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The State Department On Fighting Corruption

By on October 31, 2022 in State Department
statedept

The State Department has always occupied an interesting position regarding foreign corruption.

As retold in “The Story of the Foreign Corrupt Practices Act,” during the mid-1970s when Congress held hearings on the so-called foreign corporate payments problem, the State Department condemned the payments, but opposed unilateral U.S. legislation to address the problem. Moreover, Congressional leaders were also troubled that the State Department was perhaps a participant in, or at least enabler of, the very problem Congress was seeking to address.

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The First-Ever National Action Plan On Responsible Business Conduct Is A Whole Lot Of Fluff

By on December 21, 2016 in Debarment, Double Standard, State Department
fluff

Recently the U.S. government released its “first-ever National Action Plan on Responsible Business Conduct.” (See here for the document, here for the State Department release and here for the White House release).

I don’t know the precise answer for what the expectation should be for the final deliverable of a government program launched approximately 2.5 years ago and issued in the final days of a lame duck administration. Whatever that expectation level should be, the National Action Plan is a whole lot of fluff with some overblown rhetoric and uncomfortable truths mixed in that misses the big picture.

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An FCPA Enforcement Action That Led To A Supreme Court Decision

By on November 14, 2012 in 1978-1988 Enforcement Actions, Act of State Doctrine, Airline Industry, DOJ Enforcement Action, Executive Enforcement Action, FCPA Jurisprudence, FCPA Sentences, Harry Carpenter, Individual Enforcement Action, Nigeria, Offensive Use of FCPA, Related Civil Litigation, State Department, W.S. Kirkpatrick

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

The first Foreign Corrupt Practices Act enforcement action to involve business conduct in Nigeria was a 1985 enforcement action against W.S. Kirkpatrick, Inc. (a privately held New Jersey avionics supply firm) and Harry Carpenter (Chairman and CEO of the company).

The criminal informations filed against the company (here) and Carpenter (here) alleged one count of violating the FCPA’s anti-bribery provisions and contains the same concise allegation.

“On or about December 21, 1982 … W.S. Kirkpatrick, Inc. … used a means and instrumentality of interstate commerce, that is, a Western Union international telex from Fairfield, New Jersey, to New York, New York, to order Standard Chartered Bank of New York to pay $580,973 to the Bank of New York for the account of Bank of Commerce and Credit International in Luxembourg corruptly in furtherance of an offer, payment, promise to pay and authorization of the payment of money to: (a) a person, that is Benson ‘Tunde’ Akindale through two companies, Deriks and Los, Panamanian bearer share corporations, while having reason to believe that a portion of such money would be offered, given, or promised, directly or indirectly to foreign officials, Nigerian Air Force officers, the Party of Nigeria, the Minister of Nigeria and other government defense personnel for the purpose of influencing the acts and decisions of such foreign officials and others in their official capacity and inducing them to use their influence within the Government of Nigeria in order to obtain a contract for flight training equipment for W.S. Kirkpatrick, Inc.”

An offer of proof filed in Carpenter’s case contains the following additional information.

Carpenter learned of the opportunity to sell various equipment to the Nigerian Air Force and he “believed Kirkpatrick needed an agent in Nigeria to assist in negotiating and obtaining the contract.”  “On recommendation of two British businessmen, Carpenter contracted a London solicitor, who in turn put him in touch with Benson ‘Tunde’ Akindele, a Nigerian national.”  According to the offer of proof, “Akindele offered to assist Kirkpatrick by serving as its local agent in Nigeria.  Carpenter negotiated an agreement with Akindele which provided that Kirkpatrick would pay a commission equal to twenty percent of the contracted price of [the equipment] to two Panamanian bearer share corporations, which were set up, and controlled by Akindele to receive payments from Kirkpatrick.”

W.S. Kirkpatrick Inc. pleaded guilty and was fined $75,000 (see here) and Carpenter pleaded guilty, was sentenced to three years probation and ordered to pay a $10,000 fine (see here).  Noted white collar criminal defense attorney Theodore Wells (here) represented Carpenter.

See here for the DOJ’s release which notes that the contract at issue was worth $10.8 million.

After the DOJ enforcement action, Environmental Tectonics Corporation (“ETC” –  an unsuccessful bidder for certain of the Nigerian contracts which first brought the problematic conduct to the attention of the Nigerian Air Force and the U.S. Embassy) brought a civil action against W.S. Kirkpatrick, Carpenter, Akindele and others seeking damages under the Racketeer Influenced and Corrupt Organizations Act, the Robinson-Patman Act and the New Jersey Anti-Racketeering Act.

The defendants moved to dismiss the complaint on the ground that the action was barred by the act of state doctrine.  The district court granted the motion and concluded that the act of state doctrine applies “if the inquiry presented for judicial determination includes the motivation of a sovereign act which would result in embarrassment to the sovereign or constitute interference in the conduct of foreign policy of the United States.”  See 659 F.Supp. 1381.    The court held that ETC’s suit had to be dismissed because, in order to prevail, it would have to show that “the defendants or certain or them intended to wrongfully influence the decision to award the Nigerian Contract by payment of a bribe, that the Government of Nigeria, its officials or other representatives knew of the offered consideration for awarding the Nigerian Contract to Kirkpatrick, that the bribe was actually received or anticipated and that ‘but for’ the payment or anticipation of the payment of the bribe, ETC would have been awarded the Nigerian Contract.”

The Third Circuit reversed finding that application of the act of state doctrine was unwarranted given the facts of the case.  In particular, the Third Circuit found persuasive a letter to the district court by the State Department legal adviser which stated that a judicial inquiry into the purpose behind the act of a foreign sovereign would not produce the ‘unique embarrassment, and the particular interference with the conduct of foreign affairs that may result from the judicial determination that a foreign sovereign’s acts are invalid.”

Defendants then appealed to the Supreme Court which agreed to hear the case.

In 1990, Justice Scalia authored the opinion of a unanimous Supreme Court.  See 493 U.S. 400.  The opinion begins as follows.  “In this case, we must decide whether the act of state doctrine bars a court in the United States from entertaining a cause of action that does not rest upon the asserted invalidity of an official act of a foreign sovereign, but that does require imputing to foreign officials an unlawful motivation (the obtaining of bribes) in the performance of such an official act.”

The Court concluded that the “factual predicate for application of the act of state doctrine does not exist” because nothing in the case required the Court to declare invalid the official act of a foreign sovereign.  The Court reasoned that “neither the claim nor any asserted defense requires a determination that Nigeria’s contract with Kirkpatrick International was, or was not, effective,” that ETC “was not trying to undo or disregard the governmental action,” but rather that ETC was only trying to “obtain damages from private parties who had procured” the contract.

In short, the Court stated that the act of state doctrine “has no application to the present case because the validity of no foreign sovereign act is at issue.”

U.S. State Department Anti-Corruption Program

By on October 19, 2012 in Guest Posts, State Department

Today’s post is from Danforth Newcomb (Shearman & Sterling – here), a dean of the FCPA bar, who describes his recent trip to Indonesia on behalf of the State Department.

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U.S. State Department Anti-Corruption Program

Danforth Newcomb

There is a least one aspect of the U.S. Government’s anti-corruption efforts that has gone largely unnoticed by compliance professionals.  From time to time, the State Department sponsors trips by speakers from many fields and backgrounds to engage international audiences on their topic or specialty.  Last month, at the invitation of the U.S. Embassy in Jakarta, Indonesia, I spent two weeks meeting with Indonesian audiences to discuss the U.S. FCPA and respond to questions and comments from those audiences about Indonesian corruption issues.  My experience with matters of corruption in Indonesia dates back to the beginning of my practice in this area in the late 70s, and so I was with a good deal of interest that I participated in this program.

The program was conducted by the U.S. Embassy in Jakarta under the auspices of the State Department’s U.S. Speakers and Specialists program.  During my two-week visit to Indonesia, I met with approximately 20 different groups that represented a wide range of Indonesian society.  The meetings were held in four Indonesian cities: Jakarta, Yogyakarta, Surabaya and Medan.  In each city, I spoke at universities, public organizations, government offices, non-government organizations and the media.  The presentations generally followed the same format.  I spoke for 20 to 30 minutes about the FCPA – how it has been enforced in practiced and the partnership between the private sector and enforcement officials on compliance matters.

After the initial presentations, there was usually a discussion for an hour to an hour and a half ranging over a wide diversity of corruption-related topics.  Depending on the audience, my presentation and responses to questions generally emphasized slightly different facets of the topic.  For example, when speaking to university students, the discussion usually centered around the role of civil society in anti-corruption efforts.  When meeting with the media, I often discussed the role that the media played in the original Watergate hearings that lead to the adoption of the FCPA.  When the audience was from business organizations, the discussion usually turned to anti-corruption compliance programs and the relative state of corporate governance in the American and Indonesian companies.

Perhaps most interesting were the meetings I had with Indonesian governmental organizations.  I met with representatives of the Indonesian anti-corruption commission (“KPK”), representatives of a local legislative body, judges and leadership of the high court of North Sumatra, representatives of the Ministry of Trade, and two different prosecutors’ organizations.  Needless to say, these government meetings led to the most technical and concrete discussions about U.S. anti-corruption methods and experiences.  In each of the government discussions, the hardest concept to convey was the role of our private sector in investigating and remediating corruption problems at large corporations.  There was a fair amount of surprise when government listeners heard that the Siemens investigation was largely conducted by private law firms paid by the corporation.  There was also some skepticism when I described the role that emails play in the typical FCPA corporative investigation.  Not surprisingly, there was a good deal of interest in government to government cooperation methods and in gathering evidence from distant jurisdictions.

In all of the meetings I was surprised by the degree of interest and engagement this topic received from the audiences.  There is clearly a substantial concern about corruption by a wide swath of Indonesian society.  At each of my meetings, it was readily apparent that Indonesians are looking for better tools to deal with what they themselves perceive to be wide spread domestic corruption.  While in some cases it seems that foreign investors were often viewed as a source of corruption, it was more common to hear participants’ concerns about Indonesian government officials and domestic organizations.  In that regard, there were several spirited discussions about whether it was practical for the anti-corruption forces in Indonesia to enlist the business community in compliance efforts.  These audiences were particularly interested in discussing what was an “Effective Compliance Program”, and whether such programs could be expected from Indonesian organizations.  It was also interesting to note that most of the participants from business organizations were in some level already familiar with U.S. FCPA and that many of them had been trained by their employers, or other U.S.-based business partners, on the broad purposes of the Act.  These business audiences had no doubt that international business players needed to have anti-corruption compliance programs as part of the standard elements of their organization.

It was also interesting to note that several of the universities had anti-corruption and anti-money laundering programs of study that seemed to have a wide student interest.

One of the most interesting meetings was held at an experimental venue sponsored by the U.S. Embassy called “@America.”  This is a multi-media auditorium and meeting venue that presents to the Indonesian public many aspects of American culture and is located in one of the larger shopping malls in Jakarta.  This presentation and discussion was in fact substantially similar to discussions at various universities and its audience was mostly university graduate and undergraduate students.  While my trip to Indonesia coincided with reports in various U.S. media of some unrest directed at U.S. institutions as a result of a film that offended many Muslims, the representatives of the U.S. Embassy and I were welcomed at any number of universities and other public forum with cordiality and interest in my presentation.

From all the reactions that we got, the program seemed to have been well received and effective in furthering the public diplomacy agenda of the State Department.  I hope that this will not be the last of such programs as it was very interesting for me and seemed to achieve the State Department’s goals at the same time.

The Final Act In The BAE Circus?

By on May 26, 2011 in BAE, Congressional Activity, Count Alfons Mensdorff-Pouilly, Debarment, FCPA Related Charges, Saudi Arabia, State Department

Last week, the State Department announced (here) that “BAE Systems plc of the United Kingdom (BAES), including its businesses, units, subsidiaries, and operating divisions and their assignees and successors, except BAE Systems, Inc. and its subsidiaries, entered into a civil settlement with the Department of State for alleged violations of the Arms Export Control Act (AECA) and the International Traffic in Arms Regulations (ITAR).” The release states that “under the four-year term of the Consent Agreement, BAES will pay in fines and in remedial compliance measures an aggregate civil penalty of $79 million, the largest civil penalty in Department history.”

The State Department action follows the March 1, 2010 guilty plea of BAE Systems plc. (see here for the prior post). BAE pleaded guilty to “conspiring to defraud the United States by impairing and impeding its lawful functions, to make false statements about its FCPA compliance program, and to violate the Arms Export Control Act and International Traffic in Arms Regulations.” In that DOJ enforcement action, BAE Systems plc agreed to pay a $400 million criminal fine.

I previously called (here) the BAE “bribery, yet no bribery” enforcement action one that contributes to the “facade of FCPA enforcement” (see here) and was asked several questions about the enforcement action by former Senator Arlen Specter (see here).

Like the DOJ enforcement action, the State Department action specifically notes that BAE Systems, Inc. was not involved in the conduct giving rise to the enforcement actions. BAE Systems Inc. is “the U.S.-based segment of BAE Systems plc” and “is responsible for relationships with the U.S. Government…”. (See here).

The State Department action involved BAE Systems plc entering into a consent decree (see here for the relevant documents) “to settle 2,591 violations of the AECA and ITAR in connection with the unauthorized brokering of U.S. defense articles and services, failure to register as a broker, failure to file annual broker reports, causing unauthorized brokering, failure to report the payment of fees or commissions, and failure to maintain records involving ITAR-controlled transactions.”

Certain of the improper conduct identified in the State Department documents relate to the lease and lease/sale of Gripen aircraft to the Ministries of Defence in the Czech Republic and Hungary – conduct also at issue in the DOJ’s prosecution of BAE (see here for the criminal information).

The State Department documents also relate to BAE’s use of advisers for defense transactions and proposed defense transactions involving U.S. defense articles and services without obtaining authorization from the State Department.

One of the advisors identified is Alfons Mensdorff-Pouilly. As noted in this previous post, the U.K. Serious Fraud Office (“SFO”) originally charged Alfons Mensdorff-Pouilly with “conspiracy to corrupt” and for “conspiring with others to give or agree to give corrupt payments […] to unknown officials and other agents of certain Eastern and Central European governments, including the Czech Republic, Hungary and Austria as inducements to secure, or as rewards for having secured, contracts from those governments for the supply of goods to them, namely SAAB/Gripen fighter jets, by BAE Systems Plc.” Within days, the SFO dropped the charges. As noted in this previous post, the SFO explained that BAE would not agree to the SFO plea (watered down as it was) without the SFO agreeing to drop the charges against Count Mensdorff.

As to debarment, the State Department consent agreement states (at page 20) that the State “Department has determined to impose a statutory debarment of BAE Systems plc pursuant to section 127 of the ITAR [see here], based on the criminal charges [in the previous DOJ enforcement action].

Yet, the next sentence of the consent decree states as follows. “However, based on the foregoing and additional information provided by Respondent, and request for reinstatement by BAE Systems plc, the Assistant Secretary of State for Political-Military Affairs has determined under Section 38(g)(4) of the AECA [see here] that Respondent has taken appropriate steps to address the causes of the violations and to mitigate law enforcement concerns. Accordingly, BAE Systems plc shall be reinstated.”

The consent decree did however “place under a policy of denial” BAE Systems CS&S International, Red Diamond Trading Ltd. and Poseidon Trading Investments Ltd. Per the consent decree, this means that there will be “an initial presumption of denial during the case-by-case review of all licenses and other authorizations” involving these subsidiaries even though the consent decree states that “Transaction Exceptions” may be granted by the State Department. Furthermore, the consent decree states that all licenses, agreements, and other authorizations involving these subsidiaries previously issued “are not affected and are not revoked.”

The most recent annual report on BAE’s website states as follows regarding CS&S International. “The operating group’s CS&S International business predominantly acts as prime contractor for the UK government-to government defence agreement with Saudi Arabia and has a major in-country presence. Its main activities include operational capability support to both the Royal Saudi Air Force and Royal Saudi Naval Force and, more recently, the commencement of supply of 72 Typhoon aircraft.” Neither Red Diamond Trading Ltd. nor Poseidon Trading Investments Ltd. are mentioned in the 190 page annual report.

According to this U.K. Guardian article “BAE’s Secret Money Machine,” “in February 1998 Red Diamond Trading Ltd was anonymously incorporated in the British Virgin Islands and was used to channel payments all over the world, via Red Diamond accounts in London, Switzerland and New York.” As to Poseidon Trading, the same article states as follows. “BAE set up a second front company, purely to handle the Saudi commission payments for al-Yamamah. Poseidon Trading Investments Ltd was incorporated in the British Virgin Islands on June 25 1999.”

The DOJ’s criminal information contains various allegations regarding Saudi Arabia – without specifically mentioning the al-Yamamah contract. For more on the al-Yamamah contract see here -a PBS Frontline documentary titled Black Money.

The State Department’s recent $79 million enforcement action against BAE is in addition to the DOJ’s $400 million enforcement action against BAE from 2010. However, as Dru Stevenson (Professor of Law, South Texas College of Law) and Nick Wagoner (a law student at South Texas College of Law) explored in this recent post, in the 365 days that followed the 2010 DOJ enforcement action, BAE was awarded U.S. contracts in excess of $58 billion dollars.

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Speaking of debarment (or lack thereof) Senator Al Franken continues to lead on this issue. Earlier this month, during a Senate Judiciary Committee hearing, Franken questioned Attorney General Eric Holder why, over the past three years, hundreds of billions of dollars have been awarded to defense contractors who have previously been convicted of fraud. See here for the video. Senator Franken similarly questioned Assistant Attorney General Lanny Breuer during a January Senate Judiciary Committee hearing. See here for the video.

In connection with the Senate’s November 2010 hearing “Examining Enforcement of the Foreign Corrupt Practices Act” the DOJ was asked whether it favored “mandatory, conduct-based, debarment remedy for companies that engage in egregious bribery.” See here for the prior post including the DOJ’s response.

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