Postage Stamps, Sir Albert Henry, Flying Voters, And The FCPA
[Note: FCPA Professor was launched in July 2009 and contains every FCPA enforcement since then. However, with the exception of occasional references to pre-July 2009 FCPA enforcement actions, FCPA Professor does not contain a complete list of all FCPA enforcement actions. To make this site a better research tool, and to place in better context this new era of FCPA enforcement, today’s post begins the first of many periodic posts regarding “old” FCPA enforcement actions]
The DOJ’ first criminal Foreign Corrupt Practices Act enforcement action was intriguing.
In an August 1979 criminal information, Kenny International Corporation (“Kenny International”) was charged with violating the FCPA’s anti-bribery provisions. According to the information, Kenny International (a New York corporation) “was engaged, directly and through affiliated corporations, in the distribution and sale of postage stamps of the Cook Islands, an independent South Pacific nation … freely associated with New Zealand.” The major players in the drama were: Finbar Kenny (Chairman of the Board, President and majority shareholder of Kenny International); the Cook Islands Party (a foreign political party); and Sir Albert Henry (see here – the Leader of the Cook Islands Party and the Premier of the Cook Islands).
According to the information, Kenny, as an officer and director of Kenny International, corruptly used an instrumentality of interstate commerce (a commercial aircraft) “in furtherance of an offer, payment and promise to pay” $NZ337,000 “to the Cook Islands Party through Sir Albert Henry, an official of said foreign political party, to induce said party and official to use its and his influence to affect and influence an act of the Government of the Cooks Islands” in the “renewal of a certain stamp distribution agreement between Kenny and the Government of the Cook Islands, in order to assist Kenny International to retain its business in connection with the distribution of Cook Islands postage stamps” in violation of the FCPA.
The Offer of Proof in the case details as follows. “Beginning in December 1965, Kenny entered into an agreement with the Government of the Cook Islands, which agreement was renewed in 1972 for a ten-year period, whereby Kenny obtained the exclusive rights to the promotion, distribution and sale of Cook Islands postage stamps outside the Cook Islands. In exchange for promotional and distribution services, Kenny was authorized to promote and sell unlimited quantities of each issue or series of Cook Islands stamps provided the Government of the Cooks Islands received 50 percent of the proceeds of all stamps sold outside the Cook Islands.” As detailed in the Offer of Proof, “in January 1978, Sir Albert Henry, as the Leader of the Cook Islands Party, then the majority party in the Cook Islands Legislative Assembly, determined to schedule a general election …”. According to the Offer of Proof, “Kenny and Kenny International could only be assured of renewal of the stamp distribution agreement by the continuation of the Cook Island Party’s control of the Legislative Assembly and the retention of Sir Albert Henry as Premier.”
And then an idea was hatched. As detailed in the Offer of Proof – “anticipating that the election would be closely contested, Sir Albert Henry and his fellow party officials determined that to guarantee their party’s continued control in the Legislative Assembly it would be necessary to transport by air from New Zealand, a distance of approximately 1,800 miles, Cook Islands Party supporters to vote for them in the forthcoming election.” According to the Offer of Proof, in January 1978, approximately one month after President Carter signed the FCPA, “a personal representative of Sir Albert Henry and the Cook Islands Party solicited the financial assistance of Kenny and Kenny International in connection with the election.” The Offer of Proof states as follows. “It was requested of Kenny and Kenny International that they subsidize the air transportation costs of the Cook Islands Party Supporters. Such a voter subsidy was illegal under Cook Islands law. Kenny, on behalf of Kenny International, desiring the retention of Sir Albert Henry as Premier in order to insure the renewal of the stamp distribution agreement, agreed to provide the requested financial assistance upon the condition that Sir Albert Henry and the Cook Islands Party keep secret the source of the funds.”
Did Sir Albert Henry win? Initially yes. The Offer of Proof states that “as a direct result of the votes cast by [Cook Islands Party] supporters whose travel was paid for by Kenny International, [the Cook Islands Party] won a majority of seats in the Legislative Assembly and Sir Albert Henry remained in office as Premier. However, in proceedings contesting the election, the High Court of the Cook Islands “disallowed the votes of the Cook Islands Party supporters whose travel had been subsidized as ‘unlawful votes tainted by bribery.” As stated in the Offer of Proof, “as a consequence, the Cook Islands Party lost its control of the Legislative Assembly to the opposition party and Sir Albert Henry was removed from office.””
Kenny International pleaded guilty to violating the FCPA’s anti-bribery provisions and agreed to pay a $50,000 fine. As for Finbar Kenny, pursuant to the plea agreement, he agreed to voluntarily appear in the High Court of the Cook Islands and plead guilty in his individual capacity to a criminal charge for “participating in a scheme whereby money payable to Her Majesty the Queen was fraudulently used for private purposes, namely to finance the charter of aircraft.” Kenny also agreed to pay “restitution in the amount of $NZ337,00 to the Government of the Cook Islands.” Further, pursuant to the plea agreement, Cook Islands Development Co. Ltd. (of which Kenny was the Director) also agreed to plead guilty in the Cook Islands to a criminal charge similar to Kenny’s plea referenced above.
Pursuant to the Kenny International plea agreement, the company and Finbar Kenny also agreed to entry of a final judgment of permanent injunction prohibiting future FCPA violations.
Original source documents from the Kenny International FCPA enforcement can be found here and here (courtesy of the Trace Compendium – an excellent FCPA research tool – see here).
The Stings Before The Sting
A post that will increase your chance of capturing the office FCPA Jeopardy title.
As frequently reported, the Africa Sting case was the first time in the FCPA’s history that undercover investigative techniques were used. As detailed in this prior post, not true, undercover investigative techniques have been used in several other FCPA enforcement actions.
As frequently reported, the Africa Sting case was the first time in the FCPA’s history that a full-blown sting operation was used in connection with an enforcement action. This too is not true as detailed in this post which provides an overview of prior DOJ FCPA sting operations.
Hebert Tannenbaum
In 1996 an FBI spent agent received information from a confidential informant that Tannenbaum (the principal of Long Island based Tanner Management Corporation – a garbage incinerator manufacturer) “had previously made payments to foreign government officials to induce them to purchase garbage incinerators from the defendant.” (See here for the complaint). The informant further advised the FBI that Tannenbaum “had offered to make payments to government officials of various foreign countries in order to sell garbage incinerators in those countries” and during a recorded meeting with the informant Tannenbaum confirmed that he “had previously made a $75,000 cash payment to an official of the Government of Barbados, as an inducement for the purchase by his government of a garbage incinerator.” Thereafter, the informant, acting at the FBI’s direction, recorded a call with Tannenbaum during which Tannenbaum “admitted that he was willing to make payments to sell his garbage incinerators” and the complaint references specific payments in Taiwan and Argentina. During a meeting at the Park Lane Hotel in New York, the informant introduced Tannenbaum to the FBI special agent who was posing “as an Argentine government procurement official who wanted to purchase a garbage incinerator.” During the meeting, Tannenbaum offered to sell the Argentine “procurement official” an incinerator and stated “that he was willing to make a payment to facilitate the deal.” According to the complaint, Tannenbaum, on the way to a bank to open an account to faciliate the deal, told the undercover FBI agent posing as the “procurement official” that “for all he knew [“procurement official”] could have been an FBI agent” and that Tannenbaum was “in his seventies, and did not want to get in trouble.”
Well, Tannebaum did get in trouble.
Based on the above information, Tannenbaum was charged in 1998 via a one count criminal information (here) with conspiracy to violate the FCPA. The information is signed by then U.S. Attorney for the S.D. of New York Mary Jo White currently a partner at Debevoise & Plimpton (here).
Tannenbaum pleaded guilty (see here and here for the DOJ release) and was sentenced to 366 days plus three years of supervised release.
Richard Novak
In 2006, Richard Novak was charged (here) with, among other counts, violating the FCPA. It remains one of the more unusual FCPA enforcement actions ever. Novak and others owned and operated several internet businesses using the names “Saint Regis University,” “Robertstown University” and “James Monroe University.” According to the superseding information “they were diploma mills in that these ‘universities’ had no legitimate faculty members; offered no legitimate academic curriculum or services; required no course work or class work; and were not recognized by the United States Department of Education.” According to the superseding information, Novak made a bribe payment to the “Consult and First Secretary at the Liberian Embassy in Washington D.C. in order to assist Saint Regis University and its owners in fraudulently selling diplomas through their internet businesses.” Elsewhere, the superseding information states that “various foreign government officials who received the bribes held various positions at the Liberian Embassy in Washington, D.C., the Liberian Embassy in Accra, Ghana, and at the Ministry of Education for the Republic of Liberia in Monrovia, Liberia” and that these individuals, among other things, “were in a position to: issue certificates of accreditation and recognition; issue notarial certificates; issue letters claiming that Saint Regis University was fully accredited and recognized by the Ministry of Education in the Republic of Liberia; and cause staff at the Liberian Embassy in Washington D.C. to answer the telephone calls in a positive way when inquiries regarding the legitimacy [of the Universities] were made.”
Although not specifically mentioned in the superseding information, a component of the original indictment (here) against Novak and several others was U.S. Secret Service agents posing as high school dropouts seeking degrees.
Novak pleaded guilty (see here) and was sentenced to three years probation.
The Case That Just Keeps On Giving
Last week, the Haiti Teleco case netted additional defendants as the DOJ announced (here) a superseding indictment in the never-ending enforcement action. Named in the superseding indictment (here) are:
Cinergy Telecommunications Inc. (a privately-held telecommunications company incorporated in Florida, charged with one count of conspiracy to violate the FCPA and to commit wire fraud, six counts of FCPA violations, one count of conspiracy to commit money laundering and 19 counts of money laundering);
Washington Vasconez Cruz (the president of Cinergy, charged with one count of conspiracy to violate the FCPA and to commit wire fraud, six counts of FCPA violations, one count of conspiracy to commit money laundering and 19 counts of money laundering);
Amadeus Richers (a former director of Cinergy, charged with one count of conspiracy to violate the FCPA and to commit wire fraud, six counts of FCPA violations, one count of conspiracy to commit money laundering and 19 counts of money laundering);
Patrick Joseph (a former general director for telecommunications at Haiti Teleco and thus a “foreign official” according to the DOJ, charged with one count of conspiracy to commit money laundering);
Jean Rene Duperval (a former director of international relations for telecommunications at Haiti Teleco and thus a “foreign official” according to the DOJ, charged with two counts of conspiracy to commit money laundering and 19 counts of money laundering); and
Marguerite Grandison (the former president of Telecom Consulting Services Corp., and Duperval’s sister, charged with two counts of conspiracy to commit money laundering and 19 counts of money laundering.
Duperval and Grandison were previously charged in the case in December 2009 (see here).
With this latest development, the Haiti Teleco case has become, other than the manufactured Africa Sting enforcement action, the largest FCPA enforcement action in history – in terms of number of defendants – 12. In addition to those listed above, the following individuals were also charged: Antonio Perez, Joel Esquenazi, Juan Diaz, Robert Antoine, Jean Fourcand, and Carlos Rodriguez.
The Haiti Teleco case stands in stark contrast to many corporate FCPA enforcement actions (enforcement actions that sometimes involve tens or hundreds of millions of dollars in bribe payments) that yield no individual enforcement actions. See here for the prior post discussing the numbers from 2010 and thus far this year.
All bribery and corruption of course is bad, but does approximately $1 million in alleged bribe payments in the Haiti Teleco case justify the largest real FCPA enforcement action in history?
I previously observed (here) in connection with the Haiti Teleco case that often the DOJ resolves seemingly clear-cut instances of corporate bribery and corruption involving tens or hundreds of millions of dollars in bribe payments (per the government’s own evidence) without FCPA anti-bribery charges and without charging any corporate employees. In other cases, often relatively minor ones, the DOJ comes out with guns-a-blazing.
To call it inconsistent law enforcement is an understatement.
… But Nobody Was Charged
James Stewart’s first Common Sense column for Business Day at the New York Times (here) profiles the February 2011 FCPA enforcement action against Tyson Foods involving Mexican veterinarians. (See here for the prior post).
The column is silent as to the relevant fact (as indicated in the DOJ’s charging document) that Mexican law permitted certain of the veterinarians at issue to charge the facility in which they work a fee for their services in addition to their official salary.
But that is besides the point, because Stewart’s column once again raises the valid issue that so many FCPA enforcement actions involve corporate resolutions only – with no related individual prosecutions.
Stewart writes as follows. “It would seem self-evident that if Tyson engaged in a conspiracy and violated the Foreign Corrupt Practices Act, then someone at Tyson did so as well.” Stewart further noted as follows. “But surely bribery, not to mention other forms of corporate wrongdoing, would be more effectively deterred if someone was actually held accountable for it.”
Spot on.
In my November 2010 prepared statement (here) to the Senate Judiciary Committee I stated as follows.
“Key to achieving deterrence in the FCPA context is prosecuting individuals, to the extent the individual’s conduct legitimately satisfies the elements of an FCPA anti-bribery violation. For a corporate employee with job duties that provide an opportunity to violate the FCPA, it is easy to dismiss corporate money being used to pay corporate FCPA fines and penalties. It is not easy to dismiss hearing of an individual with a similar background and job duties being criminally indicted and sent to federal prison for violating the FCPA.”
I further observed that during this era of the FCPA’s resurgence, the DOJ has consistently stated that prosecuting individuals is a “cornerstone” of its FCPA enforcement strategy. Yet, I asked, why is DOJ’s FCPA enforcement program largely a corporate fine-only program devoid of individual prosecutions?
As highlighted in this prior post, 70% of DOJ FCPA enforcement actions in 2010 have not involved (at least thus far) DOJ prosecutions of company employees.
What do the numbers look like thus far at the mid-point of 2011?
So far this year there have been six DOJ FCPA enforcement actions against companies (Maxwell Technlogies, Tyson Foods, Johnson & Johnson, Comverse Technologies, JGC of Japan, and Tenaris).
None of these FCPA enforcement actions have resulted (at least thus far) in DOJ prosecutions of company employees. Nor has the SEC brought civil charges against any employees of these companies. Nor has the SEC charged any employees (at least thus far) in the three SEC only FCPA enforcement actions this year (IBM, Ball Corporation, and Rockwell Automation).
As I noted in my Senate testimony, the high percentage of corporate FCPA enforcement actions that do not result in related enforcement actions against individuals legitimately causes one to wonder whether the conduct given rise to the corporate enforcement action was engaged in by ghosts.
Yet, I submit, there is an equally plausible reason why no individuals have been charged in some of the above-mentioned enforcement actions (and others) and that involves the quality of the corporate enforcement action.
Given the prevalence of NPAs and DPAs in the FCPA context and the ease in which DOJ offers these alternative resolution vehicles to companies subject to an FCPA inquiry, companies often agree to enter into such resolution vehicles regardless of the DOJ’s legal theories or the existence of valid and legitimate defenses. It is simply easier, more cost efficient, and more certain for a company to agree to a NPA or DPA than it is to be criminally indicted and mount a valid legal defense – even if the DOJ or SEC’s theory of prosecution is questionable. [See here for a prior post detailing a former DOJ prosecutor’s concern regarding NPAs and DPAs as to these issues].
Individuals, on the other hand, face a deprivation of personal liberty, and are more likely to force the DOJ or SEC to satisfy its high burden of proof as to all FCPA elements.
Regardless of what you think about the possible reasons, the fact remains FCPA enforcement is, despite enforcement agency rhetoric, largely corporate enforcement only.
While on the topic of individual prosecutions, it must be noted that the bulk of such recent prosecutions are in the manufactured Africa Sting case where 22 individuals were criminally charged. Last week (see here for the prior post) Judge Richard Leon declared a mistrial in the trial of the first 4 defendants. The FCPA Blog had a stellar post yesterday (here) titled “Feds Should Forget Shot Show Defendants” and stated that instead of future sting operations to dig up FCPA individual defendants, the DOJ should focus “instead on the real bad apples [companies that have admitted violating the FCPA and paid big fines] who paid real bribes to real foreign officials.”
Spot on.
Uneven Justice: A Critical Look at FCPA Enforcement
The week starts with a guest post from Michael Volkov.
Volkov (here) is a partner at Mayer Brown LLP. His practice focuses on white collar defenses, FCPA enforcement and compliance, and litigation. The views expressed in this article are his own and do not represent those of his law firm, Mayer Brown LLP. He can be reached at mvolkov@mayerbrown.com.
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UNEVEN JUSTICE: A CRITICAL LOOK AT FCPA ENFORCEMENT
By Michael Volkov
The United States is a nation of laws: badly written and randomly enforced. ~Frank Zappa
Much has been written about the overall fairness of the Justice Department’s and the Securities and Exchange Commission’s aggressive FCPA enforcement program. Some have argued that DOJ and SEC have engaged in uneven justice: corporations plead to non-FCPA offenses, pay big fines, and continue business as usual. Others argue that DOJ has failed to prosecute individual executives and officers, or to ensure that corporations are debarred or suspended from continuing to sell to the federal government.
As a former federal prosecutor with nearly 20 years experience in the criminal justice system, I can assure you that some of the criticisms are accurate but some completely miss the mark. Last year, the Senate Judiciary Committee examined the controversy surrounding FCPA enforcement, and this year the House Judiciary Committee is planning to look at the issue.
DOJ is proud of its enforcement program. And rightly so – they have resuscitated a program which was dormant for years which now collects over one half of all criminal fines imposed each year in the United States. That is an impressive record.
Aside from the fundamental deficiencies inherent in DOJ’s voluntary disclosure process, DOJ claims that it gives adequate credit for corporate compliance programs, early cooperation and full disclosure. In response some suggest that plea agreements which are designed to protect companies from debarment and include pleas to non-FCPA charges are unfair. Part of that point is correct; the other part is flat out wrong.
Our criminal justice system operates day-to-day based on plea agreements. In the federal system, over 90 percent of federal cases are resolved through plea agreements. As part of that process, charge-bargaining is a critical component. DOJ’s decision to permit corporations, or typically country-specific subsidiaries to plead guilty to a non-FCPA offense, is in keeping with this long tradition. The underlying conduct as described in the plea agreement is known to all – the company engaged in systematic and widespread bribery. Nothing more, nothing less. To extrapolate from such a plea that DOJ is not enforcing the law is misguided and ignores the realities of the plea bargaining process.
On the other hand, DOJ’s willingness to forego debarment and/or suspension is certainly an issue that needs to be examined. As Professor Koehler testified at the Senate Judiciary Committee, BAE was awarded a government contract on the same day it plead guilty to a non-FCPA offense but paid a criminal fine over $400 million. That is certainly uneven justice, and Senators and policymakers should have taken note of this ironic enforcement twist.
Senator Specter and others have criticized the Justice Department for failing to include individual corporate executives and officers in its enforcement actions. The Justice Department’s Antitrust Division has a much better record on this score – corporations and individuals are prosecuted in criminal antitrust cases with equal vigor and results. Why has DOJ shied away from linking corporate cooperation to requiring cooperation against individual executives and officers at the offending company?
If the goal of DOJ’s enforcement program is corporate compliance, then the enforcement program needs to be recalibrated. Deterrence is an admirable objective and will certainly increase compliance, but DOJ has more tools available to it to encourage and promote cooperation. DOJ’s antitrust amnesty/leniency is an example of a program which has been incredibly successful on the enforcement and the compliance ends. While there are certainly problems with the application of a cartel-focused (multi-actor) model to FCPA cases, there are lessons which can be learned from the amnesty/leniency program.
We all aspire to equal justice and we all admire the image of justice that is blind as the hallmark of our judicial system. But right now what is needed is for justice to listen so that it operates with fairness and equal justice for all.