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Richard L. Cassin Publisher and Editor

Andy Spalding Senior Editor

Jessica Tillipman Senior Editor

Elizabeth K. Spahn Editor Emeritus

Cody Worthington Contributing Editor

Julie DiMauro Contributing Editor

Thomas Fox Contributing Editor

Marc Alain Bohn Contributing Editor

Bill Waite Contributing Editor

Shruti J. Shah Contributing Editor

Russell A. Stamets Contributing Editor

Richard Bistrong Contributing Editor 

Eric Carlson Contributing Editor

Bill Steinman Contributing Editor

Aarti Maharaj Contributing Editor


FCPA Blog Daily News

Monday
Jun222009

Russian Headwinds Hit Investors

Russia -- the world's largest country by land mass, with 11 time zones and 142,000,000 people, one of five permanent members on the UN Security Council, member of the Group of Eight (G8) industrialized nations, and possessor of the largest stockpile of nuclear weapons on the planet -- yes, that Russia, ranks 120th on the World Bank's Doing Business Index (here). That's low, but in the narrower category of dealing with construction permits, it sits at a subterranean 180th, just one spot above last-place Eritrea. There's no doubt, then, that Russia is the modern world's undisputed red-tape colossus.

Just what that means for foreign investors who take compliance seriously was illustrated by a recent story from the AP via the Moscow Times.

The background: Global furniture retailer Ikea -- privately held and based in Sweden -- opened its first store in Russia in 2000 and has since opened 10 more. Its country investment, it says, amounts to more than $3 billion and its workforce in Russia has grown to 7,000.

According to the AP report, Ikea has always had a tough time dealing with Russian red tape and corruption. "On several occasions the company had to delay openings of its stores as regional authorities raised issues with store construction and design, safety or environmental features." As bad as past problems were, however, they may be getting a lot worse.

A store-opening in Samara in the Volga River region is now more than a month late and counting. Local bureaucrats imposed a last-minute requirement that the building be able to withstand hurricane-like 30-meter-per-second winds, even though the strongest winds recorded there have never exceeded 17 meters per second. Ikea now says there's no timeline for the opening.

And authorities last month began investigating whether the company violated anti-monopoly laws. They allege Ikea urged tenants in a mall it runs outside Moscow to buy services from certain vendors. Ikea says the allegations are false.

The company used to be an outspoken critic of bribery and corruption in Russia. It dropped that approach and now uses softer words, like "gray areas." Does the change in vocabulary signal a change in compliance policies? Who knows? But for now, at least, Ikea has put all further Russian expansion on hold. And it's not clear how it intends to deal with the current pressures.

A Western business person in Russia said, "For a foreign company that is still dependent on a lot of different ministries to do their work to go on [an aggressive anti-corruption] campaign ... tends to be a bad idea. If they want to have a future in a country, they can't make enemies."

* * *
From Frederic Bourke's Trial. The defense needed a shot in the arm and got it on Friday, big time. Bourke's friend George Mitchell took the stand for four hours in the federal criminal trial in Manhattan. That's a lot of face time from the former Democratic Senate majority leader and current special envoy for President Obama to the Middle East.

Mitchell's message? Bourke, who recommended the Azeri privatization deal, never suggested bribes were being paid. An while Mitchell now regrets his $200,000 investment in Viktor Kozeny's crooked scheme, he trusted Bourke then and still trusts him today.

The Courthouse News Service has an account of Mitchell's testimony here; Bloomberg's David Glovin filed his report here.

Read all our posts about U.S. v. Kozeny and the prosecution of Frederic Bourke here.
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Sunday
Jun212009

Sir Allen's FCPA Mystery

The Texas billionaire with a Caribbean knighthood and a passion for cricket was charged by U.S. prosecutors on Friday with running a "massive ponzi scheme" through his bank in Antigua. Allen Stanford, 59, faces 21 charges that could send him to prison for 250 years, including mail and wire fraud, money laundering, and conspiracy to mislead the Securities and Exchange Commission.

Included in the federal criminal indictment unsealed Friday and the SEC's amended civil complaint are allegations that Stanford paid $100,000 in bribes* to Leroy King, the former head of Antigua's banking watchdog, the Financial Services Regulatory Commission. In return, prosecutors say, King, 63, staged phony audits of Stanford's bank, lied to the SEC about how the bank was being run, and leaked confidential information to Stanford about the SEC's investigation. In other words, Stanford knowingly made corrupt payments to a foreign official to obtain or retain business or gain an unfair advantage.

Wait a minute. That sounds exactly like a violation of the Foreign Corrupt Practices Act. So why wasn't Stanford charged under the FCPA? The Justice Department isn't saying. But a few reasons come to mind.

#1. The prosecution's case works better without an FCPA count. Stanford isn't the only one charged. Indicted with him are Laura Pendergest-Holt, Gilberto Lopez and Mark Kuhrt, all officers in his bank. And there's Leroy King himself, Stanford's alleged mole in Antigua's banking regulator.

They're all charged with one count of conspiracy to commit mail, wire and securities fraud; seven counts of wire fraud; ten counts of mail fraud; and one count of conspiracy to commit money laundering. The indictment also charges Stanford, Pendergest-Holt, and King with conspiracy to obstruct an SEC proceeding.

(Facing the same charges through a separate indictment is another company officer, James Davis. And an employee, Bruce Perraud, is separately accused of destroying records related to a federal investigation.)

It makes sense for the government to put Stanford, Pendergest-Holt and King on trial together. They're all part of the same alleged plot to mislead the SEC and derail its investigation. But if Stanford had been charged with violating the FCPA, King could probably demand a separate trial. He can't be charged under the FCPA for taking bribes, and would likely argue he doesn't belong in a trial that includes an FCPA count against someone else.

The government says King's role in the alleged conspiracy was crucial.** So splitting him from the others would leave an empty chair at the defense table and a big hole in the prosecution's case against Stanford. Having him in the courtroom will complete the picture and help the jury get it.

#2. Leroy King is an American. According to the SEC's complaint, he's a citizen of the United States as well as Antigua and Barbuda, West Indies. Can an American citizen be a "foreign official" under the FCPA? If not, then there's no FCPA violation.

The law itself doesn't exclude the possibility of an American being a "foreign official." In fact, there's nothing there about nationality.***

Still, if Stanford were charged under the FCPA because of his alleged payments to King, it would be the first time, we think, where the "foreign official" in an enforcement action is an American with dual citizenship. Do Stanford's prosecutors want to be first to tackle an oddity like that? We doubt it. Foreign means foreign, Stanford might argue, and it doesn't mean American. The dictionary supports that argument, and in the FCPA's legislative history, it's unlikely anyone was talking about Americans as "foreign officials."

Bottom line: The DOJ wants to put Stanford and the others behind bars, not press for a funky new FCPA precedent that could result in years of appeals all the way to the Supreme Court.

#3. Prosecutors don't need the FCPA in this case. With Stanford already facing up to 25o years in prison, would another 5 years on an FCPA count really matter? So why risk sending the co-conspirators into separate trials and injecting the American foreign official controversy into an otherwise clean prosecution? Besides, the government doesn't need the FCPA count to introduce evidence about the alleged bribery. Arrangements between Stanford and King are at the heart of the case already so relevance won't be an issue.

King, by the way, is apparently in Antigua. U.S authorities plan to extradite him.

View the DOJ's June 19, 2009 release here.

Download the June 18, 2009 indictment in US v. Robert Allen Stanford aka Sir Allen Stanford et al here.

View the SEC's Litigation Release No. 21092 / June 19, 2009 in SEC v. Stanford International Bank, Ltd., et al., Civil Action No. 3:09-cv-0298 (N.D. Texas, February 17, 2009) here.

Download the SEC's Second Amended Complaint in SEC v. Stanford International Bank, Ltd., et al. here.

View the Houston Chronicle's excellent full coverage of Stanford from Mary Flood, Tom Fowler and Jennifer Dlouhy here.

View our post Sir Allen And The FCPA.

_____________

* The SEC complaint says, "In addition to the cash payments, Stanford gave to King and his wife significant non-cash benefits, including: (i) use of Stanford’s fleet of private jets to travel throughout the United States and the Caribbean; (ii) use of an SIB [Stanford International Bank] corporate car; and (iii) 2004 Super Bowl tickets for King and a companion. Stanford subsequently hired King’s Super Bowl companion as a human resources project manager in Houston."

** The SEC said, "[Leroy King] facilitated the Ponzi scheme by ensuring that the FSRC [Financial Services Regulatory Commission] conducted sham audits and examinations of SIB's [Stanford International Bank's] books and records. In exchange for bribes paid to him over a period of several years, King made sure that the FSRC did not examine SIB's investment portfolio. King also provided Stanford with access to the FSRC's confidential regulatory files on him, including the SEC's requests for information from FSRC in its investigation. King went so far as to allow Stanford to essentially dictate the FSRC's responses to the SEC on those information requests. King made false assurances that there was no cause for concern about Stanford International Bank. He collaborated with Stanford to withhold significant information being requested by the SEC."

*** The FCPA says, The term “foreign official” means any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization.
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Thursday
Jun182009

The Friday Round Up

Reports from the BBC and the Straits Times say the Chinese Communist Party (CCP) is trying once again to get rid of secret accounts held by local officials. Known as "little coffers," the money is skimmed from public funds. The CCP directed party and government officials to disclose the accounts or face severe punishment. China often imposes the death penalty in major corruption cases.

"The illegal phenomenon has resulted in inaccuracy in accounting, disturbance in market order, losses in state income and property and corruption," the party said in a document titled "Directions on Deepening the Crackdown of Small Exchequers."

The "little coffers" have become a big problem lately as government budgets at all levels have grown, increasing opportunities to skim funds. The BBC said "audit reports have often found money that has been spent on apartments, cars and trips abroad for staff, and sometimes disappeared in outright embezzlement."

* * *
Bourke's Big Gun. Bloomberg's David Glovin leads his latest dispatch from the federal courthouse in Manhattan with this: George Mitchell, the ex-Democratic Senate majority leader and President Barack Obama’s envoy to the Middle East, is set to testify [Friday] as part of Connecticut entrepreneur Frederic Bourke’s defense to charges that he helped bribe government leaders in Azerbaijan.

Glovin says Mitchell’s name has come up throughout the trial. He writes, "On the recommendation of Bourke, Mitchell put up $200,000 and became a director of a U.S. company formed by Kozeny. Mitchell, a Maine Democrat who left Congress in 1995, was friends with Bourke, who has a home in Maine."

Read David Glovin's reports on the trial for Bloomberg here.

Read all our posts about U.S. v. Kozeny and the prosecution of Frederic Bourke here.

* * *
Jefferson's #%@&!. The BLT's Jordan Weissmann filed this report yesterday from William Jefferson's trial in Alexandria, Virginia:

Jurors listened to a profanity-laced phone call in which Jefferson said he and iGate CEO Vernon Jackson would "end up in the goddamned pokey" if they angered one of the company's chief investors. During the call, Jackson had suggested replacing Virginia businesswoman Lori Mody, with whom he had a strained relationship. Jackson said he had found a new backer willing to step into her place. Jefferson called the idea "crazy," adding, "Lori's going to be filing suits."
Read all our posts about William Jefferson here.

* * *
We never get tired of spending time with E.B. White. He's so cheerful, without being chirpy and irritating. Like this passage from his 1971 essay, "The Winter of the Great Snows:"

"For a while, the barnyard fence was buried under a magnificent drift. This delighted the geese, who promptly walked to freedom on their orange-colored snowshoes. They then took off into the air, snowshoes and all, freedom having gone to their heads, and visited the trout pond, where they spent an enjoyable morning on the ice. On several occasions this winter, we had to shovel a path for the geese, to make it possible for them to get from their pen in the barn to their favorite loitering spot in the barn cellar. Imagine a man's shoveling a path for a goose! So the goose can loiter!"

From the Essays of E.B. White.
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Wednesday
Jun172009

Witnesses Hit Bourke And Jefferson

From Frederic Bourke's Trial. Outstanding coverage on the testimony this week of Hans Bodmer, Viktor Kozeny's Swiss lawyer, from the Courthouse News Service here and Bloomberg's David Glovin here.

From Glovin's account:

Bodmer, who is testifying for prosecutors in exchange for leniency and admits knowing of the bribery scheme, testified yesterday that he told Bourke about the payments. . . .

[S]peaking methodically through a thick German accent, [he] told jurors he was surprised when Bourke asked him about the “arrangement” [to pay Azeri officials bribes] because it was a “sensitive matter.” After getting permission from Kozeny, Bodmer said he outlined the scheme. Justice Department lawyer Robertson Park asked Bodmer how Bourke responded.

“No specific response,” Bodmer testified.

And from the Courthouse News Service, which described Bodmer as "the gaunt-faced but handsome witness,"
After receiving permission from Kozeny to reveal the details, Bodmer said he took Bourke on a 15- to 20-minute walk outside the hotel [in Baku, Azerbaijan], fearing that the lobby and the rooms may have been bugged. Bodmer testified that at the time he suspected that Bourke already knew about the scheme.
Frederic Bourke is on trial in Manhattan federal court on charges that he invested $8 million with Viktor Kozeny, knowing about the plan to bribe Azeri leaders in a bid to buy the state oil company. Bourke, 63, denies that he knew about Kozeny's bribery, and says he is among the victims who lost a total of $350 million in the scheme.

Bourke is co-founder of luxury handbag brand Dooney & Bourke. He faces up to 30 years in prison if convicted on all counts, including conspiring to violate the Foreign Corrupt Practices Act, money laundering, and lying to federal investigators. Kozeny, a Czech national who was also charged with violating the FCPA, is a fugitive living in the Bahamas.

Read David Glovin's reports on the trial for Bloomberg here.

Read all our posts about U.S. v. Kozeny and the prosecution of Frederic Bourke here.

* * *
From William Jefferson's Trial. The AP's Matthew Barakat reports on the testimony of the government's first witness here. Vernon Jackson, a Kentucky businessman who already pleaded guilty in the case and was sentenced to 87 months in prison, said he paid hundreds of thousands of dollars in "consulting fees" to Jefferson's wife that were nothing but thinly veiled bribes. Barakat writes,

Jackson is also one of the trial's most important witnesses. Out of numerous bribery schemes that prosecutors allege Jefferson orchestrated, the one involving Jackson was the most advanced and involved the largest payments. . . . He stands to receive a reduction in his sentence in exchange for his testimony against Jefferson.
Jefferson, 62, served nine terms in congress from Louisiana before losing his seat last year. He is charged with soliciting bribes, racketeering, money laundering and violating the Foreign Corrupt Practices Act. Testimony in his trial in federal court in Alexandria, Virginia started this week. He faces up to 20 years in jail.

Jackson sought business help from Jefferson to land army contracts for his company, iGate. Although the relationship was legitimate at first, Jackson said, Jefferson later told Jackson to hire his wife, Andrea, as a consultant. Jackson said he agreed to pay her $90,000 a year in consulting fees, plus a percentage of profits, but she didn't do any work. "I was paying [Jefferson] to use his office on behalf of iGate," Jackson said.

Read all our posts about William Jefferson here.

Tuesday
Jun162009

All Good For Sun?

In May, a month after it agreed to be acquired by Oracle for $7.4 billion, Sun Microsystems said it may have violated the Foreign Corrupt Practices Act and that the violations could have a material effect on its business. It launched an internal investigation and shared the results with the Justice Department and the Securities and Exchange Commission. See our post here.

Now it looks like it was all a false alarm. Sun's latest SEC filing, a Definitive Merger Proxy dated June 8, 2009 (Schedule 14A), says this:

Section 4.13. Compliance with Applicable Law.

(a) The Company and each of its Subsidiaries is and, since June 30, 2006 has been, in compliance in all material respects with all Applicable Laws and Orders. Neither the Company nor any of its Subsidiaries has received any written notice since June 30, 2006 (i) of any administrative, civil or criminal investigation or audit by any Governmental Authority relating to the Company or any of its Subsidiaries or (ii) from any Governmental Authority alleging that the Company or any of its Subsidiaries are not in compliance with any Applicable Law or Order in any material respect.

And a little later in the merger document, Sun represents to Oracle that without exception it has "complied with the U.S. Foreign Corrupt Practices Act of 1977 and other applicable anti-corruption laws." (see Section 4.24)

So, no FCPA violations and no notice from the DOJ or SEC of any investigations. A clean slate.

Not many internal FCPA investigations end this way. More often -- usually, in fact -- they start because of apparently reliable signs of compliance trouble. Most investigations then end up confirming that yes, violations occurred -- usually beyond the scope of initial concerns. Sun's outcome, therefore, isn't typical.

What happened here? Sun isn't saying. But the timing may not have been accidental. Did anonymous whistleblowers opposed to Oracle's acquisition file false complaints? It's happened before. Did people upset about potential disturbances in Sun's pivotal and hallowed role in the open-source community try to torpedo the deal by tossing false allegations into the mix? Twisted, but possible.

Wherever the allegations came from, Sun made all the right moves. It responded fast with a proper internal investigation, self-reports to the feds, and full disclosure to the marketplace. After all that, it came up with nothing. Compliance program and corporate integrity intact. Great result. Time to move on.

Before we all scatter, though, one last question.

Could Sun's statements in its merger proxy be wrong? Just boilerplate reps saving the place in the text? Might Sun still have FCPA problems it isn't disclosing just yet? Not likely, considering the Lockheed Martin / Titan case.

Those companies planned to merge in 2003. During due diligence, Titan was found to have serious FCPA compliance issues. Before Lockheed Martin terminated the merger, Titan had already filed an 8-K disclosure document with the SEC that included a proxy form with the merger agreement attached to it. That merger agreement, like Sun's, contained an unqualified representation by Titan to Lockheed Martin affirming FCPA compliance. But the representation later proved to be untrue.

The SEC warned through a release that the 8-K was a "communication with shareholders" from Titan and that a reasonable investor could have relied on the untrue FCPA representation, resulting in liability for securities law violations. Presumably, that SEC release would have guided Sun's preparation and publication of its Definitive Merger Proxy, including the compliance reps quoted above.

See Securities Exchange Act of 1934 Release No. 51283 / March 1, 2005 Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934 and Commission Statement on potential Exchange Act Section 10(b) and Section 14(a) liability here.

Editor's Note: It's not all that clear whether Sun's reps are correct as written. Take a look at the AmLaw Daily's story suggesting Sun may have jumped the gun with its filing. We're waiting for clarification from Sun itself. And so, we imagine, are its shareholders.
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Monday
Jun152009

Jefferson's Judge Keeps Things Moving

Opening arguments start today in the federal criminal trial of former congressman William Jefferson for corruption and violating the Foreign Corrupt Practices Act. During three days of jury selection last week, the tone from the bench was strictly no-nonsense. A Louisiana TV station carried this revealing report:

One potential juror who was interviewed told the court she believed “large sums of money in a freezer is odd.” Jefferson’s Defense Attorney Robert Trout, moved to strike that juror, but Judge T.S. Ellis denied the request, saying the juror’s opinion does not presume guilt or innocence.

Later Trout requested the judge to ask potential jurors if they’re addicted to websites like Facebook and Twitter or online blogs. The judge once again denied the request, saying “I think it’s a silly question, it’s like asking people, ‘do you use a phone?’”

Trout also requested that the judge ask potential jurors whether a congressman can be effective while on private business deals. Ellis denied the request, saying he is not going to start trying the case during jury selection. . . .

Who's that judge? He's Thomas Selby ("T.S.") Ellis III, 69, (Princeton BSE, Harvard JD), a former Naval aviator and hard-charging litigator from Hunton & Williams. He was nominated to the bench by Ronald Reagan and began serving in 1987. He assumed senior status in April 2007 but still hears cases in both the Eastern and Western Districts of Virginia. And he sometimes sits by designation on the United States Court of Appeals for the Fourth Circuit.

The government told Judge Ellis last week that its key witness, Lori Mody, isn't likely to testify unless she's needed for rebuttal. Her complaints to authorities first triggered the investigation into Jefferson. The $90,000 in marked bills found in his freezer came from her. She also made secret recordings of some of their conversations. Those tapes will still be admissible at the trial, along with evidence about the cash in the freezer.

Bruce Alpert at The Times Picayune polled a few former federal prosecutors. They think the government's case isn't airtight. Mody's absence hurts. And Jefferson wasn't always explicit in their taped conversations. His lawyers will also argue that his public role and private acts should be viewed separately. The cash in the freezer? Explaining it is Jefferson's biggest problem. Still, according to Alpert's unscientific results, the most likely outcome is a hung jury. His story is here.

Read all our posts about William Jefferson here.
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Sunday
Jun142009

The Death Of A Long-Time Leader

Gabon's president, Omar Bongo, 73, died last week of heart failure while in Spain on a holiday. In 1967, at just 31, he became the country's second post-colonial ruler and stayed on to become the longest-serving head of state on the African continent.

Outside Gabon -- a West African country with about a million and a half people and lots of oil -- he was generally seen as a force for stability and regional peace. He was a dependable ally of Western countries, particularly France and the United States. Marking his death, President Obama said, "President Bongo consistently emphasized the importance of seeking compromise and striving for peace, and made protecting Gabon's natural treasures a priority. His work in conservation in his country and his commitment to conflict resolution across the continent are an important part of his legacy and will be remembered with respect."

Some Gabonese were quoted as saying they weren't sorry to have a leadership change after 42 years. Others were stunned by the death of the only president most of them had ever known. The wailing heard on reports from the BBC reminded us of stories about Americans who grew up during FDR's dozen years in office. Some never quite got over the trauma of his death, our mother included.

President Bongo appeared in this space a month ago in our post C'est Magnifique! A French magistrate had just ordered authorities to investigate how he and two other African rulers had managed to buy numerous luxury homes in posh sections of Paris and along the Riviera.

And in March we reported the civil lawsuit filed against him in Gabon by Marc Ona Essangui, a 45-year-old Gabonese anti-corruption campaigner. Ona Essangui, who's confined to a wheelchair, claimed damages after being stopped from leaving the country four times last year, once en route to an anti-corruption conference in New York. In December, he was arrested and jailed for ten days, charged with possessing a seditious document. It turned out to be an open letter to President Bongo that accused his government of mismanagement and corruption.

A couple of days after he died, stories appeared that he had secretly funded Jacques Chirac's 1981 presidential campaign. The source of the allegations was another former French president, Valerie Giscard d'Estaing. Chirac denied the charges. The U.K.'s Telegraph said: In a startling new claim concerning France's murky past ties with African leaders, Mr Giscard said the 73-year old Gabonese premier who died on Monday spent years building up a "very questionable financial network", and that he had broken off ties with him when he allegedly helped fund Mr Chirac's bid for the presidency.

Gabon was named in the very first Foreign Corrupt Practices Act enforcement action brought by the SEC, but it's never appeared again. In 1978, a firm called Page Airways, Inc. was accused of using a company owned by President Bongo as an intermediary in a deal to sell Gulfstream II business jets. Page promised not to violate the FCPA any more and was let off without financial penalties. But despite Gabon's clean FCPA record since then, it ranked 96th on the 2008 Corruption Perception Index, tied with Benin, Guatemala, Jamaica, Kiribati and Mali.

President Bongo's body was flown home last week as his nation started a month-long period of mourning. On Wednesday, the head of the senate, Rose Francine Rogombe, 66, was sworn in as care-taker president. The constitution requires an election within 45 days. Opposition politicians are questioning whether balloting will be free and fair. Some think Bongo's son, Ali-Ben, the current defense minister, has already been tabbed to replace his father (reports are here and here).
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Thursday
Jun112009

Are DOJ Releases Too Public?

It's been nearly a year since the last Foreign Corrupt Practices Act Opinion Procedure Release and we're wondering why. Release 08-03 was published in July 2008. Since then, nothing.

As background, the FCPA Opinion Procedure Regulations at 28 CFR Part 80 say any issuer or domestic concern can ask the Justice Department whether a proposed transaction would violate the FCPA. Responses from the DOJ are called Opinion Procedure Releases. They create "a rebuttable presumption" that the conduct in question complies with the FCPA and with the DOJ's current enforcement practices.

Although not binding on anyone except the requesting parties, and not creating legal precedent in the strict sense for anyone else, Releases matter. There's not much FCPA-related litigation, so they're a de facto substitute for judicial interpretation. Releases don't have the force of law (except as to requestors) but they're relied on by practitioners and compliance professionals all the time.

So Releases are important. They're also rare. Since 1993, there was only one year with four Releases -- 2004. There were four years with three Releases, six years with two Releases, two years with one Release, and three years with none -- 1999, 2002, and 2005. That's 28 Releases in 16 years -- an average of less than two per year. So a twelve-month gap between Releases isn't earth-shaking.

On the other hand, two of last year's Releases caused us some alarm. Here's why.

Release 08-01 was the longest on record -- 13 pages. The requestor wanted to know whether its investment in a privatization deal would be compliant. The problem was the presence of a co-investor who was presumed to be a "foreign official." The DOJ gave its blessing. But in doing so, it published what appeared to be all the details provided by the requestor. No names were mentioned but anyone involved would easily recognize themselves.

Last year's second Release, 08-02, was worse. Halliburton was fighting to buy British firm Expro through a hostile takeover. Another group of investors called Umbrellastream was also in the hunt. Halliburton's problem was that it couldn't do any real due diligence until after the acquisition. So if it bought Expro, it might end up with a subsidiary riddled with past and ongoing compliance problems.

To protect itself, Halliburton asked the DOJ for a green light, which it got. But in return it promised to dig deep into Expro after the acquisition, and to disclose what it learned to the DOJ. And not just that. It also promised to help the DOJ prosecute anyone at Expro who might be involved in FCPA offenses. Facing that kind of threat, it surprised no one when Expro landed in the lap of Umbrellastream instead of Halliburton.

Did the two Releases scare would-be requestors? Did all that public disclosure make a difference in the marketplace? Could a new reluctance be behind the hiatus in opinion requests? We don't know the answers but we have our suspicions. And we'll welcome hearing what our readers think.

All Releases since 1993 can be found here.
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Wednesday
Jun102009

More On Bourke and Jefferson

First Frederic Bourke. A witness testifying for the government this week at Bourke's trial in New York may have hurt the prosecution's case. Christine Rastas, who worked for Viktor Kozeny in Azerbaijan, said her boss told Egyptian businessman Shafik Gabr about bribing Azeri officials. Kozeny's conversation with his investor took place in a hotel bar in Moscow. Crucially, Bourke wasn't there, the witness said. And she doubted whether Kozeny needed to pay bribes at all. Local officials, she said, typically took legal stakes in privatization projects.

As Bloomberg's David Glovin reported here, her testimony could end up helping Bourke. I had worked on other projects where the government was an equity partner, Rastas, who is testifying for prosecutors in exchange for immunity, told jurors. So if one of Kozeny's insiders didn't know about the bribes, why should Bourke?

Rastas, who worked at the U.S. Defense Department before joining Kozeny, also recalled helping his security chief, John Pulley, flush some meeting notes down a toilet. She thought the notes were about trusts Kozeny was creating for Azeri officials.

Prosecutors say Bourke, 63, invested in the planned privatization of Azerbaijan's state oil company in 1998 despite knowing Kozeny would pay bribes. The privatization didn't happen and the dozen or so investors, including Bourke, lost a combined $350 million. In 2005, Bourke was charged with conspiracy to violate the Foreign Corrupt Practices Act, money laundering and lying to federal investigators. Kozeny was also charged but has stayed in the Bahamas to escape prosecution. New York state prosecutors have also charged him with stealing $180 million from his investors. Bourke faces 30 years in prison if convicted. He denies knowing about the bribes.

Read David Glovin's reports on the trial for Bloomberg here.

Read all our posts about U.S. v. Kozeny and the prosecution of Frederic Bourke here.

* * *
And William Jefferson. His trial started this week with jury selection. Federal district court judge Tim Ellis called about 100 potential jurors to his courtroom in Alexandria, Virginia. The pool will be narrowed to 12 regular jurors and four alternates. The trial of the former congressman, like Bourke's, is expected to last about a month. Judge Ellis said he's not planning to sequester the jury. Bruce Alpert's report for The Times Picayune is here.

Jefferson, 62, faces 16 counts including violating the FCPA, soliciting and accepting bribes, wire fraud, money laundering and obstruction of justice. He could be sentenced to 20 years in prison if found guilty.

In his report, Alpert said: Before the trial, Jefferson's attorneys had asked Ellis for a change of venue, accusing the Justice Department of trying the case in Virginia because it has a smaller pool of African-American jurors than there would be in either Washington, D.C., or New Orleans, where they argued the case should be heard. Ellis rejected the argument. The pool of potential jurors Tuesday was overwhelmingly white with only a handful of African-Americans. Jefferson is an African-American Harvard-educated lawyer and nine-term member of Congress.

Read all our posts about William Jefferson here.
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Tuesday
Jun092009

Liberia's Graft-Busting Leader

We've never heard of an African head of state asking the U.S. to deny visas to individuals suspected of corruption. Until now, that is. It happened on Friday when Liberia's president, Ellen Johnson Sirleaf (left), "pleaded with the Government of the United States of America not to give U.S. visas or provide safe havens for Liberians who commit fraud and other acts of corruption in Liberia." Her request came during the groundbreaking for the new U.S. embassy in Monrovia.

There's a report from AllAfrica.com here and another on the president's own snazzy website here. For the record, the U.S. State Department is authorized to deny visas to foreign kleptocrats and their families through Presidential Proclamation 7750. See our post Proclamation 7750 Unwrapped.

President Johnson Sirleaf -- or "Ellen," as the African headline writers like to call her -- probably angered a lot of corrupt officials in Liberia and across the African continent with her remarks. She does that a lot. Which is why she went to jail once and was forced into exile several times. But as a champion of the rule of law and an anti-corruption crusader, she's never wavered.

Now 71, the one-time Citibanker became Liberia's minister of finance in 1979. After a military coup in 1980, she served as president of the Liberian Bank for Development and Investment and was an initial member of the World Bank's Council of African Advisors.

In 1985, her bio says, she ran for the Liberian senate. But speaking out against the Samuel Doe regime resulted first in house arrest and eventually in a ten-year jail sentence. After a few months in prison she managed to flee to the U.S. She was then appointed to the U.N. as an Assistant Secretary General. In 1997, she returned to Liberia to run for president, finishing second in a field of thirteen.

In 2003, after Charles Taylor was sent into exile, the transitional government appointed Johnson Sirleaf to chair the country's anti-corruption agency. Then in 2005, she won the presidency. Since her inaguration in January 2006, she's been working to restore the rule of law and rebuild confidence at home and abroad. America's decision to build a new embassy there is one sign she's succeeding.

Johnson Sirleaf holds a masters in public administration from Harvard's Kennedy School. Two years ago in Washington, after she spoke to a joint session of Congress, she was awarded the Presidential Medal of Freedom "in recognition for her tireless efforts to make Liberia a post-conflict success story."

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From Frederic Bourke's Trial. The Litigation Daily's Andrew Longstreth dropped by the federal courthouse in Manhattan this week. His report is here. He heard some cross-examination on Monday of the government's key witness, Thomas Farrell, who worked for Viktor Kozeny in Azerbaijan. Farrell had testified on direct that he and Bourke talked about Kozeny's plan to bribe Azeri officials. Longstreth said:

Farrell, who sports a handlebar mustache and goatee, has some major credibility issues. For one, in 2003 he pled guilty to one count of violating the FCPA and to another count of conspiring to violate the FCPA. . . . But Farrell stood up to the pressure [of cross examination] pretty well. He seemed to connect with the jury, often looking directly at jurors. "Sir, I went into the discussions with the government knowing that I had to tell the truth about what happened," Farrell said at one point. "I didn't think I had to point fingers."
Farrell is facing a maximum of ten years in prison but said he's hoping for probation. "I have absolutely no control of that nor does the government," he testified.

Read all our posts about U.S. v. Kozeny and the prosecution of Frederic Bourke here.
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Monday
Jun082009

Big Day For The FCPA

History will be made with today's opening gavel in William Jefferson's federal trial. It will mark the first time a former member of congress has been prosecuted under the Foreign Corrupt Practices Act, and the only time the country has seen two FCPA trials staged simultaneously -- Jefferson's in Alexandria, Virginia and Frederic Bourke's in New York City.

Jefferson, 62, faces up to 20 years in prison. He's accused of violating the FCPA by arranging bribes to African officials to win contracts for his family's companies, and with soliciting and accepting bribes, wire fraud, money laundering and obstruction of justice. He lost an election last year for a 10th term in the House of Representatives from a district that includes New Orleans.

Frederic Bourke's trial started last week. He's accused of investing in a deal in Azerbaijan that he knew involved paying bribes to officials there. He faces up to 30 years in jail for violating the FCPA, money laundering and lying to federal investigators.

Jefferson's case caused a stir when it started in 2005. The FBI's raid on his congressional office was the first one ever. The Washington D.C. Circuit Court of Appeals said the raid was constitutional but the way the FBI reviewed Jefferson's documents wasn't. The tainted evidence can't be used at his trial. It was also the first time U.S. law enforcement agencies had raided the U.S. residence of an elected foreign official -- a home built in Maryland by Nigeria's then vice president, Atiku Abubakar, for his wife Jennifer Douglas.

For Jefferson and his family, these are terrible times. His brother Mose Jefferson, his sister Betty Jefferson, and his niece Angela Coleman, have all pleaded not guilty to federal corruption charges in Louisiana, where they helped run the family's political machine. On top of that, Jefferson's other sister, Brenda Jefferson Foster, has already pleaded guilty in the Louisiana case and will testify against her relatives. A judge has told the other indicted family members not to contact her. Their trial is scheduled to start in August.

Bruce Alpert at The Times-Picayune has a nice run-up to Jefferson's trial here.

Read all our posts about William Jefferson here.

Read all our posts about U.S. v. Kozeny and the prosecution of Frederic Bourke here.

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Resources that work. The James Mintz Group's latest newsletter has a nifty FCPA map. It marks all the countries named in enforcement actions during the past 10 years. Industry segments are depicted, along with the size of the financial penalties imposed. It reveals in a glance compliance red flags around the globe. The newsletter (with the fold-out FCPA map at pages 3 and 4) can be downloaded here.
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Sunday
Jun072009

More Disclosure, Less Graft

CoST -- the Construction Sector Transparency Initiative --- has a simple aim: to disclose in real-time critical information about public-sector construction projects. Why? To prevent corruption, which can't live in the sunshine.

One of CoST's backers is the World Bank. Another is the U.K.'s Department for International Development, which provided a £4.4 million grant for a two-year pilot program that started in May 2008. It's being run by PricewaterhouseCoopers (UK), with help from the London-based civil society group Engineers Against Poverty, the U.K. Institute of Civil Engineers, and TIRI, an anti-corruption NGO. Some of the countries giving CoST a try are Vietnam, Tanzania, Zambia, the Philippines, Ethiopia and Malawi.

When governments enroll a project in CoST, important things happen. First, the sponsoring agency consents to a rigorous series of external audits. It also commits to disclose to the public information directed at some basic questions: how did the idea for the project originate and does it make sense ("do we need a bridge that doesn't go anywhere?"); who evaluated the project to make sure it can do what it's supposed to; and what's changed since the original tender, like the scope and price?

The idea is to let the public compare what was planned to what was delivered, and to ask hard questions at each stage. That accountability, CoST says, should "reduce wasted opportunities and expenditure." We agree.

It sounds a bit fuzzy but it's not. The CoST oversight team assembled for each project shows up with management go-bys -- templates, forms and schedules that identify the critical information to be disclosed, and how and when to do that. And CoST helps clients collect feedback and put it to use.

The way CoST sees it, public disclosure is one of the best anti-corruption tools. It's simple and cheap, and it produces lots of winners. Government sponsors, for example, have a better chance of getting what they pay for. Construction companies are more likely to keep their noses clean and reputations intact. They also enjoy a more level playing field. Civil society groups and the citizens they represent are happy to see more integrity in government. And lenders are reassured about the credit-worthiness of the project, knowing it's transparent.

CoST's website is here. Before visiting, though, be warned. The text sounds like a grant proposal, and probably is. Too bad, because the ideas behind CoST are good ones and deserve a warm-blooded presentation. Let's hope for a make-over sometime soon so the message isn't lost under all that jargon.

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From Frederic Bourke's trial. In a story on Bloomberg's subscription news wire, David Glovin reports Friday's testimony, and it wasn't good for Bourke. Glovin's lead: Connecticut entrepreneur Frederic Bourke twice asked whether accused con man Viktor Kozeny should pay more in bribes so the government of Azerbaijan would sell its state oil company, a witness testified.

The witness, Thomas Farrell, was one of Kozeny's top aides in Azerbaijan. Bourke, he said, asked, "Has Viktor given them enough money?” Farrell said he responded, “I think so. They seem happy.”

Frederic Bourke, 63, co-founder of handbag-maker Dooney & Bourke, is on trial in federal court in Manhattan for violating the Foreign Corrupt Practices Act, money laundering and lying to federal investigators. Prosecutors allege he invested with Kozeny in a 1998 privatization deal in Azerbaijan, knowing Kozeny planned to bribe the country's leaders. Bourke faces 30 years in prison if convicted. Kozeny himself has also been charged but he's a fugitive living in the Bahamas. The trial is expected to last a month or more.

Read David Glovin's prior reports on the trial for Bloomberg here.

Read all our posts about U.S. v. Kozeny and the prosecution of Frederic Bourke here.
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