Friday Roundup
Additional individual defendant added to Alstom-related enforcement action, a mere $110,000 per working day, a focus on international philanthropy, scrutiny alerts, and for the reading stack. It’s all here in the Friday roundup.
Additional Alstom-Related Charges
This prior post highlighted the recently unsealed criminal charges against Frederic Pierucci (a current Alstom employee) and David Rothschild (a former Alstom employee) concerning alleged conduct in connection with the Tarahan coal-fired steam power plant project in Indonesia. The post highlighted several other individuals generically referred to in the charging documents.
Earlier this week, the DOJ announced (here) that William Pomponi (a former executive of Alstom Power Inc., a Connecticut-based subsidiary of Alstom) was charged for his alleged participation in the same scheme. Pomponi, previously identified as “Employee A,” is now described as “a Vice President of Regional Sales” at Alstom Power Inc. and “was one of the people responsible for approving the actions of, and authorizing payments to, Consultants A and B, knowing that a portion of the payments [to the consultants] was intended for Indonesian officials in exchange for their influence and assistance in awarding the Tarahan Project …”.
Like the original Pierucci indictment, all of the alleged overt acts in the superseding indictment against Pomponi allegedly occured between 2002 and 2004, although the information does allege wire transfers from Alstom Power Inc.’s bank account to the bank account of Consultant A until 2009.
Like Pierucci, Pomponi is also charged with one count of conspiracy to violate the FCPA, four substantive counts of FCPA anti-bribery violations, money laundering conspiracy and four substantive counts of money laundering.
Kudos to the DOJ for including a link to the charging document in the release. This used to be DOJ’s practice, but when its new site launched a few years ago, it stopped doing this. Let’s hope this is a new practice!
Avon’s FCPA Expenses
Nearly five years ago – in June 2008 – Avon launched an internal investigation concerning FCPA compliance in China and other countries. In many respects, the most notable aspect of Avon’s FCPA scrutiny has been its pre-enforcement action professional and expenses – approaching $350 million (see here for instance).
In its most recent quarterly filing, Avon stated as follows. “Professional and related fees associated with the FCPA investigations and compliance reviews … amounted to approximately $7 during the three months ended March 31, 2013.”
Headlines read “Avon FCPA Costs Down to $7 Million for Q1” and “Avon Slows Spending on Bribery Probe.”
Both accurate headlines, but it is amazing to note nevertheless that – five years into Avon’s FCPA scrutiny – the company is still spending approximately $110,000 per working day on its FCPA issues. (See this prior post concerning Wal-Mart’s pre-enforcement action professional fees and expenses and asking “does it really need to cost this much?”).
International Philanthropy
FCPA material pops up in a variety of places. Such as this article in www.wealthmanagement.com concerning the perils of global giving. With two FCPA enforcement actions (Schering-Plough and Eli Lilly) based, in whole or in part, on donations made to a Polish castle foundation and with Wynn Resorts under FCPA scrutiny for a donation to the University of Macau (see here), FCPA scrutiny based on international charitable giving is no mere hypothetical.
Scrutiny Alerts
Scrutiny alerts concerning IBM, ADM, Total, and ENRC.
IBM
This recent post highlighted a ProPublica report regarding the relationship between various tech companies including H-P, IBM and Oracle with a ”senior technology officer for Poland’s national police and, later, the nation’s Interior Ministry, [who] set the terms for hundreds of millions of dollars in technology contracts and decided which ones should be awarded without competitive bidding.”
In a recent quarterly filing, IBM disclosed as follows.
“In early 2012, IBM notified the SEC of an investigation by the Polish Central Anti-Corruption Bureau involving allegations of illegal activity by a former IBM Poland employee in connection with sales to the Polish government. IBM is cooperating with the SEC and Polish authorities in this matter. In April 2013, IBM learned that the U.S. Department of Justice (DOJ) is also investigating allegations related to the Poland matter, as well as allegations relating to transactions in Argentina, Bangladesh and Ukraine. The DOJ is also seeking information regarding the company’s global FCPA compliance program and its public sector business. The company is cooperating with the DOJ in this matter.”
In 2011, IBM resolved an FCPA enforcement action concerning alleged conduct in South Korea and China. (See here). The settlement is still pending the approval of Judge Richard Leon (D.D.C.). In 2000, IBM resolved an FCPA enforcement action concerning alleged conduct in Argentina. (See here).
ADM
Archer Daniels Midland Company recently stated as follows in this release.
“ADM is in discussions with the U.S. Department of Justice and the U.S. Securities and Exchange Commission regarding a previously disclosed FCPA matter dating back to 2008 and earlier, and expects a resolution sometime this year. Based upon recent discussions, ADM believes it is appropriate to establish a provision of $25 million ($0.04 per share) to cover the potential assessments that may be imposed by these government agencies.”
Total
France-based Total recently stated as follows (here) concerning its long-running FCPA scrutiny concerning business conduct in Iran.
“In 2003, the United States Securities and Exchange Commission (SEC) followed by the Department of Justice (DoJ) issued a formal order directing an investigation in connection with the pursuit of business in Iran by certain oil companies including, among others, TOTAL. The inquiry concerns an agreement concluded by the Company with consultants concerning gas fields in Iran and aims to verify whether certain payments made under this agreement would have benefited Iranian officials in violation of the Foreign Corrupt Practices Act (FCPA) and the Company’s accounting obligations. The Company fully cooperates with these investigations. Since 2010, the Company has been in discussions with U.S. authorities (DoJ and SEC) to consider, as it is often the case in these kinds of proceedings, an out-of-court settlement, which would terminate the investigation in exchange for TOTAL respecting a number of obligations, including the payment of a fine and civil compensation, without admission of guilt. U.S. authorities have proposed draft agreements that could be accepted by TOTAL. Consequently, and although discussions have not yet been finalized, a provision of $398 million, unchanged since its booking as of June 30, 2012 and reflecting the best estimate of potential costs associated with the resolution of these proceedings, remains booked in the Group’s consolidated financial statements as of March 31, 2013. In this same affair, TOTAL and its Chief Executive Officer, President of the Middle East at the time of the facts, have been placed under formal investigation, following a judicial inquiry initiated in France in 2006. At this point, the Company considers that the resolution of these cases is not expected to have a significant impact on the Group’s financial situation or consequences on its future planned operations.”
A $398 million FCPA enforcement action would be the third-highest of all-time.
ENRC
Last week the U.K. Serious Fraud Office announced here as follows.
“The Director of the SFO has accepted [Eurasian Natural Resources Corp.] ENRC Plc. for criminal investigation. The focus of the investigation will be allegations of fraud, bribery and corruption relating to the activities of the company or its subsidiaries in Kazakhstan and Africa.”
In a statement, the U.K. company, stated as follows.
“The Board of Directors (the ‘Board’) of Eurasian Natural Resources Corporation PLC (‘ENRC’ or, together with its subsidiaries, the ‘Group’) today notes that the SFO has moved to a formal investigation. ENRC confirms that it is assisting and cooperating fully with the SFO. ENRC is committed to a full and transparent investigation of its procedures and conduct.
ENRC has ADRs listed with the SEC and thus could also be subject to the FCPA.
This recent article in the Wall Street Journal states as follows.
“U.K.-listed Eurasian Natural Resources Corp. PLC said … allegations of wrongdoing over minerals sales conducted through a Russian network of agents were thoroughly investigated and dismissed” in 2007.
Reading Stack
Tom Fox (FCPA Compliance and Ethics Blog) has penned a new book – “Best Practices Under the FCPA and Bribery Act: How to Create a First Class Compliance Program.” I was pleased to contribute the foreword to the book and noted that Tom’s “use of real events as learning devices to demonstrate compliance best practices make [the] book an engaging and informative read.”
Inside the NY Times Wal-Mart investigation (here) from the perspective of the Mexican journalist who assisted in the investigative reporting.
Current And Former Alstom Employees Charged In Connection With Payments In Indonesia
The final catch-up post from recent FCPA enforcement activity – this one concerning the recently unsealed enforcement actions against David Rothschild and Frederic Pierucci.
First, what to make of this month’s enforcement activity? Quite frankly, not much as I told Samuel Rubenfeld (Wall Street Journal) last week in this article. Much of this “new” enforcement activity is really not “new.” For instance, the BizJet individual enforcement actions were filed in 2011 and in 2012, but recently unsealed. Parker Drilling disclosed last year its settlement and the amount, it just took a while for resolution documents to be finalized. It was publicly reported last year that former Siemens executive Uriel Sharef was going to settle the SEC enforcement action, it just took a while for the resolution documents to be finalized. And finally, the charges against Rothschild and Pierucci discussed below were filed last year, but recently unsealed.
This post summarizes the Rothschild information (dated November 2, 2012) and plea agreement (dated November 2, 2012) and then the Pierucci indictment (dated November 27, 2012).
Pierucci, a French national, has been identified as a current executive of Alstom and he was arrested on April 14th at JFK airport in New York City. Rothschild is a former vice president of sales for Alstom Power Inc., a Connecticut-based subsidiary of Alstom.
According to this report, Alstom said in a statement that it “has been working constructively with the Justice Department for the last two years to address allegations of past misconduct.” It went on to say that Pierucci, its current executive, is entitled to the presumption of innocence. “We urge everyone to respect the judicial process, which will provide a full and fair opportunity for the facts to be adjudicated,” the statement read.
Rothschild Information
The conduct at issue concerned the Tarahan coal-fired steam power plant project in Indonesia. According to the charging documents Perusahaan Listrik Negara (“PLN”) “the state-owned and state-controlled electricity company in Indonesia and an ‘agency’ and ‘instrumentality’ of a foreign government […] was responsible for sourcing the Tarahan Project.
The officials allegedly involved were.
“Official 1 … a member of Parliament in Indonesia [who] had influence over the award of contracts by PLN, including on the Tarahan Project”
“Official 2 … a high-ranking official at PLN [who] had broad decision-making authority and influence over the award of contracts by PLN, including on the Tarahan Project”
“Official 3 … an official at PLN [who] was a high-ranking member of the evaluation committee for the Tarahan Project. Official 3 had broad decision-making authority and influence over the award of the Tarahan contract.”
The information charges one count of conspiracy and alleges that Rothschild and others, between 2002 through 2009, conspired to make “corrupt payments to a member of Parliament in Indonesia, officials at PLN, and others in order to obtain and retain business related to the Tarahan Project on behalf of the following entities and in violation of the FCPA’s anti-bribery provisions.
Alstom
Alstom Power Inc.
Power Company Switzerland – an indirect subsidiary of Alstom.
Power Company Indonesia – an indirect subsidiary of Alstom.
Consortium Partner – “a trading company … headquartered in Japan, incorporated in Japan, an in the business of providing power generation related services around the world.” According to the information, this entity “acted as the partner” of the above Alstom entities “in the bidding and carrying out of the Tarahan Project in Indonesia.” Consortium Partner would sure seem to be Marubeni Corp. of Japan. (See here for its 2004 press release concerning the Tarahan Project). This will be interesting to follow as Marubeni in 2012 resolved an FCPA enforcement action concerning conduct at Bonny Island, Nigeria (see here for the prior post) and is currently under a two year DPA.
Specifically the information alleges various telephone and e-mail communications between Rothschild and others concerning the alleged bribe payments and efforts to “conceal the payments to foreign officials by entering into consulting agreements with Consultant A (described as a “consultant who purportedly provided consulting related services [for the above companies] in connection with the Tarahan Project in Indonesia”) and Consultant B (same description) in order to disguise the bribe payment to the foreign officials.”
All of the alleged overt acts in the information allegedly occurred between 2002 and 2004, although the information does allege the following wire transfers:
In 2005 “200,064 from [Alstom Power Inc.’s] bank account to the bank account of Consultant A in Maryland”
In 2006 “200,064 from [Alstom Power Inc.’s] bank account to the bank account of Consultant A in Maryland”
In 2007 “200,064 from [Alstom Power Inc.’s] bank account to the bank account of Consultant A in Maryland”
In 2009, “66,688” from [Alstom Power Inc.’s] bank account to the bank account of Consultant A in Maryland”
Other individuals generically identifed in the information include the following.
“Executive A – Senior Vice President for the Asia Region at [Alstom]. Executive A’s responsibilities at [Alstom] included oversight of [Alstom’s] and [Alstom’s] subsidiaries’ efforts to obtain contracts with new customers and to retain contracts with existing customers in Asia, including the Tarahan Project in Indonesia.”
“Executive B – who held executive level positions at [Alstom Power Inc.] and [Alstom], including Vice President of Global Sales [this is Pierucci]. Executive B’s responsibilities at [Alstom Power Inc.] included oversight of [Alstom Power Inc.] efforts to obtain contracts with new customers and to retain contracts with existing customers around the world, including the Tarahan Project in Indonesia.”
“Employee A – Vice President of Regional Sale at [Alstom Power Inc.] Employee’s A’s responsibilities at [Alstom Power Inc.] included obtaining contracts with new customers retaining contracts with existing customers in various countries, including the Tarahan Project in Indonesia.”
“Employee B – the General Manager of Power Company Indonesia. Employee B’s responsibilities at Power Company Indonesia including obtaining contracts with new customers and retaining contracts with existing customers in Indonesia, including the Tarahan Project in Indonesia.”
“Employee C – Director of Sales at Power Company Indonesia. Employee C’s responsibilities at Power Company Indonesia including obtaining contracts with new customers and retaining contracts with existing customers in Indonesia, including the Tarahan Project in Indonesia.”
In the plea agreement, Rothschild pleaded guilty to the one count information charging him with conspiracy to violate the FCPA. According to the plea agreement, the offense carries a maximum penalty of 5 years imprisonment and a $250,000 fine. Other than setting forth the DOJ’s recommendation that the court reduce by two levels Rothschild’s offense level “based on the defendant’s prompt recognition and affirmative acceptance of person responsibility,” the plea agreement does not set forth any further specifics concerning sentencing.
Pierucci Indictment
The indictment is based on the same core set of facts alleged above in the Rothschild information. Because it is an indictment, and not an information, the Pierucci indictment is more detailed and indeed contains additional charges beyond the one count of conspiracy to violate the FCPA. In addition, Pierucci is charged with four substantive counts of FCPA anti-bribery violations, money laundering conspiracy and four substantive counts of money laundering.
In the indictment, the DOJ alleges that “Pierucci was one of the people responsible for approving the selection of, and authorizing payments to, Consultants A and B, knowing that a portion of the payments to Consultants A and B was intended for Indonesian officials in exchange for their influence and assistance in awarding the Tarahan Project contract to [Alstom] and its subsidiaries.”
The indictment further alleges that Pierucci and others “came to the conclusion that Consultant A was not effectively bribing key Indonesian officials” and accordingly in 2003 Pierucci and others concluded “that Consultant A would be responsible only for paying bribes to Official 1, a member of the Indonesian Parliament” and that Alstom and its subsidiaries would retain another consultant to pay bribes to PLN officials.”
In this release, Acting Assistant Attorney General Mythili Raman stated as follows.
“Frederic Pierucci and David Rothschild allegedly used outside consultants to bribe foreign officials in Indonesia in exchange for lucrative power contracts. Stamping out foreign bribery is a Justice Department priority, and we are determined to continue our vigorous enforcement of the Foreign Corrupt Practices Act.”
Unsealed Documents In Enforcement Acton Against Former BizJet Executives Reveal A Trove Of Information
Yesterday’s post (here) summarized the criminal indictments against former BizJet executives Bernd Kowalewski and Jald Jensen. Today’s post discusses the related criminal informations, based on the same core set of conduct, against former BizJet executives Peter DuBois (former Vice President of Sales & Marketing) and Neal Uhl (former Controller, Vice President of Finance). As noted in the prior post, DuBois and Uhl agreed to plead guilty and were sentenced last week.
Today’s post also highlights documents recently unsealed in the DuBois and Uhl action which reveal a trove of information of interest to anyone curious about the inner workings of an FCPA enforcement action and connecting the dots to other FCPA enforcement actions.
DuBois was charged via a criminal information (here) with one count of conspiracy to violate the FCPA’s anti-bribery provisions and one substantive FCPA anti-bribery violation. The conduct at issue is the same core set of conduct at issue in 2012 BizJet corporation action, as well as the criminal indictments against Kowalewski and Jensen. That is a scheme to “obtain aircraft maintenance, repair and overhaul (“MRO”) service contracts and other business [for BizJet] from foreign government customers, including the Mexican Federal Police, the Mexican President’s Fleet, Sinaloa and the Panama Aviation Authority, by paying bribes to government officials employed by the foreign government customers.”
The DuBois information was filed on December 27, 2011 and the related motion by the DOJ to seal the docket (since unsealed) reveals the following.
As part of his plea agreement, DuBois worked in an undercover capacity for the government. The motion specifically states as follows. “As part of his work in an undercover capacity, Mr. DuBois has recorded conversations with former BizJet executives and other subjects of the government’s ongoing investigation.” Later, the motion to seal states that “public identification of Mr. DuBois as a defendant who likely is cooperating with the government may jeopardize the undercover aspect of the government’s investigation.”
In the plea agreement, DuBois agreed to pay a forfeiture amount of $98,950 “representing proceeds derived by defendant in connection with the conspiracy” and to pay an additional $61,000 as the amount DuBois “received … as a result of his participation in the conspiracy.”
The DOJ’s memo in support of a downward departure for sentencing states as follows.
DuBois “assisted in the investigation from the outset and cooperated fully with the government throughout its investigation. DuBois submitted to multiple interviews by the government and has assisted in every way that the government has asked. DuBois told the truth to the government from the outset and continued to do so up until this very day. DuBois’ cooperation not only assisted the government in connection with its investigation into BizJet, but also led to the investigation of another maintenance, repair, and overhaul company engaged in a similar scheme to pay bribes to government officials overseas.”
This last portion of the DOJ’s memo makes clear that the 2012 FCPA enforcement action against NORDAM Group (see here for the prior post) had its origins in the BizJet enforcement action. Both BizJet and NORDAM Group are Tulsa, OK based aircraft maintenance companies. The link and information about DuBois’ undercover role also raises the issue of whether individual prosecutions related to the NORDAM Group corporate enforcement action are also forthcoming.
As noted in the DOJ release, DuBois was sentenced to 60 months probation and eight months home detention.
Uhl was charged via a criminal information (here – filed on December 28, 2011) with one count of conspiracy to violate the FCPA’s anti-bribery provisions. The conduct at issue is the same core set of conduct as indicated above, that is a scheme to “obtain aircraft maintenance, repair and overhaul (“MRO”) service contracts and other business [for BizJet] from foreign government customers, including the Mexican Federal Police, the Mexican President’s Fleet, Sinaloa and the Panama Aviation Authority, by paying bribes to government officials employed by the foreign government customers.” See here for the Uhl plea agreement.
In the Uhl matter, the DOJ’s motion for a downward departure states as follows.
Uhl “agreed to a voluntary proffer session and, when confronted by the government, admitted to the illegal conduct. Throughout the course of the investigation, Uhl was cooperative and provided truthful information that substantially assisted the government in confronting other co-conspirators and witnesses. Uhl offered to assist in any way that he could.”
As noted in the DOJ release, Uhl was sentenced to 60 months probation, eight months home detention, and was ordered to pay a $10,000 fine.
The motions to seal in both the DuBois and Uhl actions further state as follows. “BizJet’s corrupt payments were not limited to Mexico. BizJet employees bribed key decision makers in a number of countries, including Panama, Brazil, and Chile.” This is notable in that the 2012 BizJet corporate enforcement action made no mention of conduct in Brazil or Chile. This demonstrates that resolution documents in a corporate FCPA enforcement action are the result of negotiations and that final documents rarely offer the complete picture of the conduct that allegedly occurred.
Both the DuBois and Uhl plea agreements further indicate that BizJet’s bribery scheme was not just in foreign countries. Both plea agreements state that the customers or potential customers BizJet bribed “included customers both in the United States and abroad.
Former BizJet Executives Charged / Sentenced
This prior post from 2012 discussed the BizJet corporate enforcement action and was titled “BizJet FCPA Enforcement Action Involves Executive Conduct.” In summarizing that action, the post highlighted DOJ allegations as to Executive A, Executive B, Executive C, and Sales Manager A.
If the DOJ’s rhetoric of holding individuals accountable in the context of corporate resolutions is to mean anything (as noted in this prior post, since 2008 approximately 75% of DOJ corporate enforcement have not resulted in any related individual charges against company employees) the BizJet corporate action was one where related individual enforcement actions were to be expected given the DOJ’s prior specific allegations concerning the above individuals.
It turns out that the above individuals were criminally charged some time ago, but last Friday, in this release, the DOJ unsealed the actions and revealed the names of the above individuals.
Executive A is Bernd Kowalewski; Executive B is Peter DuBois; Executive C is Neal Uhl; and Sales Manager A is Jald Jensen.
In the release, the DOJ announced as follows.
“Kowalewski and Jensen were charged by indictment filed in U.S. District Court for the Northern District of Oklahoma on Jan. 5, 2012, with conspiring to violate the Foreign Corrupt Practices Act (FCPA) and to launder money, as well as substantive charges of violating the FCPA and money laundering. The two defendants are believed to remain abroad.”
The DOJ further announced as follows.
“DuBois and Uhl pleaded guilty on Jan. 5, 2012, to criminal informations, and their pleas were unsealed [last Friday]. DuBois pleaded guilty to one count of conspiracy to violate the FCPA and one count of violating the FCPA. Uhl pleaded guilty to one count of conspiracy to violate the FCPA. Both defendants were sentenced [last Friday] by U.S. District Judge Gregory K. Frizzell in the Northern District of Oklahoma. DuBois’s sentence was reduced from a sentencing guidelines range of 108 to 120 months in prison to probation and eight months home detention based on his cooperation in the government’s investigation. Uhl’s sentence was similarly reduced for cooperation from a guidelines range of 60 months in prison to probation and eight months home detention.”
The conduct at issue in the indictments and informations is the same core set of conduct at issue in the 2012 BizJet corporate enforcement action. That is, DOJ allegations that the individuals “paid bribes to officials employed by the Mexican Policia Federal Preventiva, the Mexican Coordinacion General de Transportes Aereos Presidenciales, the air fleet for the Gobierno del Estado de Sinaloa in Mexico, the air fleet for the Estado De Roraima in Brazil, and the Republica de Panama Autoridad Aeronautica Civil in exchange for those officials’ assistance in securing contracts for BizJet to perform MRO [aircraft maintenance, repair and overhaul] services.”
This post summarizes the indictments (here and here) against Kowalewski (the President and CEO of BizJet between 2004 through March 2010) and Jensen (a regional sales manager at BizJet between 2004 and 2010). A future post will summarize the enforcement actions against DuBois and Uhl. The informations in those cases (here and here) have been released, but the plea agreements and sentencing documents are not yet in the public domain.
Kowalewski Indictment
At its core, the indictment alleges a scheme “to obtain and retain MRO service contracts and other business for BizJet and others from foreign government customers, including the Mexican Federal Police, the Mexican President’s Fleet, Sinaloa, the Panama Aviation Authority, the State of Roraima, and other customers, by paying bribes to foreign officials employed by such customers.” According to the indictment, the bribe payments were called ‘commission,’ ‘incentives’ or ‘referral fees.” The indictment also alleges that Kowalewski and others “would and did attempt to conceal the payments to foreign officials by using Avionica [a California company owned by Jensen and located at his personal residence that operated “under the pretense of providing aircraft maintenance brokerage services”] to funnel the payments to the foreign officials by making payments in cash delivered by hand to the foreign officials.”
The six counts of FCPA anti-bribery violations are based on the following:
- “check mailed in the amount of $20,000 by BizJet in Tulsa, OK to [Panamanian Official] in return for [the official’s] assistance in securing business for BizJet with the Panama Aviation Authority”
- “wire transfer in the amount of $30,000 from BizJet’s bank account in New York to Avionica’s bank account in California for use to bribe [Mexican Official] in return for [the official’s] assistance in securing business for BizJet with the Mexican President’s Fleet”
- “wire transfer in the amount of $18,000 from BizJet’s bank account in New York to Avionica’s bank account in California for use to bribe [Mexican Official] in return for [the official’s] assistance in securing business for BizJet with Sinaola”
- “wire transfer in the amount of $176,000 from BizJet’s bank account in New York to Avionica’s bank account in California for use to bribe foreign officials employed by the Mexican Federal Police in return for their assistance in securing business for BizJet with the Mexican Federal Police”
- “wire transfer in the amount of $210,000 from BizJet’s bank account in New York to Avionica’s bank account in California for use to bribe foreign officials employed by the Mexican Federal Police in return for their assistance in securing business for BizJet with the Mexican Federal Police”
- “two checks mailed in the amount of $22,912.38 and $6,417.44 by BizJet in Tulsa, OK to [Mexican Official] in return for [the official’s] assistance in securing business for BizJet with Sinaloa.”
Like the BizJet corporate enforcement action, the Kowalewski indictment also contains allegations which suggest a complicit board of directors at the company. The indictment states as follows concerning a November 2005 board meeting:
- Kowalewski explained at the meeting that “directors of maintenance and chief pilots in the past received ‘commission’ of $3,000 to $5,000 but were now demanding $30,000 to $40,000 in ‘commission.”
- In response to a question by a director about how BizJet would survive the next six months without ‘burning cash,’ Kowalewski stated that BizJet expected to gain market share by paying ‘referral fees’ just as the competition was doing.
The indictment also alleges as follows.
“[In January 2010], after receiving an e-mail stating that the internal auditors of BizJet’s parent company would be conducting a detailed audit of BizJet’s incentive payments and requesting that Kowalewski prepare and make available all relevant documents, Kowalewski caused deletion software to be installed and run on his computer that erased content from his computer.”
Based on the above allegations, the DOJ charged Kowalewski with one count of conspiracy to violate the FCPA’s anti-bribery provisions, six counts of FCPA anti-bribery violations. In addition, the indictment charges one count of money laundering conspiracy and three counts of substantive money laundering.
Jensen Indictment
At its core, the indictment alleges the same scheme as in the Kowalewski indictment, including the same six substantive FCPA anti-bribery violations, as well as money laundering conspiracy and three counts of substantive money laundering. The Jensen indictment further alleges FCPA and money laundering forfeiture allegations which state that “upon conviction” of the offenses, Jensen “shall forfeit” to the U.S. “any property, real or personal, which constitutes, or is derived from, proceeds traceable to the offenses.”
Acting Assistant Attorney General Mythili Raman stated in the DOJ release as follows.
“The charges announced today allege a conspiracy by senior executives at BizJet to win contracts in Latin American countries through bribery and illegal tactics. Former BizJet executives, including the former president and chief executive officer, allegedly authorized and caused hundreds of thousands of dollars to be paid directly and indirectly to ranking military officials in various foreign countries, and two former executives have pleaded guilty for their roles in the conspiracy. These charges reflect our continued commitment to holding individuals accountable for violations of the FCPA, including, as in this instance, after entering into a deferred prosecution agreement with their employer.”
Assistant Director in Charge Valerie Parlave of the FBI’s Washington Field Office stated in the DOJ release as follows.
“Business executives have a responsibility to act appropriately in order to maintain a fair and competitive international market. The unsealing of these bribery charges, and today’s sentencing, demonstrate that the FBI is committed to curbing corruption and will pursue all those who try to advance their businesses through bribery.”
The former BizJet executive enforcement action announced last Friday is the first FCPA enforcement action of 2013. The last DOJ FCPA enforcement action (of any kind – corporate or individual) was in September 2012 and the last time the DOJ brought an FCPA enforcement action against an individual was in April 2012. (See here for the prior post).
For additional coverage, see here from Tulsa World.
The FCPA’s First Mega Enforcement Action
[This post is part of a periodic series regarding “old” FCPA enforcement actions]
The year was 1982 and the Foreign Corrupt Practices Act was nearing five years old. Up to this point, enforcement was sparse and focused on single-actor type cases. See here, here, here, here and here for FCPA enforcement actions up to this point.
In 1982, the first FCPA mega-case was brought and it involved five corporate defendants and twelve individual defendants.
Specifically, in October 1982, the DOJ brought an indictment (here) against:
- Crawford Enterprises Inc. (“CEI”) (a Houston based private company that sold compression equipment systems to oil and gas companies);
- Donald Crawford (CEI’s Chairman and sole shareholder and, at certain relevant times, CEI’s President);
- William Hall (CEI’s Executive Vice President and, at certain relevant times, CEI’s President);
- Ricardo Beltran (President and majority shareholder of Grupo Industrial Delta, a Mexican corporation);
- Mario Gonzalez (a U.S. citizen who assisted Grupo Delta and CEI communicate with certain alleged foreign officials);
- Andres Garcia (a U.S. citizen who assisted Grupo Delta and CEI communicate with certain alleged foreign officials);
- George McLean (Vice President of Solar Turbines International (“Solar”), a division of International Harvester Company);
- Luis Uriarte (the Latin American Regional Manager of Solar);
- Al Eyester (President of Ruston Gas Turbines “Ruston”);and
- James Smith (Vice President of Ruston).
The indictment charged a conspiracy between the defendants and others to pay money to Mexican foreign officials and Grupo Delta “knowing that all or a portion of such money would be offered, given or promised directly or indirectly” to foreign officials for the purpose of influencing the acts and decisions of the officials “in their official capacity, and inducing them to use their influence with Pemex so as to affect and influence the acts and decisions of Pemex in order to assist” Crawford, the other defendants, and others in “obtaining or retaining business with Pemex.”
The indictment alleges that Petroleos Mexicanos (“Pemex”) was the “national oil company wholly owned by the Government of the Republic of Mexico and was responsible for the exploration and production of all of the oil and natural gas resources of Mexico and for acquiring the equipment, including compression equipment systems, necessary for such exploration and production.”
The indictment alleged that “Pemex was an instrumentality of a foreign government” and that two individuals (Ignacio de Leon and Jesus Chavarria) were “foreign officials” based on their positions of “subdirector of Pemex responsible for the purchase of goods and equipment on behalf of Pemex” and “subdirector of Pemex responsible for the exploration and production of Mexican oil and natural gas.”
[As an aside, it should be noted that in the recent “foreign official” challenges, the DOJ has argued that its charging decision in the Crawford cases as to Pemex demonstrated the validity of its position that employees of SOEs are “foreign officials” under the FCPA. For instance, the recent FCPA Guidance states that the SEC and DOJ ‘‘have pursued cases involving instrumentalities since the time of the FCPA’s enactment’’ and that the ‘‘second-ever FCPA case charged by the DOJ’’ involved bribes to executives of the Mexican national oil company.
However being consistently wrong, does not make one right and, as noted in my article “Grading the FCPA Guidance,” missing from the Guidance discussion or associated citations on this issue, is any reference to the fact that George McLean, the only defendant in the series of related cases to put DOJ to its burden of proof at trial, was found not guilty by the jury.]
The conspiracy charge alleged that CEI and Crawford agreed to pay and paid the “foreign officials” “bribes equalling approximately 4.5% of each Pemex purchase order for compression equipment systems in which” CEI participated and that “it was further a part of the conspiracy” that CEI and Crawford arranged with defendants Beltran, Gonzalez and Garcia that Grupo Delta would: “(a) hold itself out as the Mexican agent of CEI, while in truth acting primarily as the conduit for the bribe payments; (b) disguise the bribe payments as ‘commissions’ due by providing to CEI false and fictitious invoice for each payment received; and (c) provide Gonzalez and Garcia with a base of operations from which to perform their function as middlemen and channels of communications between the co-conspirators” and the foreign officials.”
The indictment further alleged that the defendants used the term “folks” as a code word for the “foreign officials” “in order to conceal from others their true identities as Pemex officials and the existence of the bribe scheme.” The indictment alleged that “in order to create a pool of money with which to pay bribes” CEI along with Solar and Ruston “submitted to Pemex bids which were inflated to include a 4.5% markup for the “folks.”
The indictment alleged that CEI, along with Solar and Ruston received purchase orders from Pemex for compression equipment systems in the approximate amount of $225 million and that approximately $10 million in bribe payments were made to the “foreign officials” as part of the bribery scheme.
In addition to the conspiracy charge, the indictment also alleged approximately fifty substantive FCPA anti-bribery violations against various combinations of the defendants. The indictment also charged CEI, Crawford and Hall with an obstruction charge based on allegations that the defendants destroyed certain documents relevant to a grand jury subpoena.
Media reports described the action as the first major criminal investigation under the FCPA. According to the reports, in November 1982, CEI, Crawford, Hall, Garcia, McLean, Uriate, and Eyster pleaded not guilty. Crawford and Hall stated that while commission payments were made to Grupo, no such bribes were paid to Pemex officials.
CEI released a statement which said that “despite vigorous and repeated denials by Crawford Enterprises of any wrongdoing in connection with these allegations, the investigation has continued for nearly 3.5 years.” The company said that Pemex and the Mexican government had looked into similar charges and found no wrongdoing in the award of Pemex contracts to Crawford. The company’s statement further indicated as follows. “Four factors accounted for CEI’s success in becoming one of Pemex’s principal gas compression contractors: its proven experience in the industry; its aggressive delivery schedules that other firms simply could not match; its maintenance and repair of equipment installed in Mexico; and the lower costs to Pemex as a result of all the above.”
Prior to the above-reference October 1982 indictment, in September 1982 the DOJ charged Ruston Gas Turbines Inc., C.E. Miller Corporation and Charles Miller based on the same core set of allegations. The DOJ charged Ruston Gas Turbines in a one count criminal information (see here) with a substantive FCPA violation and the company pleaded guilty and was ordered to pay a $750,000 fine (see here). The DOJ charged C.E. Miller Corporation and Miller (President, Chairman of the Board, and majority shareholder of the company) in a one count criminal information charging substantive FCPA violations and aiding and abetting FCPA violations. (See here). C.E. Miller Corporation and Miller both pleaded guilty and the company was ordered to pay a $20,000 fine and placed on probation for three years (see here) and Miller was sentenced to three years probation (see here).
Prior to the above-referenced September 1982 charges, in May 1981 the DOJ charged Gary Bateman (an International Sales Manager for CEI and also Chairman of the Board, President and sole shareholder of Applied Process Products Overseas, Inc.) in a multi-count information (see here) charging various misdemeanor violations of the Currency and Foreign Transactions Reporting Act concerning the transportation of money to Mexico in connection with the bribery scheme. Bateman pleaded guilty and agreed to pay a civil penalty of approximately $330,000. In January 1983, the DOJ also charged Applied Process Products Overseas, Inc. in a one-count information (here) charging a substantive FCPA violation based on the same core set of allegations. The company pleaded guilty and was ordered to pay a $5,000 fine. (See here).
After the above-referenced October 1982 charges, in November 1982 the DOJ also filed a criminal information against International Harvester (see here). The information was based on the same core set of allegations as set forth above and based on the conduct of its employees McLean and Uriarte. International Harvester pleaded guilty to conspiracy to violate the FCPA (see here) and was ordered to pay a $10,000 fine and agreed to also pay $40,000 civil cost reimbursement.
The DOJ’s offer of proof in the International Harvester case (see here) contained the following statement.
“After Solar had agreed to participate and to cooperate with CEI, and pursuant to the 1977 enactment of the Foreign Corrupt Practices Act [International Harvester’s long-standing Policy on Conflicts of Interest and Ethical Business Conduct] was revised and supplemented to affirm that improper payments prohibited by the Act were also prohibited as a matter of company policy. In 1977, 1978, 1979, and 1980, through an annual audit process, each International Harvester managerial employee was required to certify his or her compliance and to report any action that might conflict with company policy for review by the Office of the General Counsel and corrective action, if warranted. During those years, Uriarte and McLean each reported in the annual audit process that he was aware of International Harvester policy and had taken no action in violation thereof. Insofar as each of them participated in the conspiracy described herein, he accordingly concealed from International Harvester his participation and the participation of the Solar Turbine Division. Neither Solar employee held a position which required him to report to International Harvester management. There has been no evidence that any officers, directors or management of International Harvester knew of or participated in the conspiracy charged.”
In January 1983, the DOJ charged Marquis King (an officer and director of C.E. Miller) in a one-count information charging a misdemeanor violation of the Currency and Foreign Transactions Reporting Act concerning the transportation of money to Mexico in connection with the bribery scheme. (See here). King pleaded guilty and he was sentenced to 14 months probation and ordered to pay a $5,000 fine. (See here).
In June 1985, CEI pleaded guilty to conspiracy to violate the FCPA and 46 substantive FCPA violations. (See here). CEI agreed to pay a $10,000 criminal fine as to the conspiracy charge and $75,000 as to each of the 46 substantive charges for a total fine amount of $3,460,000. At the same time, the following defendants pleaded nolo contendere: Donald Crawford, Al Eyster, James Smith, Andres Garcia, and William Hall. Crawford pleaded nolo contendere to conspiracy to violate the FCPA and 46 substantive FCPA violations and was ordered to pay a total fine amount of $309,000 (see here); Eyster pleaded nolo contendere to conspiracy to violate the FCPA and 41 substantive FCPA violations and was ordered to pay a total fine amount of $5,000 (see here); Smith pleaded nolo contendere to conspiracy to violate the FCPA and 44 substantive FCPA violations and was ordered to pay a total fine amount of $5,000 (see here); Garcia pleaded nolo contendere to conspiracy to violate the FCPA and 46 substantive FCPA violations and was ordered to pay a total fine amount of $75,000 (see here); and Hall pleaded nolo contendere to conspiracy to violate the FCPA and 32 substantive FCPA violations and was ordered to pay a total fine amount of $150,000 (see here).
That leaves McLean and Uriarte. Stay tuned for the rest of the story.
Of further note from this enforcement action, Pemex filed a civil suit in U.S. District Court in Houston against Crawford, CEI, the two foreign officials, and twelve others in a bid to recover monies allegedly extracted from Pemex. In its complaint, Pemex sought several million dollars in both compensatory and punitive damages from Crawford and the other entities based upon the same conduct that was alleged in the DOJ enforcement actions. Pemex’s suit was based upon alleged violations of the Sherman Antitrust Act, the Robinson-Patman Act, and the Racketeering Influenced and Corrupt Organizations Act. Pemex also asserted causes of actions based upon commercial bribery and common law fraud. Various of the defendants in the civil action sought relevant documents from Pemex and it was ultimately held in contempt for not producing the documents. For additional background on this case, see 643 F.Supp. 370; 826 F.2d 392.