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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

Sunday
Apr272008

Ex-World Bank Manager Sentenced For FCPA Offense

The Justice Department has announced the April 22, 2008 sentencing of former World Bank employee, Ramendra Basu. The Indian national and U.S. permanent resident received 15 months in prison for conspiring to award World Bank contracts to consultants in exchange for kickbacks and for helping a contractor bribe a foreign official in violation of the Foreign Corrupt Practices Act. In addition to the 15- month prison term, Basu was sentenced to two years supervised release and 50 hours of community service. U.S. v. Basu, (Cr. No. 02-475) D.D.C., November 2002.

Basu pleaded guilty on Dec. 17, 2002 to conspiring to commit wire fraud in violation of 18 U.S.C. §371 and to violating the Foreign Corrupt Practices Act, 15 U.S.C. §78dd-3. Under his 2002 plea agreement he cooperated with U.S. authorities. In 2006, however, he moved unsuccessfully to withdraw his guilty plea. During his cooperation, he admitted that between 1997 and 2000, as a World Bank Trust Funds Manager, he conspired with a Swedish consultant and others to steer World Bank contracts in Ethiopia and Kenya to certain Swedish companies in exchange for kickbacks amounting to $127,000. He also helped the Swedish consultants bribe a Kenyan government official by, among other things, arranging for $50,000 to be wire transferred to an account outside the United States for the benefit of the Kenyan official.

In September 1997, Basu left his job at the World Bank and joined the Swedish consulting firm. He also arranged jobs there for his father, brother-in-law, and a close friend. He took a commission of ten percent of the value of all contracts he worked on for the Swedish consultant. In December 1997, Basu returned to the World Bank but continued to receive commissions from the Swedish consultant. By January 1998, the consultant had been awarded three contracts by Basu's co-conspirator, Gautam Sengupta, a World Bank Task Manager.

Sengupta, also an Indian national and U.S. permanent resident, pleaded guilty in February 2002 to the same charges as Basu. He was sentenced in February 2006 to two months in prison and fined $6,000. U.S. v. Sengupta, (Cr. No. 02-40) D.D.C., January 2002. Separately, the Swedish consultants were prosecuted and convicted of bribery by a court in Sweden. In February 2004, they were sentenced to 18 months and 12 months in prison respectively .

The Sengupta and Basu cases were the first criminal referrals to national prosecutors from the World Bank (or apparently from any international financial institution). The plea agreements with the DOJ required the defendants to cooperate with the World Bank's investigation and with Swedish and Kenyan authorities, as well as the DOJ. The plea agreements said: The defendant agrees to disclose completely and truthfully all information regarding his activities and those of others in all matters about which he has knowledge or hereafter acquires knowledge concerning any matter about which the United States, The World Bank, or the Government[s] of Sweden [or Kenya] may inquire. Defendant agrees to accompany agents of the United States, The World Bank, or the Government[s] of Sweden [or Kenya] to any location in order to accomplish that purpose ... Defendant agrees to answer all questions completely and truthfully and must not withhold any information.

Despite his initial cooperation with prosecutors, Basu tried four years later in 2006 to withdraw his guilty plea. The court wouldn't allow it. We don't know why he wanted to withdraw his plea -- after he had already provided evidence about the corruption -- or if his change of heart influenced the court's decision in his sentencing.

View the DOJ's April 25, 2008 news release here.

Friday
Apr252008

Boom Times For The FCPA Business

Washington Post business columnist Steven Pearlstein writes in today's paper here about the boom for law firms, accountants, investigators, computer forensics specialists, compliance consultants, conference organizers, "risk mitigators" and others triggered by the recent increase in enforcement activity, internal investigations and self-reporting under the Foreign Corrupt Practices Act.

For most of the past 30 years, the FCPA was a legal backwater, he correctly reports. That's now changed.

"[T]hese days," he says, "FCPA business is booming, a welcome growth area for Washington law offices just as work on mergers and securities offerings has begun to wane. You can't go into a business class lounge at the international terminals at Dulles Airport without running into at least one lawyer headed to Europe or Asia to conduct an internal investigation of a possible bribe or kickback for a corporate audit committee. And law firm Web sites now boast entire practice areas devoted to advising multinational companies on how to design and implement compliance systems meant to deter and ferret out corrupt practices."

Pearlstein says the Justice Department and the Securities and Exchange Commission think there are as many as 70 investigations ongoing -- not including "dozens of internal company probes that haven't been reported to the government, and may never be." [A story in the April 22, 2008 issue of Compliance Week by Melissa Klein Aguilar reports that Gibson Dunn & Crutcher identified about 100 companies at the start of the year that are the subject of open FCPA investigations. We're quoted in the article as well. It's available by subscription here.] Each FCPA case, Pearlstein says, typically costs the company involved between $1 million and $20 million.

The DOJ used to have the equivalent of two people assigned to FCPA cases, according to Pearlstein, but "now has as many as 12 prosecutors, assisted by a new team of FBI agents dedicated to these cases." He says the DOJ and SEC are also being helped by foreign governments who are members of the OECD antibribery convention. That, he says, has given U.S. investigators access to secret bank accounts and foreign tax records.

Pearlstein concludes by saying FCPA-related work, along with the coming flood of subprime mortgage litigation, "should be enough to keep Washington's legal industry humming, even as the rest of the economy slips slowly into recession." All of which proves again that preventing FCPA problems through an effective compliance program is a lot cheaper than dealing with violations after they occur.

Thursday
Apr242008

U.K. Government Appeals BAE Decision

The U.K. government is appealing the High Court's ruling that the Serious Fraud Office broke the law in shutting down an investigation into BAE's sale of jet fighters to Saudi Arabia. Pending the appeal to the House of Lords, the SFO will not reopen the investigation. The High Court panel of Lord Justice Moses and Mr. Justice Sullivan gave the government permission to challenge their judgment because the case raises crucial issues. As reported by the Guardian (here), Lord Justice Moses said: "This is a paradigm case that goes to the way this country is governed and to its constitutional principles."

View prior posts about BAE and the SFO here.

Wednesday
Apr232008

These Opinions Really Matter . . .

When the Foreign Corrupt Practices Act became law in 1977, it ignited suspicions outside Washington that the government was planning a clever ambush, like a central-Florida speed trap, intended to catch unsuspecting business people and their lawyers in felonious conduct overseas.

In part to allay those fears, Congress created a procedure by which anyone subject to the FCPA could ask the Justice Department whether it would prosecute proposed conduct under the antibribery provisions, and receive an answer back in 30 days. The opinion shall state whether or not certain specified prospective conduct would, for purposes of the Department of Justice’s present enforcement policy, violate the preceding provisions of this section. (See 15 U.S.C. § 78dd-1(e) [Section 30A of the Securities & Exchange Act of 1934] and § 78dd-2(f); the FCPA can be viewed here.) A DOJ opinion, the law stipulates, creates "a rebuttable presumption" that the conduct in question complies with the FCPA and with the DOJ's current enforcement practices.

The FCPA Opinion Procedure Regulations appear in 28 CFR Part 80. They say, among other things, that a request must come from an issuer or domestic concern, must be in writing and must contain all details of the transaction. "The requesting issuer or domestic concern is under an affirmative obligation to make full and true disclosure with respect to the conduct for which an opinion is requested. . . The person signing the request must certify that it contains a true, correct and complete disclosure with respect to the proposed conduct and the circumstances of the conduct."

Responses from the DOJ are now known as Opinion Procedure Releases. Although not binding on anyone except the requesting parties, and not creating legal precedent in the strict sense for anyone else, Releases are very influential in the world of compliance. The FCPA is seldom litigated, so the Releases are a de facto substitute for judicial interpretation. They don't have the force of law behind them (except as to requestors), but Releases are cited by practitioners and compliance professionals as "official" guidance from the government. We're no exception; we rely on Releases all the time, as evidenced by our many posts citing one or more of them (here).

All Opinion Procedure Releases from 1993 to 2008 can be found on the DOJ's site here. Earlier Releases from 1980 to 1992, then known as Review Procedure Releases, can all be found here.

The first Release to be published, No. 80-01 from October 29, 1980, broke the ice with a touching story. An American law firm asked if it could 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 official -- whose duties were merely ceremonial -- was elderly and a semi-invalid. How could the DOJ say no? It couldn't, of course, and the two lucky kids presumably enjoyed their FCPA-compliant support in the years that followed.

The DOJ's next Release, No. 80-02, also dated October 29, 1980 (all four Releases from 1980 have the same date), involved a request from Castle & Cooke, Inc. (the folks who turned bananas and pineapples into one of the world's biggest real estate empires). An employee in a foreign country wanted to run for the local legislature. Could he become an elected official and retain his employment? Yes, said the DOJ. One condition being that the employee would "refrain from participation in any legislative matters or other governmental action which would directly affect the corporation, and his salary [would] be based on the amount of time he actually works for the corporation." Castle & Cook also had an opinion of local counsel saying the proposed conduct wouldn't violate local conflict of interest or other laws.

The DOJ's third Release, No. 80-03, limited the scope of all reviews that would follow. The requestor submitted to the Justice Department a proposed contract to retain an attorney in West Africa. The attorney represented that he was not a foreign official and, using language from the FCPA, agreed not to make prohibited payments to foreign officials. The requestor asked no specific questions -- it simply submitted the agreement to the DOJ and waited for a response. No good, said the Justice Department -- an answer that still stands today. "In the absence of any reasonable concern about the application of or possible violation of the [FCPA], review of a proposed contract is not an appropriate function of the Review Procedure. The Criminal Division therefore has declined to respond to this Review Request by stating whether or not it will take an enforcement action."

The DOJ's final Release of maiden year 1980 is No. 80-04. Under the old rules for requests, the names of parties were often revealed. This one talked about a proposed partnership between the Lockheed Corporation and the Olayan Group. Lockheed was well-known in 1980, of course, as an important military contractor but also as one of the companies whose notorious overseas bribery helped spur enactment of the FCPA in the first place. The other party named in the request, the Olayan Group, was then one of the most prominent and respected diversified businesses in Saudi Arabia. Its founder was Suliman S. Olayan (1918 - 2002) , who by 1980 was a legendary businessman in Arabia and the region.

The details of Release No. 80-04-- dealing with Mr. Olayan's representation of Lockheed, notwithstanding his directorship in state-owned airline Saudia -- were far less important than the headline-grabbing presence of Lockheed and Mr. Olayan themselves. Their public appearance helped put the commercial world's stamp of approval on the DOJ's FCPA review procedure, and brought a new level of awareness in 1980 to the importance of the still-new phenomenon of FCPA compliance.

Tuesday
Apr222008

A Country That Cannot Change

Russia's English-language Moscow Times carries a provocative page-one story today (here) by Anders Aslund titled, "There Is Nothing Normal About Corruption." Author Aslund is a senior fellow at Washington, D.C.'s Peterson Institute for International Economics and author of "Russia's Capitalist Revolution: Why Market Reform Succeeded and Democracy Failed."

He argues that since 1990, both authoritarianism and public corruption have grown dramatically in Russia, and that there's a connection between the two. "Authoritarian rule is often used by rulers to hide and sustain their corruption," Mr. Aslund says. "According to Transparency International, the only country with higher income per capita and more corruption than Russia is Equatorial Guinea. That is hardly a standard worthy of a great nation."

Ordinary Russians are fed up with public corruption, he says. He cites the mismanagement of the large state corporations and alleged kickbacks of 20 percent to 50 percent on major infrastructure projects. In other corrupt countries, he says, people complain about "mere 2 percent kickbacks." He says that because many ministers own major companies in the industries they regulate, the obvious conflicts of interests between business and government are undermining the rule of law and the economy.

Mr. Aslund asks, "Can anything be done as long as the Putin clique stays in power?" Surprisingly, his answer is to look toward the Internet. "The Russian Internet is full of interesting and detailed information about every conceivable corruption story. Unfortunately, few Western correspondents in Moscow dare to touch this issue. How long will they miss the greatest corruption story in history? Ordinary investigative journalism could do wonders."

Russia's extreme corruption has turned the country into a dysfunctional and weak state, he says, threatening the quality of education, health care, and the stability of the state itself. The government's inability to carry out major infrastructure projects is a good example of its fundamental weakness, he says. "The country suffers a desperate shortage of qualified labor because much of the education system has been eroded by corruption, and the government has made no attempt to clean it up."

We've said before that today's Russia is a minefield for anyone subject to the Foreign Corrupt Practices Act. The compliance challenge of doing business there is enormous, if not insurmountable. While foreign investors can choose to stay away, the local population is once again trapped by another increasingly repressive, self-protective regime. The losers are ordinary Russians -- isolated from the world economy, this time not by ideology but by overwhelming corruption. Russia, it seems, really is a country that cannot change.

Monday
Apr212008

The Majesty of the Law

We admit to being stunned. Boggled, bowled over, dumbfounded, floored and flabbergasted (thanks, Roget's). We never expected the British High Court to disturb the U.K.'s somnolent status quo in the fight against international public corruption, by ruling that the Serious Fraud Office broke the law in dropping its investigation of BAE. After all, in the ten years since it became a party to the OECD Convention on Combating Bribery of Foreign Public Officials, Britain did not bring a single prosecution against overseas public bribery. Not one. History, as they say, was unanimous.

That's why we could write in December last year: "It's official. Britain's absence from the global war on public corruption is now a full-fledged scandal. Nearly ten years after the U.K. ratified the Anti-Bribery Convention of the Organisation for Economic Co-operation and Development (OECD), there hasn't been a single British prosecution. And as England shirks, its friends are both baffled and alarmed."

Other voices, we noted, had joined the chorus of condemnation. The Wall Street Journal said, "The OECD, which isn't prone to naming and shaming uncooperative member states took the unusual step of voicing 'serious concerns.' But that didn't move Mr. Blair, who warned the probe could harm relations with Saudi Arabia." The New York Times reported that during the OECD's recent tenth anniversary celebration of the Anti-Bribery Convention in Rome, its head, Angel Gurria, said "national security concerns — the reason Mr. Blair gave for terminating the BAE investigation in Britain — 'should not be used' as a reason for quashing bribery investigations. He also voiced concern that anti-corruption efforts were in danger of weakening. "

Who, then, could have predicted that on April 10, 2008, Lord Justice Moses and Mr. Justice Sullivan would reassert the authority of the U.K.'s independent judiciary? That they would reclaim for Britain and all common law countries the rule of law -- the simple idea that no man or woman is above the law -- an idea that shapes and preserves every great and not-so-great democracy on the planet.

The High Court's 46-page decision can be found here. It's a powerful, magisterial document, evidence of a court compelled at last to act as final arbiter of right and wrong -- to step forward, stand alone and draw a line in the sand. "No one," the court said, "within this country or outside, is entitled to interfere with the course of our justice." Strong words from officialdom in our politically correct, interdependent, terror-strickened world.

While the court's entire opinion is worthwhile, especially its brave conclusion, we particularly admire the Introduction. It is two parts John le Carré and one part Authorized Version. With simple but dramatic prose, it sets the tone for what's to come. It gives us character, place and plot -- and draws us into an irresistible detective story, where the search is not for the missing person or murderer or stolen jewels, but for . . . a legal principle.

Here's the Introduction:

1. This is the judgment of the court.

2. Between 30 July 2004 and 14 December 2006 a team of Serious Fraud Office lawyers, accountants, financial investigators and police officers carried out an investigation into allegations of bribery by BAE Systems plc (BAE) in relation to the Al-Yamamah military aircraft contracts with the Kingdom of Saudi Arabia. On 14 December 2006 the Director of the Serious Fraud Office announced that he was ending the SFO' s investigation.

3. In October 2005 BAE sought to persuade the Attorney General and the SFO to stop the investigation on the grounds that its continued investigation would be contrary to the public interest: it would adversely affect relations between the United Kingdom and Saudi Arabia and prevent the United Kingdom securing what it described as the largest export contract in the last decade. Despite representations from Ministers, the Attorney General and the Director stood firm. The investigation continued throughout the first half of 2006.

4. In July 2006 the SFO was about to obtain access to Swiss bank accounts. The reaction of those described discreetly as "Saudi representatives" was to make a specific threat to the Prime Minister's Chief of Staff, Jonathan Powell: if the investigation was not stopped; there would be no contract for the export of Typhoon aircraft and the previous close intelligence and diplomatic relationship would cease.

5. Ministers advised the Attorney General and the Director that if the investigation continued those threats would be carried out; the consequences would he grave, both for the arms trade and for the safety of British citizens and service personnel. In the light of what he regarded as the grave risk to life, if the threat was carried out, the Director decided to stop the investigation.

6. The defendant in name [the SFO], although in reality the Government, contends that the Director [of the SFO] was entitled to surrender to the threat. The law is powerless to resist the specific and, as it turns out, successful attempt by a foreign government to pervert the course of justice in the United Kingdom, by causing the investigation to be halted. The court must, so it is argued, accept that whilst the threats and their consequences are "a matter of regret", they are a "part of life".

7. So bleak a picture of the impotence of the law invites at least dismay, if not outrage. The danger of so heated a reaction is that it generates steam; this obscures the search for legal principle. The challenge, triggered by this application, is to identify a legal principle which may be deployed in defence of so blatant a threat. However abject the surrender to that threat, if there is no identifiable legal principle by which the threat may be resisted, then the court must itself acquiesce in the capitulation.

Thursday
Apr172008

The Week In Review

Friday's coming just in time. We've used up more than our alloted pixels this week, but it wasn't our fault. There was Jack Grynberg's riveting tell-all complaint against his former big-oil partners, fresh allegations of cover-up or neglect or both in Seimens' internal investigation, and rising outrage at the impotence of the law, courtesy of BAE, Prince Bandar, Mr. Blair and the Serious Fraud Office. Added to all that was the appearance of the Buy-Now button to the right, which garnered a million clicks (if we round up to the nearest seven-digit number).

So let's take a breather with . . . a few anecdotes. These, readers will understand, are never intended to trivialize corruption, but to expose it. Nor to belittle or embarrass anyone who has to make a living in a corrupt society.

-- A fellow from Azerbaijan said the public there complained about the "bribe cost" of drivers' licenses being too high. So the government sent its official anti-corruption team to hang out in the motor vehicle bureau. Result? Now you have to pay bribes to both the motor vehicle people and the anti-corruption squad...

-- The Saudi customs clerk showed the man his goods inside the fenced holding area. Instead of unlocking the gate, the customs clerk rubbed his thumb and finger tips together in the universal demand for baksheesh. The man emptied his pockets on the table in front of the clerk. When the clerk saw that all the money the man carried amounted to just $36, he yelled, "What are you, English?"

-- Back in Azerbaijan, it's common knowledge that people buy juicy government posts, and that the top customs spot at the airport is purportedly worth $200,000. Job seekers do their market research to determine what the rate of return on their investment will be, given normal corruption levels during their tenure.

That's it for this busy week. But if you've got a first-hand story or a second-hand anecdote, send it along by email here (anonymity guaranteed) or as a no-name comment to this post here. We won't publish the emails or comments now, but we'll share them (without attribution) from time to time.

Wednesday
Apr162008

SFO Chief Calls For US-Style Reforms

U.K.-based Ethical Corporation magazine has just released its 2008 anti-corruption special report. The 22-page publication (available by request here) is packed with Foreign Corrupt Practices Act compliance advice, descriptions of best practices from GE and others, and lots of news and analysis about enforcement trends.

It's all great content from this first-class publisher and compliance-event organizer (they draw a staggering 75,000 visitors a week to their website). But what caught our eye is managing editor John Russell's interview with U.K. Serious Fraud Office director Robert Wardle, who leaves his post at the SFO on April 21.

Wardle was interviewed before the High Court ruled last week that his decision to stop an investigation into BAE over the Al-Yamamah arms deal with Saudi Arabia was unlawful. He was criticized for his role by the High Court, which said: "It is the failure of government and the defendant [Wardle] to bear that essential principle in mind that justifies the intervention of this court."

In the interview, Wardle makes it clear that the U.K.'s anti-corruption effort needs to be reformed before it can be effective. That's apparent, given that the Serious Fraud Office, the U.K. body that investigates and, where possible, prosecutes U.K. companies or indi­viduals for corruption, hasn't brought a single prosecution after more than ten years of the U.K. having been party to the OECD Convention on Combating Bribery of Foreign Public Officials. How should the U.K. reform its anti-corruption efforts? By being more like the United States and its Foreign Corrupt Practices Act, Wardle says.

"[T]he UK should further emulate the US," Wardle says, "by making use of plea-bargaining agreements, which grant suspects in corruption cases a reduced sentence in exchange for their co-operation. He believes that there should be a specific accounting rule prohibiting companies from taking steps to cover up suspicious trans­actions, like the books and records provision of the FCPA. He explains: 'We would benefit if companies knew it would be a specific criminal offence to conceal bribes.' Wardle would also like to see UK companies face greater liability for crimes committed by their employees. 'We should be looking at making a company responsible when a reasonably senior manager has been responsible for the offence or the payments,' he says."

Wardle ends his frustrating tenure at the SFO lamenting that U.K. companies still lack sufficient deterrents to bribing foreign public officials. He says: "One of the problems we have is that companies need to know that there is a price to be paid for corruption overseas."

Without doubt, American companies -- still waiting to see a level playing field for global anti-corruption enforcement -- will share Wardle's hope for long over-due reforms in the U.K.

Tuesday
Apr152008

All The News That Fits The Prince

Hurrays all around for the British High Court's ruling last week. It said the Serious Fraud Office broke the law last year when, under irresistible pressure from the Blair government, it dropped an investigation into alleged bribes from British defense contractor BAE to Saudi Prince Bandar. Whenever the rule of law wins a big one, which it surely did in London last week, there's something to cheer about.

The SFO's decision to stand down was a travesty. It seemed clear at the time that had the investigation continued, it would have confirmed that BAE secretly paid £1 billion to Prince Bandar in return for inside help selling Typhoon jet fighters to the Saudi government; that the money moved irregularly from American banks to accounts in Switzerland; and that the prince, who was once Saudi Arabia's ambassador to Washington, shared the largess with other Saudi officials. According to reports, the prince didn't bother to deny what had happened, only that neither he nor BAE had broken any laws -- notwithstanding British prohibitions on international public bribery, Swiss money laundering concerns, and the application of the U.S. Foreign Corrupt Practices Act.

While shutting down the investigation was a shocking development -- and although Mr. Blair said vaguely that the reason was the U.K.'s national security -- the case still seemed to be just the latest international corruption saga, albeit on a grand scale and played out in the public eye. But then in mid February this year, things took a sinister turn.

At a High Court hearing in London contesting the SFO's scuttling of the investigation, a two-judge panel, according to the Guardian newspaper, "heard unchallenged allegations that it was Prince Bandar, the alleged beneficiary of £1bn in secret payments from the arms giant BAE, who threatened to cut off intelligence on terrorists if the investigation into him and his family was not stopped. Investigators said they were given to understand there would be 'another 7/7' and the loss of 'British lives on British streets' if they carried on delving into the payments. The government argued . . . that these threats were so 'grave' and put Britain's security in such 'imminent' threat that the head of the Serious Fraud Office had no option but to shut down his investigation immediately."

It sounded way too . . . sensational, a silly plot twist in a B-movie where everyone in sandals is a bad guy. But last week Lord Justice Moses and Justice Sullivan confirmed the worst. The threats were real, they said; the U.K. government didn't dispute the facts. Speaking of the prince's message and the government's reaction to it, the justices said: "Had such a threat been made by one who was subject to the criminal law of this country, he would risk being charged with an attempt to pervert the course of justice. . . . So bleak a picture of the impotence of the law invites at least dismay, if not outrage."

The editors of the Wall Street Journal said this: "Mr. Blair has eloquently argued on other occasions that bringing democratic institutions to the Middle East is a vital part of fighting Islamic terrorism. In stopping the BAE case, his administration missed a perfect opportunity to show the Saudis that one of the foremost of these institutions is the rule of law -- and that neither justice nor human lives should be toyed with for expediency's sake."

The Journal's sentiment is right, of course, but it makes a molehill out of a mountain. This case is about a lot more than a missed opportunity to show the Saudis the benefits of the rule of law. It's about the enormous chasm that separates the West and one of its touted in situ allies in the war on terror. It's about oil-importing countries being vulnerable to political blackmail. It's about the agenda in Iraq and the region and whether any of it makes sense in light of the self-interests of the local regimes.

But coming back to our bailiwick, the British High Court said it will issue orders for action later. In the U.S., the Justice Department is running its own investigations into BAE and Prince Bandar, who incidentally has retained for his defense Freeh Group International, among whose partners are former FBI director Louis Freeh, former head of enforcement at the SEC Stanley Sporkin, and retired British High Court judge Sir Stephen Mitchell.

What will happen with this case in London and Washington in the coming months? We have no idea. But either we'll all discover along with the Saudis that the West does in fact have the political will to enforce the rule of law when it comes to international public corruption. Or we'll see, as the High Court lamented, a sad capitulation and the awful impotence of the law.

View prior posts about BAE and Prince Bandar here.

Monday
Apr142008

Grynberg v. BP et al

Last week we reported here about the civil suit filed in the U.S. District Court in D.C. by Colorado-based oilman Jack Grynberg, 76, against BP, Statoil and British Gas, along with some of their current or former top executives. The core allegation is that the defendants, without Grynberg's knowledge and using some of his money, bribed officials in Kazakhstan in order to win oil rights for joint ventures in which Grynberg had an interest.

A friend sent us a copy of Grynberg's complaint. It alleges facts which, if true, would violate the Foreign Corrupt Practices Act. Because there is no private right of action under the FCPA, we asked in our prior post whether the Department of Justice would investigate Grynberg's allegations. After reading his complaint, the answer must be yes.

What follow are excerpts from Grynberg's pleading. We've omitted the paragraph numbers that appear in the original document and we've split up some longer sections for the sake of readability. But all of the language between our lines is taken directly from the complaint.

This is a lot more text than we usually post at one go. But it's fascinating material and extremely unusual. Normally, allegations about international public corruption and violations of the FCPA come only from the Department of Justice and the Securities and Exchange Commission. This story, however, is told by an industry insider who's also an alleged victim.

____________________

COME NOW the Plaintiffs, Jack J. Grynberg (“Grynberg”), Grynberg Production Corporation, a Texas corporation (“GPC Texas”), Grynberg Production Corporation, a Colorado corporation (“GPC Colorado”) and Pricaspian Development Corporation, a Texas corporation (“PDC”), collectively, the “Grynberg Plaintiffs,” through their undersigned counsel and for their Complaint against Defendants B.P. P.L.C. (“BP”), BP Corp North America Inc., StatoilHydro ASA (“StatoilHydro”), John Browne (“Browne”), Anthony Hayward (“Hayward”), Peter Sutherland (“Sutherland”), Helge Lund (“Lund”), British Gas (“BG”) and Eivind Reiten (“Reiten”), respectfully allege as follows:

This is a case about Statoil’s, BP’s and BG’s role -- and the role of its executive leadership – in a massive scheme involving illegal bribes paid to various top officials of the Government of Kazakhstan by several oil companies, and the scheme to cover up those bribes from public disclosure through a series of misrepresentations. There have been many victims of these bribes and their cover up – beginning with the People of Kazakhstan who have been denied their right to the benefits of the resources extracted from their land and the right to the honest services of their governmental officials of the bribes and the cover-up. The Grynberg Plaintiffs are another group of victims.

The Grynberg Plaintiffs comprise a small petroleum exploration, development and production consortium, who have engaged in honest and fully transparent business dealings in Kazakhstan and elsewhere since the late 1980’s. Plaintiffs contracted with larger oil companies to help them explore and develop Kazakhstan’s vast oil and natural gas potential. But some of the larger oil companies cut their own deal with the Kazakhstan Government to squeeze the Grynberg Plaintiffs out of Kazakhstan, using the Grynberg Plaintiffs’ confidential, proprietary, and extremely valuable, geological and geophysical information.

Settlement agreements were ultimately reached between Plaintiffs and the larger companies, whereby the larger companies bore express duties to account for net profits in the Pricaspian Sedimentary Basin of offshore and onshore northwestern Kazakhstan, also known as the Area of Mutual Interest (“AMI”), and pay Plaintiffs a portion of those net profits, and implied duties to engage honest business practices including transparent accounting and refraining from foreign corrupt practices.

This lawsuit arises from the Grynberg Plaintiffs’ discovery that Defendants have engaged in criminal bribery schemes, and in attempting to cover up those bribes, have lied to the Plaintiffs, withheld evidence, with trickery have attempted to force Plaintiffs, without their knowledge, consent or approval, to pay a portion of those illegal bribes out of the profits that the corporate Plaintiffs should have shared in, thereby harming Plaintiffs’ hard-earned and well-justified reputation as a crusader against bribery and other corruption within the petroleum industry.

Grynberg has a long history of resisting and exposing the corruption in the petroleum industry. In April of 1995, Grynberg filed a series of False Claims Act qui tam lawsuits in his capacity as a Realtor for the United States and Native Americans, including Civ. No. 95-725 (TFH), District Court, District of Columbia, U.S. ex rel. Jack J. Grynberg v. Alaska Pipeline Co. et al., and Case No. 1999MDL1293, U.S. District Court, Casper, Wyoming, Natural Gas Royalties Qui Tam Litigation. Both were filed in accordance with the False Claims Act, 18 U.S.C. § 3729 et seq. In all, Grynberg has expended in excess of twenty million dollars ($20,000,000.00) on attorney’s fees, court costs and expenses.

The above mentioned qui tam lawsuits, against 66 and subsequently enlarged to 305 corporate Defendants in the natural gas industry, challenged the mismeasurement of the volume and wrongful analysis of the heating content of natural gas causing substantial underpayments of royalties to the United States and Native Americans. Grynberg’s lawsuits allege that those Defendants are responsible for under-measuring the volume and wrongly analyzing the heating content of natural gas produced from mineral property interests owned by the United States and Native Americans, and artificially inflating net-back charges using improper valuation and transactions with non-arm’s length affiliates, to reduce royalties owed to the United States and to Native Americans.

The consolidated qui tam actions are currently before the U.S. Tenth Circuit Court of Appeals. Several “copy-cat” qui tam actions against the oil and natural gas industry have been filed by other whistleblowers and are progressing through the courts as well. . . .

Mr. Grynberg speaks, reads and writes fluent Russian, and was a scientific analyst in the United States Army Research and Development Command working on Soviet radioactive warfare in 1956-57. . . .

Plaintiffs Grynberg [and his companies] have engaged in the international petroleum exploration, development and production for over forty (40) years.

In the late-1980’s Grynberg, using his knowledge of Russian, personally began establishing relationships with key individuals and decision makers in the oil, natural gas and mineral exploration and production industries in the former Soviet Union, including the satellite states of Eastern Europe, and the future Caspian Sea republics, including and especially Kazakhstan. . . .

James H. Giffen (“Giffen”) was the principal and CEO of Mercator Corporation (“Mercator”), a New York corporation owned by Mr. Giffen, who had been advising the Republic of Kazakhstan throughout the 1990’s and early 2000’s in connection with various transactions related to the sale by Kazakhstan of portions of its oil and natural gas wealth.

On March 30, 2003, Giffen was arrested at Newark Airport attempting to flee the United States, served with a criminal grand jury indictment, and is now awaiting trial after posting $10,000,000.00 bail, in U.S. v. Giffen, 03-MJ-663, S.D.N.Y. (March 2003). . . . Giffen was notorious for his part of a scheme to pay off high Kazakh government officials to smooth the way for the original KCS Concession Agreement and subsequent Kazakh Government approval for the BPX/Statoil assignment of its interests to other OKIOC Concessionaires. No payment to Giffen, by any person engaged in GKOF activities, could have been for other than criminally-tainted purposes.

The Defendants BP/Statoil and BG paid their share, amounting to at least 1/7th of $84 million or $12 million of the illicit bribes attributed to Giffen’ s activities with respect to GKOF.

One prominent American oil company, Chevron, which did not participate in OKIOC consortium appears to be the exception that proves the rule. Chevron did not pay the $40 million “entrance fee,” as it has been confided by a confidential source to Plaintiff Grynberg, precisely because it was seen as an illegal bribery. Plaintiff Grynberg has signed a verification of this Complaint to confirm this information.

The Foreign Corrupt Practices Act, 15 U.S.C. §§ 78a, 78dd-1 to 78dd-3, 78ff, the Interstate and Foreign Travel to Aid Racketeering, 18 U.S.C. § 1952, and Engaging in Monetary Transactions in Proceeds from Specified Unlawful Activities, 18 U.S.C. § 1957, not only bar this type of conduct directly but at the same time compel both the corporate Plaintiffs and Jack J. Grynberg to take independent action to disassociate themselves, in their contractual capacity, from these illegal acts by the BPX/Statoil, BG, and the individual defendants.

As a forced and innocent victim in the payment of approximately $40,500,000.00 of illegal payments to foreign government officials (a percentage of which was charged to Plaintiffs), failure to take the necessary steps to seek immediate return of these funds and disavowal in such practices might potentially expose Plaintiffs to risk and costs associated with the ongoing DOJ criminal investigations against each of the oil and gas company Defendants.

Following Giffen’s criminal indictment, Grynberg sought to obtain information concerning the details of Giffen’s arrangements with various oil companies within Kazakhstan, including BP, Statoil, BG, ENI and Chevron, both informally and in the context of settlement negotiations. Defendants have asserted attorney-client privileged information, trade secrets, contractual obligations or proprietary information for BP/Statoil and BG or other consortium members and ultimately demanding the return of documents, which, more likely than not, establish unlawful, potentially criminal conduct. Defendants will also seek to use the confidentiality agreement from the Arbitration to shield information and documents relating to their activity.

Plaintiffs have nevertheless uncovered documentary evidence that at least $500,000 has been paid by BP to Giffen for so-called “expenses” believed to constitute illegal bribe payments.

Defendants BP/Statoil, moreover, have classified approximately $40 million in unspecified expenses as “production sharing fees,” while BG has denied Plaintiffs access to audit its books where similar hidden, so-called “production sharing fees” are to be found. Standard international production sharing contracts pay production sharing fees only from actual petroleum production and not before any oil and natural gas production begins. The so-called “production sharing fees” of approximately $40 million are, more likely than not, illegal bribe payments.

Given Defendants’ intransigence and misuse of confidentiality provisions, the corporate Plaintiffs and Jack J. Grynberg are compelled to take independent action, through this Complaint and to the extent confidential as detailed in the Affidavit of Jack J. Grynberg (filed under seal).

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Sunday
Apr132008

At Siemens, Who Knew What?

German news magazine Spiegel posted a story online on April 12, 2008 (here) alleging that Siemens' former chairman Heinrich von Pierer and its executive board members may have been aware of "systematic corruption at the German multinational firm as far back as 2004."

Spiegel describes previously unreleased internal memos written by Siemens' former head of compliance, Albrecht Schäfer. The memos, Spiegel says, "could become a smoking gun in the case." The story claims that as recently as last year, Siemens' internal investigators showed no interest in the potentially important evidence. If true, the revelations could cast doubts on the integrity of the company's efforts to uncover and self disclose to U.S. authorities the full extent of its past corrupt practices and management's knowledge about them.

Compliance chief Schäfer apparently wrote the memos in 2004. His purpose was to inform Mr. Pierer and other members of Siemens's executive board about a prosecution in Milan. That case has involved allegations that Siemens paid bribes to sell turbines to the energy utility company Enel. In an April 29, 2004 memo, Mr. Schäfer even warned about the danger that U.S authorities might become involved as a result of the Enel case. Both the U.S. Department of Justice and the Securities Exchange Commission are today investigating Siemens for possible violations of the Foreign Corrupt Practices Act.

Spiegel says the "new memos first emerged at Siemens in recent days. According to the former compliance chief's attorney, her client already offered to share what he knew with internal Siemens investigators at the start of 2007. However, she claims the company had 'no interest in his testimony' during the first half of the year. She says they 'either weren't taken seriously or people just didn't want to hear' what he had to say. She claims a Siemens attorney rebuffed his effort to provide information." Siemens itself has not commented on Spiegel's story.

In October 2007, Siemens settled global corruption charges with Munich prosecutors for €201 million. The settlement was based on questionable payments of €420 million. But since then the company has identified €1.3 billion in potentially illegal payments to public officials around the world. The company is also facing possible charges of public corruption in Italy, China, Hungary, Indonesia, Greece and Norway. The scandal forced the resignations of Siemens' ceo Klaus Kleinfeld and chairman Pierer, among other executives and managers.

Assuming Spiegel's story is accurate, it may create fresh obstacles for Siemens. The company has said it's anxious to reach a deal with the DOJ and SEC, and its internal investigation is intended to support that effort. But four-year-old memos from compliance chief Schäfer to the company's former chairman and members of the executive committee about corruption allegations -- and charges that as recently as last year Siemens' internal investigators weren't interested in the memos -- won't help Siemens' convince anyone that it's finally coming clean.

View prior posts about Siemens here.

Wednesday
Apr092008

British High Court Slams Decision To Drop BAE Investigation

The U.K. Guardian reports today (here) that the British High Court has ruled in scathing language that the decision by the Serious Fraud Office to drop an investigation into bribery allegations involving BAE Systems and Saudi Prince Bandar was improper. The court said it will issue orders for further action later.

For anyone new to this story, British defense contractor BAE Systems is accused of paying £1 billion to the former Saudi ambassador to the United States, Prince Bandar (who allegedly passed money to other officials), in return for help selling Typhoon jet fighters to the Saudi government. The Serious Fraud Office started an investigation but Prime Minister Tony Blair shut it down last year, citing national security. Meanwhile, the U.S. Department of Justice picked up the investigation and started gathering evidence about possible Foreign Corrupt Practices Act violations directly from British witnesses. Both BAE and Prince Bandar have denied violating any laws.

The SFO's decision to drop its investigation was challenged earlier this year in court by public interest groups. The High Court in London heard in mid February "unchallenged allegations that it was Prince Bandar, the alleged beneficiary of £1bn in secret payments from the arms giant BAE, who threatened to cut off intelligence on terrorists if the investigation into him and his family was not stopped. Investigators said they were given to understand there would be 'another 7/7' and the loss of 'British lives on British streets' if they carried on delving into the payments. The government argued . . . that these threats were so 'grave' and put Britain's security in such 'imminent' threat that the head of the Serious Fraud Office had no option but to shut down his investigation immediately."

In the lead up to February's High Court hearings, the Guardian almost single-handedly kept the story alive. Here are excerpts from today's report:

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In a stunning victory for the activist groups that launched the legal challenge, the two judges said Tony Blair's government and the SFO caved in too readily to threats by Saudi Arabia over intelligence sharing and trade.

In an often scathing judgement, Lord Justice Moses and Justice Sullivan rejected the SFO's argument that it was powerless to resist the Saudi threats.

"So bleak a picture of the impotence of the law invites at least dismay, if not outrage," they said.

"Had such a threat been made by one who was subject to the criminal law of this country, he would risk being charged with an attempt to pervert the course of justice."

To give in so easily, the judges said, "merely encourages those with power, in a position of strategic and political importance, to repeat such threats, in the knowledge that the courts will not interfere with the decision of a prosecutor to surrender".

Campaign Against Arms Trade (CAAT) and Corner House Research had sought a review of the decision by the SFO director, Robert Wardle, in December 2006 to drop the investigation into allegations of bribery and corruption over the £43bn Al-Yamamah arms deal, signed in 1985.

"No one, whether in this country or outside, is entitled to interfere with the course of our justice," Moses and Sullivan ruled. . . .

The judges ruled that the SFO decision was unlawful but made no formal orders for further action - something they will consider at a further hearing. It is believed the most likely course will be that the SFO will have to reconsider its decision.

They had harsh words for the attitude of the SFO and the Blair government in never even considering the option of telling the Saudis their threats would be ignored.

"No-one suggested to those uttering the threat that it was futile, that the United Kingdom's system of democracy forbad pressure being exerted on an independent prosecutor whether by the domestic executive or by anyone else; no-one even hinted that the courts would strive to protect the rule of law and protect the independence of the prosecutor by striking down any decision he might be tempted to make in submission to the threat."

At a two-day hearing in February, lawyers for CAAT and Corner House argued that the SFO dropped its investigation due to Saudi Arabian pressure that amounted to diplomatic blackmail.

Blair, the then prime minister, said the Saudis had privately threatened to cut intelligence cooperation over terrorism unless the inquiry was stopped.

The government did not dispute this version of events, the judges noted in their ruling.

They decided that Wardle "was required to satisfy the court that all that could reasonably be done had been done to resist the threat", and said: "He has failed to do so." . . .

David Leigh, the Guardian's investigations editor, said: "The Guardian unearthed and published the facts about BAE's dealings with Saudi Arabia as long ago as 2004. We passed our evidence to the SFO, who embarked on a long inquiry.

"Recently we also decided to name Prince Bandar as the recipient of £1bn from BAE. We are very pleased that today's high court judgment vindicates all the work the Guardian has done in the public interest to expose this scandal."

The judges were told Prince Bandar, a Saudi national security adviser allegedly involved in the bribery, was behind threats to hold back information about potential suicide bombers and terrorists. . . .

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View prior posts about BAE and Prince Bandar here.