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Friday Roundup

Simply inexcusable, tell us who, an interesting case study, and for the reading stack.  It’s all here in the Friday roundup.

Simply Inexcusable

The government holds those subject to the FCPA to high standards.  If the proverbial “right hand” in a company doesn’t know what the “left hand” is doing, the government is likely to call that an internal control failure.

Ought not the government be held to the same standard?

What follows is simply inexcusable.

In February 2012, Judge Lynn Hughes (S.D.Tex.) signed this final dismissal of the FCPA enforcement action against John O’Shea.  The motion followed Judge Hughes granting O’Shea’s motion for acquittal after the DOJ’s case in chief in the FCPA trial.  (See here for the prior post).  During the case, Judge Hughes stated, among other things, as follows.  “The problem here is that the principal witness against Mr. O’Shea . . . knows almost nothing. . . .;  The government should have been prepared before they brought the charges to the Grand Jury. . . . You shouldn’t indict people on stuff you can’t prove.’’

Following the acquittal and dismissal, O’Shea has attempted to resume a normal life without the specter of criminal charges and possible jail time occupying his mind.  It is understandable that O’Shea wants his reputation and “old” life back.  But removing the taint of being labeled a criminal law violator by the government has not come easy for O’Shea.

Case in point is the following story.

O’Shea was recently hired by a company and traveled to Canada for a business trip.  The trip was uneventful until O’Shea tried to enter Canada.  It turns out the relevant government databases were not updated to reflect the disposition of his case – something that happened 14 months ago!

O’Shea indicated that he spent the entire afternoon with officials of the Canadian government to persuade them that he should not be put on the next plane back to the U.S. with U.S. marshals.  O’Shea reports that the Canadian official was open-minded enough to visit internet sites suggested by O’Shea (including FCPA Professor) as proof that he was no longer a criminal defendant in the U.S.

After his business trip to Canada, O’Shea also had problems re-entering the U.S. from Canada and could not help but wonder whether someone would be waiting for him upon arrival in Houston.  O’Shea reports that thankfully his fears were not realized, but he can not help but wonder what would have happened if his business trip was to some country other than Canada.

In short, the government’s internal control failure was simply inexcusable.

Tell Us Who

In the aftermath of this week’s Ralph Lauren enforcement action (see here for the prior post) alleging payments to Argentine customs officials, the Argentine government wants to know who the customs officials are.

As noted in a Law360 article, “in a letter to U.S. Ambassador to Argentina Vilma Martinez, the head of Argentina’s tax agency, Ricardo Echegaray, said that it was necessary for the Argentine government to have names and more detailed information about the alleged bribery to aid in a newly launched criminal investigation into the matter.”  The article further stated as follows.  “While seeking the names of Argentine officials implicated in the scheme, Echegaray also put the blame on Ralph Lauren’s customs brokers, who are not government officials, but rather private professionals hired to deal with trade matters. Echegaray likened these brokers’ roles to those of a tax adviser or accountant which companies hire for assistance.”

The question asked by the Argentine official is obviously a legitimate question.

But query whether the DOJ and/or SEC even know who the officials are.

As noted in this previous post concerning the SEC’s briefing in the Jackson and Ruehlen case involving alleged payments to Nigerian customs officials, the SEC argued that the name, titles and exact positions of foreign officials allegedly bribed need not be known in order to state a claim under the FCPAs anti-bribery provisions.

As highlighted in this previous post, in ruling on Jackson and Ruehlen’s motion to dismiss, Judge Keith Ellison (S.D.Tex.) noted in a footnote as follows.

“[T]he Court must disagree with Judge Hughes’s oral statements in a recent criminal FCPA prosecution. [U.S. v. O’Shea] (“You can’t convict a man promising to pay unless you have a particular promise to a particular person for a particular benefit. If you call up the Basurtos and say, look, I’m going to send you 50 grand, bribe somebody, that does not meet the statute.”). This Court holds that asking a third-party to bribe a government official, in order to induce that official to act in one of the proscribed ways detailed in [the FCPA], would meet the statute. The government does not have to “connect the payment to a particular official.”
Case Study

This post earlier this week regarding Wal-Mart noted that savvy investors should have recognized the NY Times induced “FCPA dip” of the company’s stock as a buying opportunity because the market often overreacts to FCPA issues.

In this post earlier this week regarding Ralph Lauren Corp.’s (RLC) FCPA enforcement action, it was noted that the RLC enforcement action was a rare instance of an issuer not previously disclosing its FCPA scrutiny.  Thus, the first instance of public scrutiny appears to have been announcement of the enforcement action on Monday morning.  RLC’s stock dipped approximately 2% on the news and closed at $165.93.  The “FCPA dip” lasted only a day, as Tuesday the stock rebounded and then some and closed yesterday at $175.38.

Reading Stack

Miller & Chevalier’s seasonal FCPA alerts are always information reads.  The firm recently released its FCPA Spring Review 2013.

Is sex as a “thing of value”?   See here from Wendy Wysong (Clifford Chance) – with a particular focus on Asia.

Should you be looking for further citations that more FCPA enforcement is good for FCPA Inc., see this recent article in Lawyers Weekly, an Australian publication.  The article begins as follows.   “A crackdown on foreign bribery has created “a mountain of work” for lawyers, a Jones Day partner has said ahead of a major international anti-corruption conference.”


A good weekend to all.

Did “Foreign Official” Impact The O’Shea Acquittal?

From a “foreign official” standpoint, must of the attention in 2011 was on the challenges in the Carson and Lindsey Manufacturing enforcement actions (see here and here for previous posts).  Another “foreign official” challenge occurred in the John O’Shea case in the Southern District of Texas in which O’Shea was charged in connection with alleged bribe payments to officials of Comision Federal de Electricidad (“CFE”), a Mexican utility and the same entity at issue in the Lindsey matter.

As noted in this previous post, on the eve of trial, U.S. District Court Judge Lynn Hughes, without issuing a written decision, denied O’Shea’s motion to dismiss the indictment based on O’Shea’s argument that employees of CFE were not “foreign officials” under the FCPA.   This previous post links to the briefing on the issue.

As noted in this previous post, in January 2012, Judge Hughes granted O’Shea’s motion for acquittal and found him not guilty of all substantive FCPA charges.  The motion was granted at the close of the DOJ’s case and the jury was dismissed.

To be sure, there were several deficiencies in the DOJ’s case against O’Shea prompting Judge Hughes to grant the motion for acquittal.  What impact, though, if any, did O’Shea’s “foreign official” challenge and the attention to this issue, have on the ultimate outcome of the case?

This post reviews information from the case record and transcripts and concludes with comments from O’Shea’s attorneys as to the question – “what impact, if any, did ‘foreign official’ have on the ultimate result in the case?”

During the trial, Judge Hughes held an evidentiary hearing concerning testimony Professor Hans Baade (here) intended to offer on behalf of O’Shea concerning the status of CFE under Mexican law.  Judge Hughes indicated that his purpose in the hearing was “to find out whether the testimony would be admissible or whether the information is helpful to me in crafting [jury] instructions.”  During the hearing, Professor Baade discussed the OECD Convention and its commentaries, specifically Commentaries 14 and 15 which state as follows.

14. A “public enterprise” is any enterprise, regardless of its legal form, over which a government, or governments, may, directly or indirectly, exercise a dominant influence. This is deemed to be the case, inter alia, when the government or governments hold the majority of the enterprise‟s subscribed capital, control the majority of votes attaching to shares issued by the enterprise or can appoint a majority of the members of the enterprise‟s administrative or managerial body or supervisory board.

15. An official of a public enterprise shall be deemed to perform a public function unless the enterprise operates on a normal commercial basis in the relevant market,i.e., on a basis which is substantially equivalent to that of a private enterprise, without preferential subsidies or other privileges.]

Professor Baade spoke at great length of the Mexican electricity sector and that electricity generation in Mexico was open to private and foreign competition.  He stated that more than 50% of energy in Mexico is produced by private producers.  During the hearing, Professor Baade also testified that CFE had no regulatory powers and that Mexican courts have concluded that CFE does not have any other public powers.  Moreover, Professor Baade stated that CFE’s contracts with Mexican households are treated as consumer contracts.  During the hearing, O’Shea’s counsel presented a decision from the high court of Mexico which held that in a dispute over the cutting off of electricity to a consumer, there was no jurisdiction in Mexico’s Amparo courts because there was no state action.  According to Professor Baade, CFE did not receive any protection or immunity from suit in Mexico.  He then described how CFE pays taxes in Mexico, receives no subsidies (rather the government subsidizes the household consumer), how CFE is subject to consumer protection laws, and how CFE’s employees are subject to labor laws.

Professor Baade’s testimony ended with the following Q&A between Sarah Frazier (O’Shea’s counsel who conducted the hearing) and Professor Baade.

Q:  “Given your testimony that you have given so far, do you have an opinion as to whether CFE functions on a normal commercial basis.”

A:  “Well, I would say at the market in which foreign companies and private companies are interested, it is a competitive enterprise.”

On cross-examination, the DOJ attempted to undermine Professor Baade’s testimony regarding the OECD Convention and its commentaries by, among other questions, asking as follows.   “Professor, would you agree […], talking about the OECD Convention, that the convention sets a floor and not a ceiling for how much a country can criminalize international bribery?”  The DOJ further asked “so, countries can have higher standards than what the OECD requires.”  As to this line of questioning, Judge Hughes interjected as follows.  “The Government can’t say the convention is part of American law; but when we don’t like it, we are going to ignore it.  It has to bind the Government, or it can’t.” Judge Hughes further stated as follows.  “[The DOJ] can’t rely on the convention as authoritative interpretations of those non-convention laws.  That’s the ruling.”

During the hearing, the DOJ candidly stated that it was unprepared by Professor Baade’s testimony concerning the status of CFE.

Judge Hughes “foreign official” jury instructions included the following.

“A foreign official is an officer or employee of the government of a country other than the United States. The Commission is not an integral part of a foreign government’s public function merely because it is government owned. It must be exercising a public governmental function.  An official of a public agency does not perform a governmental function when his agency operates in his area substantially as a private agency — as its private agency competitors do, without preferences,  subsidies or other privileges.  If you conclude that the Government has proved beyond a reasonable doubt that the Commission is an agency of the Mexican Government, some of its officials may be responsible for operations of the Commission that are not governmental. To the extent that a part of the Commission operates a business on substantially the same terms as private companies, its officers in that part are not public officials.  Mexican law excludes private companies from the sale of electricity to households. On the other hand, the Commission — the Constitution statutes and regulations allow for private generation of electricity or self-consumption, cogeneration, export and sale to the Commission for resale, including to households.  The Mexican Constitution forbids monopolies, but it has reserved high levels of regulation of ownership in a few areas, like oil and electricity.  Although the Commission receives no protection as to subsidies, it has to sell power for household use at a rate set by the government. If the Commission loses money on those sales, the Government allows it to deduct those losses from the charge it owes for the use of Mexico’s capital. The Commission may be sued under normal civil jurisdiction in the Mexican courts. Its contracts with household customers are governed by the Mexican commercial and civil law and by Mexican Consumer Protection Commission. The Commission’s board of directors includes government officers and three members of the Electricians Union.  The Commission has no regulatory powers. The Electrical Regulatory Commission (in Spanish C.R.E.) issues licenses and permits in Mexico for the generation, transmission and supply of electricity in  Mexico. The Secretary of Energy established tariffs for categories of users.”

During the hearing on O’Shea’s motion for acquittal, it is clear that Judge Hughes was troubled by the DOJ’s “foreign official” position and its lack of preparation as to the unique attributes of CFE.  During the hearing, Judge Hughes stated that the DOJ “is supposed to know before it brings the indictment that it can prove that it is a governmental entity … in fact you should have to convince the grand jury of it.”  Judge Hughes further commented that “it does trouble me, although I don’t think it’s relevant to this motion, that the Government did not present evidence on governmental status on which a reasonable grand jury could have relied.”

The following exchange between the DOJ’s Chuck Duross and Judge Hughes then followed.

DUROSS: I believe, Your Honor, that we presented evidence that it was a state owned company.

COURT: The statue is more subtle than that. I’m not saying you couldn’t have done it or they wouldn’t have indicted him.

DUROSS: The statute says an instrumentality of a foreign government. I think in fairness, Your Honor, it is not a stretch to think that a company that is created by, owned by and operated by a foreign government, could be considered an instrumentality. I think in the sharps relief of a trial in which we are going to be challenged on those issues, we needed to have been more prepared and we were not.

COURT: I don’t know what was presented to the Grand Jury, but as I observed several days ago, the Government should have been prepared before they brought the charges to the Grand Jury. It’s something you have to prove. And you shouldn’t indict people on stuff you can’t prove.

DUROSS: Understood, Your Honor.”

I posed the following question to O’Shea’s counsel Sarah Frazier (Berg & Androphy – here) “what impact, if any, did ‘foreign official’ have on the ultimate result in the case” and her response is as follows.

“What impact did our foreign official challenge have on the result of the case?  As you mention, Judge Hughes categorized the challenge as not relevant to our Rule 29 motion, and I have to take his statement at face value – there were more than sufficient grounds for relief without it. I do think that by re-thinking the presumptions that the Government has consistently forwarded regarding the foreign official element, such as that all state-owned entities’ employees must be foreign officials, and taking this new factual tack that involves really understanding the industry and the government’s role in it, we earned the Court’s respect and took the Government out of its comfort zone.   I’ve often wondered whether the challenge would have swayed the jury.  I doubt they had the chance to understand the relevance of it during the Government’s case, but I think we could have guided them through it with Professor Baade.  And I suspect that if the jury decided they liked Mr. O’Shea (we did expect he would testify), the foreign official challenge might have been an avenue they might seek out in order to acquit him.”

Friday Roundup

From the dockets, an FCPA compliance defense – yes or no, hiring a woman closely associated with a foreign official, and a focus on the FCPA’s “red-haired stepchild” – it’s all here in the Friday Roundup.

From the Dockets

Last month when Judge Lynn Hughes dismissed, at the close of the DOJ’s case, the FCPA charges against John Joseph O’Shea (see here for the prior post), it was only a partial victory as O’Shea still faced non-FCPA charges.  Complete victory is imminent as yesterday the DOJ filed a motion to dismiss (here) the remaining charges (conspiracy, money laundering and obstruction) against O’Shea.

In July 2011, Patrick Joseph (a former general director for telecommunications at Haiti Teleco and thus a “foreign official” according to the DOJ) was added to the extensive Haiti Teleco case.  (See here for the prior post).  Because the FCPA does not apply to bribe recipients, the DOJ charged Joseph with a non-FCPA offense: one count of conspiracy to commit money laundering.  Earlier this week, Joseph pleaded guilty to the charges (see here).  Pursuant to the plea agreement, Joseph agreed to forfeit approximately $956,000.  It is clear from the plea agreement that Joseph was likely an early cooperator in the Haiti Teleco case as the plea agreement refers to a June 2009 proffer agreement with the DOJ.  Many of the other individual defendants in the Haiti Teleco case were charged in December 2009 (see here).  The plea agreement requires Joseph’s continued cooperation and later this month a trial is to begin as to other defendants in the wide-ranging Haiti Teleco case.

FCPA Compliance Defense – Yes or No?

That is the title of a free webcast on February 21st to be hosted by Bruce Carton’s Securities Docket (see here to sign up and for more information).  I will be discussing my  paper “Revisiting a Foreign Corrupt Practices Act Compliance Defense”and will argue in favor of Congress creating an FCPA compliance defense.  On the other side of the issue, Howard Sklar (Senior Counsel, Recommind and a frequent commentator on FCPA issues at, among other places, his Open Air Blog) will argue that Congress should not include a compliance defense to violations of the FCPA.

Former Employee Alleges FCPA Issues at GE

As previously reported by Chris Matthews at Wall Street Journal Corruption Currents (see here) Khaled Asadi (a dual U.S. and Iraqi citizen) who was previously employed by G.E. Energy (USA) LLC (“GE Energy”) as its Country Executive for Iraq, located in Amman, Jordan, has filed a civil complaint (here) in the Southern District of Texas against G.E. Energy.   GE Energy is a wholly-owned subsidiary of General Electric Company (“GE”).

The complaint alleges that G.E. harassed, pressured Asadi to vacate his position, and ultimately terminated him after he informed his supervisor and G.E.’s Ombudsperson “regarding potential violations of the Foreign Corrupt Practices Act committed by G.E. during negotiations for a lucractive, multi-year deal with the Iraqi Ministry of Electricity.”  The substance of Asadi’s complaint is that “on or about June of 2010 Mr. Asadi was alerted by a source in the Iraqi Government that GE had hired a woman closely associated with the Senior Deputy Minister of Electricty (Iraq) to curry favor with the Ministry while in negotiation for a Sole Source Joint Venture Contract with the Ministry of Electricity. (According to the complaint, the Joint Venture Agreement between GE and the Ministry of Electricity was signed in Baghdad on December 30, 2010 and that the exclusive materials and repairs provision is estimated to be valued at $250,000,000 for the seven year agreement.)

Hiring friends, family members, etc. of a “foreign official” at the request of the ‘foreign official” has been the basis, in part, for previous FCPA enforcement actions – particularly if the hired individual was not qualified for the position, did not engage in any meaningful work, or was paid an unreasonably high salary.  For instance, the 2011 FCPA enforcement action against Tyson Foods (see here for the prior post) involved, in part, allegations that a company subsidiary placed the wives of Mexican “foreign officials” on its payroll and provided them with “a salary and benefits, knowing that the wives did not actually perform any
services” for the company.

In the WSJ Corruption Currents article, a GE spokesman stated as follows.  “Mr. Asadi’s termination had absolutely nothing to do with any allegations he is making.  Regarding our contracts in Iraq, GE followed all requirements and his allegations are false.”

Travel Act Readings

A few informative Travel Act readings to pass along.

In this article from Thomson Reuters News & Insight, Mike Emmick (Sheppard Mullin Richter & Hampton) calls the Travel Act the “FCPA’s red-haired stepchild” and says that in conducting an internal investigation “there are some additional rocks to flip over” before celebrating findings of no payments to “foreign officials.”

In this article from Bloomberg Law Reports, John Rupp and David Fink (Covington & Burling) note that a “move by U.S. authorities to target commercial bribery robustly is a distinct possibility.”  The piece discusses the laws that could be used by U.S. authorities to prosecute foreign commercial bribery.”


A good weekend to all.

Writer’s Cramp At The DOJ?

This is the second time I have written about this issue (see here for the first).  This time, the examples are more numerous and more significant.

The DOJ has stated (here) that its FCPA website (here) includes documents related to more than 140 FCPA prosecutions including “charging documents, plea agreements, deferred prosecution and non-prosecution agreements, press releases,and relevant pleadings and orders.”  To be sure, the DOJ has a nice (and much improved upon) FCPA website.  However, as demonstrated below, if one’s objective is to be informed of all FCPA developments (not just those that cast the DOJ in a favorable light), there are a number of websites, this one included, that highlight such developments, but the DOJ’s website is not one of them.


In January 2010, the DOJ issued this release announcing the Africa Sting charges and it also held a press conference to discuss the charges.  In July 2011, Judge Richard Leon declared a mistrial in the first Africa Sting case (see here for the prior post).  However, there was no DOJ press release announcing this development and if your only source of information was the DOJ’s FCPA website you would not know that this development occured because there is no mention of it.

In 2007 Si Chan Wooh, an employee of SSI International, a wholly-owned subsidiary of Schnitzer Steel, was criminally charged (see here).  The DOJ issued a release (here) anouncing the charges and related guilty plea.  However last year, as reported in this Wall Street Journal Corruption Currents story, “the Justice Department informed Wooh’s counsel that a Federal Bureau of Investigation agent assigned to the investigation of Schnitzer and its employees had written a letter to high-ranking prosecutor in Washington saying Wooh should not have been charged in connection with the case.”  In October 2011, in this filing the DOJ moved to dismiss the case “out of prosecutorial discretion in the interests of justice and the efficient use of government resources.”  There was no DOJ press release announcing this development and if your only source of information was the DOJ’s website you would not know that this development occured because there is no mention of it.

In May 2011, the DOJ issued this same day release when Lindsey Manufacturing and its executives Keith Lindsey and Steve Lee were found guilty of FCPA offenses after a jury trial.  However, in November 2011, Judge Howard Matz vacated the FCPA convictions of Lindsey Manufacturing and its executives and dismissed the indictment (see here for the prior post).  Again nothing from the DOJ, no press release, and no mention of this development on its website.

In December 2011, during the second Africa Sting case, Judge Richard Leon, at the close of the DOJ’s case, dismissed a conspiracy charge as to all defendants (see here for the prior post).  Because this was the only charge Stephen Giordanella faced, he was exonerated.  However, if your only source of FCPA knowledge was the DOJ’s website, you would not know this because there is nothing there as to this development.

In November 2009, the DOJ issued this release when John Jospeh O’Shea was arrested and charged with FCPA and related offenses.  However, on January 16th, Judge Lynn Hughes, after the DOJ’s case, dismissed the FCPA charges against O’Shea (see here for the prior post).  However, if your only source of FCPA knowledge was the DOJ’s website, you would not know this because the DOJ did not issue a release and there is nothing on its website regarding this development.  [Someone was staffing the DOJ press office at this time because approximately 18 hours later, the DOJ announced (here) a $55 million FCPA enforcement action against Marubeni Corporation of Japan.]

Returning to the second Africa Sting trial, earlier this week, Patrick Caldwell and John Godsey were found not guilty by the jury (see here for the prior post).  The next day, Judge Leon declared a mistrial as the remaining defendants –  John Mushriqui, Jeana Mushriqui and Marc Morales (see here for the prior post).  Again, nothing from the DOJ as to these developments.

President Obama has championed transparency and open government.  In this release, President Obama stated as follows.  “Transparency promotes accountability and provides information for citizens about what their Government is doing.  Information maintained by the Federal Government is a national asset. My Administration will take appropriate action, consistent with law and policy, to disclose information rapidly in forms that the public can readily find and use.”

Consistent with President Obama’s directive, the DOJ’s website ought to be improved and ought to keep citizens informed of all FCPA developments – not just those that cast the DOJ in a favorable light.

O’Shea Not Guilty Of Substantive FCPA Charges

[There are two posts today]

In November 2009 (see here), John Josepeh O’Shea (a former General Manager of ABB Inc.) was criminally charged “for his alleged role in a conspiracy to bribe Mexican government officials to secure contracts with the Comisión Federal de Electridad (CFE), a Mexican state-owned utility company.” See here for the prior post. 

Late yesterday in Houston, U.S. District Court Judge Lynn Hughes (S.D. Tex.) granted O’Shea’s motion for acquittal and found him not guilty of all substantive FCPA charges.  According to a release from O’Shea’s counsel (Berg & Androphy), the motion was granted at the close of the DOJ’s case and the jury was dismissed.

According to the Berg & Androphy release: “In announcing his ruling, Judge Hughes said he found that the Government’s chief witness, an Esimex principal awaiting sentencing on conspiracy charges, could not tie Mr. O’Shea to the alleged crimes. The judge found that O’Shea’s conduct, including efforts to renew an ABB-Esimex contract, was reasonably explained by lawful motives.  The Court also expressed concern that the Government had granted immunity to Esimex’s founder, Fernando Basurto, Sr., allowing him to disclose selective information to the Government, while refusing to grant immunity to an important defense witness even six to seven years after the facts at issue. Basurto Sr. did not testify; the Government relied instead on his son’s testimony.”

Joel M. Androphy (here) stated as follows.  “Deflecting blame for bribery in corruption-ridden countries onto unknowing business executives is both Cervantian and unfair. My hope is that our victory for Mr. O’Shea will encourage others wrongfully accused under the FCPA to fight the charges against them.”

Sarah M. Frazier (here) stated as follows.   “We were prepared to try this case to verdict and show the public through expert testimony and Mr. O’Shea’s own testimony that these charges were unfounded and that he is an honest man caught up in a terrible situation.”
Ashley Gargour (here) stated as follows.   “Justice was served with this acquittal of Mr. O’Shea. A married father of two daughters and a recent grandfather, John has had an exemplary career for more than 35 years as an engineer, manager, and businessman specializing in computer systems that run electricity grids and other sophisticated infrastructure.”
In October 2010, ABB resolved an enforcement action based in part on the Mexico conduct alleged in the O’Shea indictment.  See here for the prior post.
The O’Shea case involved the same Mexican utility, CFE, that was at issue in the Lindsey Manufacturing case.  In December 2010, U.S. District Court Judge Howard Matz (C.D. Cal.) vacated  the convictions and dismissed the indictment – see here for the prior post.

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