Alliance One International – a publicly traded corporation)
*****
Two tiers of justice? Other factors at play? Tomorrow’s post will explore additional statistics.
Individual DOJ Prosecutions By The Numbers
Since 2005, the DOJ has charged 79 individuals with FCPA criminal offenses. (2005 – 1 individual) (2006 – 6 individuals) (2007 – 8 individuals) (2008 – 12 individuals) (2009 – 19 individuals) (2010 – 31 individuals including 22 in the Africa Sting case) (2011 – as of 9/20 – 2 individuals).
An analysis of the numbers reveals some interesting points.
Since 2008, 64 individuals have been charged; but 22 individuals were in the Africa Sting case; 8 individuals (minus the “foreign officials” charged) were in the Haiti Teleco case; 8 individuals were in the Control Components case; 4 individuals were in the Lindsey Manufacturing case; 4 individuals were in the Hondutel case; and 4 individuals were in the Nexus Technologies case).
In other words, 60% of the individuals charged by the DOJ since 2008 have been in just three cases and 78% of the individuals charged by the DOJ since 2008 have been in just six cases.
Considering that there has been 42 “core” corporate DOJ FCPA enforcement actions (NPAs, DPAs, Pleas, or Convictions) since 2008, this is a rather remarkable statistic. Of the 42 “core” corporate DOJ FCPA enforcement actions, 30 (or 71%) have not (at least yet) resulted in any DOJ charges against company employees.
During this era of the FCPA’s resurgence, the DOJ has consistently stated that prosecution of individuals is a “cornerstone” of its FCPA enforcement strategy. Yet, the above numbers paint a different picture – at least in certain enforcement actions. What type of enforcement actions? What other items of note can be gleaned from these statistics? Stay tuned for additional analysis of individual DOJ FCPA prosecutions.
*****
Note, unlike some others, I keep my FCPA statistics using the “core” approach. Thus, for instance, the Siemens DOJ enforcement action was 1 “core” enforcement action even if the DOJ entered into separate agreements with Siemens AG, Siemens Argentina, Siemens Bangladesh, and Siemens Venezuela.
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?
Who Commits Fraud?
That is the question KPMG addresses in this recent report “Who Is The Typical Fraudster?” The study seeks to “identify patterns among individuals who have committed acts of fraud” and is based on research from “348 actual fraud investigations conducted by KPMG member firms in 69 countries.” Although not FCPA specific, the KPMG report identifies several fraud trends and indicators relevant to FCPA compliance.
The KPMG report notes that “typically, a fraudster is perceived as someone who is greedy and deceitful by nature,” however KPMG’s analysis found that “many fraudsters work within entities for several years without committing any fraud, before an influencing factor – financial worries, job dissatisfaction, aggressive targets, or simply an opportunity to commit fraud – tips the balance.”
According to the study, the “typical fraudster” is between the ages of 36 and 45, followed next by individuals between 46 and 55 years old. In terms of gender, men are the more likely perpetrators of detected fraud. According to KPMG, “the survey’s finding that men commit more fraud than women seems a reflection on the gender make-up of companies generally” and the “gender gap in fraud perpetration may reflect women’s under-representation in senior management positions and, as a consequence, fewer opportunities to commit fraud.”
In terms of job function, the KPMG report finds that people most often entrusted with a company’s sensitive information are able to override controls and thus are statistically more likely to become perpetrators. The report found that “most people involved in committing fraud work in the finance function” followed by those in the “chief executive’s / managing director’s office,” followed by those in “operations and sales.”
Other findings of note from the KPMG report include the following.
“One of the most significant findings of this survey is the very large increase in cases involving the exploitation of weak internal controls by fraudsters – up from 49 percent in 2007 to 74 percent in 2011. The difficult economic climate may be partially to blame. Tighter budgets are forcing some companies to cut costs in their control environments. Less robust controls, and fewer resources to monitor controls, allow for greater exploitation by fraudsters. Although necessary to preserve profits, such cost cutting should be balanced with effective risk management.”
“Many frauds continue to be exposed by formal or informal whistleblowing mechanisms. In 2007, companies were alerted to fraud by whistleblowers in one-quarter of cases, with complaints coming from customers or suppliers accounting for a further 13 percent. In 2011, formal internal whistleblower reports accounted for 10 percent of detections while anonymous tip-offs were responsible for uncovering 14 percent of frauds. A further 8 percent of frauds were identified due to customer or supplier complaints while 6 percent came in response to issues raised by third parties, including banks, tax authorities, regulators, competitors, or investors. That one in seven frauds is now discovered by chance puts question marks over the effectiveness of controls and management review at detecting and preventing fraud. […] The upshot is that companies seem to depend increasingly on the good conscience of staff or third parties, on accidental discovery or, in a few cases, on confessions, to identify potential fraud.”
“The number of fraud cases preceded by a red flags rose to 56 percent of cases in 2011, from 45 percent in 2007. However, instances where action was taken following the initial red flag fell massively. Just 6 percent of initial red flags were acted on in the 2011 analysis, compared with almost one-quarter (24 percent) in 2007. Companies are failing to read and to act quickly on the warning signs. Ignored red flags are a license for perpetrators to carry on operating and a missed opportunity for the business to detect or prevent fraud and to reduce losses and associated costs.”
“Fraud now takes longer to detect – up from an average 2.9 years from inception to detection in 2007 to 3.4 years in the 2011 analysis.” “In Asia […] the duration of fraud prior to detection is longest – on average five years – with 16 percent of frauds going undetected for ten years or more. This is possibly because employees in Asia tend not to challenge their superiors or to rock the boat as much as in Western Europe or North America …”.