Top Menu

Navigation

Friday Roundup

By on January 6, 2012 in FCPA Inc., FCPA Jurisprudence, Foreign Official, John Joseph O’Shea

Another “foreign official” challenge is denied, the DOJ’s FCPA door continues to revolve, and one DOJ official is probably glad he is off the hot seat … it’s all here in the Friday roundup.

O’Shea “Foreign Official” Challenge Denied

The remaining “foreign official” challenge of 2011 (brought by John Joseph O’Shea in his case pending in the Southern District of Texas) has been denied.  (See here for the previous post including links to the briefing on the issue).  Without issuing a written decision, Judge Lynn Hughes (S.D. Tex.) denied O’Shea’s motion to dismiss the indictment based on O’Shea’s argument that employees of Comision Federal de Electricidad (“CFE”), a Mexican utility and the same entity that was at issue in the Lindsey Manufacturing “foreign official” challenge, are not “foreign officials” under the FCPA.

O’Shea’s “foreign official” challenge was the fifth such challenge in FCPA history and the second (Nguyen / Nexus Technologies being the other) to end without a written decision.  The other three challenges Haiti Teleco related case (here), Lindsey Manufacturing (here) and Carson et al.  (here) resulted in written decisions.

Revolving Door

Hank Walther, the former Assistant Chief of the DOJ’s FCPA Unit (and most recently the former Deputy Chief of the DOJ’s Health Care Fraud Unit) recently joined the law firm Jones Day as a partner.  Walther joins a long-list of former DOJ FCPA enforcement attorneys who will now be providing FCPA defense and compliance services in the private sector.  In a release (here) Greg Shumaker (Partner-In-Charge of Jones Day’s Washington office) said as follows.  “Hank Walther brings a wealth of experience and insight from his years in government.  The unique perspective he has gained from prosecuting hundreds of health care fraud and FCPA cases on behalf of the federal government will add tremendously to our Corporate Criminal Investigations Practice. We’re delighted he’s chosen Jones Day for his return to the private sector.”

I agree that Walther likely has unique insight and perspectives from his years of enforcing the FCPA.  I also believe that DOJ enforcement attorneys who aggressively enforce a niche law have the potential ability to increase private-sector demand for their post-government services.  That is why I continue to believe it is in the public interest (recognizing the niched nature of both the DOJ and SEC FCPA units) that all FCPA enforcement attorneys should be prohibited when leaving the government from providing FCPA defense or compliance services for a five-year time period. For additional reading see this piece I co-authored.

Off The Hot Seat

Lisa Brennan (Main Justice) reports (here) that Greg Andres (a former Deputy Assistant Attorney General in the Fraud Section) is returning to the U.S. Attorneys Office – Eastern District of New York.  In certain respects, during the past year, Andres was the DOJ’s voice on FCPA enforcement and reform issues.  Andres testified on behalf of the DOJ at the November 2010 Senate FCPA hearing (see here and here for more) as well as the June 2011 House Hearing (see here for more).

*****

A good weekend to all.

O’Shea “Foreign Official” Challenge Fully Briefed

By on April 21, 2011 in FCPA Jurisprudence, FCPA Trials, Foreign Official, John Joseph O’Shea

Earlier this week, lawyers for John Joseph O’Shea filed a replly brief (here) in the “foreign official” challenge pending in the Southern District of Texas. The “foreign officials” at issue in the O’Shea matter are alleged to be officials of Comision Federal de Electricidad (“CFE”), a Mexican utility, the same entity at issue in the Lindsey matter currently in trial in the Central District of California. See here for the prior post.

O’Shea’s argument begins as follows.

“The Government Relies on ‘Prosecutorial Common Law’ and Rulings from Cases That Did Not Consider or Inadequately Considered the Meaning of Foreign Official.”

The reply brief then states as follows. “As long as FCPA defendants – both individuals and corporations – enter into non-prosecution agreements, deferred prosecution agreements, and plea agreements, the government will continue to build its arsenal of ‘prosecutorial common law’ to supports its aggressive and slanted interpretation of the FCPA. Yet court acceptance of plea agreements does not convert the government’s pronunciations on the law into sources of legal authority. Indeed, the government’s strategy of creating its own would-be common law threatens to strip the federal courts of their judicial power to interpret the FCPA.”

See here for the prior post on O’Shea’s motion to dismiss.

See here for the prior post on the DOJ’s response brief.

Along with the reply brief, O’Shea’s lawyers also filed (here) a motion to strike the Declaration of Clifton Johnson ((Assistant Legal Adviser for Law Enforcement and Intelligence in the Legal Adviser’s Office of the United States Department of State). Johnson’s declaration was ordered stricken in the Lindsey challenge (see here) and was also filed earlier this week in the Carson “foreign official” challenge pending in the Central District of California. (See here).

DOJ Files “Foreign Official” Response Brief In O’Shea Matter

By on March 29, 2011 in FCPA Jurisprudence, FCPA Trials, Foreign Official, John Joseph O’Shea, State Department

With attention focused on the “foreign official” challenge in the Lindsey matter pending in the C.D. of California (a ruling may soon occur), the DOJ yesterday filed (here) its “foreign official” response brief in the O’Shea matter pending in the S.D. of Texas. See here for the prior post.

The DOJ’s response is substantively similar to its response in the Lindsey matter. See here for the prior post.

In its O’Shea response, the DOJ attaches the same declaration of Clifton Johnson (Assistant Legal Adviser for Law Enforcement and Intelligence in the Legal Adviser’s Office of the United States Department of State) as it filed in the Lindsey matter. See here for the prior post. As noted in this prior post, the judge in the Lindsey ordered the declaration be stricken.

ABB

By on October 1, 2010 in 2010 Enforcement Actions, ABB, Automation Industry, Deferred Prosecution Agreements, DOJ Enforcement Action, Fernando Maya Basurto, Foreign Issuers, Iraq, John Joseph O’Shea, Mexico, Oil for Food Enforcement Action, SEC Enforcement Action, Third Parties

Earlier this week the DOJ and SEC announced a wide ranging enforcement action against ABB Ltd. and its subsidiaries ABB Inc., and ABB Ltd. – Jordan.

Swiss-based ABB Ltd. (here) is a provider of power and automation technologies with American Depositary Shares publicly traded on the New York Stock Exchange.

This post summarizes the various aspects of the enforcement action in which ABB Ltd. and ABB Inc. agreed to pay a total of $58.3 million ($19 million in DOJ criminal penalties and $39.3 million in SEC disgorgement and civil penalties).

DOJ

ABB Ltd. Deferred Prosecution Agreement

As noted in this DOJ release, ABB Ltd. agreed to enter into a deferred prosecution agreement (DPA). ABB’s press release (here) states that the DPA “includes provisions related to the involvement of a subsidiary in Jordan in the Oil for Food Program” and that “in lieu of an external compliance monitor, the DOJ and SEC have agreed to allow ABB to report on its continuing compliance efforts and the results of the review of its internal processes for a three-year period going forward.”

In other words, the DPA appears limited to the conduct of ABB Ltd. – Jordan (summarized below) and not the conduct of ABB Inc. (summarized below).

[Note – to my knowledge the DPA has yet to be publicly released. Here is a request for DOJ readers of this blog. Under the DOJ’s “old” website, the charging documents were released and linked along with the press release. With the revamped website, the charging documents are nowhere to be found requiring interested persons to go to Pacer or other sources. The charging documents ultimately end up on the DOJ’s FCPA specific website, but in many cases it takes weeks. DOJ may want to consider the old system which provided real-time access to these important charging documents]

ABB Ltd. – Jordan Criminal Information

The information charges ABB Ltd. – Jordan (“ABB-Jordan”) with one count of conspiracy to commit wire fraud and to violate the FCPA’s books and records provisions.

According to the information (here), ABB-Jordan was a wholly-owned subsidiary of ABB Ltd. ABB-Jordan, through its 95% owned subsidiary ABB Near East Trading Ltd. (“ABB Near East”) provided equipment and services to electrical utilities, including control measurement and protection systems, transducers, and metering equipment.

The information charges that ABB Near East “had three principle customers under the United Nations Oil-for-Food Program (“OFFP”) … the General Company for Electricity Energy Production, the Baghdad Mayoralty, and State Company Baghdad Electricity Distribution all of which were regional companies of the Iraqi Electricity Commission, an Iraqi government agency” (collectively the “Iraqi Electricity Companies”).

The information charges that “from in or about April 2000 through in or about April 2004, ABB Near East, received eleven purchase orders for electrical equipment and services worth over $5.9 million with the Iraqi Electricity Companies, pursuant to the OFFP.” According to the information, “to obtain these purchase orders, ABB Near East caused over $300,000 in kickbacks to be paid to the government of Iraq” and that “in order to generate the funds to pay the kickbacks to the Iraqi government and conceal those payments, ABB Near East would inflate the price of its contracts with the Iraqi government by approximately 10% before submitting the contracts to the U.N. for approval.”

According to the information, the kickback payments were falsely characterized on ABB-Jordan’s or ABB Near East’s books and records which were “incorporated into the books and records of ABB Ltd. for purposes of preparing ABB Ltd’s year-end financial statements.”

According to the DOJ release, “ABB Ltd. admitted that [ABB-Jordan] agreed to pay kickback payments to the former Iraqi government” in connection with OFFP contracts and “agreed to pay a criminal penalty of $1.9 million.”

ABB Inc. Criminal Information

According to the information (here) ABB Inc. is an “indirect subsidiary” of ABB Ltd. incorporated under Delaware law. The information charges that ABB Inc. “conducted business, in part, through a business unit called ABB Network Management (“ABB NM”) that had its principal place of business in Sugar Land, Texas and was acquired by ABB Inc. in or around January 1999.”

According to the information, “ABB NM’s primary business was to provide products and services to electrical utilities for network management in power generation, transmission, and distribution.” The information charges that “many of ABB NM’s clients were foreign state-owned utilities” and that “ABB NM conducted business in a number of its foreign markets through sales representatives.”

The information largely centers on the conduct of John Joseph O’Shea and Fernando Maya Basurto and business with Comision Federal de Electricidad (“CFE”) – a Mexican electrical company. According to the information, O’Shea was the “General Manager of ABB NM” who “oversaw its operations both before and after its acquisition by ABB Inc.” and was “responsible for approving payments to sales representatives.” According to the information, Basurto was a “citizen of Mexico” who “performed work for ABB NM on its contracts with CFE.”

O’Shea was criminally charged in November 2009 (see here). Basurto has pleaded guilty (see here). For more, see this prior post.

For additional FCPA enforcements involving CFE see this recent post.

The information details an elaborate scheme that is summarized in the DOJ release as the payment of bribes “from 1997 to 2004 that totaled approximately $1.9 million” to various officials at CFE and that “in exchange for the bribe payments … ABB NM received contracts worth more than $81 million in revenue.”

As noted in the DOJ release, “ABB Inc. pleaded guilty to a criminal information charging it with one count of violating the anti-bribery provisions of the FCPA and one count of conspiracy to violating these provisions of the FCPA.” According to the release, the court “imposed a sentence that included a criminal fine of $17.1 million.”

The information specifically states that “ABB Inc. terminated O’Shea in November 2004 and thereafter conducted a thorough internal investigation of the improper payments. It voluntarily disclosed the conduct to the DOJ and the SEC in April 2005.”

SEC

The SEC’s civil complaint against ABB Ltd. (see here) picks up both the Iraq and Mexico conduct mentioned above and charges ABB Ltd. with violating the FCPA’s anti-bribery, books and records, and internal control provisions.

The complaint alleges in summary fashion as follows:

“From 1999 to 2004, ABB, through a U.S. subsidiary and six foreign-based subsidiaries, offered and paid bribes to government officials in Mexico to obtain and retain business with government owned power companies, and paid kickbacks to Iraq to obtain contracts under the United Nations Oil for Food Program. In all, ABB’s subsidiaries made at least $2.7 million in illicit payments in these schemes to obtain contracts that generated more than $100 million in revenues for ABB.”

The complaint describes numerous payments, including payments to “pay for the Mediteranean cruise vacation for two CFE officials and their wives” and “tuition for the son of a CFE official” at a “private military school in Wisconsin.”

As to the “Mexican bribery scheme”, the SEC alleges that “ABB, which failed to conduct any due diligence on the use or payments to [a Mexican agent] and other companies, improperly recorded the illicit payments on its books as payments for commission and services on the projects.”

As to the OFFP, the complaint alleges that “from approximately 2000 to 2004, ABB participated in the Oil for Food program through six of its subsidiaries” and that the “six subsidiaries developed various schemes to pay secret kickbacks to Iraq in order to obtain contracts. The kickbacks were characterized as after sales service fees but in reality they were nothing more than bribes paid to the Iraqi regime.” According to the SEC, “kickbacks of approximately $810,793 were paid in connection with the subsidiaries’ sales of goods on twenty-seven contracts with promises to pay additional kickbacks of $239,501 on three other contracts. The total revenues on the contracts were approximately $13,577,727 and profits were $3,801,367. ABB improperly disguised the [after sales service fees] on its books and records by mischaracterizing them as legitimate after sales services, consultation costs or commissions.”

Further the SEC alleged as follows:

“as evidenced by the extent and duration of the illicit payments to foreign officials, the large number of ABB subsidiaries involved in these bribery and kickback schemes, ABB’s knowledge from the prior Commission action of illicit payments by other ABB subsidiaries, the improper recording of millions of dollars of illicit payments in ABB’s books and records, ABB’s failure to detect these irregularities, and ABB’s failure to conduct sufficient due diligence on local agents and others, ABB failed to devise and maintain an effective system of internal controls to prevent or detect these anti-bribery and books and records violations.”

In an SEC release (see here) SEC officials stated: “as the sanctions in this case demonstrate, there are significant consequences for public companies that fail to implement strong compliance programs and prevent corrupt payments to government officials” and that “multi-national companies that make illicit payments through layers of subsidiaries will be held accountable.”

Without admitting or denying the SEC’s allegations, ABB Ltd. consented to the entry of a final judgment that permanently enjoins the company from future FCPA violations, orders the company to pay $17,141,474 in disgorgement, $5,662,788 in prejudgment interest, and a $16,510,000 penalty. According to the SEC release, “the order also requires the company to comply with certain undertakings regarding its FCPA compliance program.”

In a press release (here), ABB noted that it “initiated these matters in a voluntary disclosure to the DOJ and SEC beginning in 2005.” The company stated that it “cooperated fully with the DOJ and SEC and has put in place a global comprehensive compliance and integrity program the DOJ has said ‘may become a benchmark for the industry.'”

Laurence Urgenson (here) and others from Kirkland & Ellis LLP represent the ABB entities.

A Bribery Scheme Hatched at the “Eggs Benedict Place”

By on November 23, 2009 in DOJ Enforcement Action, Fernando Maya Basurto, Individual Enforcement Action, John Joseph O’Shea, Mexico, Third Parties

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.

Powered by WordPress. Designed by WooThemes