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The Bourke Files: Lies, Kickbacks And Other Crimes

In its prosecution of Frederic Bourke for violating the Foreign Corrupt Practices Act by helping Czech-born fugitive Viktor Kozeny bribe Azeri officials, the government plans to call at least two witnesses who have admitted their guilt in the case. Now Bourke is accusing them of committing other, previously undisclosed crimes.

Clayton Lewis was a partner in Omega Advisors, Inc., a hedge fund that invested about $126 million in Kozeny’s Azeri privatization scheme. In an enforcement action against Lewis in 2004, the government said he knew about the bribery allegedly involving Kozeny and Bourke but went ahead with Omega's investment anyway. Lewis pleaded guilty to conspiring to violate the FCPA. He's never been sentenced and almost everything in his court record is sealed. A June 2008 letter from the DOJ said Lewis is a cooperating witness and shouldn't be sentenced until he's testified for the government at Bourke's trial.

Hans Bodmer was Kozeny’s Swiss lawyer who created the corporate entities and trust accounts used to make Kozeny's investments in Azerbaijan. Bodmer was indicted by a New York federal grand jury in August 2003 on single counts of conspiracy to violate the FCPA and to launder money. The court dismissed the FCPA charge, ruling that before being amended in 1998, the FCPA didn't apply to non-U.S.-resident foreign nationals who served as agents of domestic concerns. Bodmer then pleaded guilty to conspiracy to launder money. He's never been sentenced and, with the government's consent, has been living in Switzerland.

Bourke argued in a court filing last week that because the government "controls" the two witnesses, it's obligated to produce evidence in their possession (citing Federal Rule of Criminal Procedure 16(a)(1)(E) and United States v. Stein, 488 F. Supp. 2d 350 (S.D.N.Y. 2007)). The government, Bourke said, has already refused requests for documents held by Lewis and Bodmer.

In seeking evidence from the government's witnesses, Bourke's new lawyer, Harold Haddon, has also launched an attack on their credibility and character. In the court filing, he called Lewis a liar:

In addition to being one of the Government’s key cooperating witnesses, Lewis is also an admitted perjurer. In February 2002, Lewis testified before a New York state grand jury investigating Kozeny’s fraud on his co-investors that he was unaware of any bribery of Azeri government officials. He has since recanted that testimony and told the opposite story to federal investigators—a story that will form the basis of his anticipated testimony against Mr. Bourke. He has also pleaded guilty to a New York state perjury charge relating to his prior testimony. [footnotes omitted]

In a preview of what the jury is likely to hear, Haddon drew a sharp distinction between Lewis and Bodmer on the one hand and Bourke on the other. Lewis, he alleged, took huge kickbacks from Kozeny in return for Omega's investment, and had crucial help along the way from Bodmer. But Bourke, he said, is one of the victims of Kozeny's fraud. Kozeny is accused in a pending New York State criminal case of stealing $182 million from investors. Bourke said he invested and lost $8 million.


Haddon said in the court filing:

There is reason to believe that Lewis and Bodmer were also involved in other serious wrongdoing that is not even mentioned in the indictment in this case. Omega, Lewis’s former employer, has alleged in lawsuits in New York and London that Lewis conspired with Kozeny in order to defraud Omega of millions of dollars, and to conceal whatever bribes may have been paid to Azeri officials. In return, it is alleged that Lewis personally received tens of millions of dollars in kickbacks from Kozeny . . .

And Bodmer, Haddon said, is alleged to have been "a key player in this kickback scheme, having created and structured a complex series of offshore entities and bank accounts designed to funnel money to Lewis while hiding the transfers from Lewis’s employer and other investors."


The existence of the kickbacks, Bourke's lawyer said, would make Lewis Kozeny’s "handsomely-compensated partner in crime and deception." As to Bourke, "the Government has never alleged—and there is no evidence to suggest—that Mr. Bourke ever received any financial remuneration from Kozeny or his associates. To the contrary, he lost every dollar he invested in the Azeri venture. Why would Kozeny tell an individual investor like Mr. Bourke about bribes while simultaneously paying Lewis tens of millions of dollars to conceal the same information from Omega and the institutional co-investors?"

The government's reaction to Bourke's latest filings will be important. The Justice Department has been slammed lately with allegations of misconduct in other white collar criminal cases and its prosecution of Bourke is clearly aggressive. If Bourke's lawyers believe the DOJ is crossing a line, they'll hope for a sympathetic hearing from the court.

Download a copy of the May 7, 2009 memorandum of law in support of Bourke's motion to compel Rule 16 discovery here.

Part I of this post can be found here.

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


The Bourke Files: Poison And Prostitutes

Bloomberg's David Glovin reported Friday how federal prosecutors are planning to show that Frederic Bourke, who's accused of violating the Foreign Corrupt Practices Act, thought his partner in their luxury handbag business was secretly trying to inject him with a "harmful substance." Glovin's story -- his latest in a string of terrific coverage of U.S. v. Kozeny -- is here.

Bourke's federal criminal trial in New York City is scheduled to start June 1. Prosecutors charge he helped Czech-born fugitive Viktor Kozeny bribe officials in Azerbaijan in 1998 in a failed attempt to take over the state oil company, Socar. Bourke, 62, faces up to 35 years in prison on FCPA charges, money laundering and lying to federal investigators.

The government also wants to show how Kozeny and Bourke picked up two prostitutes in Russia in 1997. The four traveled together aboard Kozeny's private plane, stopping in Baku, Azerbaijan, among other places, before returning to Moscow. Because Bourke didn't tell federal investigators about the prostitutes when he recounted his travels with Kozeny, prosecutors said the episode shows a "consciousness of guilt."

Assistant U.S. Attorney Harry Chernoff argued in court filings last week that Bourke's fears of being secretly injected with a harmful substance by his business partner, Peter Dooney, led him to ask Kozeny's security chief "to foil the former partner's efforts."

Bourke's lawyer, Harold Haddon, argued that the court should exclude the evidence. He said it has "no relevance to any issue in the case. It will cause Mr. Bourke substantial unfair prejudice, confuse the jury, and waste time."

The prosecution presumably thinks its evidence about the poison and the prostitutes shows that Bourke wasn't a typical investor with Kozeny but instead was a confidant and friend. That closeness, the government may argue, makes it more likely that Kozeny revealed the secret about his bribery to Bourke. Bourke's lawyers said that can't be true because the trip with the prostitutes happened at least six months before Kozeny made any illegal payments in Azerbaijan.

Bourke has portrayed himself as one of Kozeny's many victims. He invested and lost $8 million in the Socar deal, he said. Last year, Bourke's former lawyer, Dan Webb, said Bourke is a whistleblower who's being prosecuted "for disclosing a crime involving the Socar deal and interfering in the U.S.'s relationship with Azerbaijan a decade ago."

Bloomberg's Glovin reported then that "Bourke took the evidence [of Kozeny's fraud on his investors] to state and federal prosecutors in New York and met with Azerbaijan's then-president, Heidar Aliyev, to expose Kozeny's wrongdoing . . . Webb said Bourke's actions may have interfered with the U.S.'s strategic relationship with the oil-rich nation. Bourke wants to know if the U.S. is punishing him for speaking out, Webb said in documents filed in the federal court."

Kozeny, 45, was indicted in 2003 in a New York state criminal case for stealing $182 million from investors. In 2005, the federal government indicted him and Bourke under the FCPA for bribing Azeri officials. Kozeny's been fighting extradition from his home in the Bahamas and hasn't appeared in the U.S. cases. He's also wanted in the Czech Republic for embezzling $1.1 billion from mutual funds there in the early 1990s.

Glovin's latest dispatch said Bourke's partner, Peter Dooney, laughed when told of Bourke’s alleged fear. “I haven’t seen the guy in years and years,” Dooney said in an interview. “No secret injections. Categorically denied.” Glovin said Dooney is president of Dooney & Bourke and runs its day-to-day operations. Bourke is co-founder and partner of the company they started in 1975 but isn't involved in the daily business.

While the government lines up salacious evidence against Bourke, his lawyers are stepping up their own attacks on the credibility and character of the prosecution's planned witnesses. We'll talk about that in Part II.

Download a copy of Bourke's May 7, 2009 memorandum of law in support of his motion to exclude evidence here.


C'est Magnifique!

Francophile kleptocrats everywhere must be shaking in their Yves Saint Laurent double monk-strap black boots today, thanks to a Paris magistrate's ruling. He accepted a case brought by Transparency International that requires French authorities to investigate how three African rulers, their family members and friends managed to acquire numerous luxury homes, cars and other assets in France.

It's unusual to hear positive news from France about fighting graft. A few months ago, for example, the government decided French law prevents the prosecution of overseas bribery (Paris Pulls The Plug On Enforcement). So this marks a dramatic turnaround. There's one problem, though -- it might end soon.

The magistrate who made the ruling, Francoise Desset, is an independent investigator. But the justice ministry, through the public prosecutor's office, is already trying to quash his decision. There's concern the case and others that could follow would upset France's foreign policy.

The rulers named in the suit are Denis Sassou Nguesso of the Congo Republic, Omar Bongo-Ondimba of Gabon, and Teodoro Obiang Nguema Mbasogo of Equatorial Guinea. Gabon and the Congo Republic are former French colonies still close to Paris, while Equatorial Guinea is becoming an important oil exporter. The French oil and gas group Total SA, according to Reuters, is "the leading producer in Gabon and Congo Republic and many other French firms, public and private, have long-term contracts there."

Gabon's President Bongo has run the country since 1967 and thinks of France as his second home, according to Reuters. The BBC said "a 2007 French police investigation found the leaders of the three countries and their relatives owned homes in upmarket areas of Paris and on the Riviera along with luxury cars, including Bugattis, Ferraris and Maseratis."

If the investigation is allowed to proceed, Transparency International says the scope will be wide:

This judge will have to determine how the assets owned in France were acquired, and where the funds in the many bank accounts uncovered during a preliminary police investigation came from. The investigation will also throw light on the various intermediaries involved in the transactions under scrutiny, namely the banks identified by the police investigation whose compliance with anti-money laundering regulations is in question.
TI said it hopes the case will eventually lead to the right of restitution for the people of the three countries under the United Nations Convention Against Corruption, ratified by France in 2005.

Our thanks to Pete from DC for sending us a link to this story.

Read Transparency International's May 6, 2009 release here.


Iraq's Lawsuit Legacy

In July 2008, the government of Iraq launched a massive FCPA-related federal lawsuit in New York City. We first talked about it here. The complaint named 93 defendants in claims alleging bribery and fraud under the now-defunct United Nations oil-for-food program. Iraq sought more than $10 billion in damages, describing the U.N. program as "the largest financial fraud in human history." (Bernie Madoff hadn't yet reset the scale for measuring financial frauds.)

What's happening in the case today? After nearly a year, Iraq is still trying to serve some of the defendants. A claimant usually has 90 days to effect service of process; in this case, the court's been lenient by granting several extensions. Overseas service can be complicated. So Iraq asked the court to help by issuing letters rogatory (requests for assistance addressed to foreign courts). The non-binding letters are directed at courts in Austria, Jordan, Malaysia, South Africa, and the United Arab Emirates.

According to the federal court's most recent order, anyone not served by July 24, 2009 will be dropped from the suit. Until the deadline passes, none of the defendants have to file answers or raise their defenses.

The post-war Iraqi government alleged that kickbacks were paid to representatives of Saddam Hussein through illegal and undisclosed transportation and port fees, bogus after-sales service fees and overpricing of goods and services. Some of those named have already faced enforcement actions for violating the U.N. regulations or U.S. law, including the Foreign Corrupt Practices Act. Among them are ABB, AB Volvo, Flowserve, Akzo Nobel, Chevron, Siemens, Ingersoll-Rand, York International, Oscar Wyatt, El Paso and Textron.

There's no private right of action under the Foreign Corrupt Practices Act. So Iraq's claims are based on the Racketeer Influenced and Corrupt Organizations Act (RICO), common-law fraud, breach of fiduciary duty and illegal price discrimination.

Here's the full list (which may change after July 24) of everyone named as a defendant in the complaint:

AGCO Denmark A/S, AGCO S.A., Valtra do Brazil, Air Liquide Engineering, Akzo Nobel N.V., N.V. Organon ("Organon"), Intervet International B.V. (Intervet"), Mais Co. for Medical Products, Atlas Copsco CMT, AWB Ltd., B. Braun Medical France, B. Braun Melsungen A.G., B. Braun Medical Industries SDN BHD (Malaysia), Aesculap AG and KG, Aesculap Motric S.A., Aesculap Sugical Instruments SDN, Boston Scientific S.A., BNP Paribas USA, BNP Paribas (Suisse) SA, BNP Paribas Hong Kong, BNP Paribas Paris, BNP Paribas UK Holdings Limited, BNP Paribus London Branch, Buhler Ltd., David B. Chalmers, Jr, Chevron Corp., Daewoo International Corp., Daimler Chrysler AG, Dow Agrosciences, ABB AG, Eastman Kodak S.A., El Paso Corp. (successor to Coastal Corp.), Evapco (Austria), Evapco Europe S.R.L., Avio Flowserve Corp., Flowserve Corp., Flowserve Pompes (Formely Ingersoll-Dresser Pompes), Flowserve B.V.

And some more:

GlaxoSmithKline Walls House, Glaxo Smithkline Egypt SAE, ABB Automation, Glaxo Wellcome SA (South Africa) (PRY) Ltd., SmithKline Beecham International, ABG Allgemeine Baumaschinen-GesellschaftmbH, Dresser international, Ingersoll-Rand Italiana SPA, Thermo King Ireland Limited, Ingersoll-Rand Benelux N.V., Ingersoll-Rand World Trade Ltd., Cilag AG International, Janssen Pharmaceutical, ABB Elektric Sanayi AS, Kia Motors, Liebherr Export AG, Liebher France SA, Seono Pharma International, Merial, Novo Nordisk, Pauwels, Railtech International, ABB Industrie AC Machines, F. Hoffman La Roche, Roche Diagnostics GMBH, Rohm and Haas France S.A., Secalt S.A., Siemens S.A.A. of France, Siemens Sanayi ve Ticaret A.S. of Turkey, Osram Middle East FZE, Solar Turbines Europe,

And the final batch:

St. Jude Medical Export GMBH, ABB Industrie Champagne, Sulzer Buckhardt Engineering Works Ltd., Sulzer Pumpen Deutschland GMBH, Sulzer turbo Ltd., Textron Inc., David Brown Guinard Pumps S.A.S., David Brown Transmissions France S.A., Renault Trucks SAS, ABB Near East Trading Ltd., Renault Agriculture & Sonalika International, Renault V.I, Volvo Construction Equiptment AB, The Weir Group, Oscar S. Wyatt, Jr, Vitol S.A., Woodhouse International, York Air Conditioning and Refrigeration FZE, and ABB Solyvent-Ventec.

Download Iraq's June 27, 2008 complaint here.


Crime And Corruption In The Spice Islands

The head of Indonesia's anti-corruption agency was arrested Monday for murdering a prominent local businessman. Antasari Azhar, 56, chairman of the Corruption Eradication Commission or KPK, is accused of killing a rival in a love-triangle. The woman is alleged to be a 22-year-old golf caddy who was working at a club in Azhar's neighborhood.

Police say Azhar hired another businessman to arrange the killing, which was carried out by a gunman on a motorcycle who shot the victim in the head through the window of his BMW. Police said they've arrested the others involved in the murder plot.

Azhar claims he's innocent and has hinted that he's being persecuted by interests threatened by his anti-corruption work. Under his watch, those arrested have included key politicians, lawmakers, central bank officials and businessmen. Reports are here and here.

Indonesian President Susilo Bambang Yudhoyono, currently campaigning for re-election, has made the fight against government graft his central theme. He's leading in the polls, with many Indonesians and foreign investors convinced that the government's latest anti-corruption drive is the first-ever sincere attempt to clean up the country. Indonesia's ranking on the Corruption Perception Index has improved recently, from 143 in 2007 to 126 last year.

Azhar has been suspended from the Corruption Eradication Commission and the remaining four members say they'll press ahead. They apparently plan to announce some major investigations they say Azhar had been blocking. His appointment in 2007 drew fire from many who thought he was unqualified. The NGO Indonesia Corruption Watch led the protests. "This is not just based on opinion but based on our investigation; based on our track record report; we think that Antasari has not enough integrity to be KPK's leader," Corruption Watch's Adnan Topa Husodo had said.

Indonesia is one of the world's most important countries and one of the hardest to govern. The former Dutch colony has around 240,000,000 people, including the world's largest Muslim population, spread over an archipelago of 17,000 islands, 6,000 being inhabited. There are more than 550 known languages and dialects in the country, 13 of which have more than a million speakers. It's the third-largest democracy on the planet but only held its first free elections in 1999. In addition to its ingrained corruption, problems include terrorism, poverty, unemployment, inadequate public services, a massive-but-under-funded bureaucracy, mountains of red tape, and opaque government administration at local and national levels.

Despite all that, Indonesia has enormous potential and promise. The country enjoys an amazing resilience -- its economy, for example, grew by more than 5 percent annually over the past five years and is even doing well in the downturn. Private-sector industrial infrastructure is modern and efficient; exports compete regionally and beyond. The elected leaders since 1999 have largely abandoned protectionism and embraced trade and fiscal freedom, working to develop the huge domestic consumer market to go with its export base.

If Indonesia can ever tame its run-amok corruption -- and that's still a big "if" -- the country might finally take its place as a credible (and perhaps irresistible) investment alternative to China and India.


When Is It OK To Pay?

The Foreign Corrupt Practices Act doesn't prohibit all payments to foreign officials. It's not that broad. What it does prohibit are corrupt payments made to obtain or retain business.

Which means the application of the law isn't necessarily black and white. And that's why, more than 30 years after the FCPA's enactment, people still want to know -- When is it OK to pay a foreign official? Let's take a look.

First, it's OK to pay under the three exclusions written into the FCPA:

Local Law. Payments that are otherwise prohibited are permitted if the "payment, gift, offer, or promise of anything of value that was made, was lawful under the written laws and regulations of the foreign official’s" country. 15 U.S.C. §§ 78dd-1(c)(1), 78dd-2(c)(1) and 78dd-3(c)(1). The local-law defense was added to the FCPA in 1988. But it only works if the payment is legal under the written laws of the country in question. The absence of a law against the payment isn't enough; there has to be a written law allowing the payment. Really? That's right. And that's why this affirmative defense has very low mileage.

Promotional Expenses. The FCPA allows payments to foreign officials for expenses related directly to “the promotion, demonstration, or explanation of products or services" that are "reasonable and bona fide.” 15 U.S.C. §§ 78dd-1(c)(2)(A) and 78dd-2(c)(2)(A). This defense, however, is notoriously hard to use (and easy to abuse), mainly because no one is quite sure what reasonable and bona fide really means. More of the recent DOJ Releases deal with this topic than any other.

Grease Payments. It's OK to make facilitating payments for “routine governmental action . . . which is ordinarily and commonly performed by a foreign official." 15 U.S.C. §§78dd-1 (b) and (f) (3). The examples in the law show how narrow it really is -- obtaining permits and licenses, processing visas, getting police protection, mail and phone service, scheduling inspections, connecting power and water, loading and unloading cargo, and protecting perishable goods. This exception is a lot less useful than many people hope.

Something more? Are there any other ways to make legal payments to foreign officials? There are -- but they're always loaded with risk. Here's why:

Once again, the FCPA doesn't ban all payments to foreign officials. What it bans (subject to the exclusions above) are corrupt payments made in order to obtain or retain business for or with, or to direct business to, any person. See 15 U.S.C. § 78dd-2(a). That means some payments that don't fit within the exclusions might still be OK. But what are they?

Since enactment of the FCPA, companies and their lawyers have spent a lot of time trying to figure that out. Most of the early Justice Department FCPA Releases and many later ones tell the story of companies struggling to understand which payments to foreign officials might be permitted. For example,

  • The first Release, No. 80-01 from 1980, allowed an American law firm to provide about $10,000 in annual support to two adopted children of a government official in a country where the firm wanted to do business.
  • The DOJ's next Release, No. 80-02, allowed Castle & Cooke to continue to employ -- and pay -- a member of the local legislature.
  • Another Release from 1980, No. 80-04, allowed Lockheed to retain Suliman Olayan as an agent, even though he was also a director of the state-owned airline, Saudia.
Releases that followed on the same topic included 84-01, 86-01,94-01 and 95-02. All of them, by the way, set out strict conditions for the payments -- usually limiting very specifically the scope of the relationship with the foreign official.

Even with all that precedent, proposed payments to foreign officials under any circumstances are still enormously risky. The burden to show that a payment isn't corrupt or made with a quid pro quo in mind weighs a ton. No one should ever feel cocky in concluding that a payment to a foreign official is OK under the FCPA. The words of the law and the way the DOJ and the courts have interpreted it give some guidance -- but very little comfort.


A Whistleblower Blow-Up

Last month we reported a settlement in a suit by General Electric's former in-house counsel, Adriana Koeck. She claimed she was fired in retaliation for whistleblower activity protected by Section 806 of the Sarbanes-Oxley Act (18 U.S.C. § 1514A) and state law after she warned her superiors about possible FCPA violations in Brazil. She leaked information to the press about GE's alleged conduct, and GE sued her for breaching her duty of confidentiality. The terms of the settlement that ended all of the litigation weren't disclosed.

We don't have any views about the merits of the case. But we have concerns about what it might mean for company lawyers and compliance.

When lawyers allege they were fired for raising compliance concerns, they typically disclose privileged information to support their claims. They're in a tough spot -- they can only prove they were fired for retaliation by revealing the company's underlying behavior that they complained about. But by disclosing it, they'll probably breach their professional obligations of confidentiality.

All company lawyers are privy to the inner workings of their organization. They hear the secret musings about how to sell the company's goods and services. But laymen aren't always expected to know all the implications of what they're talking about; that's why the lawyers are there -- to help everyone stay on the right side of the law. So when those secret deliberations become fodder for a lawsuit, someone's expectation of privacy is violated.

In all companies, lots of different ideas are thrown onto the whiteboard to be vetted and debated, criticized and critiqued. Only a few ever make it into the field. That's how consensus-building works. But if early-stage ideas might be disclosed by the lawyers and cause trouble later on, there'll be less debate of the kind the attorney-client privilege is intended to promote. Companies paying attention to the retaliation suits might change the way they treat their lawyers and compliance professionals -- leaving them out of discussions, or worse, not hiring them to start with.

To be clear, lawyers are entitled to protection against retaliation for blowing the whistle. In fact, lawyers are especially vulnerable. They know the company's secrets and they have a duty to prevent illegal conduct from happening. But whenever lawyers, for whatever reason, go public with protected information, the profession is tarnished and the cause of compliance is hurt.

What's the fix? How about plugging the gap in SOX to make sure whistleblower protections cover lawyers (and all employees) who work at subsidiaries of listed parents? The limited coverage now is forcing claimants into federal court who might not want to be there. Beyond that, perhaps a special tribunal -- under the auspices of the Labor Department and the courts (too bad we don't have a national integrated bar group) -- with an equal measure of protection for company lawyers and for their employers' privileged information.


I-Fighting Corruption

Does the Internet have a role to play in the battle against graft? It's still early, but the signs are promising.

For public corruption to flourish, a couple of ingredients are necessary -- red tape and opaque decision-making. The Internet can reduce both. Online permitting and licensing systems, for example, open the process to public scrutiny. There's less need for contact between citizens and bureaucrats, removing opportunities for bribery. And online systems are usually simpler. That also encourages citizens to resist demands for bribes during the process.

E-government services have been tested and they work. In Korea, for example, the innovative Seoul Metropolitan Government launched a public online application system for licenses and permits in 1999. Called OPEN -- the Online Procedure Enhancement for Civil Applications -- it covers 54 common procedures. A U.N. report said OPEN has made the administra­tion more transparent -- officials responsible for corruption-prone areas now have to upload reports and documents so citizens can monitor the progress of their applications.

The Korean government, which has a chief information officer in each ministry, is now marketing its e-government expertise to other countries and agencies that want to give it a try.

Russia hopes to develop more e-government services. President Medvedev signaled his support by forming the Presidential Council for the Development of the Information Society in Russia. And the tech-savvy Minister of Mass Communications Igor Shchegolev has said the idea behind creating an e-government in Russia is to help people fight the country's bureaucracy, among the most oppressive and exhausting anywhere.

“An e-government will rid our citizens of the need to visit different offices,” Shchegolev said in an article posted on FutureGov. “I certainly hope it gets somewhere -- for one thing, I can’t think of a surer way to stifle corruption than to increase the number of rules-based computer interactions between citizens and government."

We said (here) that we admire the new Internet-based whistleblower system in Illinois. It's accessible and simple to use. But not all governments, it turns out, want to give the public such an easy way to report fraud.

In Hong Kong, for example, the normally pioneering Independent Commission Against Corruption (ICAC) is resisting an e-complaint system, according to FutureGov (here). Julie Mu, the ICAC Director of Community Relations, said in-person reporting is better. It "enables us to interact directly with the complainant and obtain more detailed information, hence facilitating investigative work. People reporting online may not be traceable,” she said.

Last year the ICAC handled 3,377 corruption reports from citizens. That's a lot. And it followed up on 78 per cent of those. So perhaps the organization is right to be worried; an easy-access, online complaint-filing system might just overwhelm its resources.

The conclusion? E-government can reduce red tape and increase transparency overnight. That makes it the best Internet app we can think of.


Dirty Diamonds And The FCPA

We've all heard of people who call 9-1-1 to report that their cocaine's just been stolen. Well, something similar happened here -- under terrible circumstances.

The case in federal bankruptcy court in the Southern District of New York is called In re Mark Allen Kalisch. The docket includes a complaint filed by Kalisch, the debtor, against a creditor called Maple Trade Finance Corporation. Kalisch said Maple Trade loaned him money for a diamond mining venture in Brazil. He also said everyone in the deal, including Maple Trade, knew it was illegal under the Foreign Corrupt Practices Act. Therefore, Kalisch argued, Maple Trade shouldn't be entitled to demand repayment of the loan.

Kalisch also knew the diamond venture was illegal, Maple Trade said. He therefore had "unclean hands and is not entitled to any equitable relief." The amount of the loan was $600,000, with another $500,000 trade guarantee, all secured by Kalisch's New York apartment.

In December 2008, the bankruptcy court granted judgment for Maple Trade. But in January 2009, Kalisch appealed to the U.S. District Court for the Southern District of New York. The appeal is still pending.

Here's what happened. The mine was within Brazil's Cinta Larga Indian Reservation. So the diamonds would have to be smuggled away from the reservation and out of Brazil. The plot for the diamond-mining venture (or "business plan," as Kalisch called it) identified as a "silent partner" a government official in Brazil, and it involved bribery.

In March 2004, after the diamonds were paid for but before they could be moved, the Brazilian government arrested 14 people in the scheme, including the local "silent partner" and several agents from the Bureau of Indian Affairs. The police shut down the mine and the diamonds disappeared. Then, within a month, real tragedy struck.

There was a massacre at the reservation. The Indians killed 29 miners -- with "bows and arrows, spears and guns," because the miners were taking diamonds without permission. A Frontline story about the illegal trade and the massacre is here.

No word yet whether the Justice Department will investigate possible FCPA and other offenses by the complainant Kalisch and the lender Maple Trade. But stand by.

Download a copy of the complaint in In re Mark Allen Kalisch (consolidated with In re Mayra Diaz Kalisch) here.

Our thanks to the 2009 FCPA Digest for listing the case in its Parallel Litigation section, at page 361.


Catching Corrupt Lawyers, Part II

A lawyer with his briefcase can steal more than a hundred men with guns. -- Mario Puzo

With that street-smart aphorism in mind, we went looking for Foreign Corrupt Practices Act-related cases where lawyers were alleged to be on the wrong side of the law.

Turns out there aren't many. Here's the rundown:

Jeffrey Tesler -- indicted by a Houston grand jury in February. Prosecutors say he was a middleman who handled or arranged corrupt payments from KBR to Nigerian officials. The London lawyer was arrested by British police in March at the request of American authorities, who are trying to extradite him to stand trial in the U.S.

Two American law firms were mentioned in November 2008 during an anti--corruption sweep in China. Avon had disclosed possible FCPA violations involving payments to Chinese regulators. Authorities there were reported to be reviewing foreign investment cases in which the two U.S. firms with offices in Hong Kong and Beijing played a role. The firms (and their lawyers) haven't been named.

J. Bryan Williams, a lawyer in Virginia, was an executive at Mobil Oil. He was also a friend of James H. Giffen, an American businessman arrested in New York in 2003 for paying $78 million in bribes to an adviser of Kazakhstan's president and former oil and gas minister. Williams took a $2 million kickback from Giffen for helping negotiate a deal involving Kazakhstan's Tengiz oil field. Williams pleaded guilty in September 2003 to tax charges and was sentenced to 46 months in prison. Giffen is awaiting trial.

Hans Bodmer, a Swiss lawyer, represented Viktor Kozeny, the Czech-born fugitive charged with Frederic Bourke with bribing government officials in Azerbaijan. Bodmer was indicted by a New York federal grand jury in August 2003 on single counts of conspiracy to violate the FCPA and to launder money. The court dismissed the FCPA charge, ruling that before being amended in 1998, the FCPA didn't apply to non-U.S.-resident foreign nationals who served as agents of domestic concerns. Bodmer then pleaded guilty to conspiracy to launder money. He's never been sentenced.

Attorney Philippe S.E. Schreiber represented Saybolt Inc. It's president, David Mead, said during his 1998 trial that he paid a $50,000 bribe to government officials in Panama only after Schreiber said it wouldn't violate the FCPA. That advice was wrong. Saybolt and Mead were charged with violating the FCPA. Mead was convicted and sentenced to four months in prison, home detention and probation, and a $20,000 fine; Saybolt's FCPA offenses resulted in five-years probation and a $1,500,000 fine. And Schreiber? Saybolt's shareholders sued him for legal malpractice (the case was settled in 2005); and the government never indicted him.

Alfredo Duran, a Miami lawyer, was charged in 1989 with arranging a bribe to officials in the Dominican Republic. The government said a $20,000 to $30,000 payment was intended to secure release of an airplane confiscated in a drug case. Duran's co-defendant jumped bail and returned to the Dominican Republic. At Duran's federal trial in Florida on FCPA charges, the court excluded evidence concerning the fugitive co-defendant, resulting in Duran's acquittal.

In 1994, attorney Harold Katz was indicted for bribing an Israeli Air Force officer to induce the purchase and maintenance of GE aircraft engines worth $300 million. The bribes, paid into Swiss bank accounts, totaled $7.8 million. A co-defendant was charged under the FCPA, while Katz faced mail and wire fraud and money laundering charges. He was never apprehended and remains a fugitive.

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That's it, then. Pretty thin record, isn't it? So the verdict on Mr. Puzo's wisdom about that briefcase? Well, either he's wrong when it comes to the FCPA and lawyers aren't the culprits after all. Or he's right and they don't get caught.


Catching Corrupt Lawyers, Part I

Two professional groups say they'll punish any lawyers involved in KBR's $182 million scheme to bribe Nigerian officials in exchange for contracts worth $6 billion.

A past president of the International Bar Association (IBA) visiting Nigeria last week reportedly "threatened to use its internal disciplinary mechanism to punish accordingly any of its members indicted in the scandal," according to a story in the Nigerian press (here). The report said the IBA "vowed that it would wield its big stick against any lawyer practicing in any part of the world found to have been involved or indicted in the Halliburton bribery scandal."

KBR (formerly part of Halliburton) pleaded guilty in February this year to violating the Foreign Corrupt Practices Act and agreed to pay a $579 million in penalties. And in September 2008, its former CEO, Albert "Jack" Stanley, pleaded guilty to FCPA and mail and wire fraud charges. He's cooperating with prosecutors and is scheduled to be sentenced on August 27, 2009.

But does the IBA really have a big stick? Not likely. It was created in 1947 as a sort of U.N. for lawyers. It claims voluntary membership of 30,000 individual lawyers and more than 195 bar associations and law societies around the world. That's impressive, and we know the group does some great work -- helping lawyers stay on top of issues, keeping in touch with each other, and protecting themselves in countries where they're vulnerable to political attacks and intimidation.

But the IBA wouldn't have jurisdiction to punish non-members. And even for members, suspension or expulsion from the organization looks like the only possible sanction.

The Nigerian Bar Association (NBA), on the other hand, is a mandatory organization, meaning anyone admitted to practice law in Nigeria must be a member. Mandatory bar groups are usually self-regulating and allowed to impose several layers of discipline on errant members. So it should have authority to suspend or disbar unethical local lawyers, and perhaps recommend prosecution of those found to have broken the law.

But even the NBA isn't getting far. In a local report, it said it's having "difficulty in moving against any of its members who might be involved in the scandal for now because the Federal Government is allegedly not transparent about the investigation and prosecution of indicted Nigerians in the scam."

Outside Nigeria, at least one lawyer involved with KBR faces prosecution. Jeffrey Tesler, 60, was indicted in February by a Houston grand jury for violating the Foreign Corrupt Practices Act. He was arrested by British police in March at the request of American authorities, who are trying to extradite him to stand trial in the U.S. They say the London lawyer was a middleman who handled or arranged many of the corrupt payments from KBR to Nigerian officials.

In Part II, we'll look at other FCPA enforcement actions involving lawyers accused of being on the wrong side of the law.


An African Voice Is Silenced

The FBI will help Burundi investigate the murder two weeks ago of one of the country's most prominent anti-corruption activists. Ernest Manirumva was vice-president of OLUCOME (the Anti-Corruption and Economic Malpractice Observatory), arguably Burundi's most important NGO. He was found dead in his home on April 8 from knife wounds to the head. Both his home and office had been ransacked.

Manirumva, who also served as vice-chairman of Burundi's regulatory authority for public procurement, had recently received death threats. He and his team in 2006 uncovered the fraudulent sale of the presidential jet, leading to the finance minister being fired. The next year he exposed double billing of oil imports, resulting in the central bank chief being jailed and another finance minister fleeing the country. That scandal, a U.S. agency said, caused donor countries to delay funds, reducing the government's ability to pay salaries.

After Manirumva's killing, OLUCOME and others demanded an international investigation. The Burundi Tribune reported that on the night of the murder, unidentified men stole documents from Manirumva's office in the city. The deputy police chief said "the killing was not an ordinary crime during a robbery." Amnesty International said, "Local media and human rights defenders reported that up to eight men were looking for documents in Ernest’s possession which uncovered government corruption."

Reuters reported that FBI personnel based in Nairobi will travel to Burundi's capital, Bujumbura, for the investigation.

Burundi, with about 8.5 million people, occupies a landlocked area in Central Africa the size of Maryland. Since independence from Belgium in 1962, its history has been a series of brutal regimes, political assassinations and massacres. In 1972, the minority Tutsi group killed an estimated 300,000 Hutus. And in 1993, the Tutsi-dominated army assassinated the new president, starting a decade-long civil war between the military and Hutu rebels that killed an estimated 500,000 people and forced hundreds of thousand more to leave their homes. After a partial peace deal, the U.N. deployed peacekeepers in 2004, leading to successful elections the following year.

The consequences of the turmoil have been staggering. Burundi has an average life expectancy of 48 years, one of the lowest in the world. The chance of not surviving past the age of 40 is 38% (in Singapore, it's 1.8%). Less than half the youth are in school -- child-soldiers as young as 10 are common and legal -- and the adult literacy rate has just dropped below 60%. The U.N.'s Human Development Index ranks Burundi 172 out of 179 countries.

The U.K. Foreign & Commonwealth Office said: Some 68% of the population live below the poverty line with income of less than US$1 per day, and per capita income is estimated at $104, well below the pre-war level of $151, and much lower than the current sub-Saharan average of $536.

Corruption is everywhere -- from senior government officials demanding large kickbacks on procurement tenders to low-level civil servants demanding petty bribes for services, licenses, or permits, according to the 2009 Index of Economic Freedom. "Corruption is present in every area of life," it says.

Ernest Manirumva had taken a stand against corruption. That's why he was murdered. The FBI can help find his killers. But bringing them to justice will be up to Burundi's leaders.