Jamaica Archives - FCPA Professor

At The 11th Hour

By Mike Koehler on August 12, 2013 in 1989 – 1997 Enforcement Actions, Advertising Industry, Arnold Foote, Arthur Klein, DOJ Enforcement Action, Eric Abrahams, FCPA Jurisprudence, FCPA Related Charges, Foreign Official, Jamaica, Origins of FCPA Actions, Statute of Limitations, Steven McKenna, Third Parties, Thomas Spangenberg, Young & Rubicam

[This post is part of a periodic series regarding “old” Foreign Corrupt Practices Act enforcement actions]

The 1989 Foreign Corrupt Practices Act enforcement action against advertising agency Young & Rubicam, Inc. (“Y&R”) and its executives Arthur Klein, Thomas Spangenberg and others is one of the more interesting enforcement actions of all-time.

For starters, the enforcement action had an unusual origin. According to media reports, in connection with an unrelated tax fraud case against Robin Moore (the author of the “French Connection” and “The Green Berets”), law enforcement officials confiscated his diaries. Moore was a friend of Jamaican Prime Minister Edward Seaga and the diaries led to the investigation of Y&R and its executives.

The indictment alleges a conspiracy between Y&R, Klein, Spangenberg and others to induce Eric Abrahams and Arnold Foote “in their official capacities with respect to the selection and retention of an advertising agency for the Jamaica Tourist Board” and to induce Abrahams and Foote “to use their influence with the Jamaica Tourist Board to affect and influence the decisions of the Board with respect to the selection and retention of an advertising agency.”

Eric Abrahams is described in the indictment as the Minister of Tourism of the Government of Jamaica and Arnold Foote is described as “a prominent Jamaican citizen with close political ties to the Jamaican Labor Party and to the Administration of Prime Minister Edward Seaga”. As to Foote, the indictment further alleges as follows. “Foote served as executive chairman of Martin’s Travel, an instrumentality of the Government of Jamaica, and he also acted in an official capacity on behalf of the Minister of Tourism and the Jamaica Tourist Board as an advisor to the Government of Jamaica with respect to tourism, advertising and public relations matters, including the selection and retention of an advertising agency for the Jamaica Tourist Board.

According to the indictment, the defendants “would and did arrange for and pay kickbacks” to Foote and through Foote, to Abrahams. The indictment alleges that the “kickbacks and the manner in which they were paid would and did cause the Jamaica Tourist Board to make unnecessary and excessive expenditures for advertising services and deprived the Board of economically material information in its business dealings” with Y&R.

According to the indictment, as part of the conspiracy Robin Moore (described as a well-known author residing in Connecticut who had longstanding ties to the Island of Jamaica and was a close friend of Foote and Jamaican Prime Minister Seaga) and Frederick Sturges (described as a resident of Connecticut and an associate of Moore and Foote) “would and did act as middlemen and ‘go betweens’ for the communication of information and monies between and among the conspirators, and that certain kickback payments would be and were funnelled through bank accounts established and controlled by them.”

According to the indictment, “in order to disguise and conceal their unlawful activities, the conspirators would and did cause Y&R to enter into a contract with Ad Ventures, Ltd. a Cayman Island corporation created for the purposes of funneling kickbacks to Foote and Abrahams and affording Y&R an ostensibly legitimate reason for making such payments.” According to the indictment, various means and devices were used to conceal the unlawful activities including: false statements to government investigators; testifying falsely before the Grand Jury; making some kickback payments in cash and others to a Cayman Islands bank account so as to make the tracing of funds more difficult; and Y&R failed to reflect the kickback payments on reports it filed with the DOJ pursuant to the Foreign Agents Registration Act.

In addition to the conspiracy charge, Y&R, Klein, Spangenberg – along with the “foreign officials” Abrahams and Foote – were also charged with violating RICO. The predicate offenses alleged were multiple violations of the Travel Act.

The indictment further alleged that the defendants sought to buy the silence of various individuals who had threatened to expose the unlawful conduct.

Y&R, Klein and Spangenberg all pleaded not guilty and the case resulted in extensive media coverage. In a statement, Y&R said that the criminal charges were “based on speculation and innuendo and [were] without substance or merit.” A Y&R attorney (Thomas Barr of Cravath, Swaine and Moore) stated at the courthouse as follows. “This is a lawsuit that involves characterization. If you pull the characterization out, you haven’t got anything.” Referring to the labeling of Foote in the indictment as a foreign official, Barr is quoted as follows. “The reality is this. Y&R makes very simple, conventional business arrangements in Jamaica. By calling an advertising man a foreign official the prosecution has converted these charges into one of the most bizarre criminal allegations.”

According to media reports, many were shocked that Klein and Spangenberg were criminally charged. Quotes to the media included the following.

“[Klein] is the straightest guy in the world. I was absolutely shocked at the charges. Of all the people I know in advertising, I don’t know anyone I’d least expect this to happen to.”

“Of all the people I’ve worked with, I’d rank them in the upper 10 percent for their ethical conduct.”

Y&R and Klein moved to dismiss the RICO charge. Among other things, the defendants argued that the FCPA “cannot serve as a basis for a Travel Act violation, nor in turn as a predicate for a RICO violation.” The court denied the motion to dismiss the RICO charge. (See here for the decision).

The defendants also moved to dismiss the conspiracy charge concerning payments to Abrahams on the ground that prosecution of that aspect was time-barred. The defendants argued that “Abrahams ceased to be Jamaica’s Minister of Tourism more than five years prior to the return of the indictment.” The court noted that a conspiracy charge is timely if it alleges the commission of at least one overt act in furtherance of the conspiracy within the applicable five-year statute of limitations and rejected the defendants’ arguments. The court stated as follows.

“Whether Abrahams withdrew from the conspiracy is a question of fact for the jury. Nor does Abrahams’ resignation as Minister of Tourism necessarily end the alleged conspiracy or his participation in it. The indictment charges overt acts committed in furtherance of a single conspiracy from 1984 until 1989. The allegation of overt acts committed within five years meets the requirements of the statute of limitations.”

The defendants also moved for a bill of particulars requesting specific information as to particular allegations including: the facts which supported the allegations that Mr. Foote was a foreign official within the meaning of the FCPA. The court stated that “adequate notice of the manner in which Mr. Foote obtained his status as a foreign official” was provided in the indictment. [See the above description of Foote’s status].

Of further interest from the pre-trial proceedings, the DOJ moved to make an opening statement at trial. The opinion states as follows.

“The government claims that the complexity of this case, both factually and legally, as well as the nature of the evidence to be presented warrant the need for opening statements. First, the government argues that the term ‘foreign official’ as defined in the FCPA has a meaning broader than the ordinary meaning of the phrase. Without categorizing the evidence for the jury, the government claims that the jury might misinterpret the significance of the evidence. This amounts to a request to make a legal argument during opening statement which is precisely what should be avoided in opening statements. Second, the government contends that a substantial portion of its case depends on ‘a complex confluence of circumstantial evidence’ which a jury may not understand if it is not allowed to make an opening statement. However, ‘a mere recitation’ of what evidence is going to be presented does not necessarily ‘help jurors better understand the evidence when it is introduced.’ To go beyond that would risk stepping into the realm of legal argument which is not allowed.”

Shortly before the trial was to begin in February 1990, Y&R pleaded guilty (see here for the plea agreement). Pursuant to the plea agreement, Y&R agreed to pay a $500,000 criminal fine. Although not apparent from the plea agreement, Y&R pleaded guilty to one count of conspiracy to violate the FCPA.

If your only source of FCPA information is the DOJ’s FCPA website, this is where the story stops. But the story does indeed continue.

The company issued the following press release on February 9, 1990.

“Young & Rubicam Inc., announced today that it had reached an agreement with the U.S. Attorney for the District of Connecticut under which the government agreed to drop all RICO charges against the agency that had been brought in indictments on Oct. 6, 1989. The charges were made in connection with the agency’s successful attempts to obtain the advertising account of the Jamaica Tourist Board in 1981.

Further, the government dropped all the indictments charging that the agency was guilty of bribery of Arnold Foote, a Jamaican advertising executive, for the purposes of his bribing the Minister of Tourism, Eric Anthony Abrahams. In addition, all charges against Arthur Klein, an executive vice president of Young & Rubicam, and Thomas Spangenberg, a former senior vice president of the agency were dismissed.

The company, in order to put the case entirely behind it, agreed to plead guilty to conspiring to violate a section of the Foreign Corrupt Practices Act (FCPA) and accepted a fine of $500,000. The section of the Act under which the plea is made has been a controversial part of the law because it requires organizations and people who are placed in positions where criminal activities may be taking place in a “reason to know” relationship with those activities, whether or not they, in fact, did know or if the events did or didn’t occur. This section of the Act is no longer in the statute, having been removed by Congress in 1988. Y&R was charged with events that allegedly took place in 1981 when this portion of the statute was in effect. Ironically, if the case were brought today there would have been no such charge.

A Young & Rubicam spokesperson said, ‘We are particularly pleased that one of Y&R’s finest individuals, Arthur Klein, has been cleared completely of all charges made against him. The failed indictments caused Klein and his family extraordinary grief, and to us this was the worst part of this entire procedure. His complete exoneration is a cause for major celebration around Y&R.

The government no longer claims that the agency won the competition for the account on anything but the merits of its presentation, or that Arnold Foote was a public official, as had been charged. To the best of Y&R’s knowledge, there is no evidence that any monies were given to Abrahams.

For its part, Young & Rubicam did agree that beginning in late 1981, some of its employees did on occasions hear reports of alleged bribery efforts. These rumors alleged that Foote, who had been retained by Y&R to represent the agency in Jamaica, was using money paid to him by the agency to bribe Abrahams. Young & Rubicam itself is not charged with paying bribes. In fact, an investigation by the agency in 1986 could find no evidence to support those rumors, and the government has conducted a four-year investigation, and it has never proved that such bribes occurred. Both of the individuals deny that any bribes were paid. There is now no charge that any Young & Rubicam employee, past or present, knew enough ‘individually’ about these rumors to cause a violation. Thus the agency agreed that because of that knowledge by ‘some’ of its employees it can be construed that it ‘technically’ entered into a “conspiracy.”

The spokesperson stated, ‘In hindsight, we agree that an early investigation should have been carried out sometime during 1982 when these rumors began surfacing. We did complete an investigation in 1986 and discovered no evidence of bribery. The government in its four-year investigation has also not made such a discovery. So, in fact, we would have looked and found nothing. But looking back, we agree that we should have done it in 1982; hence our guilty plea to that violation. ‘In fact we have been pressing since early October for an early decision so that the agency can put the matter behind us and get on with our business. This certainly allows us to do just that.'”

[For on the FCPA’ original knowledge standard applicable to third-party payments, see this prior post.]

As to the “reason to know” standard, media reports quote U.S. Attorney Stanley Twardy as follows. “The ‘reason to know’ plea meant that while no individual within Y&R knew enough to understand that a law was being violated, the cumulative knowledge of the group working on the account, who should have been in touch with each other, would have given the agency the requisite information.”

According to media reports, the DOJ’s case “fell apart” on the eve of trial “when Y&R’s attorneys submitted to the [DOJ] a document that had been subpoenaed two years ago and that made clear, in the words of U.S. Attorney Twardy, “that Arthur Klein was not aware of what was going on.” Twardy further stated that the document “suggested quite strongly that Spangenberg did not have criminal intent.” Twardy further stated: “We got a transcript of a tape of a phone conversation that made it obvious that the accusations against Mr. Klein were totally without merit. Ironically, we’d been trying for two years to get a hold of that tape.” Another media report quoted Twardy as follows. “The transcript of the conversation was extremely exculpatory, meaning it gave evidence that Klein and in turn Spangenberg were not knowledgeable of the illegal aspects of the payments …”.

An Update From Across the Pond

By Mike Koehler on September 29, 2009 in Angola, Bangladesh, Ghana, Iraq, Jamaica, Joint Venture, Mabey Johnson, Madagascar, Mozambique, Serious Fraud Office, United Kingdom, Voluntary Disclosure

The U.S. is not the only country with an “FCPA-like” domestic statute. The United Kingdom has a similar law (actually a mix of several different statutes on the books for nearly one-hundred years – however, in March 2009, a new bill – the “Bribery Bill” was introduced in Parliament and is currently being debated).

As discussed in a July post (see here), the U.K.’s Serious Fraud Office (“SFO”) (an enforcement agency similar to the U.S. DOJ) announced “the first prosecution brought in the U.K. against a company for overseas corruption.”

The company – Mabey & Johnson Ltd. (“M&J”) – a U.K. company that designs and manufacturers steel bridges used in more than 115 countries worldwide.

Last week, the SFO issued a press release announcing the details of M&J’s £6.6 million sentence (see here).

The SFO also released two “prosecution opening statements” relating to (a) the company’s conduct in Jamaica and Ghana; and (b) the company’s breach of United Nations Oil for Food Regulations (see here and here).

To state the obvious, one enforcement action does not constitute a practice.

Subject to that qualification, I offer some comments about the SFO’s released documents compared to what the DOJ and SEC typically release in an FCPA enforcement action (where indeed a common practice has developed).

Naming Names

Unlike a typical DOJ deferred prosecution, non-prosecution agreement or plea or SEC complaint, the SFO documents name names. Specifically identified in the documents are numerous “public officials” in Jamaica, Ghana, Angola, Madagascar, Mozambique, and Bangladesh (see pages 11, 25, 28, 32, 33, 35, and 38) alleged to have received improper payments from M&J (or its agents) to help secure company business.

The SFO documents also specifically identify the agents and their companies which were used by M&J to make certain of the improper payments (see pages 12, 22, 28, 32, 35, 37).

Is there value to “naming names,” does it “punish” the foreign or public official recipient of the improper payment (given that the FCPA only punishes the bribe payor not the bribe recipient)? Does naming the agent effectively blacklist the individual/company and thus serve a useful public function for other companies doing business in that particular market?

All interesting questions to ponder. There is also an interesting historical FCPA angle as well. Many, including the Ford administration, were opposed to the FCPA as it now exists, opting instead for a disclosure approach on the theory, to use the famous Justice Brandeis quote that “sunshine is the best disinfectant.”

Back to the SFO documents.

As referenced above, the applicable term used in the SFO documents is “public official” not “foreign official” as used in the FCPA. Do these terms means the same thing? All of the “public officials” identified in the SFO documents are government Ministers or Ambassadors (what I’ll call core government officials).

There is no exception though, an exception relevant to the current debate over the FCPA’s “foreign official” term and whether it should include employees of state-owned or state-controlled companies.

The Angolan “public officials” appear to be Directors of Empresa Nacional des Pontes, an “Angolan State owned entity.”

Joint Venture Partners

Under the FCPA, conventional wisdom seems to hold that joint venture partners will be liable for improper payments made by other joint venture partners, particularly when the joint venture partners share revenues and profits of contracts secured through improper payments and particularly when the joint venture’s board includes individuals from both companies. (see here for a discussion of this issue in connection with the recent Halliburton/KBR enforcement action).

Not so in the M&J matter.

The SFO documents reference a joint venture relationship between M&J and Kier International Ltd. (“Kier”) in order to facilitate both the construction and engineering aspects of “Jamaica 1” (the contract allegedly secured through the bribe payments).

According to the SFO documents, M&J and Kier agreed that “overall revenue and profits from the JV with respect of Jamaica I would be divided 57% and 43% respectively.” The documents further state that under the terms of the JV “a sponsor would have primary responsibility for representing the JV” and that “Kier was nominated to act as the sponsor.” Further the documents indicate that “the supervisory board” of the JV comprised both M&J and Kier executives.

However, the documents evidence that the “SFO has investigated the relationship between Kier and M&J in respect of this contract” and “all the evidence currently available to the SFO” indicates that “there is no evidence that Kier [was] privy to these corrupt practices.”

Will JV partners in the cross-hairs of a future FCPA enforcement action be citing to the SFO’s decision as to Kier in the M&J enforcement action to argue that there is no basis for FCPA liability (whether anti-bribery or books and records of internal controls)? Perhaps so.

Cooperation

Despite these apparent differences between the M&J enforcement action and a “typical” FCPA enforcement action, there are some similarities and it is clear that the SFO is following DOJ’s lead when it comes to “rewarding” voluntary disclosure (see pages 40-41 “the SFO have sought where appropriate to have regard to the model for corporate regulation adopted by the Department of Justice in the United States of America under the Foreign Corrupt Practices Act 1977.”).

The SFO’s stance in the M&J matter, in which it noted that M&J’s internal investigation and subsequent voluntary disclosure were “meriting specific commendation” (see pg. 7) is consistent with the approach the SFO set forth in July when it released a memo titled “Approach of the Serious Fraud Office to Dealing with Overseas Corruption” (see here).

Individuals

Finally, much like the DOJ, the SFO appears interested in charging individuals (not just corporations) for participating in improper payments. The SFO specifically noted that “a number of individuals are the subjects of investigation with regard to the corrupt business practices of M&J” (see pg. 5) and it explained that it did not “name certain directors, executives and employees of M&J at this stage because they may face trial in English Courts.”

Again, to restate the obvious, one enforcement action does not constitute a practice. Yet when doing a comparative analysis of the FCPA with other FCPA-like statutes one has got to start “somewhere” and that “somewhere” now exists with release of the specific facts of the U.K.’s first prosecution against a company for overseas corruption.”

Across the Pond

By Mike Koehler on July 23, 2009 in Enforcement Agency Policy, Ghana, Jamaica, Mabey Johnson, Serious Fraud Office, United Kingdom, Voluntary Disclosure

Some noteworthy anti-corruption developments to report from the United Kingdom.

Landmark Mabey & Johnson Ltd. Prosecution

Like the U.S., the U.K. has domestic anti-corruption statutes (actually a mix of several different statutes on the books for nearly one-hundred years – in March 2009, a new bill – the “Bribery Bill” was presented to the U.K. Parliament – an issue I will be following).

However, unlike the U.S., the U.K. has never brought a corporate prosecution under the statutes. For this, U.K. government has been criticized. If you want to fill your afternoon with reading just “google” BAE, Saudi Arabia, and corruption. If you prefer listening over reading, you may want to check out portions of Frontline’s “Black Money” (See here).

Against this backdrop, it is noteworthy that in July 2009, the U.K.’s Serious Fraud Office (“SFO”) (an enforcement agency similar to the U.S. DOJ) announced “the first prosecution brought in the U.K. against a company for overseas corruption.” (See here for the SFO Press Release).

According to the SFO press release, the prosecution arises from Mabey & Johnson Ltd.’s (a U.K. company that designs and manufacturers steel bridges used in more than 115 countries worldwide) voluntary disclosure to the SFO “of evidence to indicate that the company had sought to influence decision-makers in public contracts in Jamaica and Ghana between 1993 and 2001.” According to the release, the prosecution also involves breach of United Nations sanctions as applied to contracts in connection with the Iraq Oil for Food program.

My efforts to locate the actual Mabey & Johnson charging documents (statement of facts, etc.) have thus far proven fruitless. To the extent such documents are publicly available and you have a copy, please do share them with me.

SFO Memo on Corruption Enforcement and the Benefits of Self-Reporting

Also in July 2009, the SFO released a memo titled “Approach of the Serious Fraud Office to Dealing with Overseas Corruption.” The memo notes that the SFO is significantly expanding its anti-corruption resources and staff and that the office will be using “all of the tools at our disposal in identifying and prosecution cases of corruption” as the office “conduct[s] more criminal investigations and prosecutions in the future (particularly if the Bribery Bill becomes law).”

The memo notes that there has been much interest among business and professional advisers for a system of self-reporting cases of overseas corruption to the SFO and the purpose of the memo is thus to set forth SFO policies on self-reporting and the SFO’s position on the benefits which can be obtained from self-reporting.

The memo specifically notes that the benefit to a corporation of self-reporting will be “the prospect (in appropriate cases) of a civil rather than a criminal outcome,” and that a “negotiated settlement rather than a criminal prosecution means that the mandatory debarment provisions under [the relevant EU Directive] will not apply.”

The remainder of the memo touches on general topics familiar to FCPA practitioners currently found in Title 9, Chapter 9-28.000 of the U.S. Attorney’s Manual (Principles of Federal Prosecution of Business Organizations) (the so-called Filip Memo – see here). It is encouraging to see that the SFO, unlike the DOJ/SEC thus far, is willing to articulate, in a specific memo, its views and enforcement policies on corruption issues.

The benefits of self-reporting and voluntarily disclosing conduct which does, or could, violate the FCPA is indeed a “hot topic.” DOJ/SEC enforcement officials routinely say that the benefits of self-reporting are real, whereas FCPA practitioners and the clients they represent aren’t so sure. It now looks like this topic will be debated on both sides of the Atlantic and it will indeed be an interesting issue to monitor.

Of particular interest to FCPA practitioners, the SFO memo notes as follows: “We would also take the view that the timing of an approach to the U.S. Department of Justice is also relevant. If the case is also within our jurisdiction we would expect to be notified at the same time as the DOJ.” Of further interest to FCPA practitioners, the memo announces an initial opinion procedure along the lines currently offered by the U.S. DOJ. The memo notes, “[t]he circumstances in which this procedure will be appropriate will need to be discussed, but we are ready to offer assistance in one type of case” and that type of case is where an acquiring company, during due diligence of a target, discovers corruption issues.

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