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Richard L. Cassin Publisher and Editor

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Cody Worthington Contributing Editor

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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

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."

* * *
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.

* * *
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.

* * *
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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Thursday
Jun042009

Defense Contractor, Ex-Exec Settle Charges

The Securities and Exchange Commission last week filed settled enforcement actions against United Industrial Corporation (UIC), an aerospace and defense systems contractor, and Thomas Wurzel, the former President of UIC's one-time subsidiary, ACL Technologies, Inc.

Wurzel agreed to pay a $35,000 civil penalty; UIC will pay $337,679.42 in disgorgement and prejudgment interest.

The SEC said Wurzel authorized illegal payments to Egyptian Air Force officials through an agent in return for business related to a military aircraft depot in Cairo. The bribes helped UIC's subsidiary ACL win a $5.3 mllion contract with profits of about $267,000. The illegal payments were covered up in ACL's books through false invoices and payments for “equipment and materials” and “marketing services.”

Wurzel and UIC were charged with violating the anti-bribery, books and records and internal controls provisions of the Foreign Corrupt Practices Act; Wurzel also faced aiding and abetting violations. Both defendants also agreed to cease and desist orders.

The SEC said it had jurisdiction because UIC's common shares were listed on the New York Stock Exchange when the offenses occurred in 2001 and 2002. Textron acquired UIC in December 2007.

The Justice Department hasn't announced any criminal enforcement actions against UIC or Wurzel.

The SEC's Litigation Release No. 21063 and Accounting and Auditing Enforcement Release No. 2980, dated May 29, 2009, in Securities and Commission v. Thomas Wurzel, Civil Action No. 09-Civ-01005 (RWR), United States District Court for the District of Columbia, can be viewed here.

A copy of the SEC's cease and desist order against UIC can be downloaded here.

A copy of the SEC's complaint against Thomas Wurzel can be downloaded here.

* * *
From Frederic Bourke's trial. Day four testimony by the government's witness Thomas Farrell, an American living in Russia who helped Kozeny with logistics. He recounted a meeting he, Kozeny and a Chechen had with Ilham Aliyev, then vice president of the state oil company, and Barat Nuriyev, the state property committee's deputy chairman:

“Nuriyev
made very clear very quickly that him and his boss were representing the president of Azerbaijan,” who was then Heidar Aliyev, Farrell testified. “He said it: ‘The family.’ And he also pointed over his shoulder. There was a portrait of the president.” . . . Kozeny offered to give Azeri leaders half the profits after he bought the state oil company at a steep discount and resold it to Westerners for billions of dollars. At a later meeting, Nuriyev demanded two-thirds of Kozeny’s profits from the sale of the oil company, known as Socar, Farrell said.

Bourke didn’t invest with Kozeny until months after the meeting with Nuriyev and denies knowing about the bribery scheme. He says Kozeny stole his $8 million investment.

Selective prosecution? Bourke’s defense lawyer Harold Haddon cross examined John Pulley, Kozeny’s security chief. Pulley admitted investing $410,000 with Kozeny. He wired money to Kozeny’s lawyer, Hans Bodmer, who routed his funds through a shell company Bodmer set up in the British Virgin Islands, just like Bourke. And Pulley, like Bourke, said he didn't know about the bribes. Pulley hasn't been charged in the case.

Read David Glovin's full report from the courtroom on the Bloomberg news wire here.

Read all our posts about U.S. v. Kozeny and the prosecution of Frederic Bourke here.
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Wednesday
Jun032009

Jefferson On Trial, Soon

Former Congressman William J. Jefferson's trial for violating the Foreign Corrupt Practices Act and other federal laws will start on June 9 in Alexandria, Virginia. Judge Tim Ellis this week granted Jefferson a one-week delay. He's charged in a 16-count indictment with FCPA violations, soliciting and accepting bribes, wire fraud, money laundering and obstruction of justice. He could be sentenced to a maximum of 235 years in prison if convicted on all counts.

Jefferson's case is best known for allegations that he hid $90,000 in the freezer at his Washington home. The indictment said it was part of $100,000 provided in August 2005 by the government's cooperating witness. It was supposed to be used to bribe a Nigerian official to steer telephone service-related business to Jefferson's family members. "The cash was separated into $10,000 increments, wrapped in aluminum foil, and concealed inside various frozen food containers," according to prosecutors.

Jefferson's lawyers have said the money "was transmitted to Mr. Jefferson by the government's cooperating witness during the course of the FBI's sting operation so that he would pass it to a foreign government official," the then vice president of Nigeria. "But Mr. Jefferson did not do that. Instead, the marked funds were recovered in his home."

His alleged co-conspirators were Vernon L. Jackson, a Louisville, Ky., businessman, and Brett M. Pfeffer, a former Jefferson congressional staff member. Jackson was sentenced to 87 months in prison after pleading guilty to conspiracy to commit bribery and paying bribes to a public official. Pfeffer was sentenced to 96 months in prison after pleading guilty to conspiracy to commit bribery and aiding and abetting the solicitation of bribes by a member of Congress.

Jefferson had argued last year that except for the two FCPA charges, the grand jury's 16-count indictment violated his rights by relying on evidence protected by the absolute privilege in the Constitution's Speech or Debate Clause (Article I, Section 6, Clause 1). In November, the Fourth Circuit Court of Appeals rejected his arguments. Last month, the Supreme Court refused to hear his appeal, clearing the way for the trial.

Jefferson, 62, lost an election last year for a 10th term in Congress. His district included New Orleans. Before being indicted, he had compiled an outstanding record of public service. He was the first African-American elected to Congress from Louisiana since Reconstruction. He graduated from Southern University A&M College and Harvard Law School, and he also holds an LLM in tax from Georgetown.

He was raised in northeast Louisiana before he moved to New Orleans and rose to power. A great article by Gordon Russell in The Times-Picayune (one of our favorite papers) said this about his childhood:

Life in the Delta during the 1940s wasn't easy: Though the family owned a small farm, the Jefferson children had to pick cotton and the large family was crammed into a five-room house.

In town, racial oppression was rigid, and may have launched [Jefferson's older brother's] flight to Chicago. William Jefferson's recent book, "Dying Is the Easy Part" -- which is billed as fiction but reads like an autobiography -- features a chapter that centers on an older brother of the narrator.

The brother is insulted by a group of racist white men. One throws a pool ball at him but misses, breaking a mirror. Though he is handy with his fists, the brother knows fighting isn't an option, and he runs home.

Nonetheless, that night, deputies come to his house to arrest him. The sheriff tells his mother: "Your boy can't be fighting white boys in this parish. If he wants to fight with white boys, then, by God, he's gotta go up North."

His mother, defiant, refuses to turn over her son. "He's gotta go up North to keep somebody from whipping his ass?" she asks rhetorically. "He ain't going nowhere."

* * *
From Frederic Bourke's trial. Here's the lead from David Glovin's account of the jaw-dropping testimony on day three: Viktor Kozeny’s security chief told a jury how the Czech expatriate brought ex-Senator George Mitchell into a deal to buy Azerbaijan’s oil company, spent $96,000 on a dinner for six, and befriended powerful American investors. There's lots more here.

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

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aimeebarnes.com New York-based writer and business strategist Aimee Barnes keeps an eye on China-related developments in her blog. She asked us about corruption and compliance and has now posted the results. Thanks, Aimee.
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Tuesday
Jun022009

Another FCPA Derivative Suit Is Tossed

For the third time, Baker Hughes has beaten back a derivative suit based on its 2007 settlement of Foreign Corrupt Practices Act violations. It paid $44 million to resolve enforcement actions by the Justice Department and Securities and Exchange Commission related to bribery in Kazakhstan. Since then, plaintiffs have tried to sue in state court once and federal court twice. The latest federal suit in Houston was bounced on procedural grounds. Here's part of a nice report from Andrew Longstreth at AmLaw's Litigation Daily:

You would think that the recent explosion of Justice Department investigations of corporate bribery--which often end with a company admitting to some damaging facts and paying the government a fine--would be good news for plaintiffs lawyers. But in an early test of how Foreign Corrupt Practices Act charges will play in a derivative suit, they've bombed. Last week Houston federal district court judge Vanessa Gilmore adopted a magistrate's recommendation to dismiss a derivative suit against current and former officers and directors of Baker Hughes . . .

The suit had alleged that Baker Hughes directors and officers breached their fiduciary duty by failing to address potential FCPA problems. But the plaintiffs stumbled on a procedural hurdle: They didn't make a demand on the board to file the suit, arguing that it would have been futile. But Judge Gilmore confirmed Magistrate Judge Mary Milloy's finding that plaintiffs failed to show that the Baker board could not impartially evaluate their lawsuit.

In the earlier Baker Hughes federal case, the Fifth Circuit made it a lot harder for pension funds and other trusts to achieve the necessary "complete diversity" needed for federal jurisdiction. U.S. Magistrate Mary Milloy's April 14, 2008 Memorandum and Recommendation on Motion to Dismiss was adopted by Judge Gilmore. The case is called Sheet Metal Workers' National Pension Fund et al v. Chad Deaton et al. A copy of the magistrate's memo can be downloaded here.

And last year, the Ninth Circuit in Glazer Capital Management v. Magistri put another obstacle in the path of plaintiffs. The court raised the "scienter" bar for FCPA-related claims against officers and directors under the federal securities laws. See our post More Hurdles For Private Litigants.

In Texas last month, plaintiffs' lawyers filed a state derivative class action against some of the officers and directors of Halliburton and its one-time subsidiary, KBR. The suit alleges various misconduct -- including the Nigerian bribery that led to the companies' $579 million settlements of Foreign Corrupt Practices Act offenses earlier this year. We speculated that part of the reason the plaintiffs went to state instead of federal court was because of the Magistri holding (which isn't binding in the Fifth Circuit but could be influential). They may also have had the same "complete diversity" problems as the plaintiffs in the earlier Baker Hughes case.

* * *
From Frederic Bourke's trial. A packed Manhattan courtroom. The call to order. Opening statements in the biggest FCPA trial ever. It's about the tape already. The tape Bourke gave to prosecutors. He's talking to fellow investor Dick Friedman and their lawyers. Bourke is worried promoter Viktor Kozeny plans to bribe Azeri officials. From the trial, Bloomberg's David Glovin writes:

The “remarkable tape recording” will show Bourke knew of the bribes and still elected to invest $8 million, Justice Department lawyer Robertson Park told jurors.

“That tape is the best piece of evidence in the case of Mr. Bourke’s innocence,” defense attorney Saskia Jordan said in her opening. It will show Bourke took his concerns about Kozeny to his attorneys so that he wouldn’t break the law, she said.

Read Glovin's report of the opening day action on Bloomberg's newswire here.

Read all our posts about U.S. v. Kozeny and the prosecution of Frederic Bourke here.
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Monday
Jun012009

The Book On Bourke's Judge

Last week we said Judge Shira Scheindlin's preliminary rulings would protect Frederic Bourke's right to a fair trial. That, it turns out, is something she's already known for. Another defendant, John "Junior" Gotti, the alleged New York City mobster, has had three trials in her courtroom since 2005. The charges related to an alleged plot to kidnap Curtis Sliwa, founder of the Guardian Angels, after he slammed the Gotti family on his radio show. All three trials ended in hung juries.

After Junior's third mistrial in 2006, his sister -- celebrity writer and former reality show star Victoria Gotti -- told the New York Daily News, "I will thank our good fortune every day for a judge like Shira Scheindlin. She is the difference between a fair trial and a railroad job. God bless her."

Who is Judge Scheindlin? She was born in 1946 in Washington, D.C. She's been on the U.S. District Court for the Southern District of New York since 1994, when Bill Clinton nominated her to a seat vacated by Louis Freeh, who left to head the FBI. She's a Michigan alum, BA 1967, Columbia MA 1969, and Cornell Law School JD 1975. The Almanac of the Federal Judiciary says: "Scheindlin is known for her intellectual acumen, demanding courtroom demeanor, aggressive interpretations of the law, and expertise in mass torts, electronic discovery, and complex litigation."

She once ruled that the NFL draft violated federal anti-trust law and unjustly blocked players from pursuing their careers. But in April 2004, Supreme Court-nominee Sonia Sotomayor at the Second U.S. Circuit Court of Appeals stayed her decision. Last month Judge Scheindlin decided that claims in a case called In Re South African Apartheid Litigation can proceed, despite objections from the State Department. Companies such as Ford, General Motors and IBM, she said, cannot be held liable for "breadth of harms" committed under apartheid. But claims can be tried where the aider and abettor knows that its actions "will substantially assist the perpetrator in the commission of a crime or tort in violation of the law of nations."

Her best-known decision is Zubulake v. UBS Warburg, a 2003 case that defined a party's obligations to produce electronically stored information. It was partly her whimsical prose that transformed what she called a "relatively routine employment discrimination dispute" into an e-discovery landmark. Here's how her opinion began:

Commenting on the importance of speaking clearly and listening closely, Phillip Roth memorably quipped, “The English language is a form of communication! . . . Words aren’t only bombs and bullets — no, they’re little gifts, containing meanings!” What is true in love is equally true at law: Lawyers and their clients need to communicate clearly and effectively with one another to ensure that litigation proceeds efficiently. When communication between counsel and client breaks down, conversation becomes “just crossfire,” and there are usually casualties.
We don't know how Frederic Bourke will feel at the end of his trial. But there's no doubt about how Junior Gotti felt when he learned last December that Judge Scheindlin would be hearing his case for a fourth time. The headline in the Daily News said: Junior Gotti giddy over 'fair' trial judge.

Read all posts about U.S. v. Kozeny and the prosecution of Frederic Bourke here.
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Sunday
May312009

Bourke's Trial Is The FCPA's Big Show

There have only been a few Foreign Corrupt Practices Act trials over the years, so Frederic Bourke's is unusual to start with. What's more, this case has plenty of special ingredients. Bourke, 63, is rich. He lives in the tony towns of Greenwich and Aspen. And he's famous -- or at least his name is famous. He co-founded the popular handbag brand Dooney & Bourke.

Prosecutors say he invested in a deal in Azerbaijan that he knew was tainted by bribery. He says he's not a crook but a victim of fraud perpetrated by mastermind Viktor Kozeny. Now he's facing what amounts to a life sentence in prison.

There's Kozeny himself -- a colorful and talkative fugitive. He's accused not only of bribery but also of stealing more than $180 million from his investors, including $8 million from Bourke. His chair will be empty but Kozeny will still be the most important person at the trial.

And there are the government's three "cooperating witnesses." Thomas Farrell, a director of one of Kozeny's companies, his Swiss lawyer Hans Bodmer, and Clayton Lewis, who steered $100 million of investment money his way. They've all pleaded guilty in related federal criminal cases and will be sentenced after they testify against Bourke -- a sure-fire recipe for all sorts of mixed-motives and mischief at the trial.

So there's no question about it. Frederic Bourke's turn in Judge Shira Scheindlin's courtroom will be the most watched FCPA trial ever.

* * *
Setting the stage for the Monday kick off in Manhattan is Bloomberg's David Glovin. His latest article about the case is another stunner. Among the revelations: the U.S. Attorney apparently has a tape "on which Bourke may have admitted he knew of wrongdoing by Kozeny."

Glovin also revealed that Kozeny has won an order from a Bahamas judge requiring the government there to pay him $2 million. It's to cover his legal fees for successfully challenging extradition. The U.S. wanted to bring back the Czech-born fugitive to face charges with Bourke. But the Bahamas court said the FCPA counts were not provable or prosecutable under local law. See our post here.

Here's how Glovin's story starts:

Viktor Kozeny, the central figure in an international bribery case over an Azerbaijan oil deal, plans to monitor the June 1 trial of Greenwich resident Frederic Bourke, one of his investors, from his Caribbean beachfront estate, 1,100 miles from the Manhattan courtroom.
Kozeny, the admitted ringleader of a plot to bribe leaders in Azerbaijan in the 1998 deal, won't be in Manhattan federal court as prosecutors offer evidence against Bourke. Since 2005, when he and Bourke were indicted by the U.S. government, Kozeny has avoided extradition. Now he says he hopes the trial will clear his name. . .

U.S. District Judge Shira Scheindlin will preside over the trial, which will center on a failed deal involving the state-owned oil company of Azerbaijan. The republic, which borders the Caspian Sea, has 7 billion barrels of proved oil reserves . . .

Read David Glovin's story here.

Read all posts about U.S. v. Kozeny and the prosecution of Frederic Bourke here.
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Thursday
May282009

China's Runaway Bribe-Takers

One defense strategy adopted by some of the Chinese officials accused of corruption is to leave the country. More than 800 have bolted, according to the government, and around 300 have returned. Journalists say the number of international fugitives is a lot higher—at least 1,000 and probably more.

Why run? Simple. China imposes the death penalty in big corruption cases, so going just about anywhere else makes sense. And because of its wide use of capital punishment, few countries have extradition treaties with China, including the U.S. That means accused officials who make it out usually face little chance of being sent home.

The Chinese government seems unsure how to react to the phenomenon of its fleeing crooks. Earlier this month, two former managers of the Bank of China and their wives were sentenced by a federal jury in Las Vegas on charges of racketeering, money laundering, international transportation of stolen property and passport fraud. The DOJ's release is here. After the sentencing, China's government sounded pleased that the culprits were caught and punished, and relieved that the U.S. had handled everything.

"The corrupt officials must face the full force of law wherever they flee," said Tong Jianming, spokesman for the Supreme People's Procuratorate in a government release. He said Chinese authorities helped the Justice Department collect evidence in China. "The unprecedented case will serve as a great deterrent to corrupt officials," he said. "It has sent a clear signal that the U.S. is no longer a safe haven for them."

One of the officials in the Las Vegas case, Xu Chaofan aka Hui Yat Fai, was sentenced to 25 years in prison. The other, Xu Guojun aka Hui Kit Shun, received 22 years prison. Their wives were sentenced to 8 years in jail. All four were ordered to pay $482 million in restitution. And the U.S. government started denaturalization proceedings against the wives.

Newsweek reported last year that decisions by Chinese officials to run away aren't always spontaneous. "In particular," it said, "Chinese Netizens are buzzing about 'naked officials': apparatchiks who connive to earn permanent resident status overseas by gradually stashing relatives and assets abroad. Once the noose begins to tighten back home, the unencumbered (or 'naked') bureaucrats flee the country."

One notorious "naked official," Newseek said, is Yang Xianghong, a mid-level cadre from Zhejiang province who left for a 12-day European trip on September 19, 2008 and never returned. "Citing a bad back, Yang told colleagues he needed surgery in France -- where his daughter lives -- and refused to meet with party watchdogs who flew to see him. Yang was booted from the party on November 14 and charged by provincial authorities with 'seriously damag[ing] the party's image and the country's reputation.'"

Last August, Canada repatriated to China Deng Xinzhi, suspected in a $2.94 million swindle back home. China says the U.S. has also sent back "a few corrupt officials." Most of the "naked officials" are alleged to be in Los Angeles, New York and San Francisco.

The Singapore Straits Times reported last week that China is adopting a new "soft approach" to convince fugitives to return home. Prosecutors, it said, have been promising a lighter sentence instead of the death penalty. The Supreme People's Procuratorate, according to the paper, said this "coaxing" method is working, with a dozen officials lured back for justice in the last three years.

The example cited was that of a former Yunnan provincial official, Hu Xing. He ran to Singapore in 2007 after accepting bribes worth about $5.86 million. But according to the Straits Times, he was "cajoled to return to China and received a life sentence instead of possible execution through lethal injection."
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