[This post is part of a periodic series regarding “old” FCPA enforcement actions]
The year was 1982 and the Foreign Corrupt Practices Act was nearing five years old. Up to this point, enforcement was sparse and focused on single-actor type cases. See here, here, here, here and here for FCPA enforcement actions up to this point.
In 1982, the first FCPA mega-case was brought and it involved five corporate defendants and twelve individual defendants.
Specifically, in October 1982, the DOJ brought an indictment (here) against:
- Crawford Enterprises Inc. (“CEI”) (a Houston based private company that sold compression equipment systems to oil and gas companies);
- Donald Crawford (CEI’s Chairman and sole shareholder and, at certain relevant times, CEI’s President);
- William Hall (CEI’s Executive Vice President and, at certain relevant times, CEI’s President);
- Ricardo Beltran (President and majority shareholder of Grupo Industrial Delta, a Mexican corporation);
- Mario Gonzalez (a U.S. citizen who assisted Grupo Delta and CEI communicate with certain alleged foreign officials);
- Andres Garcia (a U.S. citizen who assisted Grupo Delta and CEI communicate with certain alleged foreign officials);
- George McLean (Vice President of Solar Turbines International (“Solar”), a division of International Harvester Company);
- Luis Uriarte (the Latin American Regional Manager of Solar);
- Al Eyester (President of Ruston Gas Turbines “Ruston”);and
- James Smith (Vice President of Ruston).
The indictment charged a conspiracy between the defendants and others to pay money to Mexican foreign officials and Grupo Delta “knowing that all or a portion of such money would be offered, given or promised directly or indirectly” to foreign officials for the purpose of influencing the acts and decisions of the officials “in their official capacity, and inducing them to use their influence with Pemex so as to affect and influence the acts and decisions of Pemex in order to assist” Crawford, the other defendants, and others in “obtaining or retaining business with Pemex.”
The indictment alleges that Petroleos Mexicanos (“Pemex”) was the “national oil company wholly owned by the Government of the Republic of Mexico and was responsible for the exploration and production of all of the oil and natural gas resources of Mexico and for acquiring the equipment, including compression equipment systems, necessary for such exploration and production.”
The indictment alleged that “Pemex was an instrumentality of a foreign government” and that two individuals (Ignacio de Leon and Jesus Chavarria) were “foreign officials” based on their positions of “subdirector of Pemex responsible for the purchase of goods and equipment on behalf of Pemex” and “subdirector of Pemex responsible for the exploration and production of Mexican oil and natural gas.”
[As an aside, it should be noted that in the recent “foreign official” challenges, the DOJ has argued that its charging decision in the Crawford cases as to Pemex demonstrated the validity of its position that employees of SOEs are “foreign officials” under the FCPA. For instance, the recent FCPA Guidance states that the SEC and DOJ ‘‘have pursued cases involving instrumentalities since the time of the FCPA’s enactment’’ and that the ‘‘second-ever FCPA case charged by the DOJ’’ involved bribes to executives of the Mexican national oil company.
However being consistently wrong, does not make one right and, as noted in my article “Grading the FCPA Guidance,” missing from the Guidance discussion or associated citations on this issue, is any reference to the fact that George McLean, the only defendant in the series of related cases to put DOJ to its burden of proof at trial, was found not guilty by the jury.]
The conspiracy charge alleged that CEI and Crawford agreed to pay and paid the “foreign officials” “bribes equalling approximately 4.5% of each Pemex purchase order for compression equipment systems in which” CEI participated and that “it was further a part of the conspiracy” that CEI and Crawford arranged with defendants Beltran, Gonzalez and Garcia that Grupo Delta would: “(a) hold itself out as the Mexican agent of CEI, while in truth acting primarily as the conduit for the bribe payments; (b) disguise the bribe payments as ‘commissions’ due by providing to CEI false and fictitious invoice for each payment received; and (c) provide Gonzalez and Garcia with a base of operations from which to perform their function as middlemen and channels of communications between the co-conspirators” and the foreign officials.”
The indictment further alleged that the defendants used the term “folks” as a code word for the “foreign officials” “in order to conceal from others their true identities as Pemex officials and the existence of the bribe scheme.” The indictment alleged that “in order to create a pool of money with which to pay bribes” CEI along with Solar and Ruston “submitted to Pemex bids which were inflated to include a 4.5% markup for the “folks.”
The indictment alleged that CEI, along with Solar and Ruston received purchase orders from Pemex for compression equipment systems in the approximate amount of $225 million and that approximately $10 million in bribe payments were made to the “foreign officials” as part of the bribery scheme.
In addition to the conspiracy charge, the indictment also alleged approximately fifty substantive FCPA anti-bribery violations against various combinations of the defendants. The indictment also charged CEI, Crawford and Hall with an obstruction charge based on allegations that the defendants destroyed certain documents relevant to a grand jury subpoena.
Media reports described the action as the first major criminal investigation under the FCPA. According to the reports, in November 1982, CEI, Crawford, Hall, Garcia, McLean, Uriate, and Eyster pleaded not guilty. Crawford and Hall stated that while commission payments were made to Grupo, no such bribes were paid to Pemex officials.
CEI released a statement which said that “despite vigorous and repeated denials by Crawford Enterprises of any wrongdoing in connection with these allegations, the investigation has continued for nearly 3.5 years.” The company said that Pemex and the Mexican government had looked into similar charges and found no wrongdoing in the award of Pemex contracts to Crawford. The company’s statement further indicated as follows. “Four factors accounted for CEI’s success in becoming one of Pemex’s principal gas compression contractors: its proven experience in the industry; its aggressive delivery schedules that other firms simply could not match; its maintenance and repair of equipment installed in Mexico; and the lower costs to Pemex as a result of all the above.”
Prior to the above-reference October 1982 indictment, in September 1982 the DOJ charged Ruston Gas Turbines Inc., C.E. Miller Corporation and Charles Miller based on the same core set of allegations. The DOJ charged Ruston Gas Turbines in a one count criminal information (see here) with a substantive FCPA violation and the company pleaded guilty and was ordered to pay a $750,000 fine (see here). The DOJ charged C.E. Miller Corporation and Miller (President, Chairman of the Board, and majority shareholder of the company) in a one count criminal information charging substantive FCPA violations and aiding and abetting FCPA violations. (See here). C.E. Miller Corporation and Miller both pleaded guilty and the company was ordered to pay a $20,000 fine and placed on probation for three years (see here) and Miller was sentenced to three years probation (see here).
Prior to the above-referenced September 1982 charges, in May 1981 the DOJ charged Gary Bateman (an International Sales Manager for CEI and also Chairman of the Board, President and sole shareholder of Applied Process Products Overseas, Inc.) in a multi-count information (see here) charging various misdemeanor violations of the Currency and Foreign Transactions Reporting Act concerning the transportation of money to Mexico in connection with the bribery scheme. Bateman pleaded guilty and agreed to pay a civil penalty of approximately $330,000. In January 1983, the DOJ also charged Applied Process Products Overseas, Inc. in a one-count information (here) charging a substantive FCPA violation based on the same core set of allegations. The company pleaded guilty and was ordered to pay a $5,000 fine. (See here).
After the above-referenced October 1982 charges, in November 1982 the DOJ also filed a criminal information against International Harvester (see here). The information was based on the same core set of allegations as set forth above and based on the conduct of its employees McLean and Uriarte. International Harvester pleaded guilty to conspiracy to violate the FCPA (see here) and was ordered to pay a $10,000 fine and agreed to also pay $40,000 civil cost reimbursement.
The DOJ’s offer of proof in the International Harvester case (see here) contained the following statement.
“After Solar had agreed to participate and to cooperate with CEI, and pursuant to the 1977 enactment of the Foreign Corrupt Practices Act [International Harvester’s long-standing Policy on Conflicts of Interest and Ethical Business Conduct] was revised and supplemented to affirm that improper payments prohibited by the Act were also prohibited as a matter of company policy. In 1977, 1978, 1979, and 1980, through an annual audit process, each International Harvester managerial employee was required to certify his or her compliance and to report any action that might conflict with company policy for review by the Office of the General Counsel and corrective action, if warranted. During those years, Uriarte and McLean each reported in the annual audit process that he was aware of International Harvester policy and had taken no action in violation thereof. Insofar as each of them participated in the conspiracy described herein, he accordingly concealed from International Harvester his participation and the participation of the Solar Turbine Division. Neither Solar employee held a position which required him to report to International Harvester management. There has been no evidence that any officers, directors or management of International Harvester knew of or participated in the conspiracy charged.”
In January 1983, the DOJ charged Marquis King (an officer and director of C.E. Miller) in a one-count information charging a misdemeanor violation of the Currency and Foreign Transactions Reporting Act concerning the transportation of money to Mexico in connection with the bribery scheme. (See here). King pleaded guilty and he was sentenced to 14 months probation and ordered to pay a $5,000 fine. (See here).
In June 1985, CEI pleaded guilty to conspiracy to violate the FCPA and 46 substantive FCPA violations. (See here). CEI agreed to pay a $10,000 criminal fine as to the conspiracy charge and $75,000 as to each of the 46 substantive charges for a total fine amount of $3,460,000. At the same time, the following defendants pleaded nolo contendere: Donald Crawford, Al Eyster, James Smith, Andres Garcia, and William Hall. Crawford pleaded nolo contendere to conspiracy to violate the FCPA and 46 substantive FCPA violations and was ordered to pay a total fine amount of $309,000 (see here); Eyster pleaded nolo contendere to conspiracy to violate the FCPA and 41 substantive FCPA violations and was ordered to pay a total fine amount of $5,000 (see here); Smith pleaded nolo contendere to conspiracy to violate the FCPA and 44 substantive FCPA violations and was ordered to pay a total fine amount of $5,000 (see here); Garcia pleaded nolo contendere to conspiracy to violate the FCPA and 46 substantive FCPA violations and was ordered to pay a total fine amount of $75,000 (see here); and Hall pleaded nolo contendere to conspiracy to violate the FCPA and 32 substantive FCPA violations and was ordered to pay a total fine amount of $150,000 (see here).
That leaves McLean and Uriarte. Stay tuned for the rest of the story.
Of further note from this enforcement action, Pemex filed a civil suit in U.S. District Court in Houston against Crawford, CEI, the two foreign officials, and twelve others in a bid to recover monies allegedly extracted from Pemex. In its complaint, Pemex sought several million dollars in both compensatory and punitive damages from Crawford and the other entities based upon the same conduct that was alleged in the DOJ enforcement actions. Pemex’s suit was based upon alleged violations of the Sherman Antitrust Act, the Robinson-Patman Act, and the Racketeering Influenced and Corrupt Organizations Act. Pemex also asserted causes of actions based upon commercial bribery and common law fraud. Various of the defendants in the civil action sought relevant documents from Pemex and it was ultimately held in contempt for not producing the documents. For additional background on this case, see 643 F.Supp. 370; 826 F.2d 392.