Richard L. Cassin Publisher and Editor

Andy Spalding Senior Editor

Jessica Tillipman Senior Editor

Michael Scher
Senior Editor

Elizabeth K. Spahn Contributing Editor

Julie DiMauro Contributing Editor

Eric Carlson Contributing Editor

Michael Kuria Contributing Editor

Thomas Fox Contributing Editor

Philip Fitzgerald Contributing Editor

Marc Alain Bohn Contributing Editor

Bill Waite Contributing Editor

Shruti J. Shah Contributing Editor

Russell A. Stamets Contributing Editor


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Naaman's Guilty Plea

Ousama M. Naaman, a dual citizen of Canada and Lebanon, pleaded pleaded guilty Friday in Washington, D.C. to conspiracy and to violating the Foreign Corrupt Practices Act. He was charged in a June 24, 2010 superseding information with engaging in an eight-year conspiracy to defraud the United Nations oil-for-food program and bribing Iraqi officials.

Naaman, 61, of Abu Dhabi, United Arab Emirates, was indicted in August 2008. He was originally charged with one count of conspiracy to commit wire fraud and to violate the Foreign Corrupt Practices Act and two counts of violating the FCPA. The superseding two-count information dropped the wire fraud conspiracy charge.

He now faces up to ten years in prison. No date has been set for sentencing.

For about a decade he acted as an agent of U.S.-based Innospec Inc. In March this year, the specialty chemical-maker reached a $40 million global settlement of more than a dozen criminal charges in the U.S. and U.K., including FCPA and U.N. oil for food program offenses, and violations of the U.S. embargo against Cuba.

The SEC's complaint against Innospec referred to an email apparently from Naaman to the company's management in October 2005. It said Iraqi officials were demanding a 2% kickback on sales. The e-mail stated: “We are sharing most of our profits with Iraqi officials. Otherwise, our business will stop and we will lose the market. We have to change our strategy and do more compensation to get the rewards.” Innospec's Business Director authorized over $195,000 in bribes, and in another e-mail discussing the wording of the invoice, said: "The fewer words the better!”

With his plea, Naaman admitted paying or promising to pay more than $3 million to officials at Iraq's Ministry of Oil and the Trade Bank of Iraq to win business for Innospec. The company makes and markets the anti-knock compound tetraethyl lead (TEL) used in leaded gasoline. Demand for TEL dropped in most Western countries after enactment of the U.S. Clean Air Act. But Innospec's management encouraged bribery to boost sales in other markets, mainly in developing countries.

Naaman was arrested on July 30, 2009 in Frankfurt, Germany. The Justice Department extradited him to the United States. In the superseding information, he was charged in Count One under 18 U.S.C. §371 with conspiracy to defraud the U.N. oil-for-food program and to violate both the antibribery and books and records provisions of the FCPA. In Count Two, he was charged under 15 U.S.C. §78dd-l with violating the FCPA and under 18 U.S.C. §2 as an aider and abettor.

A copy of the June 24, 2010 superseding information in U.S. v. Ousama M. Naaman can be downloaded here.


Prison Term In Panama Bribes Case

John Webster Warwick, a Virginia Beach, Va., resident, was sentenced Friday to 37 months in prison for his role in a conspiracy to pay bribes to former Panamanian government officials to secure maritime contracts.

U.S. District Court Judge Henry E. Hudson also sentenced Warwick to two years of supervised release following his prison term. Warwick also forfeited $331,000 in proceeds of the crime.

Warwick, 64, pleaded guilty in February to a one-count indictment charging him with conspiring to make corrupt payments to foreign government officials for the purpose of securing business for Ports Engineering Consultants Corporation (PECC) in violation of the Foreign Corrupt Practices Act (FCPA). A copy of his plea agreement can be downloaded here.

In April this year, Warwick's co-defendant in the case, Charles Jumet, was sentenced to 87 months in prison and fined $15,000. It was the longest sentence ever in an FCPA-related case. Jumet, 53, pleaded guilty in November last year to being part of the overseas bribery conspiracy that began in 1996. The Justice Department hasn't commented on the fifty-month difference in the sentences handed out to Jumet and Warwick. Jumet, however, was also charged with lying to federal investigators. A copy of his plea agreement can be downloaded here.

Warwick and Jumet admitted conspiring to make secret payments to Panamanian government officials for awarding contracts to PECC to maintain lighthouses and buoys. In December 1997, the Panamanian government awarded PECC a no-bid 20-year concession. Warwick, Jumet and others then arranged bribes to the officials of "more than $200,000," according to the DOJ.

A copy of the DOJ's June 25, 2010 release can be downloaded here.


Storm Damage

Bloomberg's David Glovin has written of the terrible harm caused to corporate executives indicted on federal criminal charges and the scars left on those whose cases are later dropped.

The numbers are surprising. From 2006 to 2008, Glovin says, U.S. prosecutors dismissed charges against 42 such defendants -- more than twice the 20 dismissals in the prior three years, according to the Federal Justice Statistics Resource Center.

Glovin covered the FCPA-related prosecutions in U.S. v. Kozeny. One defendant indicted, then dropped from the case, was David Pinkerton of AIG. Glovin writes:

Pinkerton had just left his 8- year-old twins at his in-laws’ home in Morristown, New Jersey, when he learned he was no longer a suspected felon.
Pinkerton’s lawyer called to say that the U.S. prosecutors who had charged the former American International Group Inc. managing director with bribery -- which could have led to a decade in prison -- had dropped the case. . . .

The relief was so great that day in July 2008 that the 6- foot-2-inch-tall (1.88-meter-tall) executive, who had fought the stress of the 31-month-long ordeal with intense gym workouts, broke down and cried.

We've said before that the power of prosecutors to wield the sword of Caesar is a heavy burden. Used correctly, it enforces the rule of law for the good of the many. Use wrongly, it destroys innocent people -- not just the accused, but their families, employees and others, and the damage is permanent.

Pinkerton said: “Somebody made an allegation that I did something improper, and everything got thrown under the bus. One day, 100 people around the world want to talk to you. The next, your BlackBerry goes silent and you have three friends."

He was lucky to still have three friends.

David Glovin's article can be found here.

* * *

The whirlwind. From our porch last evening, we watched and listened as the storm blew through our corner of central Virginia. The wind whistled and trees bent and creaked, but only a bit and for just a few minutes. Then it rained lightly for a half hour. We went to bed thinking nothing more about the little storm.

But this morning, when we drove the fifteen miles to Charlottesville proper, it was another story. Trees down everywhere, power lines dangling, and roads impassible. We climbed over the limbs to reach our downtown workspace but the power was out. So we went home.

We like to think we're in control of things. But that's never really true on the grander scale of events.


The Russian Untouchables

Hermitage Capital Management was the biggest foreign investor in Russia. Then in 2005, it all went wrong. CEO William Browder was banned from the country on what he says was a pretext. Two years later, 50 police officers from the Moscow Interior Ministry raided Hermitage's offices and those of its lawyers. The police took corporate documents and seals. Those same instruments were allegedly used in 2008 to fraudulently obtain $230 million that the Hermitage Fund companies had paid in taxes two years earlier.

In a YouTube video posted last year, Browder accused officials of complicity in the looting of his fund's assets. He also wrote about the November 16, 2009 death of his lawyer, Sergei Magnitsky, in a Moscow pre-trial detention center. The story appeared last December in Foreign Policy Magazine.

Magnitsky was one of the few lawyers connected with Hermitage who didn't leave Russia or go into hiding. Instead, after discovering the apparent massive tax fraud, he fought. That landed him in jail. Eleven months later, after being deinied family visits and medical care, he died in custody at age 37. His jailers first said he ruptured his abdominal membrane; then they said it was a heart attack. Officials refused his family's requests for an independent autopsy.

Browder said:

The more Sergei complained, the more the pressure increased. He was moved to cells where sewage would spew up from the hole in the floor that served as the toilet. He was put in cells with no glass in the windows to protect the inmates from the frigid Russian weather. The prison authorities denied him any opportunity to shower, or simply access hot water. Worst of all they denied him any visits from his wife or mother, or even the possibility to speak to his two young children on the telephone for the 11 months he was in detention, which must have been truly heartbreaking for a man so committed to his family.

Now collegues and friends of Magnitsky have produced a video about his death. We heard directly from one of them. They believe they're in danger and we won't disclose identities. But the man who contacted us explained the idea behind the video:

Information about the officers [who accused and arrested Sergei] started coming in shortly after Sergei's death from all over the place. Much of the information came from people I had never heard of but who had had bad run-ins with the same officers. So a group of people who knew Sergei got the idea of doing a movie like Browder had done for Hermitage a year earlier. . .  We had people on the streets of Moscow photographing apartment buildings, we had people checking documents to see if info was genuine. . . .

Then when the first two movies were finished we realized that there was just far too much info for movies and we needed to create a website to tell the whole story and to put all the documents related to Sergei's case, the budget thefts he discovered, and the officer's illicit wealth and past crimes on-line where everyone could see them.

As for just who all these people [who helped create the video] are, I can't name names. I promised everyone who contributed to this effort that I would not name the people helping. At some point some of these people may choose to come forward.

The English version of the video is here, the Russian version is here, and the "Russian Untouchables" website is here.


The Strange Case Of Joshua Cantor

In July 2001, the president of American Bank Note Holographics pleaded guilty to a four-count federal criminal information. It charged him with conspiracy to defraud the U.S., a books-and-records violation, making false statements to auditors, and conspiracy to violate the FCPA. The charges arose from bribes paid on behalf of American Bank Note in Saudi Arabia.

Joshua Cantor was scheduled to be sentenced in 2003. Bail was set at $250,000 and he was ordered to surrender his "travel documents and other international travel papers."

Cantor wasn't sentenced in 2003. According to the court docket (available here), sentencing was postponed a couple of times. The last date the court set was December 6, 2006. Sentencing didn't happen then, however, and no new date was ever set. So nearly nine years after pleading guilty to four bribery-related felonies, Cantor is out on bail without a sentencing date.

What's life been like for him? Apparently normal. He travels a lot. Since 2003, the court has approved trips to Puerto Rico and Israel (twice each), Brazil, Canada, the British Virgin Islands, Spain, the Dominican Republic and Barbados. Presumably the trips are for business.

Meanwhile, according to the court docket, most of which is sealed, the case has been dormant for two years, with no new activity reported to the public.

What's up with this case? Has Cantor slipped through the cracks in the federal criminal justice system? Or does his special treatment mean he's somehow helping the government? Is he a cooperating witness in related bribery investigations?

There have been persistent rumors that Securency, the polymer banknote-maker half owned by the Reserve Bank of Australia, paid bribes and offered favors to win contracts in Asia, Africa and Latin America. Last month we heard unconfirmed reports about Australian federal police visiting Washington to meet with the DOJ's FCPA team. Was a chat with Joshua Cantor, who's from the same industry as Securency, on the agenda?

U.S. v. Cantor was filed on July 17, 2001 in the U.S. District Court, United States District Court for the Southern District of New York (Foley Square), Criminal Docket #: 1:01-cr-00687-BSJ-1. The case is currently assigned to Judge Barbara S. Jones.


The Compliance World Series

Holding countries publicly accountable for antibribery enforcement is a key to global compliance. Measuring performance inning by inning and posting the results on the scoreboard tells each government where it stands. And it tells the citizens of each country what their leaders are doing to fight global graft.

Last week we talked about Trace's contribution to the compliance scoreboard with its first-ever Global Enforcement Report -- a remarkable summary of "all known international anti-bribery enforcement actions since the FCPA’s passage some 33 years ago."

This week there's more good news. The OECD's Working Group on Bribery has just published enforcement data from 37 of its 38 members that measures  enforcement activity. It includes "criminal, administrative and civil cases of foreign bribery that have resulted in a final disposition, such as a criminal conviction or acquittal, or similar findings under an administrative or civil procedure." The numbers go back to 1999, the year the OECD's Antibribery Convention came into force.

The highlights: One hundred forty-eight individuals and 77 entities were sanctioned under criminal proceedings for foreign bribery in 13 Parties (member countries) between 1999 and the end of 2009. At least 40 of the sanctioned individuals were sentenced to prison. Combined fines of up to €1.24 billion have been imposed on companies sanctioned for foreign bribery. About 280 investigations are ongoing in 21 Parties to the Antibribery Convention.

The low-lights: Germany records the most acquittals in enforcement actions with 24. Japan, the world's second largest economy, reported eight enforcement actions during the 10 years from 1999, and France, the world's fifth largest economy, reported one. (Hungary, with about the world's 70th biggest economy, reported 27 enforcement actions).

The Working Group's enforcement data can be downloaded from the OECD's site here.


Ex-KBR Boss Remains Free

Albert Jack Stanley (Credit PBS's Frontline)A federal judge in Houston last week postponed sentencing for Albert "Jack" Stanley until September 23, 2010. The former chairman and CEO of KBR pleaded guilty in September 2008 to a two-count criminal information charging him with conspiracy to violate the Foreign Corrupt Practices Act and to commit mail and wire fraud. He's free on unsecured bail of $100,000 pending sentencing, which has been rescheduled a half dozen times.

Stanley, 66, admitted that from 1995 to 2004, he helped a joint venture that included KBR and its predecessors funnel $182 million in bribes to government officials in Nigeria. The bribes were paid in exchange for contracts worth $6 billion to build liquefied natural gas facilities. He was sentenced to 84 months in prison and a restitution payment of $10.8 million. The jail term is subject to review based on his cooperation.

KBR pleaded guilty in February 2009 to violating the FCPA. It paid a $402 million criminal fine and, with its former parent company Halliburton, $177 million in disgorgement. Two of KBR's partners in the TSKJ joint venture have set aside money for FCPA-related settlements. French company Technip in February this year disclosed a €245 million reserve, and Italy's ENI said a month later it has a €250 million FCPA-related provision.

Stanley's testimony is likely to be at the center of FCPA enforcement actions against Technip and ENI and two U.K. citizens accused of helping the joint venture bribe Nigerian officials. The DOJ rarely seeks final sentencing against important witnesses in white collar prosecutions until they have finished giving court testimony in related cases.

Jeffrey Tesler, 61, and Wojciech Chodan, 71, were indicted in February 2009 by a federal grand jury in Houston. They were charged with one count of conspiracy to violate and ten counts of violating the FCPA. The indictment also seeks forfeiture from them of more than $132 million, the amount of the bribes U.S. prosecutors say they arranged to pay on behalf of KBR and its partners to Nigerian officials. If convicted on all counts, they each face up to 55 years in prison.

London judges earlier this year said Tesler and Chodan should be extradited to the U.S. to face trial. After all appeals, it could be a year before their extraditions happen.

Under his plea agreement, Stanley can't ask for a reduction in his sentence based on his cooperation or the value of his testimony. But the DOJ can recommend a lighter sentence to the judge if it believes Stanley has fulfilled the conditions of his plea.

His sentencing was first set for November 20, 2008 before Judge Keith P. Ellison in Houston. Since then it has been reset six times, including last week's action.

Download the September 3, 2008 plea agreement in U.S. v. Albert Jackson Stanley here.


Fixing The CPI

Transparency International’s Corruption Perception Index is the world's most watched measure of national graft. The CPI is cited in stories everywhere, usually as proof that a country is wallowing in corruption. But not everyone is a fan.

Criticisms include the CPI's use of third-party surveys, sampling inconsistencies, an inability to compare year-to-year rankings in a statistically meaningful way, and the amalgamation of data from multiple years. (See this critique from Nathaniel Heller at Global Integrity.)

But the CPI may be getting a facelift. Transparency International is reported to be monitoring Russia and the United States in a test drive of its new way to measure corruption.

A Russian participant at U.S. - Russia bilateral trade talks told the Russian press how a TI representative described a different way corruption numbers will be tracked. Details haven't been released. But in the U.S. - Russia test run, TI apparently will compare its traditional survey approach to a new methodology that will also include input from native NGOs, sociologists, and other experts.

A report earlier this year from RIA Novosti said the new methodology -- which should be completed during 2010 -- will prioritize what Americans and Russians think is important about their home country's corruption.

Based on the U.S. - Russia test, the new system can be analyzed and critiqued before its planned application to other countries.

TI, however, has said the RIA Novosti report is wrong and there are no formal plans involving Washington and Moscow to change its evaluation criteria.

"There was no agreement between Transparency International and Russian negotiators," the organization's Media and Public Relations Manager Gypsy Guillen Kaiser said in a letter to RIA Novosti. However, she admits that NGOs participating in the meeting agreed to collaborate and share information on ways to research, tackle and monitor corruption in their respective countries.

"There was no agreement to develop universal corruption evaluation criteria within six months," she added. "NGOs present agreed to exchange views on ways to research corruption and methods for monitoring implementation of anti-corruption plans."

The CPI currently ranks the United States 19 and Russia 146 out of 180 countries. 


Saving Guatemala

Carlos Castresana Fernández ranks as an anti-corruption superhero. For two-and-a-half years, the Spaniard headed the International Commission against Impunity in Guatemala, or CICIG, a partnership between the U.N. and Guatemala's government. It was set up to reassert the rule of law in the country after 36 years of civil war. And it succeeded beyond anyone's expectations.

But last week Dr. Castresana resigned. The former Public Prosecutor of the Supreme Court of Spain and a specialist in white collar and drug-related prosecutions said he needed a break. No one blamed him. His job was always dangerous because he took it seriously. Even through his resignation he managed to remove another corrupt official. This time it was the new attorney general, whom he accused in his final hours in the job of being tied to organized crime. Within a few days, the country's Constitutional Court ordered the AG out of office, the first time any court in Guatemala had acted against such a high-ranking office holder.

During Castresana's tenure, according to U.N. reports, some 2,000 Guatemalan police officers, or 15 percent of the force, were fired for corruption. Because of lack of cooperation, a prior attorney general, 10 prosecutors and three supreme court justices had been dismissed. Through criminal prosecutions, 130 people were sent to jail, including a former president as well as former ministers of defence, finance and interior. 

Castresana drove the process but credited success to "reliable police officers and prosecutors and with the support of some 90 per cent of the population and civil society and the private sector."

Police and judicial corruption is a special kind of nightmare. It strips power away from honest citizens and hands it over, irrevocably, to their enemies. Once that happens the system is powerless to fix itself. Outside intervention is the only way. That's where Castresana came in.

Guatemala hasn't been the subject of FCPA enforcement actions so it's off the usual compliance radar. But the country's 13 million people have suffered under the burden of corruption for a long time. No doubt they're worried today as their superhero packs his bags. They should be.

On Friday, the Guatemalan Times carried this item: "Yesterday also, four decapitated heads were discovered in prominent places of the city. Messages where attached to the heads directed at the Ministry of the Interior and the prison system. The real intent of this gruesome display of violence can also be interpreted as a very clear statement of the dark forces that promote impunity in Guatemala, who felt empowered after Dr. Castresana resigned. The groups wanted to send an unequivocal message to the population, to the justice system and to the President of Guatemala."


Global Enforcement's Bad Math

American business people have always been troubled by the Foreign Corrupt Practices Act. It's not that they want to pay bribes overseas. They don't. But they also don't want companies from other countries paying bribes to win work.

The U.S. government agrees. For more than three decades, the feds -- led by the DOJ and the Commerce Department -- have been working hard to spread the anti-corruption enforcement message. Despite their efforts, the level playing field remains a distant dream.

Just how distant was made clear last week. Trace International released its first Global Enforcement Report (GER). It's a remarkable summary of "all known international anti-bribery enforcement actions since the FCPA’s passage some 33 years ago." And although it shows the U.S. isn't alone in the battle against graft, our few allies are a long, long way behind.

Of 515 outbound, or foreign, enforcement actions recorded by Trace, more than 75 percent are U.S. matters. The remaining 25 percent are the result of the combined efforts of 21 other nations. The United Kingdom ranks a distant second in the number of outbound bribery cases with 4.3 percent of the total.

Trace, with understatement, says a lot remains to be done. No one will disagree.

The GER won't bring welcome news to those who hoped the level playing field was at hand. It's not. But the GER is very welcome for another reason. For the first time, and with hearty thanks to Trace, the state of global antibribery enforcement is in plain sight. It may not be pretty, but just by being visible it's an eloquent and high-decibel call for other countries to join the battle.

Download a copy of Trace International's 2010 Global Enforcement Report here.