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)
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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.
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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.
Bridgestone Corporation Resolves FCPA (and Antitrust) Enforcement Action
The DOJ announced yesterday (here) that “Bridgestone Corporation [a Japanese company that is the world’s largest manufacturer of tires and rubber products] has agreed to plead guilty and to pay a $28 million criminal fine for its role in conspiracies to rig bids and to make corrupt payments to foreign government officials in Latin America related to the sale of marine hose and other industrial products manufactured by the company.”
Part conspiracy to violate the Sherman Act and part conspiracy to violate the FCPA, the FCPA portion of the criminal information (see here) alleges that Bridgestone conspired with others to “obtain and retain for Bridgestone’s IEPD [International Engineered Products Department] business million of dollars of sales of marine hose and other industrial products by making corrupt payments to foreign government officials in Latin America and elsewhere.” Among other things, the DOJ alleged that Bridgestone: (i) “contracted with local sales agents in many of the Latin American countries where Bridgestone sought IEPD sales;” (ii) developed relationships with employees of the state-owned entities [PEMEX in Mexico is specifically mentioned] with which Bridgestone sought to do business;” (iii) “negotiated with employees of state-owned entities who were ‘foreign officials’ under the FCPA, in Mexico and other Lartin American countries, to make corrupt payments to those foreign officials to secure business for Bridgestone and BIPA [Bridgestone Industrial Products of America Inc. – Bridgestone’s U.S. subsidiary];” (iv) “approved the making of corrupt payments to the foreign officials through the local sales agents to secure business for Bridgestone and BIPA;” (v) paid local sales agents commissions within which BIPA included corrupt payments to be paid to the foreign officials; (vi) “coordinated these corrupt payments in Latin America through Bridgestone’s agents in the United States located in BIPA’s offices, including in Houston, Texas; and (vii) “took steps to conceal these payments, including, in some instances writing ‘Read and Destroy’ on facsimiles that contained information related to the corrupt payments and, in other instances using verbal communication rather than written communication to avoid creating written record.”
As to jurisdiction against Bridgestone, the DOJ asserts 78dd-3 and merely alleges that e-mails or faxes were sent to or from Japan to the U.S. in connection with bribery scheme. Interestingly, in the Africa Sting case, Judge Leon – in the first judicial test of 78dd-3 jurisdiction – seemed to reject the notion that such conduct, in and of itself, satisfied 78dd-3’s “while in the territory of the U.S.” requirement. See here for the prior post.
According to this filing, it would appear that approximately 80% of the $28 million fine is for the FCPA conduct. The guidelines range for the antitrust conduct was $6.7 million – $13.4 million. The guidelines range for the FCPA conduct was $40 million – $80 million.
In other respects, the DOJ release states as follows. “Under the plea agreement, the department recognized Bridgestone’s cooperation with the investigations, including conducting a worldwide internal investigation, voluntarily making employees available for interviews, and collecting, analyzing and providing to the department voluminous evidence and information. In addition, the plea agreement acknowledges Bridgestone’s extensive remediation, including restructuring the relevant part of its business, terminating many of its third-party agents and taking remedial actions with respect to employees responsible for many of the corrupt payments. Under the terms of the plea agreement, Bridgestone has committed to continuing to enhance its compliance program and internal controls. As a result of these mitigating factors, the department agreed to recommend a substantially reduced fine.”
In a press release (here), Bridgestone [BSJ] noted as follows. “Since May 2007, the DOJ has been investigating BSJ’s involvement in international cartel activities relating to the sale of marine hose. The DOJ has also investigated improper payments to government officials through local sales agents focusing primarily on Latin America in connection with certain industrial products. BSJ has cooperated fully in this matter. The DOJ has agreed that BSJ’s cooperation has been ‘extraordinary’. The DOJ has also acknowledged that BSJ has engaged in extensive remediation including dismantling the International Engineered Products Department, closing its Houston office of Bridgestone Industrial Products of America, Inc., terminating many of its third party agents, and taking remedial actions with respect to its employees. BSJ has also decided to withdraw from the marine hose business.” The release further notes that the $28 million fine is a “significant reduction from the applicable sentencing guidelines due to BSJ’s cooperation and remediation efforts.”
Ordinarily, extraordinary cooperation, remediation, etc. allow a company to settle an FCPA enforcement action via a non-prosecution or deferred prosecution agreement. Yet, the two-crime nature of the Bridgestone enforcement action may have prompted the DOJ to insist on a plea agreement to actual criminal charges.
As noted in the DOJ release, in 2008 Misao Hioki, the former general manager of Bridgestone’s international engineered products department, pleaded guilty to antitrust and FCPA conspiracy charges. See here for that prior enforcement action.
Since April, Japanese companies have contributed approximately $248 million to the U.S. Treasury for violating the FCPA (recognizing that the Bridgestone action also contains an antitrust component). See here for the prior JGC Corporation enforcement action. Another Japanese company, Sojitz Corporation, is also reportedly the subject of an FCPA investigation in relation to conduct in Bahrain. See here for the prior post.
You ask, doesn’t Japan have its own “FCPA-like” law? Yes, it does; however there is no criminal liability for corporations under the law. To learn more see here.
Finally, the FCPA Blog reports (here) that Bridgestone has ADRs traded in the U.S. over the counter in the pink sheets. In the past, the SEC has asserted FCPA books and records and internal controls jurisdiction over a company based on such a listing. Given that DOJ and SEC enforcement actions are typically announced on the same day, and given nothing was announced yesterday by the SEC, it is further interesting that the SEC has apparently chosen to sit out the Bridgestone matter.
Closing Out The 70’s
[This post is part of a periodic series regarding “old” FCPA enforcement actions]
Previous posts (here and here) detailed FCPA enforcement actions from the 1970’s against: (i) Page Airways, Inc. (and six officers and/or directors of the company); and (ii) Kenny International Corporation and Finbar Kenny (Chairman of the Board, President and majority shareholder of Kenny International).
The 1970’s also witnessed: (i) a SEC civil complaint against Katy Industries, Inc. and its executives Wallace Carroll and Melvan Jones; and (ii) a DOJ civil complaint against Roy Carver and R. Eugene Holley; and (iii) a SEC civil complaint against International Systems & Controls Corporation and its executives J. Thomas Kenneally, Herman Frietsch, Raymond Hofker, Albert Angulo and Harlan Stein.
These enforcement actions are summarized below.
Katy Industries, Wallace Carroll and Melvan Jacobs
In August 1978, the SEC alleged in a civil complaint for permanent injunction that Katy Industries, Inc. (“Katy”), Wallace Carroll (Chairman of the Board and CEO of Katy) and Melvan Jacobs (Director and Member of Katy’s Executive Committee and also an attorney who acted as counsel to Katy as to the conduct at issue) “have engaged, are engaged and are about to engage in acts and practices” which constitute violations of various securities law provisions including the FCPA’s anti-bribery provisions.
According to the SEC complaint, Katy was interested in obtaining an oil exploration concession in Indonesia and retained a consultant who was a “close personal friend of a high level Indonesian government official.” The complaint alleges that Katy representatives and the consultant met with the official and his representative and during the meeting “the official agreed to assist Katy in obtaining an oil production sharing contract.” Katy agreed to compensate the consultant if it received the contract and the SEC alleged that Katy representatives were “told that the consultant would give a portion of such compensation to the official and the official’s representative.” According to the SEC, Katy entered into various agreements with the consultant and the official’s representative and thereafter “Katy entered into a thirty year Production Sharing Contract with Pertamina, the Indonesian Government-owned oil and gas enterprise.” The SEC alleged that “Katy, Carroll and Jacobs knew or had reason to know that the official and the official’s representative would directly or indirectly share in the payments to the consultant for the duration of the thirty year Contract.” In addition, the SEC alleged that Katy’s books and records did not reflect the true nature and purpose of the payments and that a “substantial portion” of the money paid by Katy to the consultant and the official’s representative “was expected by Katy to be given by the recipient to the official.”
Without admitting or denying the SEC’s allegations, Katy, Carroll and Jacobs consented to entry of final judgment of permanent injunction prohibiting future violations. Katy also agreed to establish a Special Committee of its Board “to review the matters alleged in the complaint and to conduct such further investigation as it deems appropriate into these and other similar matters” and to file the Special Committee’s findings publicly with the SEC.
See here for original source documents.
Roy Carver and R. Eugene Holley
In April 1979, the DOJ alleged in a civil complaint for permanent injunction that Roy Carver (Chairman of the Board and President of Holcar Oil Corporation) and R. Eugene Holley (Vice President of Holcar Oil Corporation) “have engaged, are engaged and are about to engage in acts and practices which constitute violations” of the FCPA’s anti-bribery provisions. The complaint alleges that on a trip to Doha, Qatar, Carver and Holley learned of “the possibility of engaging in the business of petroleum exploration in that country” if a “substantial payment of money were to be made to Ali Jaidah [an official of the government of Qatar – specifically the Director of Petroleum Affairs) for his official approval of a concession agreement.”
According to the complaint, the defendants agreed to proceed with the project by forming Holcar in the Cayman Islands “as a vehicle for the purpose of exploiting the concession.” The complaint alleges that the defendants further agreed “that an appropriate payment would be paid to Ali Jaidah to secure the necessary approval of the Government of Qatar.” During a subsequent meeting in Doha, the complaint alleges that Carver and Holley met with Ali Jaidah who requested a $1.5 million payment “into the account of his brother, Kasim Jaidah, at the Swiss Credit Bank of Geneva, Switzerland.” The complaint alleges that the defendants made the payment “knowing or having reason to know that all or a portion of such funds would be transferred to Ali Jaidah.” According to the complaint, thereafter, “as a result of the cooperation, influence and approval of Ali Jaidah, the government of Qatar entered into an oil drilling concession agreement with Holcar.” In addition, the complaint alleges that the defendants were willing to make additional payments to a new Director of Petroleum Affairs (Abdullah Sallat) when Holcar’s original concession agreement was under threat of termination given the company’s financing difficulties. However, the complaint asserts that “neither Director Sallat nor any other official of the government of Qatar has directly or indirectly received or solicited or been offered any payment in connection with renewal of Holcar’s oil concession.” Based on the above conduct, the DOJ charged that defendants “violated and may continue to violate” the FCPA’s anti-bribery provisions.
Both Carver and Holley consented to the entry of a final judgment of permanent injunction enjoining future FCPA violations. See here for original source documents.
International Systems & Controls Corp., J. Thomas Kenneally, Herman Frietsch, Raymond Hofker, Albert Angulo and Harlan Stein
In July 1979, the SEC filed a complaint against International Systems & Controls Corporation (“ISC”) and J. Thomas Kenneally (a director of ISC and its fomer CEO and Chairman of the Board), Herman Frietsch (Senior Vice President), Raymond Hofker (former General Counsel), Albert Angulo (former Treasurer) and Harlan Stein (Chief Engineer). The complaint alleged, among other things, that ISC “paid more than $23 million through one or more subsidiaries to certain foreign persons and entities in order to assist the company in securing certain contracts.” The complaint alleged that “in furtherance of this scheme, ISC disguised such payments on its books and records as consulting fees, consulting services, agent’s fees and commissions.” The complaint also alleged that “ISC violated the internal accounting controls provisions by failing to devise an adequate system of internal controls because it failed to require vouchers, expense statements, or similar documentation for the activities or services for which certain expenditures were made.”
According to various media reports, the payments at issue were made to government officials and members of ruling families in Iran, Saudi Arabia, Nicaragua, Ivory Coast, Algeria, Chile and Iraq in connection with contracts for engineering and construction projects.
The SEC’s complaint charged violations of the FCPA’s books and records and internal controls provisions, as well as antifraud, proxy, and reporting violations. In December 1979, ISC, Kenneally and Frietsch, without admitting or denying the SEC’s allegations, consented to the entry of a final order enjoining future violations. In addition, the final order directed ISC to, among other things, “appoint a special agent … who shall investigate and report on certain specific transactions.” Furthermore, Kenneally and Frietsch (for periods of four and two years respectively) agreed to be employed as an officer or director of an issuer only if that company “has a committee with duties and functions to those required of the ISC Audit Committee” as required by the consent degree.
See here for original source documents plus this packet of materials sent to me by a loyal reader.
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What are the take-away points from FCPA enforcement in the 1970’s? Clearly, the enforcement agencies were getting their feet wet enforcing an infant statute and, in many of the enforcement actions, the agencies were confronted with conduct that actually pre-dated enactment of the FCPA in December 1977. Thus, little can – or should be – taken away from the actual charging decisions in these early FCPA cases.
However, one meaningful take-away point is this. While one can question how the enforcement agencies held company employees accountable (i.e. criminal v. civil charges), one can not question that the enforcement agencies did hold company employees accountable. All five FCPA enforcement actions from the 1970’s involved company employees – a figure that stands in stark contrast to 2010 FCPA enforcement in which approximately 70% of corporate FCPA enforcement actions have not resulted (at least yet) in any DOJ charges against company employees. See here for the prior post.
The FCPA’s First Compliance Monitor
[This post is part of a periodic series regarding “old” FCPA enforcement actions]
A previous post (here) detailed the DOJ’ first criminal Foreign Corrupt Practices Act enforcement action against Kenny International in 1979. However, that action was not the first FCPA enforcement action.
In April 1978, the SEC filed a civil injunctive action against Page Airways, Inc. (“Page”) (a New York based company engaged in the sale and service of aircraft and traded on the over-the-counter market) and six officers and/or directors of the company: James Wilmot (Chairman); Gerald Wilmot (President); Douglas Juston (Executive Vice President); Ross Chapin (Vice President); James Lawler (Vice President) and Richard Olney (Vice President). The SEC’s complaint alleged that Page and the individual defendants “engaged in a scheme to sell Gulfstream II aircraft and other aircraft, products and services by, directly and indirectly, making payments to foreign government officials and employees and other corrupt, illegal, improper or unaccountable payments.”
The SEC complaint specifically references payments to: (i) “Albert Bongo, President of the Republic of Gabon;” (ii) “Gaya House Sendirian Berhad” and entity controlled by “Datuk Harris bin Mohammad Salleh” who, during the relevant time period, was “State Minister of Industrial Development” for the “State Government of Sabah, Malaysia;” (iii) “the Washington D.C. bank account of Societe Ivoirienne de Development et de Financement” in which “Timothee Ahoua, the Ambassador to the United States of the Republic of the Ivory Coast” was secretary and signatory on the bank account; (iv) “foreign entities as conduits for the payment of funds to third parties in order to disguise the true recipients and amounts” in connection with sales of aircraft to Saudi International Airlines and Morocco; (v) the “Chief of State” of Uganda (who received a Cadillac Eldorado convertible). Based on the above payments, as well as allegations that the company and the individuals misrecorded and otherwise attemtped to disguise the payments, the SEC charged Page and the individuals defendants with FCPA books and records and internal control violations as well as violations of Sections 10(b) (antifraud) and 13(a) (reporting) of the Securities Exchange Act and Rules thereunder.
The SEC news digest indicates that a permanent injunction was entered enjoining the defendants from future securities law violations and that “in connection with the settlement, Page has undertaken to internally investigate matters alleged in the Commission’s complaint and retain a Review Person to evaluate the methods and procedures followed in this investigation.” For those of you scoring at home, the Page enforcement action would seem to be the first use of an FCPA compliance monitor. The SEC news digest also contains this interesting statement. “In reaching settlement of this action, the Commission and Page considered concerns raised by another agency of the United States Government regarding matters of national interest.”
Original source documents from the Page FCPA enforcement can be found here.