Nexus Technologies Inc. et al. – Part I
Unfortunately, the FCPA enforcement action against Nexus Technologies Inc., a Philadelphia-based export company (“Nexus”), Nam Nguyen (Nexus’s President and Owner), and his siblings and fellow Nexus employees, Kim Nguyen and An Nguyen came to an end yesterday.
As noted in this DOJ release, Nexus pleaded guilty to “a conspiracy to bribe officials of the Vietnamese government in exchange for lucrative contracts to supply equipment and technology to Vietnamese government agencies in violation of the FCPA.” The release also notes that Nam and An Nguyen “pleaded guilty to conspiracy, a substantive FCPA violation, a violation of the Travel Act and money laundering” and that Kim Nguyen “pleaded guilty to conspiracy, a substantive FCPA violation and money laundering.” In June 2009, Joseph Lukas (a former Nexus partner) pleaded guilty to conspiracy and to violating the FCPA (see here).
The DOJ release notes that “in connection with the guilty pleas, Nexus and the Nguyens admitted that from 1999 to 2008 they agreed to pay, and knowingly paid, bribes in excess of $250,000 to Vietnamese government officials in exchange for contracts with the agencies and companies for which the bribe recipients worked” and that the defendants “admitted that the bribes were falsely described as ‘commissions’ in the company’s records.”
The DOJ release further notes that in pleading guilty, “Nexus also acknowledged that, as a company, it operated primarily through criminal means and agreed to cease operations as a condition of the guilty plea.”
Why did this post start with “unfortunately?”
Because, unlike most FCPA defendants (corporate or individual) Nexus and the Nguyens actually mounted a legal defense based on FCPA’s elements, including the key “foreign official” element.
You wouldn’t know it just by reading the above DOJ release, but this enforcement action centered on payments to employees of various commerical arms of Vietnam’s Ministry of Transport, Ministry of Industry, and Ministry of Public Safety.
While the case may not have been the strongest “test case,” Nexus and the Nguyens, in what is believed to be an FCPA first, challenged the DOJ’s interpretation that employees of state-owned or state-controlled enterprises (“SOES”) are “foreign official” under the FCPA. As readers likely know, this issue is a frequent topic of discussion on this blog (see here for prior “foreign official” posts).
The “foreign official” issue was fully briefed and I will explore in a future post (Nexus Technologies Inc. et al. – Part II) the issues raised by the briefs, including the DOJ’s surprising argument that it does not even need to identify specific “foreign officials” to charge an FCPA antibribery violation as well as the DOJ’s thin and misguided justification for its legal theory that employees of SOEs are “foreign officials” under the FCPA.
For the record, the judge in the case, without any comment or analysis, denied the motion to dismiss. Thus, DOJ may claim victory on its “foreign official” interpretation; however, in its brief DOJ specifically argued that a decision on the “foreign official” element was premature and ultimately a jury issue.
For all the talk, including on this blog, about the Africa Sting Case, BAE, Siemens, etc., this little noticed FCPA enforcement action in Philadelphia had the potential to shape the future of FCPA enforcement like no other – considering that over 50% of recent FCPA enforcement actions involve “foreign officials” only under DOJ’s dubious legal interpretation – which still, notwithstanding this resolution, has no judicial support.
Benchmarking FCPA Compliance
The Organization for Economic Co-Operation and Development (“OECD”) recently released (see here) “the most comprehensive guidance ever provided to companies and business organizations by an international organization” on internal controls, ethics and compliance programs to combat bribery.
Mark Mendelsohn, the DOJ’s current FCPA “top cop” was recently quoted (see here) as saying that the new OECD guidance has the “endorsement of the U.S. government.”
Thus, those subject to the FCPA would be wise to take notice.
The OECD guidance, “Good Practice Guidance on Internal Controls, Ethics and Compliance” is included as Annex II in the “Recommendation of the Council for Further Combating Bribery of Foreign Public Officials in International Business Transactions (see here). The guidance is “intended to serve as non-legally binding guidance to companies in establishing effective internal controls, ethics, and compliance programs or measures for preventing and detecting foreign bribery.”
Substantively, the new OECD guidance is similar to the effective elements of an FCPA compliance program the DOJ frequently includes in its FCPA resolution documents (see here) as well as the elements of an “Effective Compliance and Ethics Program” in the U.S. Sentencing Guidelines (see here).
*****
While on the topic of the OECD, it has always intrigued me that the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (see here), on which numerous anti-corruption laws are based, uses the term “foreign public official” rather than the “foreign official” term used by the FCPA.
Is a “foreign public official” the same as a “foreign official?” In most cases, the answer would seem to be yes. However, is an employee of a state-owned or state-controlled enterprise (often a commercial entity with publicly traded stock and other attributes of a commercial enterprise) a “foreign public official?”
We all know the enforcement agencies’ view – yes such employees are “foreign officials” under the FCPA.
*****
While still on the topic of the OECD, in light of the BAE bribery, yet no bribery circus (see here for prior posts) it is interesting to review Annex I of the above referenced document titled “Good Practice Guidance on Implementing Specific Articles of the Convention of Combating Bribery of Foreign Public Officials in International Business Transactions.”
Article 5: Enforcement states – “Member countries should be vigilant in ensuring that investigations and prosecutions of the bribery of foreign public officials in international business transactions are not influenced by considerations of national economic interest, the potential effect upon relations with another State or the identity of the natural or legal persons involved, in compliance with Article 5 of the OECD Anti Bribery Convention.”
Both the U.S. and U.K. are “member countries.”
Sovereign Wealth Funds and the FCPA
Numerous previous posts have discussed the enforcement agencies’ interpretation of the key “foreign official” element of an FCPA antibribery violation and how that interpretation includes employees (regardless of title or position) of state-owned or state-controlled enterprises (“SOEs”) – even if the SOE has attributes of a purely commercial enterprise such as publicy traded stock. Part of this interpretation includes the notion that all employees of SOE subsidiaries are also “foreign officials” under the FCPA.
This interpretation has never been accepted by a court, yet it remains a central feature of FCPA enforcement.
Two-thirds of 2009 FCPA enforcement actions against business entities involved, in whole or in part, “foreign officials” under this dubious legal interpretation.
The most aggressive application of the enforcement agencies’ “foreign official” interpretation was in the KBR / Halliburton enforcement action (here and here) in which the enforcement agencies alleged that officers and employees of Nigeria LNG Limited (“NLNG”) were “foreign officials” despite the fact that NLNG is owned 51% by a consortium of private multinational oil companies – Shell, Total, and Eni (see here).
In other words, even if an entity is undeniably majority owned by private companies, the enforcement agencies will not retreat from the dubious legal interpretation that employees of that entity are “foreign officials” under the FCPA.
I’ve noted before that this dubious legal interpretation can lead to strange results such as employees of a Delaware company perhaps being Venezuelan “foreign officials” (see here) and an American citizen perhaps being a Dubai “foreign official” (see here).
Strange and unexpected results can also occur when applying the enforcement agencies’ “foreign official” interpretation to so-called sovereign wealth funds (i.e. foreign government owned investment vehicles).
While no FCPA enforcement action has yet involved a sovereign wealth fund, such funds and the investments these funds make in private companies, are clearly on the radar screen of the enforcement agencies as both DOJ and SEC officials have in the past publicly stated that sovereign wealth funds pose FCPA risks because the funds are government owned (see here and here).
The next frontier of the enforcement agencies’ dubious “foreign official” interpretation may thus be application to the investments made by sovereign wealth funds.
Against this backdrop, it is interesting to take a peek inside one of the largest sovereign wealth funds, China Investment Corporation (here), “an investment institution established as a wholly state-owned company under the Company Law of the People’s Republic of China and headquartered in Beijing.”
According to CIC’s recent SEC filing (here), the exact reason for that filing appears unclear (see here), CIC owns equity stakes in more than 60 U.S. corporations including Abbott Labs, Apple, Bank of America, Coca-Cola, Goodyear Tire and Rubber, Metlife, Pfizer, Pulte Homes, Visa, and Wells Fargo.
At present, CIC’s holdings are small, minority stakes. However, if CIC’s holdings grow, would Coca-Cola, Wells Fargo, etc. employees be considered Chinese “foreign officials?” Can it truly be the case that such U.S. citizen employees (regardless of title) are percentage points away from becoming Chinese “foreign officials?”
The rise in sovereign wealth funds, particularly CIC, is not just a U.S. issue, as CIC has acquired substantial stakes in Canadian and Australian companies as well. Does that mean that a Canadian or Australian citizen can be a Chinese “foreign official?”
The above questions are not merely hypotheticals and it seems ridiculous to think that the answers would be “yes” – but that would seem to be the answer if the enforcement agencies’ dubious “foreign official” interpretation were applied in an intellectually honest fashion to the above questions.
With foreign government owned sovereign wealth funds making investments around the world (including in U.S. companies) and with SOEs listing public shares on various exchanges and otherwise doing business around the world, there has never been a more critical time for the enforcement agencies to make clear its legal reasoning and support for its dubious legal theory.
A Wide Net
The seemingly minor case involving Telecommunications D’Haiti (“Haiti Teleco”) keeps on giving.
The DOJ recently announced (here) that Jean Fourcand pleaded guilty “to engaging in monetary transactions involving property derived from a scheme to bribe former Haitian government officials.” According to the criminal information (here) Fourcand “received funds ($18,500) originating from U.S. international telecommunications companies for the benefit of Robert Antoine from in or around November 2001, until in or around August 2002.” The information charges that the “funds Fourcand received were bribery payments” to Antoine (an alleged “foreign official” in the eyes of the DOJ because he worked for state-owned Haiti Teleco) and that the “funds were later used by Fourcand in a real estate transaction that benefited Antoine.”
The Fourcand plea is the most recent news in a case in which the DOJ has cast a wide net.
In May 2009, the DOJ announced (here) that Juan Diaz and Antonio Perez pleaded guilty to a one-count criminal information charging conspiracy to violate the FCPA’s antibribery provisions and money laundering laws for their roles in the same improper payment scheme involving the same Haiti Teleco employees. According to the Diaz criminal information (here), Diaz served as an intermediary for various companies in their business dealings with Haiti Teleco and knowingly conspired and agreed with others to make improper payments to the Haiti Teleco officials. According to the Perez criminal information (here), Perez, a controller for one of the companies seeking business with Haiti Teleco, also knowingly conspired and agreed with others to make improper payments to the Haiti Teleco officials.
In December 2009, the DOJ announced (here) the unsealing of an indictment (here) against Joel Esquenazi, Carlos Rodriguez and Marguerite Grandison charging (among other things) conspiracy to violate the FCPA and substantive FCPA violations for their roles in the same scheme to bribe the same Haiti Teleco employees. As noted in a prior post on this case (here), Esquenazi and Rodriguez are former executives of a privately owned telecommunications company and Grandison served as an intermediary for various companies in their business dealings with Haiti Teleco.
As also noted in the prior post, the same indictment also accomplished what is believed to be an “FCPA” first in that the alleged “foreign officials” Robert Antoine and Jean Rene Duperval were also charged. Because the FCPA only covers “bribe-payers” not “bribe-takers” Antoine and Duperval were charged with money laundering conspiracy and/or substantive money laundering.
The DOJ has clearly cast a wide net in this case and eight individuals, including company employees, intermediaries, and “foreign officials,” have been caught in the net.
Another point to consider is that this case involves a whole lot of fishing based on an untested legal theory that has never been accepted by a court – that being employees of state-owned or state-controlled enterprises are “foreign officials” under the FCPA. For numerous prior posts on this issue (see here and here and here).
If you are new to the FCPA you might be wondering why the DOJ comes out with guns-a-blazing in a case like this, yet in a case that involves seemingly clear-cut instances of corporate bribery and corruption (per the government’s own evidence) the DOJ agrees to resolve such a case without FCPA antibribery charges. See here.
Well, don’t feel bad, even those of us who have followed the FCPA for years wonder the same thing from time to time.
Indicting a “Foreign Official” – Part II
Yes, there is FCPA news other than the Africa Sting case.
In connection with the Green case (see here), an indictment was recently unsealed (see here) 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.”
Incidentally, the Green’s sentencing (which was to occur today) in which the government is essentially seeking a life sentence for Mr. Green based on FCPA, as well as other convictions and factors, was postponed until March. For more on that issue, see here.
As noted in the first Indicting a “Foreign Official” post a month ago (see here), the FCPA only covers “bribe-payers, not “bribe-takers.”
Thus, like the prior indictment against the alleged Haiti “foreign officials” (Robert Antoine and Jean Rene Duperval), the charges against the Siriwans are not FCPA charges, but largely conspiracy to money launder and “transporting funds to promote unlawful activity.”
However, unlike Antoine and Duperval who are alleged to have U.S. bank accounts which were used in the connection with the bribery scheme, the Siriwan’s bank accounts were located in Singapore, the United Kingdom, and the Isle of Jersey.
There are however facts alleged in the Siriwan indictment which suggest a U.S. nexus. The indictment alleges that the Greens did on occasion “arrange for cash payments to be made directly to Juthamas Siriwan, including during her trips to Los Angeles, California.” The indictment further alleges that Juthamas Siriwan “sent and caused to be sent to co-conspirator Gerald Green a facsimile on TAT letterhead providing wire instructions for transferring funds.” Finally, the indictment also alleges that “co-conspirator Patricia Green received instructions to divide ‘commission’ payments owed to defendant Juthamas Siriwan into wire transfer to three separate accounts.” Although the indictment does not say, it is presumed that the facsimile and instructions were sent to the U.S.
The “transporting funds to promote unlawful activity” charges (two – eight) of the indictment rely on 18 USC 1956(a)(2)(A) which reads in pertinent part:
“(2) Whoever transports, transmits, or transfers, or attempts to transport, transmit, or transfer a monetary instrument or funds from a place in the United States to or through a place outside the United States or to a place in the United States from or through a place outside the United States
(A) with the intent to promote the carrying on of specified unlawful activity
shall be sentenced to a fine of not more than $500,000 or twice the value of the monetary instrument or funds involved in the transportation, transmission, or transfer, whichever is greater, or imprisonment for not more than twenty years, or both.”
The specified unlawful activity alleged in the indictment is “namely, bribery of a foreign official” in violation of the FCPA; “bribery of a public official of Thailand” in violation of Thai law; and the “misappropriation, theft, or embezzlement of public funds by or for the benefit of a public official” in violation of Thai law.
In November 2009, Attorney General Eric Holder stated (see here) that the U.S. was committed to recovering funds obtained by “foreign officials” through bribery and the indictment seeks forfeiture of approximately $1.7 million in the foreign bank accounts.