Lighthouses and Buoys – Part II
Earlier this week, the DOJ announced (see here) the indictment of John Warwick, the former President of Ports Engineering Consultants Corporation. Warwick is charged (see here) with conspiracy to pay bribes to former Panamanian officials to obtain contracts to maintain lighthouses and buoys along Panama’s waterways. The substance of the allegations against Warwick are substantively similar to the previous charges against Warwick’s co-conspirator Charles Jumet (see here for the prior post). As noted in that post, Jumet pleaded guilty.
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I hate to be a Grinch this time of year, but why does DOJ continually use the term “foreign government official” in its charging documents when that term/element doesn’t even appear in the FCPA? (see para. 1 of the indictment). For more on the incorrect/inconsistent use of this key FCPA term see here.
Lack of Pride (And That CITGO Sign Too)
If the SEC were to put titles on its complaints, the above may be fitting for the complaint released (see here) earlier this week against Bobby Benton (the former Vice President, Western Hemisphere Operations for Pride International, Inc.).
In its complaint (see here), the SEC alleges that “Benton was responsible for, among other things, ensuring that Pride conducted its Western Hemisphere operations in compliance with the FCPA, that adequate controls were in place to prevent illegal payments, and that the company’s books and records were accurate.”
Despite this position, the SEC alleges that: (i) “Benton authorized the payment of $10,000 to a third party, believing that all or a portion of the funds would be given by the third party to a Mexican customs official in return for favorable treatment by the official regarding certain customs deficiencies identified during a customs inspection of a Pride supply boat; (ii) “Benton learned that a customs agent engaged by Pride’s Mexican subsidiaries paid approximately $15,000 to a Mexican customs official to ensure that the export of a rig would not be delayed due to customs violations; and (iii) Benton concealed the bribe payments made by the manager of the Venezuelan branch of a French subsidiary of Pride from Pride’s internal and external auditors by “redact[ing] references to the Venezuelan payments in an action plan responding to an internal audit report.”
The SEC further alleges that “[d]espite his knowledge, and in one instance authorization, of the Venezuelan and Mexican bribes, Benton signed two false certifications in connection with audits and reviews of Pride’s financial statements denying any knowledge of bribery.” The financial results of the Mexican and Venezuelan entities were consolidated with Pride’s for purposes of financial reporting.
The “foreign officials” involved are Mexican customs officials / customs agents and an official of Petroleos de Venezuela S.A. (PDVSA), the Venezuelan state-owned oil company.
Based on the above conduct, the SEC charged Benton with violating the FCPA’s antibribery provisions, aiding and abetting FCPA violations, and aiding and abetting violations of the FCPA’s books and records and internal control provisions.
Most SEC FCPA enforcement actions (whether against a company or an individual) are settled on the same day the civil complaint is filed. Not so in this case and the SEC complaint notes that Benton asserted his 5th amendment privilege against self-incrimination when subpoenaed to testify by the SEC. Will the SEC actually be put to its burden of proof in an FCPA case?
Pride International’s most recent disclosure on this issue is in its 10-Q filed on November 2, 2009 (see here – pgs. 17-18). As noted in the disclosure, what began as an inquiry into Latin America operations has spawned into a substantial worldwide review of the company’s operations.
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The Benton complaint mentions Petroleos de Venezuela S.A. (PDVSA), the Venezuelan state-owned oil company.
The DOJ/SEC’s interpretation of the “foreign official” element of an FCPA anti-bribery violation is well known by now – all employees of state-owned or state-controlled entities (SOEs), such as PDVSA, are “foreign officials” regardless of title or position.
Further, all employees of SOE wholly-owned subsidiaries are considered “foreign officials” under this interpretation. In fact, a business entity does not even need to be majority owned by a SOE for its employees to be considered “foreign officials” by DOJ/SEC (see the KBR/Halliburton enforcement action (see here paras 13-14) where officers and employees of Nigeria LNG Limited (NLNG) are deemed “foreign officials” despite the fact that NLNG is owned 51% by a consortium of private multinational oil companies (see here).
Applying DOJ/SEC’s untested and unchallenged interpretation to PDVSA can, well, let’s just say it can lead to some rather weird results.
Why?
One of PDVSA’s wholly-owned subsidiaries is Citgo Petroleum Corporation (“CITGO”) (see here).
Thus, under DOJ/SEC’s view, all CITGO employees are “foreign officials” under the FCPA regardless of title or position.
This despite the fact that CITGO is a Delaware corporation based in Houston.
In other words, CITGO is both subject to the FCPA and all of its employees (under the DOJ/SEC interpretation) are “foreign officials.” How’s that for a little mental gymnastics.
At the very least, this gives readers something to think about the next time they attend a ball game at Fenway Park (see here).
Indicting a “Foreign Official”
Yesterday, the DOJ announced (see here) the unsealing of an indictment (see here) against Joel Esquenazi, Carlos Rodriguez, and Marguerite Grandison which charges (among other things) conspiracy to violate the FCPA and substantive FCPA violations for an alleged scheme to bribe two former employees of Haiti Teleco, the alleged “state-owned national telecommunications company.”
Esquenazi and Rodriguez are former executives of a privately owned, Florida-based telecommunications company and Grandison was the President of Telecom Consulting Services Corp., a Florida based company which served as an intermediary.
The unsealed indictment is the latest chapter in this matter; in May 2009, the DOJ announced (see here) the guilty pleas of Juan Diaz and Antonio Perez in connection with the same scheme.
This matter is also yet another example of an FCPA enforcement action in which the “foreign official” is an employee of an alleged state-owned or state-controlled entity.
That, however, is not why this enforcement action is noteworthy.
It is noteworthy because DOJ also indicted Robert Antoine and Jean Rene Duperval – the alleged “foreign officials.” According to the indictment, Antoine and Duperval both served as the “Director of International Relations of Haiti Teleco” and were responsible for negotiating contracts with international telecommunications companies on behalf of Haiti Teleco.
Of course, the charges were not FCPA charges, because the FCPA only covers “bribe-payers” not “bribe-takers” (see here, here, for prior posts on this subject).
Rather the charges against Antoine and Duperval were money laundering conspiracy and/or substantive money laundering charges.
According to the DOJ release, Antoine is from “Miami and Haiti” and Duperval is from “Miramar, Fla. and Haiti.” Further, according to the indictment, both individuals had bank accounts in the U.S. and these accounts were used in connection with the bribery scheme. (I wonder if Washington Mutual, Wachovia, or Miami Federal Credit Union were aware that Haitian “foreign officials” were among its customers!)
To my knowledge this is the first time “foreign officials” have been specifically charged as defendants in connection with an FCPA enforcement action. This indictment of “foreign officials” comes on the heels of AG Holder’s recent speech (see here) in which he stated that the U.S. government was committed to recovering funds obtained by “foreign officials” through bribery.
A Bribery Scheme Hatched at the “Eggs Benedict Place”
The DOJ announced today (see here) that John Joseph O’Shea was recently arrested for his alleged role in a conspiracy to bribe Mexican foreign officials to secure contracts with the Comision Federal de Electridad (“CFE”), an apparent Mexican state-owned utility company (see here). In addition to charging conspiracy to violate the FCPA, the indictment contains twelve substantive FCPA charges (among other charges).
According to the unsealed indictment (see here), O’Shea was the General Manager of Texas Business A, a business that provides products and services to electrical utilities in a number of foreign markets. According to the indictment, one of O’Shea’s responsibilities was approving payments to sales representatives.
According to the indictment, Texas Business A is a business unit of Subsidiary A (a company with its principal place of business in Sugar Land, Texas) and Subsidiary A, in turn, is a subsidiary of Corporation A (a company headquartered and incorporated in Switzerland with publicly-traded American Depositary Shares on the NYSE).
In other words, both Subsidiary A and Corporation A are subject to the FCPA and may be the focus of a forthcoming enforcement action. Also of note is that Mexican Company X, Intermediary Company O (a company incorporated in and headquartered in Mexico) and Intermediary Company S (a company incorporated in Panama and headquartered in Mexico) are all alleged to be “an agent of a domestic concern” under 78dd-2(h)(1). DOJ recently noted (see here) that it is willing to go after agents and intermediaries which facilitate bribe payments and the “agent of a domestic concern” designation would seem to be setting the table for a possible enforcement action against such companies as well.
According to the indictment, one customer Texas Business A did business with is CFE and officials N,J,C and G at CFE had influence over decisions concerning Texas Business A’s contracts with CFE
(Sorry for the alphabet soup, but this is how the indictment reads).
According to the indictment, Texas Business A obtained multiple contracts with CFE while using Mexican Company X (including its principal, Fernando Maya Basurto) as its sales representative under several commission-based agreements.
The indictment alleges that O’Shea conspired and agreed with Basurto, Subsidiary A, Texas Business A, and the intermediary companies and others to make improper payments to Mexican “foreign officials” to obtain or retain business for Subsidiary A and Texas Business A in violation of the FCPA and that O’Shea did indeed offer, authorize, or make the improper payments indirectly through others to the CFE officials in violation of the FCPA.
According to the indictment, the payments assisted Texas Business A secure two contracts with CFE worth approximately $81 million in revenue.
According to the indictment, the improper payments were concealed through a series of financial transactions, first to U.S. bank accounts in the name of Basurto and certain of his family members, then through false invoices received from Basurto in the names of the intermediary companies, and then to the “foreign officials.”
According to the indictment, after O’Shea was terminated from Texas Business A, he, Basurto, and others tried to cover up their conduct after learning that Corporation A had disclosed the suspected payments to the DOJ, SEC and Mexican authorities.
In describing O’Shea’s cover up, the indictment states, “On or about April 27, 2005, O’Shea sent Basurto an e-mail that read, in part, “It seems my lawyer thinks it is OK to use a private e-mail such as yahoo, as it would seem much more difficult for anyone to get the exchanges – if it is a company email it belongs to them. I believe [sic] we should alter opur [sic] normal routine; meaning not meet at the ‘eggs benedict’ place.”
Consistent with DOJ’s recent statements on this issue, the indictment seeks from O’Shea forfeiture of approximately $3 million in proceeds derived from his improper conduct.
As noted in the DOJ’s release, Basurto recently pleaded guilty to a one-count criminal information (see here) charging him with conspiracy to violate the FCPA. The DOJ news release also notes that a Mexican citizen had pleaded guilty for his role in the bribery scheme.
Another FCPA Speech
Last week it was the Annual Pharmaceutical Regulatory and Compliance Congress and Best Practices Forum (see here), this week the audience for Assistant Attorney General Lanny Breuer was ACI’s National Forum on the FCPA
The ACI conference (see here) is a signature event for the FCPA bar and FCPA compliance community. Breuer participated in past ACI events as a private FCPA practitioner at Covington & Burling and yesterday he gave the keynote luncheon address.
The link to the speech on the DOJ website is inactive, but the speech is embedded in this piece from the WSJ Law Blog (see here).
The speech covers a wide range of topics and will be of interest to all FCPA practitioners and others interested in following FCPA developments.
Here are a few highlights:
On individual prosecutions – “…we tried more individuals for FCPA violations than in any prior year. And we indicted more individuals than ever before. That is no accident. In fact, prosecution of individuals is a cornerstone of our enforcement strategy. […] Put simply, the prospect of significant prison sentences for individuals should make clear to every corporate executive, every board member, and every sales agent that we will seek to hold you personally accountable for FCPA violations.”
On how the DOJ learns of FCPA issues – “Although many of these cases come to us through voluntary disclosures, which we certainly encourage and will appropriately reward, I want to be clear: the majority of our cases do not come from voluntary disclosures. They are the result of pro-active investigations, whistle blower tips, newspaper stories, referrals from our law enforcement counterparts in foreign countries, and our Embassy personnel abroad, among other sources.”
On resolving corporate FCPA matters – “…despite rumors to the contrary, we do also decline prosecution in appropriate cases. […] With regard to corporate cases, the Department will continue to pursue guilty pleas or, if necessary, indictments against corporations – when the criminal conduct is egregious, pervasive and systemic, or when the corporation fails to implement compliance reforms, changes to its corporate culture, and undertake other measures designed to prevent a recurrence of the criminal conduct. We also recognize that there will be situations in which guilty pleas or criminal charges are not appropriate. Now, we may have good-faith disagreements about when those circumstances present themselves, but we do not take our task lightly. We are mindful of direct impact on the company itself, as well as the numerous collateral consequences that often flow from these charging decisions. We are sophisticated attorneys, and we understand the challenges and complexities involved in doing business around the globe.”
On corporate monitors – “In appropriate cases, we will also continue to insist on a corporate monitor, mindful that monitors can be costly and disruptive to a business, and are not necessary in every case. That said, corporate monitors continue to play a crucial role and responsibility in ensuring the proper implementation of effective compliance measures and in deterring and detecting future violations.”
On whether to make a voluntary disclosure – this is a “sometimes difficult question” […] a question I grappled with as a defense lawyer. I strongly urge any corporation that discovers an FCPA violation to seriously consider making a voluntary disclosure and always to cooperate with the Department. The Sentencing Guidelines and the Principles of Federal Prosecution of Business Organizations obviously encourage such conduct, and the Department has repeatedly stated that a company will receive meaningful credit for that disclosure and that cooperation. […] I can assure you that the Department’s commitment to meaningfully reward voluntary disclosures and full and complete cooperation will continue to be honored in both letter and spirit. I am committed to no less.”
On the road ahead – “In addition to holding culpable individuals accountable and meaningfully rewarding voluntary disclosures and genuine cooperation, we will continue to focus our attention on areas and on industries where we can have the biggest impact in reducing foreign corruption.” Breuer then discusses the pharma industry in particular.
On asset forfeiture and recovery – “We will seek forfeiture in all appropriate cases going forward. […] We will be taking advantage of the expertise of both the Fraud Section and our Asset Forfeiture and Money Laundering Section to forfeit and recover the proceeds of foreign corruption offenses.” Breuer’s comments on this topic largely shadow the recent comments of Attorney General Holder (see here).
On enhanced resources – “As I imagine most of you have heard, in 2007 the FBI created a squad with agents dedicated to investigating potential FCPA violations. The squad has been growing in size and in expertise over the past two years. In addition, we have begun discussions with the Internal Revenue Service’s Criminal Investigation Division about partnering with us on FCPA cases around the country. Finally, we are now pursuing strategic partnerships with certain U.S. Attorney’s Offices throughout the United States where there are a concentration of FCPA investigations.”
On Mark Mendelsohn’s rumored departure as DOJ Deputy Chief – FCPA – “… as we look to the future, we will be building on the extraordinary efforts and success of our Deputy Chief over the FCPA area, my friend Mark Mendelsohn, who is beginning to explore options for the next phase of his career. Mark has been an exceptional public servant and a visionary steward of the FCPA Program. Regardless of where Mark chooses to go, we will miss him greatly.”
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Last week, I questioned Breuer’s characterization of the Jefferson verdict in his pharma address (see here). In that address he said as follows:
“In the past few months, we have the completed the trials of the Greens in California, of Mr. Bourke in New York and of former Congressman William Jefferson in Virginia. In each of these cases, individuals were found guilty of FCPA violations and face jail time.”
Yesterday, Breuer correctly noted, as to the Jefferson case, as follows: Jefferson “was convicted of a conspiracy of which one object was to violate the FCPA by bribing former high-ranking Nigerian government officials.”