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ICE Again Gets A Chilly Response From The 11th Circuit

If bribery is not a victimless crime, as many including the DOJ frequently state, then why do FCPA fines and penalties simply go directly into the U.S. Treasury with no apparent effort to identify the victims of FCPA violations and to compensate those victims?  A judicial challenge in 2011 that dragged into this year and resulted in a per curiam 11th Circuit decision last week (see here) raised this interesting and legitimate issue.

Before turning to the 11th Circuit decision, a bit of background.

In May 2011, Instituto Constarricense de Electricidad of Costa Rica (“ICE”) petitioned for victim status of Alcatel-Lucent’s wide-ranging bribery scheme.  (See here for the prior post).   The petition followed the December 2010 announcement that Alcatel-Lucent and certain subsidiaries agreed to resolve a wide-ranging FCPA enforcement action, including conduct in Costa Rica involving payments to ICE officials.  (See here for the prior post).  Even though ICE acknowledged that “three disloyal and corrupt [ICE] Directors and two disloyal and corrupt employees” were the recipients of Alcatel Lucent’s bribe payments, it nevertheless claimed it was a victim because the corrupt activities of Alcatel-Lucent caused the company “massive losses” and “catastrophic harm.”  ICE argued that it was universally recognized that a victim includes an entity whose employees accept improper benefits to affect corporate decisions and that it was “nonsense” for an entity to be considered an active participant in a bribery scheme just because five of its 16,500 employees were implicated.  In opposition, the DOJ argued that given the “profound and pervasive corruption at the highest levels of ICE, the government does not believe it is appropriate to consider ICE a victim” and that “it does not follow that the state-owned entity at which corruption was so pervasive in the tender process should now be permitted status as a victim or awarded restitution …”.

ICE’s petition was factually difficult from the start and it is not surprising that ICE did not prevail at the trial court level or in its writ of mandamus to the 11th Circuit.  (See here for the prior post).  In June 2011, a two judge panel of the 11th Circuit held that “the district court did not clearly err in finding that [ICE] actually functioned as the offenders’ coconspirator” and that the district court did not “err in finding that ICE failed to establish that it was directly and proximately harmed by the offenders’ criminal conduct.”

ICE continued to fight and the per curiam opinion considered whether ICE may appeal a district court’s denial of victim status under the Crime Victims Rights Act.  The opinion noted that it was not a matter of first impression in the 11th Circuit whether the court has jurisdiction to hear an appeal from a victim in a criminal case.  After reviewing prior cases, the per curiam opinion noted that the “default rule in this circuit is that crime victims have no standing to appeal a defendant’s sentence in a criminal proceeding.”  Accordingly, the opinion concludes as follows.  “Because we lack jurisdiction to hear ICE’s direct appeal under the Crime Victims’ Rights Act, we dismiss the appeal.”

ICE’s petition did however succeed in raising victim issues in Foreign Corrupt Practices Act enforcement actions and caused those interested in bribery and corruption issues to ponder the valid and legitimate questions of victims a bit more closely.  For other recent posts on victims issues, see here and here.

Friday Roundup

From the campaign stump, Wal-Mart civil suits start to pour in – plus a comment regarding statute of limitations, where should the money go, don’t believe the hype, and for the weekend reading stack.  It’s all here in the Friday roundup.

From The Stump

Zein Obagi (here – a  fiscally conservative Democratic candidate for California’s new 33rd Congressional District) earlier this week posted a letter (here) he sent to U.S. Senator Dianne Feinstein (D-CA).  Titled “Keeping California Companies Competing Abroad Competitive” the letter begins as follows.  “I am writing to ask you to show our party’s understanding of international trade by updating and clarifying the Foreign Corrupt Practices Act.  As you know Senator, both sides of the aisle have put forth efforts to clarify the FCPA, to assist in its enforcement and also keep America competitive with foreign nations’ trade practices.”  In the letter, Obagi states that “California businesses expend enormous resources with insufficient assurances that they will not run afoul of the FCPA.”

Kudos to Obagi for the courage to tackle the politically sensitive issue of reforming the FCPA.  His letter reminds us of an issue lost in the FCPA reform debate – that certain aspects of FCPA reform share bipartisan support.  See here for the transcript of the Senate’s 2010 FCPA hearing (particularly statements from Democratic Senators Amy Klobuchar and Chris Coons) and here for the transcript of the House’s 2011 FCPA hearing (particularly statements from Democrat Representative John Conyers).

Wal-Mart Civil Suits Begin to Pour In

One of my earlier Wal-Mart posts (here) noted that not only will the DOJ and SEC likely be examining the conduct of Wal-Mart executives, but so too will plaintiff law firms representing shareholders who will likely scour Wal-Mart’s SEC filings and other statements to the market in bringing derivative claims alleging breach of fiduciary duty and potential Section 10(b) claims based on material omissions concerning Wal-Mart Mexico.  On this score, shareholders are likely to allege, among other things, that Wal-Mart’s officers and directors demonstrated conscious disregard for fiduciary duties by failing to act diligently in the face of known facts suggesting a duty to act.

Approximately ten days later the civil suits are starting to pour in.  See here (New York Times) and here (Los Angeles Times) for the derivative lawsuit brought by the California State Teachers’ Retirement System, the country’s second-largest public pension fund, the California State Teachers’ Retirement System,  against current and former board members and executives of Wal-Mart Stores Inc., accusing them of using bribery and corruption to gain authorization from Mexican government officials to build new stores.

The complaint (here) generally tracks the New York Times article (see here for a prior summary), but also includes allegations suggesting potential insider trading.  The complaint alleges as follows.  “[T]he trading records of defendants [H. Lee Scott Jr.] and [Eduardo] Castro-Wright show that both of these defendants began selling millions of dollars worth of Wal- Mart shares in the months after The New York Times first contacted the Company regarding possible FCPA infractions by Wal-Mex in December 2011. Scott and Castro-Wright were divesting their shares in Wal-Mart in apparent anticipation of the publication of The New York Times exposé and the corresponding stock drop that would undoubtedly occur, and did occur. On the three trading days after The New York Times’ April 21, 2012 exposé, Wal-Mart stock dropped eight percent, wiping out all of its gains in 2012. Scott and Castro-Wright sold uncharacteristically large amounts of stock while in possession of the materially adverse nonpublic information that the Company was exposed to undisclosed liability for massive FCPA penalties and other contingences relating to the bribes and cover-up …”.

In addition, yesterday Gilman Law LLP announced here a derivative lawsuit filed in the United States District Court for the Western District of Arkansas against Wal-Mart.  According to the release, the “complaint alleges the Directors of Wal-Mart breached their fiduciary duties by violating the Foreign Corrupt Practices Act and engaging in a six-year-long cover-up of a massive bribery scheme concerning Wal-Mart’s expansion in Mexico.”

Wal-Mart Statute of Limitations

In recent days, there has been much talk about the FCPA’s statute of limitations (5 years) and how the limitations period can generally be extended through conspiracy charges.  All correct observations as to a fundamental black-letter law concept.  Except in corporate FCPA inquiries, one can generally toss aside fundamental black-letter law concepts because they simply do not matter.

Sure, Wal-Mart (or any other company subject to FCPA scrutiny) can talk about statute of limitations around conference room tables behind closed doors in Washington D.C., but to truly challenge the DOJ on this issue (as all others) first requires that the company be criminally indicated, something few corporate leaders are willing to let happen.  Cooperation is the name of the game in corporate FCPA inquiries and to assert statute of limitations issues is not cooperating.  Given the “carrots” and “sticks” relevant to resolving FCPA enforcement actions (to learn more about these “carrots” and “sticks” please read ”The Facade of FCPA Enforcement” – here), one of first steps during a corporate disclosure of FCPA issues (one that Wal-Mart made in December 2011) is to enter into a tolling agreement or to waive any statute of limitations defenses.

As evidence, dig into the details of most FCPA enforcement actions and one quickly discovers that the conduct at issue is old – in some cases very old.  The 2012 Biomet enforcement action (see here for the prior post) concerns conduct going back to 2000; the 2012 Smith & Nephew enforcement action (see here for the prior post) concerns conduct going back to 1998; and the 2012 Marubeni enforcement action (see here for the prior post) concerns conduct going back to 1995 (17 years ago) with the last act alleged occurring in 2004.

For a similar post on fundamental black letter law concepts in FCPA enforcement actions, see this prior post “Does DOJ Expect FCPA Counsel to Roll Over and Play Dead?”

Don’t Believe the Hype

Writing at the Huffington Post (here), Professor Brandon Garrett (here – University of Virginia School of Law) says “Don’t Believe the Hype on Corporate Bribery.”  Professor Garrett notes that “at first, foreign bribery prosecutions may seem big and brash and the farthest thing from a wrist-slap” but he cautions that many FCPA enforcement actions “can be smaller than they appear.”

I frequently am put in the “the DOJ is too aggressive in enforcing the FCPA” camp and in many respects that is true.  However, I have also frequently stated (see here for my Facade of FCPA Enforcement article, here for my Senate testimony and here and here for prior posts as to the same Siemens and BizJet enforcement actions Professor Garrett references) that in egregious instances of corporate bribery that legitimately satisfy the elements of an FCPA anti-bribery violation involving high-level executives and/or board participation the DOJ’s aggressive rhetoric does not match the reality of the enforcement action.

See this prior post for discussion of Professor Garrett’s article “Globalized Corporate Prosecutions.”

Where Should the Money Go

This prior post discussed the recent letter by Socio-Economic Rights and Accountability Project (“SERAP”) (a non-governmental civil society organization in Nigeria) to SEC Enforcement Division Director Robert Khuzami (with a copy to Assistant Attorney General Lanny Breuer and Deputy Chief, Fraud Section Charles Duross)  regarding “FCPA civil penalty and disgorgement proceeds that companies agree to pay to resolve US Foreign Corrupt Practices Act investigations.”

The specific SERAP proposal is as follows.  “…[A]fter, and ony after, public notice of an FCPA settlement agreement, the victim foreign government entity and any applicant NGO would have 60 days to file a request that the Enforcement Division pay some or all of the agreed payment proceeds to or for the benefit of the victim government entity or to a home country-based or US based NGO that would present a proposal [to] spend the proceeds for public purposes (e.g. on public health programs) in the country of the victim entity.  Thereafter, the Enforcement Division would have 60 days to act upon the request, favorably or not in its discretion; in this context the Enforcement Division should provide a brief statement of its reasons for its decisions.  In reaching its decisions the Enforcement Division would have the inherent authority to consult with Executive Branch agencies of the US government.

Recently the SEC responded to the letter (see here).  The SEC thanked SERAP for its ‘thoughtful submission” and stated that it will “give appropriate consideration” to its suggestions while also noting as follows.  “Although the macro effects of corruption can be ascribed generally, the framework of our securities laws requires a proximate connection to the harm caused by a particular violation.  The question of identifying investors or other parties that suffer cognizable harm in connection with the securities law violation(s) at issue in a given enforcement matter is driven by the facts and circumstances of that particular case.”

For more, including my views, see here from Trustlaw.

Others are also thinking about the issue of where FCPA enforcement proceeds should go.  In this draft paper titled “Reforming the Foreign Corrupt Practices Act to Reduce Rent Seeking and Better Deter Transnational Bribery,” Matthew Turk argues as follows: “(1) the SEC should cease retaining profits disgorged by corporate defendants; (2) disgorgements should be transferred to the Host country where the bribe took place, conditional on the Host government’s cooperation with the FCPA investigation; and (3) if cooperation is not forthcoming, disgorgement proceeds should be transferred to the OECD Working Group, an international organization designed to facilitate the enforcement of an important anti-bribery treaty.”  According to Turk, “Reforming disgorgement practices in the manner suggested here would not constitute a legalistic attempt to ratchet the total level of anti-corruption enforcement up or down in a particular direction. Instead it would re-allocate the proceeds from FCPA enforcement on a global scale so as to properly align the incentives of the parties involved and provide greater access to the information required for effective enforcement.”

Weekend Reading Stack

I recommend this recent Q&A in Metropolitan Counsel with Homer Moyer (Miller & Chevalier) a “Dean” of the FCPA.  Might as well make it a Homer Moyer weekend – see here for a prior Q&A post on this site with Moyer.

Where Should The Money Go?

It is a thorny question with no easy answer.  Where should the money go when a company resolves an FCPA enforcement action?  It was addressed last year in connection with the Alcatel-Lucent enforcement action.  (See here, and here for prior posts).  Two recent events raise the issue again.

*****

Earlier this month, it was announced (here) that the U.K. “Serious Fraud Office, the Government of Tanzania, BAE Systems and the Department for International Development (DFID) … signed a Memorandum of Understanding enabling the payment of £29.5 million [$47 million USD] plus accrued interest to be paid by BAE Systems for educational projects in Tanzania.”  As noted in the release, “textbooks will be purchased for all 16,000 primary schools in the country and as a result 8.3 million children will benefit” in subjects such as Kiswahli, English, Maths and Science.  The release further notes that funds will also be used to “provide all 175,000 primary school teachers with teachers’ guides, syllabi and syllabi guides to help improve their teaching skills” as well as the purchase of desks.  In the release, SFO Director Richard Alderman stated as follows.  “This agreement is a first for the SFO which piloted it through the UK legal system. It provides a satisfactory outcome for all concerned but most of all for the Tanzanian people and I am personally delighted that SFO staff were able to achieve this.”

In this release, BAE stated as follows.  “We are glad to finally be able to make the payment to the Government of Tanzania and bring this matter to a close. We are grateful to DFID for their work in agreeing the Memorandum of Understanding with the Government of Tanzania.”  The BAE release states that the “payment follows the settlement agreed between BAE Systems and the SFO.”  For a prior post on the settlement, see here.

To be sure, BAE’s payment to Tanzania, and the role of the SFO in brokering the payment, feels good.  What is not to like about children receiving textbooks?

However, the feel good nature of this most recent BAE development should not mask the significant problems with the BAE enforcement action (on both sides of the Atlantic).  As noted in this prior post, even the U.K. judge who accepted the SFO-BAE plea agreement called it “loosely and hastily drafted” and said the fine he levied reflected that he couldn’t “sentence for an offense which the prosecution failed to charge.”

And let’s not forgot how this story began.  In 2004, the SFO began investigating whether BAE made bribe payments to secure Saudi fighter jet contracts. However, in late 2006, the SFO was forced to halt its investigation under pressure from the U.K. government, which cited national security concerns should the investigation go forward.  However, because BAE also allegedly made bribe payments in numerous other countries to secure business, the SFO, under a new Director, revived its  investigation of BAE, at least as to non-Saudi issues, including whether the  company paid bribes to secure contracts in various European and African countries. After settlement talks stalled – the conventional wisdom is that BAE was unwilling to plead guilty to bribery related offenses given the collateral effect of the mandatory European Union debarment provisions – the SFO pressed ahead with the case.  In late January 2010, the SFO issued a release (here) stating that Count Mensdorff, a former BAE agent, was criminally charged with “conspiracy to corrupt” and for “conspiring with others to give or agree to give corrupt payments […] to 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.” Then, in early February 2010, the SFO announced (here) its long-awaited resolution of the BAE matter. Despite allegations of wide-spread bribery on a global scale, and despite BAE’s agent being criminally indicted a few days earlier in connection with bribe payments in “certain Eastern and Central European countries” (presumably on evidence that such payments did indeed occur), the SFO resolution related solely to the company’s failure “to keep reasonable and accurate accounting records in relation to its activities in Tanzania.”  Most dramatic, and in a strange turn of events, the SFO announced that it had withdrawn the criminal charges filed days earlier against Count Mensdorff. The same release also noted that “[t]his decision brings to an end the SFO’s investigations into BAE’s defense contracts.”  For more on “BAE – Inside the SFO”, see this prior post.

In any event, at least some children in Tanzania received some textbooks from BAE as a result.

*****

As previously highlighted on the FCPA Blog (here), Socio-Economic Rights and Accountability Project (“SERAP”) (a non-governmental civil society organization in Nigeria) recently wrote a letter (here) to SEC Enforcement Division Director Robert Khuzami (with a copy to Assistant Attorney General Lanny Breuer and Deputy Chief, Fraud Section Charles Duross)  regarding “FCPA civil penalty and disgorgement proceeds that companies agree to pay to resolve US Foreign Corrupt Practices Act investigations.”  As the letter notes, “currently such proceeds, once paid, are retained by the U.S. government.”

In summary, the SERAP letter requests “that the Enforcement Division establish a case-by-case policy or process that would enable foreign governmental entities that have been victims of corruptly-procured contracts to apply for, subject to appropriate anti-corruption safeguards, some or all of the civil penalty and disgorgement proceeds that would eventually be paid by companies alleged to have violated the U.S. Foreign Corrupt Practices Act.”  SERAP also suggests that “civil society groups in the home country, or U.S. non-profit organizations serving that country, be eligible within a short time-period to apply for such proceeds as well, or instead, for use for ‘public benefits projects’ in the affected foreign country, again subject to anti-corruption safeguards.”

The SERAP letter notes, among other things, as follows.  “… Many citizens in a country where such bribery has occurred might consider FCPA civil penalties and disgorgement payments imposed by the US, and then kept by the US, as in fact representing funds that rightfully ‘belong’ to the victim.”

Stating that “corruptly procured contracts ‘cost’ the victim at least 10 percent extra” the SERAP letter says that “this figure ought to be a presumed measure of possible funds available for third-party application in the context of a civil FCPA settlement, particularly since the Enforcement Division typically settles an investigation before extensive evidence of damages, as opposed to liability, is placed in the public realm.”

The specific SERAP proposal is as follows.  “…[A]fter, and ony after, public notice of an FCPA settlement agreement, the victim foreign government entity and any applicant NGO would have 60 days to file a request that the Enforcement Division pay some or all of the agreed payment proceeds to or for the benefit of the victim government entity or to a home country-based or US based NGO that would present a proposal [to] spend the proceeds for public purposes (e.g. on public health programs) in the country of the victim entity.  Thereafter, the Enforcement Division would have 60 days to act upon the request, favorably or not in its discretion; in this context the Enforcement Division should provide a brief statement of its reasons for its decisions.  In reaching its decisions the Enforcement Division would have the inherent authority to consult with Executive Branch agencies of the US government.

The SERAP letter raises some interesting issues regarding alleged victims of FCPA enforcement actions.  The SERAP letter also raises some interesting questions, including the following.

If the SEC would be required to relinquish a certain portion of money recovered in an FCPA enforcement action, what impact would this have on FCPA enforcement?  Would the SEC be less aggressive in bringing enforcement actions or perhaps more aggressive because more enforcement actions would be needed to sustain the current FCPA “revenue stream”?  For instance, 10% of SEC FCPA “revenue” in 2011 was approximately $15 million, in 2010 approximately $53 million.

The SERAP proposal appears to assume that all FCPA enforcement actions involve foreign government procurement.  This is not the case.  Approximately 50% of recent  FCPA enforcement actions (i.e. in the past five years) do not involve foreign government procurement, but rather issues relating to foreign taxes, customs duties, or foreign licenses, permits, certifications and the like.  Is the victim analysis the same in these FCPA enforcement actions compared to foreign government procurement enforcement actions?

Are individuals or organizations located in the country giving rise to the FCPA enforcement action really the most direct victims of the conduct at issue?  In the procurement context, what about a competitor who may have lost out on the foreign business because it was unwilling to make an improper payment?  With victim issues attracting new attention, should an FCPA private right of action receive new attention?

Last, but certainly not least, companies settling SEC FCPA enforcement actions are allowed to settle without admitting or denying the SEC’s allegations.  Even the SEC itself has stated that this settlement device often leads to settlements that “do not necessarily reflect the triumph of one party’s position over the other.”  Given this dynamic, would SERAP’s proposal lead to undeserved “windfalls” for civil society organizations?  [In this prior post, I asked the same question as to Dodd-Frank Act whistleblowers.]

ICE Appeal Receives Chilly Reception At 11th Circuit

It is one of the FCPA’s most bizarre issues.

If bribery is not a victimless crime, then why do Foreign Corrupt Practices Act fines and penalties simply go directly into the U.S. Treasury? Why are there no efforts to identify the victims of FCPA violations and to compensate those victims?

As detailed in this prior post, in May Instituto Constarricense de Electricidad (“ICE”) of Costa Rica petitioned “for protection of its rights as a victim” of Alcatel-Lucent’s bribery scheme. (See here for a prior analysis of the December 2010 enforcement action).

In early June, Judge Marcia Cooke (Southern District of Florida) denied ICE’s petition.

On June 15th, ICE filed this petition in the 11th Circuit for a writ of mandamus “directing the District Court to recognize ICE is a ‘crime victim’ under the Crime Victims’ Rights Act of [Alcatel-Lucent’s] crimes and to afford it all rights the CVRA guarantees to crime victims, including restitution.”

The two issues presented on appeal were: (i) whether the district court erred by denying ICE victim status under the CVRA; and (ii) whether the district court erred in denying ICE restitution.

Last Friday, in a short 3-page decision (here), the 11th Circuit denied ICE’s petition.

After noting the clearly erroneous standard of review, the 11th Circuit held that “the district court did not clearly err in finding that [ICE] actually functioned as the offenders’ coconspirator” and that the district court did not “err in finding that ICE failed to establish that it was directly and proximately harmed by the offenders’ criminal conduct.”

The petition for victim status was factually difficult from the start and it is not surprising that ICE did not prevail. Yet, the ICE petition did succeed in raising the victim issue and causing those interested in bribery and corruption issues to ponder the valid and legitimate question of victims a bit more closely.

Is ICE A Victim? And An Open Question!

“Bribery is not a victimless crime.”

It is a common sentence in DOJ FCPA talking points (see here for instance).

If bribery is not a victimless crime, then why do FCPA fines and penalties simply go directly into the U.S. Treasury? Why are there no efforts to identify the victims of FCPA violations and to compensate those victims? Bigger picture, who are the victims when FCPA violations occur?

Alexandra Wrage, President of Trace, observed in this piece that “compensating the victims of corruption is a hot new topic” and that “restitution to victims is hard not to like.” However, as Wrage noted, “the U.S. Department of Justice does not attempt to compensate victims of bribery.”

The topic has never been hotter.

Instituto Constarricense de Electricidad (“ICE”) of Costa Rica recently petitioned a Court (see here and here) “for protection of its rights as a victim” of Alcatel-Lucent’s bribey scheme.

In December 2010, it was announced that Alcatel-Lucent and certain subsidiaries agreed to resolve a wide-ranging FCPA enforcement action involving both a DOJ and SEC component. Total settlement amount was approximately $137.4 million ($92 million criminal fine via DOJ plea agreements and a deferred prosecution agreement; $45.4 million in disgorgement via a SEC settled complaint). (See here for the prior post). In addition to Costa Rica, the conduct at issue also involved conduct in at least eight other countries.

ICE also objected to the plea agreements and deferred prosecution agreement agreed to between the DOJ and Alcatel-Lucent to resolve the enforcement action. Among other things, ICE argued that the agreements “are inconsistent with the interests of justice, with the public’s interests, and with public policy.”

This post summarizes ICE’s arguments, as well as the arguments of the DOJ and Alcatel-Lucent in opposition filings earlier this week.

Finally, this post identifies an open question (as least as to the Costa Rica conduct at issue in the enforcement action) that ought to give Judge Marcia Cooke (Southern District of Florida) pause during the June 1st hearing.

ICE is petitioning the Court “for protection of its rights as a victim of the Alcatel-Lucent Defendants and for appropriate sanctions resulting from the [DOJ’s] failure to protect those rights…”.

Even though ICE acknowledges that “three disloyal and corrupt Directors and two disloyal and corrupt employees” were the recipients of Alcatel-Lucent’s bribe payments, ICE nevertheless claims it is a victim because the “corrupt activities” of Alcatel-Lucent has caused the company “massive losses” and caused “ICE catastrophic harm.”

ICE argued that “it is universally recognized, in a scheme for bribery, that an entity whose employees accept improper benefits to affect corporate decisions is a victim.” ICE states that “the notion that acceptance of bribes by five of ICE’s more than 16,500 employees, managers, and directors necessarily renders ICE an active participant in Alcatel’s admitted bribery scheme is nonsense.”

As noted in this media report, Judge Cooke allowed ICE to argue that it should be considered a corruption victim and thus receive restitution. However, Judge Cooke reportedly stated that ICE “would not be at the top of the hit parade.”

Earlier this week, both the DOJ and Alcatel filed opposition briefs to ICE’s request for victim status and restitution.

In its response (here), the DOJ argued that “under the facts and circumstances in the instant matter, which reflect profound and pervasive corruption at the highest levels of ICE, the government does not believe it is appropriate to consider ICE a victim in these cases.”

Elsewhere, the DOJ stated that “it does not follow tht the state-owned entity at which corruption was so pervasive in the tender process should now be permitted status as a victim or awarded restitution under the facts and circumstances in these cases.”

The DOJ then reviewed “facts and circumstances” that has “led the government to conclude that not just the corrupt ICE officials are to blame for the corruption that existed at ICE, but ICE itself as an organization is also responsible.” (emphasis in original).

The DOJ stated as follows. “In short, ICE as an organization appears to have had a deeply ingrained culture of corruption. First, it appears clear that corruption at ICE existed for many years – if not decades – according to [a DOJ cooperator who previously plead guilty]. Second, this corrupt conduct did not just involve some low-level employees. Here, nearly half of the Board of Directors of ICE received bribes in just this case alone. It is hard to conceive of a component of a business organization more in control of and responsible for an organization than the board of directors, which in this case appears to have been profoundly corrupt. Third, the corruption at ICE as an organization was pervasive in the tender process.” (emphasis in original).

In a separate section of its brief, the DOJ argued that “while the government does not believe ICE is a victim under the facts and circumstances present here, the Court need not decide this issue to dispose of this matter” because “regardless of whether ICE is a victim, this Court, the U.S. Probation Office, and the government have afforded ICE the rights of a crime victim contained in the Crime Victims’ Rights Act.”

The DOJ’s brief was authored by Charles Duross (DOJ FCPA Unit Chief) and Andrew Gentin (Fraud Section Trial Attorney from D.C.).

In a separate DOJ brief (here) filed in support of the proposed plea agreements and DPA, the DOJ argued that the resolutions “reflect the seriousness of the conduct, promotes respect for the law, and provides for just punishment for the offenses committed.” The DOJ argued that even if ICE is considered a victim, it does not have “veto power over prosecutorial decisions, strategies, or tactics” and that “it is unclear what standing, if any, ICE has to object to the DPA.”

In its response brief (here) the Alcatel entities [represented by Martin Weinstein and Robert Meyer of Willkie Farr & Gallagher – see here and here – and Jon Sale of Sale & Weintraub] argued as follows. “ICE’s Motion for restitution should be denied for two independent reasons. First, ICE is not entitled to restitution because it was a participant in the conduct underlying the offense to which Defendants will be pleading guilty. […] Second, the Court should reject ICE’s Motion because a determination of restitution would unduly complicate and prolong the sentencing process. [Note – although not separately highlighted above, a similar argument was made by the DOJ in its brief]. Alcatel argued that “just as Alcatel is responsible, ICE itself is responsible for the ICE-Alcatel bribery scheme because its top management, including several members of its board of directors and senior officers, actively participated in the bribery.”

Compensating the victims of bribery is a valid and legitimate issue, even if the ICE petition presents an unusual situation in that bribe recipients were officers, directors, or employees of the entity claiming victim status. I am not sure where criminal fines should go when a French company bribes Costa Rican “foreign officials,” but I am pretty sure than the answer should not be 100% to the U.S. Treasury.

Judge Cooke will hold a hearing on the issue on June 1st.

*****

But wait, were those even Costa Rican “foreign officials” Alcatel-Lucent bribed?
And now to the open question and an issue Judge Cooke ought to probe closely during the June 1st hearing.

According to the applicable DOJ plea agreement (here) “Instituto Costarricense de Electricidad S.A. (“ICE”) was a wholly state-owned telecommunications authority in Costa Rica responsible for awarding and administering public tenders for telecommunications contracts. ICE was governed by a seven-member board of directors that evaluated and approved, on behalf of the government of Costa Rica, all bid proposals submitted by telecommunications companies. The Board of Directors was led by an Executive President, who was appointed by the President of Costa Rica. The other members of the Board of Directors were appointed by the President of Costa Rica and the Costa Rican governing cabinet. Accordingly, officers, directors and employees of ICE were ‘foreign officials’ within the meaning of the FCPA …”.

Nonsense says ICE.

In its brief, under a heading titled “ICE is an autonomous entity with an independent board of directors and management”, ICE stated as follows. “ICE is an autonomous legal entity responsible for providing electrical power and telecommunications services in Costa Rica. The organizational statute and subsequent decrees provides for the absolute autonomy of ICE. This includes a seven-member, independent Board of Directors appointed by the Costa Rican Government who serve six-year terms. They cannot be removed absent malfeasance. These Directors include engineers, accountants, and lawyers with distinct areas of expertise. None of the Directors are affiliated with the Costa Rican Government. The Board of Directors appoints and oversees the management and operation of ICE in a manner similar to other large corporations.”

Based on ICE’s self-description, it would not seem to be a FCPA victim because a crime never took place because the elements of an FCPA violation – namely the existence of a “foreign official” was absent. [Note – Alcatel-Lucent was not charged with FCPA anti-bribery violations, yet the relevant subsidiary was charged with conspiracy to violate the FCPA’s anti-bribery provisions and a conspiracy charge requires the existence of a “foreign official”].

As the DOJ has stated in the recent “foreign official” challenges, “for a court to accept a plea of guilty a district court must have a basis to believe that a crime has been committed.”

Judge Cooke ought to do just that on June 1st given that stark differences in DOJ’s description of ICE and ICE’s description of itself.

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