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By on July 29, 2011 in Africa Sting, Carson, FCPA Inc., FCPA Reform, FCPA Trials, Keith Lindsey, Lindsey Manufacturing, Steve Lee, Travel Act, World Bank

The Lindsey defendants argue that “repeated and intentional government misconduct” requires dismissal of their jury convictions, a nondescript Commerce Department statement regarding the July 22nd FCPA Business Roundtable, a World Bank service opportunity, there is now competing FCPA insurance products, Ethisphere launches its Anti-Corruption Resource Center, and the DOJ’s Travel Act opposition brief in Carson … its all here in the Friday Roundup.

Lindsey Supplemental Motion to Dismiss Based on Government Misconduct

A previous post (here) asked whether the Lindsey convictions were hanging by a thread and summarized the June 27th hearing on defendants’ prosecutorial misconduct motion during which Judge Matz made some rather damning comments concerning the DOJ’s first-ever corporate FCPA jury trial verdict. Earlier this week, Lindsey Manufacturing, Keith Lindsey and Steven Lee filed a “Supplemental Brief In Support of Motion to Dismiss the Indictment With Prejudice Due to Repeated and Intentional Government Misconduct” (see here and here in two parts).

Highly factual, the brief begins as follows. “The investigation and prosecution of this case were permeated with instances of purposeful, prejudicial government misconduct. The government’s misconduct was patent and pervasive, designed to win the case, not do justice.” Counsel for Lindsey Manufacturing and Keith Lindsey, Jan Handzlik (Greenberg Traurig – here) stated as follows. “Considered individually or on a cumulative basis, the government’s conduct was extraordinarily damaging. We believe this unfair prejudice should result in a dismissal.”

The Lindsey case was profiled in a July 22nd Wall Street Journal article which detailed how “the Justice Department is grappling with a string of high-profile blunders that have prompted stinging rebukes from judges.” Interestingly, the WSJ did not profile the recent mistrial in the DOJ’s high-profile Africa Sting case (see here for the prior post).

As to the Africa Sting case, this recent post from the Blog of Legal Times detailed a hearing earlier this week in the case during which the DOJ said it “wants to retry the first four defendants before any of the other trials.”

Commerce Department Statement Regarding the July 22nd Business Roundtable

On July 22nd, the Commerce Department hosted, along with Assistant Attorney General Lanny Breuer and SEC Enforcement Director Robert Khuzami, a business roundtable on the Foreign Corrupt Practices Act. The statement (here) released yesterday by Cameron Kerry (Commerce Department General Counsel)  stated as follows. “Over twenty company representatives from a wide range of business sectors, sizes, and geographic locations participated. Participants were recommended by business associations with an interest in this area. We engaged in an open and constructive dialogue and many participants noted that U.S. business and the government must work together to fight international bribery and corruption in order to uphold the rule of law and support human rights. We heard an array of concerns, complaints, and compliments about the statute, its enforcement and related guidance, and I was encouraged by the large turnout, the frank conversation, and the clear dedication of all participants to address the corrosive impact of corruption on international commerce.”

World Bank Sanctions Board Vacancies

The World Bank Sanctions Board is comprised of four external members and three internal (World Bank staff) members. The World Bank is inviting applications and nominations for the positions of two Sanctions Board members to be selected from among non-Bank staff. To learn more see here.

Additional FCPA Insurance Option

A prior post (here) noted that an insurance company (Chartis ) has begun offering Foreign Corrupt Practices Act insurance and how this development only confirmed that FCPA Inc. has become a full-fledged industry in and of itself. Recently, Marsh also launched (here) its own FCPA insurance product. As described in the company’s brochure, “FCPA Corporate Response” – “reimburses companies for investigation costs including legal, accounting, auditing, and consulting fees due to an FCPA claim;” “provides coverage for both the organization and individuals for FCPA investigations;” and “acts as primary insurance to a directors and officers (D&O) liability policy to immediately protect individual directors and officers.” The insurance also covers investigations under the U.K. Bribery Act as well.

Ethisphere Launches Anti-Corruption Resource Center

Earlier this week, Ethisphere (a leading international think-tank dedicated to the creation, advancement and sharing of best practices in business ethics, corporate social responsibility, anti-corruption and sustainability) launched its Anti-Corruption Resource Center – see here for the release. A mix of freely accessible and password protected information, the Anti-Corruption Resource Center contains, among other things, various article regarding FCPA and compliance topics, a schedule of upcoming FCPA conferences and events.

DOJ’s Travel Act Opposition Brief

A prior post (here) discussed certain of the Carson defendants motion to dismiss Travel Act charges based on alleged bribes to employees of private companies located in China and Russia. Among other things, defendants argued that the Travel Act has no foreign application.

Recently, the DOJ filed (here) its opposition brief. According to the DOJ, “[b]ecause the majority of defendants’ unlawful conduct was based in the United States, the statutes at issue [the Travel Act and California’s commercial bribery statute] reach defendants’ conduct without any resort to extraterritorial application.” As stated by the DOJ, “defendants S. Carson, R. Carson, Cosgrove, and Edmonds were all U.S. citizens and served as executives at CCI’s headquarters in Rancho Santa Margarita, California” and a “significant portion of the four defendants’ acts in furtherance of the conspiracy occurred either in the United States or through communications with individuals in the United States.” The DOJ further argued as follows. “Although the Court need not consider the question of whether the Travel Act applies extraterritorially, the plain language of the statute, the legislative history, and the case law all indicate that the Travel Act does apply extraterritorially.”

*****

A good weekend to all.

Are The Lindsey Convictions Hanging By A Thread?

By on July 6, 2011 in FCPA Trials, Keith Lindsey, Lindsey Manufacturing, Steve Lee

On May 10th, after a five week trial in the C.D. of California, a jury returned guilty verdicts against Lindsey Manufacturing and its executives Keith Lindsey and Steven Lee on charges of conspiracy to violate the FCPA and five counts of FCPA violations. See here for the prior post.

On June 27th, Judge Matz held a hearing on defendants’ prosecutorial misconduct motion. This post summarizes the hearing and contains excerpts from the hearing transcript. Given what transpired in Judge Matz’s courtroom and based on his comments during the hearing, it appears that the DOJ’s only jury trial conviction of a corporate entity in FCPA history may be hanging by a thread.

For starters, the June 27th hearing on the post-trial motion to dismiss and vacate the guilty verdict due to prosecutorial misconduct was cut short.

Why?

Prior to the hearing the DOJ informed Judge Matz that it had discovered and disclosed to the defendants that morning grand jury testimony by FBI Case Agent Susan Guernsey even though Judge Matz had previously ordered the DOJ to produce Guernsey’s grand jury testimony. During the hearing, the DOJ stated that it “was not anything done intentionally” and that it was not anything that “prejudiced the defendants.”

Judge Matz said “I’m shocked” but then quickly said “I shouldn’t be shocked because it’s not the first time that [the DOJ has] come into court trailing all kinds of apologies and benign mea culpas for failures to disclose information, to produce information, to answer questions fully and responsively …”.

Judge Matz then cut short the hearing on the pending motion.

“Without disclosing where [he] was coming out on the pending motions” Judge Matz stated as follows.

“I think this question of whether or not the right of any or both or all three of the remaining defendants to due process was violated, and if so, what remedy has to be perceived — not perceived but has to be briefed and addressed in a broader context.” Judge Matz said that he had already read all of the briefs and that he had reached certain conclusions and he then proceeded to recite “just randomly and anecdotally” things that he found “troubling.” He noted that his list was “by no means inclusive” concerning the “at best extraordinarily sloppy investigation and prosecution of this case.”

In addition to the “astonishing” and “troubling” disclosure mentioned above, Judge Matz – “speaking off the top of [his] head” – provided a “brief anecdotal list” concerning the “tortured history of this prosecution.” He listed the following: (i) “the government searched two buildings without a search warrants;” (ii) the government obtained certain e-mails that were unauthorized; (iii) the “government played games with the inclusion or absence” of an individual on the witness list; (iv) the “inept, evasive, self-serving and incomplete” trial testimony of Guernsey; and (v) “the game playing with the chain of custody testimony.”

After this list, Judge Matz stated as follows. “I don’t know if there was a stench that developed in this case, but there was a bad odor at times, and so the issue that I’m inviting both sides to address is […] whether either through a finding of due process violations or in the exercise of my supervisory power, something akin — and I’m not minimizing the significance of this by using this phrase, but something akin to the whole being greater than the sum of its parts justifies throwing out this conviction, because a lot of the parts that led up to this conviction are extremely troublesome.”

Judge Matz then said as follows. “One could look back on the outcome and say there was enough evidence to warrant a conviction. I’m not addressing that question, but the lawyers on both sides, who are smart lawyers, know that that doesn’t justify affirming a conviction if there are violations of constitutional rights or if something was such a travesty that it ought not to be permitted and a judge in trying to supervise justice and administer it properly has a right to say enough is enough or this was too much. And I don’t have a final view on that, but that’s what I wanted to be briefed.”

The defendants’ brief is due on July 18th, the DOJ’s brief August 1st, and the reply brief on August 15th. The hearing is scheduled for September 8th.

Jan Handzlik (Greenberg Traurig – here) counsel for Lindsey Manufacturing and Keith Lindsey commented as follows. “We are deeply troubled by the government’s conduct. The trial ended over a month ago and yet we are still uncovering materials that should clearly have been disclosed long before trial. This case continues to be an emotional roller coaster for the clients and the lawyers.”

Guilty Verdicts in Lindsey Case

By on May 11, 2011 in Aguilars, Enforcement Agency Speeches, FCPA Jurisprudence, FCPA Trials, Keith Lindsey, Lindsey Manufacturing, Mexico, Steve Lee

This past October, I asked (here) what will happen to Lindsey Manufacturing Company?

The company (a privately held manufacturer of electrical transmission towers and related products that employs approximately 100 individuals) was indicted along with its President, Keith Lindsey, and its Chief Financial Officer, Steven Lee. [Others outside the company were charged as well in connection with the case].

The case represented a rare instance of a criminal indictment of a company in the FCPA context.

Yesterday, after a five week trial in federal court in the C.D. of California, a jury returned guilty verdicts.

As noted in this DOJ release, Lindsey Manufacturing, Lindsey and Lee were convicted of one count of conspiracy to violate the FCPA and five counts of FCPA violations. The conduct at issue focused on commission payments made by Lindsey Manufacturing to Enrique and Angela Aguilar (directors of Grupo Internacional de Asesores S.A.) that “would be used to pay bribes to Mexican officials in exchange for [Comisión Federal de Electricidad (CFE), a state-owned utility company] awarding contracts to Lindsey Manufacturing.” As noted in the DOJ release, Angela Aguilar was convicted of one count of money laundering conspiracy and the court entered a judgment of acquittal prior to the jury’s verdict on one substantive count of money laundering against her. Enrique Aguilar is currently a fugitive.

Sentencing for Lindsey Manufacturing, Lindsey and Lee is scheduled for Sept. 16, 2011. Angela Aguilar’s sentencing is scheduled for Aug. 12, 2011.

Reacting to the guilty verdicts, Assistant Attorney General Lanny Breuer stated as follows. ““Today’s guilty verdicts are an important milestone in our Foreign Corrupt Practices Act (FCPA) enforcement efforts. Lindsey Manufacturing is the first company to be tried and convicted on FCPA violations, but it will not be the last. Foreign corruption undermines the rule of law, stifling competition and the health of international markets and American businesses. As this prosecution shows, we are fiercely committed to bringing to justice all the players in these bribery schemes – the executives who conceive of the criminal plans, the people they use to pay the bribes, and the companies that knowingly allow these schemes to flourish. Bribery has real consequences.”

The Lindsey case attracted much interest as it was one of the “foreign official” challenges. See here for the full briefing and here for the written decision.

Prior to the jury verdicts, on Monday, Jan Handzlik (here – attorney for defendants Lindsey Manufacturing and Keith Lindsey) and Janet Levin (here – attorney for defendant Steve Lee) filed a motion to “Dismiss the Indictment with Prejudice due to Repeated and Intentional Government Misconduct.” Handzlik is quoted in this story by Samuel Rubenfeld at the Wall Street Journal as saying “we continue to believe in our clients’ innocence and will pursue our motion to dismiss the indictment on grounds of prosecutorial misconduct.” A hearing on that motion is set for June 6. Aguilar’s attorney, Stephen Larson (here) reportedly intends to seek a motion of acquittal as to the one charge his client was found guilty of.

Another case concerning alleged payments to CFE is pending in the Southern District of Texas against John Joseph O’Shea. See here for more.

So the question remains – what will happen to Lindsey Manufacturing?

As a small privately held company, Lindsey Manufacturing was able to aggressively mount a legal defense that publicly traded companies are unwilling, or some would say are logistically unable, to mount. Whether one agrees with certain of the judge’s pre-trial rulings or not, or whether one finds arguments about prosecutorial misconduct persuasive or not, the fact is, the Lindsey case, unlike the majority of FCPA enforcement actions, was subject to an adversary proceeding in which someone other than the enforcement agencies weighed in on the issues – and that is a good thing!

Judge Matz Issues Narrow “Foreign Official” Decision / Calls DOJ Post-Hearing Request “Astounding”

By on April 21, 2011 in FCPA Jurisprudence, FCPA Trials, Foreign Official, Keith Lindsey, Legislative History, Lindsey Manufacturing, Steve Lee

As noted in an April 1st post (see here), United States District Judge Howard Matz (C.D. of California) issued an oral ruling denying the Lindsey defendants “foreign official” challenge. See here for a transcript of the hearing.

As noted in the hearing transcript, Judge Matz stated that the “foreign official” challenge “warrants and will receive a very considered written ruling.”

Yesterday, Judge Matz issued his written decision. See here.

According to Judge Matz, “the question presented by the motion is whether an officer or employee of a state-owned corporation can be a ‘foreign official’ for purposes of FCPA liability.” [In a footnote, Judge Matz noted, “[a]s discussed in the Addendum to this order, the Government never directly challenged that assumption until more than two weeks after the Court had issued its oral ruling denying Defendants’ motion to dismiss and trial had commenced.” (emphasis added)].

Judge Matz’s holding is as follows. “The Court denies the motion to dismiss, because a state-owned corporation having the attributes of CFE may be an ‘instrumentality’ of a foreign government within the meaning of the FCPA, and officers of such a state-owned corporation, as Messrs. Nestor Moreno and Arturo Hernandez are alleged to be, may therefore be ‘foreign officials’ within the meaning of the FCPA.”

As to the meaning of “instrumentality,” Judge Matz stated as follows. “Instrumentality is a noun having an inherently broad scope, but it is unnecessary for this Court to choose a particularly elastic dictionary definition of that word. Instead, the Court will adopt the very definition that Defendants themselves proffer.” Judge Matz then analyzed those definitions.

As to the FCPA’s legislative history, Judge Matz stated as follows. “It is unnecessary to base this ruling upon the legislative history of the FCPA, given that the meaning of ‘instrumentality’ under Defendants’ definition of the term clearly encompasses CFE. Nevertheless, because legislative history was so central to Defendants’ motion, the Court will summarize the parties’ contentions.”

After providing such a summary, Judge Matz stated in dicta as follows.

“The Court finds that the legislative history of the FCPA is inconclusive. Although it does not demonstrate that Congress intended to include all state-owned corporations within the ambit of the FCPA, neither does it provide support for Defendants’ insistence that Congress intended to exclude all such corporations from the ambit of the FCPA.” (emphasis in original).

As discussed above, Judge Matz’s decision contains an Addendum. It begins as follows.

“After the jury trial had been underway for more than two weeks, and just before this order was to be filed, the Government asked the Court to take judicial notice of what the Government claims is this fact. ‘CFE was created by Mexico as a decentralized public entity with its own legal status and assets.’ In a footnote the Government added, ‘… [U]nder Mexican law, CFE is a decentralized public entity, not a corporation.’ This request is astounding.”

Judge Matz then stated, among other things, that:

“throughout the hundreds of pages of argument and exhibits that were filed as part of motion practice, the Government never stated that CFE is not a corporation;”

“nor did it assert that view at the hearing on this motion;”

“in a lengthy footnote in its opposition papers the Government stressed that in more than a dozen FCPA prosecutions, ‘guilty pleas were accepted by U.S. District Courts, involved bribery of officials of state-owned companies‘” (emphasis added)

“the Government cited two cases in which state-owned companies were found to fall within the scope of the FCPA” and the Government “cited and attached jury instructions in yet two additional cases, to the effect that ‘the definition of government instrumentality includes companies owned or controlled by the state;” (emphasis added)

“still later, the Government continued in this vein, purporting to refute the Defendants’ legislative history analysis by stressing that the author of the declaration that the Defendants’ cited ‘is unable to find a single reference … that Congress intended to exclude state-owned companies from the definition of instrumentality …'”; (emphasis added)

“the Government concluded , “from the FCPA’s inception, state-owned and state-controlled companies were within Congress’s intended definition of instrumentalities of a foreign government.'” (emphasis added).

Judge Matz then ends the Addendum as follows.

“There is nothing in the Government’s peculiar request for judicial notice which warrants a change in the foregoing ruling.”

Lindsey “Foreign Official” Motion Denied

By on April 2, 2011 in FCPA Jurisprudence, FCPA Trials, Foreign Official, Guest Posts, Keith Lindsey, Lindsey Manufacturing, Steve Lee

Mike McCollum (Foley & Lardner – here), who was present for today’s hearing, and Jaime Guerrero (Foley & Lardner – here) provide this guest post.

*****

This afternoon, United States District Judge Howard Matz issued an oral ruling in the Lindsey case that is scheduled to begin trial on April 5 in the Central District of California. The Court denied defendants’ motion to dismiss the indictment on the “foreign official” issue. The issue presented was whether the officials of Mexico’s state-owned utility company, CFE, were “foreign officials” under the FCPA. Giving his ruling orally from the bench, and emphasizing that his precise reasoning will be spelled out in a written ruling to follow, District Judge Matz held that they were foreign officials, giving some insight into his thinking.

District Judge Matz noted several undisputed facts, including that CFE supplies electricity to all of Mexico except for Mexico City, that the Mexican Constitution provides that the supply of electricity in Mexico is solely a government function, that Mexican statutory law defines CFE as a “decentralized public entity with legal personality and its own patrimony,” that CFE’s Governing Board is composed of Mexican government officials and its Director General is appointed by the President of Mexico, and that CFE’s English language website describes it as an agency of the Federal Government. District Judge Matz further confirmed that it was the defendants’ position, as stated in their briefs, that the issue presented was one of “pristine” undisputed facts and issues of law, and thus no further facts that might be introduced at trial could bear on the issue.

District Judge Matz then presented to counsel for the moving defendants a two-page written hypothetical. Because he only distributed the hypothetical to the attorneys, we can only go from the summary described in open court, which was essentially this: Exxon and Occidental bid for a large oil contract from Pemex, Mexico’s state-owned oil company. It is a public bid, and Occidental offers to pay more than Exxon. At the publicly televised contract award ceremony, however, Exxon hands a $10 million check to Pemex, which thanks Exxon publicly, and then Pemex awards the contract to Exxon instead. Question put to the defense: Is it the case that Congress, in enacting the FCPA, would have said that the FCPA would not have applied to these circumstances? Counsel for the moving defendants argued that what was important was not what Congress would have wanted to say, but what they did say, and Congress did not say that the statute should apply to state-owned-enterprises. In an era (1970s) when states owned large sectors of industry around the world, Congress chose not to include state-owned-enterprises within the reach of the FCPA.

District Judge Matz responded, in essence, that what was most convincing to him, in combination with the undisputed facts regarding CFE noted above, was the definition of the word “instrumentality.” He noted the defendants’ Webster Dictionary definitions (“serving as a means or agency: implemental” and “of, relating to, or done with an instrument or tool”) and American Heritage Dictionary definition (“[a] subsidiary branch, as of a government, by means of which functions or policies are carried out”). Based on this definition of “instrumentality” and on the undisputed facts regarding CFE, District Judge Matz noted that it was unnecessary to delve into the legislative history because it could be determined as a matter of statutory construction that the officials of CFE were “foreign officials.”

Opening statements are set for Tuesday morning, and the trial is expected to go until the end of April.

*****

For additional coverage see here from the FCPA Blog.

For briefing on the “foreign official” issue, see prior posts here, here, and here.

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