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Fresenius Medical Care Pays Approximately $232 Million To Resolve Its Long-Standing FCPA Scrutiny

fresenius

German healthcare firm Fresenius Medical Care AG (a company with American Depositary Receipt shares traded on the NYSE) has been under FCPA scrutiny since 2012 (no that is not a typo).

Today the DOJ and SEC announced (here and here) an approximate $232 million enforcement action ($84.7 million to the DOJ and $147 million to the SEC) against the company for alleged bribery schemes involving physicians and other healthcare personnel in Angola, Saudi Arabia, Morocco, Spain, Turkey, Gabon, Benin, Burkina Faso, Senegal, Ivory Coast, Niger, Cameroon China, Serbia, Bosnia, and Mexico.

While not specified in any of the resolution documents, the DOJ’s non-prosecution agreement and SEC’s administrative order make generic reference to the Angola and Saudi Arabia conduct involving ‘agents and employees utiliz[ing] the means and instrumentalities of U.S. interstate commerce, including the use of internet-based email accounts hosted by numerous service providers located in the United States.”

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In Depth Into The Och-Ziff FCPA Enforcement Action

och ziff

Last week, the DOJ and SEC announced (here and here) a Foreign Corrupt Practices Act enforcement action against Och-Ziff Capital Management Group (and a related entity) for improper business practices in various African countries. The aggregate settlement amount was $412 million (a $213 million DOJ criminal penalty and a $199 million SEC resolution consisting of disgorgement and prejudgment interest), the 4th largest FCPA settlement amount of all-time.

As highlighted in this previous post, the SEC also found Daniel Och (CEO) and Joel Frank (CFO) culpable for certain of the improper conduct. As indicated in the post, this represents what is believed to be the first time in FCPA history that the SEC also found the current CEO and CFO of the issuer company liable, to some extent, for company FCPA violations. Moreover, the $2.2 million Och agreed to pay, without admitting or denying the SEC’s findings, is the largest settlement amount in FCPA history by an individual in an SEC action.

Whether the Och-Ziff enforcement action is the “first time a hedge fund has been held to account for violating the FCPA” (as the DOJ stated in its release) is a debatable point. (See here for the 2007 FCPA enforcement action on the DOJ’s FCPA website against hedge fund Omega Advisors).

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DOJ Criminally Charges Gabonese National Connected To Och-Ziff With FCPA Conspiracy In Connection With African Mining Projects

Mining

Och-Ziff, a publicly-traded hedge fund that has been under Foreign Corrupt Practices Act scrutiny since 2011 for its business dealings in Africa, recently disclosed that it is in discussions with the DOJ and SEC regarding resolution of the matter. As noted in this recent post, Och-Ziff has reserved over $400 million in anticipation of the resolution. (For the latest on this expected resolution see here).

In the meantime, a criminal complaint was recently unsealed charging Samuel Mebiame, a Gabonese national connected to Och-Ziff, with conspiracy to violate the FCPA’s anti-bribery provisions.

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Did Richard Liedo Win Or Lose?

[This post is part of a periodic series regarding “old” FCPA enforcement actions]

This previous post highlighted the 1989 Foreign Corrupt Practices Act enforcement action against NAPCO International in connection with military sales to the Republic of Niger.  The previous post noted that the DOJ also criminally charged the Vice President of the Aerospace Division of NAPCO and that this individual exercised his constitutional right to a jury trial and put the DOJ to its burden of proof.

That person was Richard Liedo and his enforcement action is worthy of its own post.

Among other things, the Liebo enforcement action resulted in a rare appellate FCPA decision, and an often overlooked one at that given that the court concluded that a jury could find that a subordinate who acted at his supervisor’s direction in providing a thing of value to a foreign official lacked “corrupt” intent.

In this lengthy 62 page criminal indictment, the DOJ charged Liebo in connection with the same bribery scheme alleged in the NAPCO action.  In pertinent part, the DOJ alleged that in connection with aircraft sales to Niger, Liebo conspired with others to violate the FCPA by making payments or authorizing payments of money to “officials of the Government of Niger, that is, Tahirou Barke Doka [the First Counselor of the Embassy of Niger in Washington, D.C.] and Captain Ali Tiemogo [Chief of Maintenance for the air force component of the Niger Ministry of Defense] and “Fatouma Mailelel Boube and Amadou Mailele, both relatives of Tiemogo, while knowing that all or a portion of such money would be offered, given or promised, directly or indirectly, to foreign officials, namely Barke and Tiemogo” for the purpose of “influencing the acts and decisions of Barke and Tiemogo in their official capacities, and inducing them to use their influence with the Ministry of Defense.”

In addition to the conspiracy charge (count 1), the DOJ also charged Liebo with 10 counts of violating the FCPA’s anti-bribery provisions (counts 2 – 11), one count of violating the FCPA’s books and records provisions (count 12), three counts of aiding and abetting in the preparation of false corporate income tax returns (counts 13 – 15), and five counts of making false statements to the Defense Security Assistance Agency (DSAA) of the U.S. Department of Defense in connection with the sales (counts 16 – 20).

Liebo exercised his constitutional right to a jury trial and put the DOJ to its burden of proof.

The jury considered 19 charges against Liebo (on the first day of trial, the court granted the DOJ’s motion to dismiss one of the false statement charges) and he was acquitted of 17 charges.  The only charges Liebo was convicted of was one count of violating the FCPA’s anti-bribery provisions and one count of making a false statement to DSAA.  The FCPA charge related to the payment of $2,028 “for the airline tickets purchased for Barke’s wedding and honeymoon travel.”

As noted in this judgment, Liebo was sentenced to 18 months in federal prison.  However, as noted in a Trace Compendium entry, “Liebo only served two of the 18 months, having petitioned for, and eventually received, a retrial.”

As noted in this Eighth Circuit opinion, Liebo appealed and argued on appeal that “his convictions should be reversed because of insufficient evidence and because the district court erred in instructing the jury” and that the “district court abused its discretion by denying his motion for a new trial based on newly discovered evidence.”

As to the FCPA anti-bribery charge Liebo was found guilty on, he argued on appeal that: (1) there was insufficient evidence to show that the airline tickets were given to obtain or retain business; and (2) that there was no evidence to show that his gift of honeymoon tickets was done corruptly.

After setting forth the standard of review (i.e. considering the evidence in the light most favorable to the government with all reasonable inferences and credibility determinations made in support of the jury’s verdict), the court stated as follows as to obtain or retain business.

“There is sufficient evidence that the airplane tickets were given to obtain or retain business. Tiemogo testified that the President of Niger would not approve the contracts without his recommendation. He also testified that Liebo promised to “make gestures” to him before the first contract was approved, and that Liebo promised to continue to “make gestures” if the second and third contracts were approved. There was testimony that Barke helped Liebo establish a bank account with a fictitious name, that Barke used money from that account, and that Barke sent some of the money from that account to Tiemogo. Barke testified that he understood Liebo deposited money in the account as “gestures” to Tiemogo for some “of the business that they do have together.”

Although much of this evidence is directly relevant to those counts on which Liebo was acquitted, we believe it appropriate that we consider it in determining the sufficiency of evidence as to the counts on which Liebo was convicted.

[…]

Moreover, sufficient independent evidence exists that the tickets were given to obtain or retain business. Evidence established that Tiemogo and Barke were cousins and best friends. The relationship between Barke and Tiemogo could have allowed a reasonable jury to infer that Liebo made the gift to Barke intending to buy Tiemogo’s help in getting the contracts approved. Indeed, Tiemogo recommended approval of the third contract and the President of Niger approved that contract just a few weeks after Liebo gave the tickets to Barke. Accordingly, a reasonable jury could conclude that the gift was given “to obtain or retain business.”

As to corrupt intent, the court stated as follows.

“Liebo also contends that the evidence at trial failed to show that Liebo acted “corruptly” by buying Barke the airline tickets. In support of this argument, Liebo points to Barke’s testimony that he considered the tickets a “gift” from Liebo personally. Liebo asserts that “corruptly” means that the offer, payment or gift “must be intended to induce the recipient to misuse his official position….”  […] Because Barke considered the tickets to be a personal gift from Liebo, Liebo reasons that no evidence showed that the tickets wrongfully influenced Barke’s actions.

We are satisfied that sufficient evidence existed from which a reasonable jury could find that the airline tickets were given “corruptly.” For example, Liebo gave the airline tickets to Barke shortly before the third contract was approved. In addition, there was undisputed evidence concerning the close relationship between Tiemogo and Barke and Tiemogo’s important role in the contract approval process. There was also testimony that Liebo classified the airline ticket for accounting purposes as a “commission payment.” This evidence could allow a reasonable jury to infer that Liebo gave the tickets to Barke intending to influence the Niger government’s contract approval process. We conclude, therefore, that a reasonable jury could find that Liebo’s gift to Barke was given “corruptly.” Accordingly, sufficient evidence existed to support Liebo’s conviction.”

As to Liebo’s argument on appeal that the “district court abused its discretion by denying his motion for a new trial based on newly discovered evidence,” Liebo noted that “two months after his conviction, a NAPCO employee provided Liebo with a memorandum showing [a superior’s] approval to the charge of the airline tickets.”  Liebo argued that the discovery of this evidence warranted a new trial.  In support, Liebo argued that “he was acquitted on all other bribery counts for which there was evidence that the payment in question was approved [by a superior].  Liebo argued that evidence of a superior’s approval of the wedding trip was a determinative factor in the jury’s verdict by “pointing to a question sent out by the jury during their deliberations asking whether there was ‘any information regarding authorization for payment of wedding trip.'”

After noting that motions for a new trial based on newly discovered evidence are looked upon with disfavor, the court also noted that “courts have granted a new trial based on newly discovered evidence especially when the evidence supporting the defendant’s conviction is weak.”

The court closed its opinion as follows.

“[T]he evidence against Liebo, while sufficient to sustain the conviction, was not overwhelming. Indeed, we believe that the company president’s approval of the purchase of the tickets is strong evidence from which the jury could have found that Liebo acted at his supervisor’s direction and therefore, did not act “corruptly” by giving the tickets to Barke. Furthermore, we are highly persuaded that the jury considered such approval pivotal, especially in light of the question it submitted to the court during its deliberations and its acquittal of Liebo on the other bribery counts in which evidence of approval existed. Accordingly, we hold that the district court clearly abused its discretion in denying Liebo’s motion for a new trial.”

In the re-trial, Liebo was convicted of aiding and abetting FCPA anti-bribery violations and making a false statement to the DSAA.  He was then sentenced to three years probation, two months home detention, and 400 hours of community service.

Based on all of the above, the question is raised – did Richard Liedo win or lose when he put the DOJ to its burden of proof?

In this the exam grading season, I know where I come out when the one with the burden is 90% unsuccessful.

Foreign Military Sales Lead To FCPA Enforcement Action

[This post is part of a periodic series regarding “old” FCPA enforcement actions]

In 1989, the DOJ criminally charged Minnesota based military equipment and supplies company Venturian Corporation, along with its wholly-owned subsidiary NAPCO International, with conspiracy to violate the Foreign Corrupt Practices Act, substantive FCPA offenses (anti-bribery, books and records and internal controls), as well as various tax fraud offenses.

The conduct at issue was in connection with the Foreign Military Sales (FMS) program in which the U.S. government made loans to certain foreign governments to finance the purchase of defense items of U.S. origin.  The Defense Security Assistance Agency (DSAA), an agency of the U.S. Department of Defense, was responsible for directing, administering, and supervising FMS loans.  In connection with the FMS program, contractors and commercial suppliers were required to certify, among other things, that: (i) “commissions would be paid only to bona fide employees or agencies which neither exerted or proposed to exert improper influences to solicit or obtain the contact;” and (ii) “no rebates, gifts or gratutities contrary to U.S. law have been or would be given to officers, officials or employees of the purchaser …”.

The conduct at issue concerned the Republic of Niger, a foreign nation qualified to receive FMS loan assistance from the DSAA, specifically Tahirou Barke Doka (the First Counselor of the Embassy of Niger in Washington, D.C.) and Captain Ali Tiemogo (Chief of Maintenance for the air force component of the Niger Ministry of Defense).

According to the detailed 50-page information, Niger entered into a contract with Dornier GmbH (a West German aircraft maintenance company) to perform maintenance on Nigerien C-130’s.  However, according to the indictment, “the Government of Niger had insufficient funds to pay for Dornier’s services and Dornier sought to affiliate with a U.S. contractor so that the Government of Niger could qualify” for the FMS program.

Thereafter, NAPCO, acting in cooperation with Dornier, began negotiations with the Government of Niger for a contract to furnish replacement parts and to perform maintenance on two C-130 transport aircraft owned by the airforce of the Government of Niger.  Four contracts, in the approximate amount of $2.4 million, were entered into between NAPCO and the Government of Niger.

The information alleges that NAPCO conspired with others to violate the FCPA by making payments or authorizing payments of money to “officials of the Government of Niger, that is, Counselor Tahirou Barke Doka and Captain Ali Tiemogo” and “Fatouma Mailelel Boube and Amadou Mailele, both relatives of Tiemogo, while knowing that all or a portion of such money would be offered, given or promised, directly or indirectly, to foreign officials, namely Barke and Tiemogo” for the purpose of “influencing the acts and decisions of Barke and Tiemogo in their official capacities, and inducing them to use their influence with the Ministry of Defense.”

The information further alleged that NAPCO “falsely represent[ed] to DSAA the identifies of NAPCO’s agents, misrepresenting the percentages of contract funds paid and to be paid to non-U.S. suppliers and filing misdated invoices.”

According to the information, the aggregate amount of bribes paid to Barke and Tiemogo was approximately $131,000.  In addition, the information alleges that Barke “traveled from Washington, D.C. to Niger for his wedding and subsequent honeymoon in Paris, Stockholm and London, using tickets charged to a NAPCO account.”

The information further alleges that NAPCO and others used various methods to conceal the conspiracy such as “preparing and using bogus commission agreements,” “creating a fictitious commission agent,” using the names of Mailele and Boube “in order to conceal the payment of bribes,” “falsely representing to DSAA that Mailele and Boube were NAPCO’s agents “when these persons were not its agents, had performed no services for NAPCO, and had acted solely as the intermediaries for Tiemogo and Barke for the purpose of concealing the bribe payments.

In addition to the conspiracy charge and a substantive FCPA charges, the information also alleges that NAPCO filed false and fraudulent U.S. tax returns which “falsely claimed certain deductions for the payment of agent commissions.”

NAPCO pleaded guilty to the above charges (see here for the plea agreement).  As noted in the plea agreement, the DOJ and the company settled on a fine amount in the “aggregate amount of $1 million in satisfaction of its criminal and civil fines, penalties, taxes and restitution.”  The amount consisted of the following:  $785,000 for the criminal charges set forth in the information, $140,000 in restitution “for full payment of its civil tax liability to the DSSA for appropriate crediting to the FMS account of Niger,” and $75,000 restitution to the IRS for full payment of all criminal and civil tax liabilities.

The plea agreement notes that the DOJ will not prosecute NAPCO for “Napco’s contracts with Egypt,” “alleged United States Customs violations arising from the sale of misidentified radios to the Government of Egypt and to other countries;” or “FCPA violations arising from the transactions evidenced in the documents Napco produced to the Yellow Grand Jury.”

The plea agreement further states:

“The Department of Justice will advise the Department of Defense, Defense Logistics Agency, which is the suspension and debarment authority in this matter, of the facts learned during the government’s investigation of Napco; Napco’ s cooperation during the investigation; and the importance of this prosecution in the government’s efforts towards eradicating fraud in the Foreign Military Sales program.”

The above settlement terms are set forth in this judgment.

According to original source media reports, the DSSA “uncovered the fraud when it checked the name of one of the agents with the government of Niger.”  Media reports quoted Theodore Greenberg (Deputy Chief DOJ Fraud Section) as follows:  “[money from the FMS program] is to be used for the military preparedness of certain governments; that, of course, is important to our national security.”  Media reports quoted Peter Clark (DOJ FCPA Unit) as follows:  “the object of the program is to be getting the biggest bank for the buck – not to pay illegal bribes.”

(See here for NAPCO’s current company website).

(The FMS program is still an active program of the Defense Department – see here).

In addition to the enforcement action against NAPCO / Venturian, the DOJ also brought an injunctive action against Dornier.  Of note, the DOJ described Dornier (a German company) as an “agent of NAPCO” and thus a “domestic concern” under the FCPA.  As to relevant jurisdiction allegations, the DOJ alleged that a Dornier employee Axel Kurth, had telephone conversations with NAPCO employees in Minnesota and that Kurth traveled in the U.S. “where he met with officers of NAPCO” to discuss the alleged improper payments.  Without admitting or denying the DOJ’s allegations, Dornier consented to a permanent injunction prohibiting future FCPA violations.

In addition, the DOJ criminally charged the Vice President of the Aerospace Division of NAPCO.  That individual exercised his constitutional right to a jury trial, put the DOJ to its burden of proof, and the results and ultimate outcomes will be explored in a future post.

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