The FCPA outlaws bribes to 'foreign officials.' It doesn't say anything about the nationality of the 'foreign officials,' or whether they have to be non-U.S. citizens.
Entries in Allen Stanford (5)
The Texas billionaire with a Caribbean knighthood and a passion for cricket was charged by U.S. prosecutors on Friday with running a "massive ponzi scheme" through his bank in Antigua. Allen Stanford, 59, faces 21 charges that could send him to prison for 250 years, including mail and wire fraud, money laundering, and conspiracy to mislead the Securities and Exchange Commission.
Included in the federal criminal indictment unsealed Friday and the SEC's amended civil complaint are allegations that Stanford paid $100,000 in bribes* to Leroy King, the former head of Antigua's banking watchdog, the Financial Services Regulatory Commission. In return, prosecutors say, King, 63, staged phony audits of Stanford's bank, lied to the SEC about how the bank was being run, and leaked confidential information to Stanford about the SEC's investigation. In other words, Stanford knowingly made corrupt payments to a foreign official to obtain or retain business or gain an unfair advantage.
Wait a minute. That sounds exactly like a violation of the Foreign Corrupt Practices Act. So why wasn't Stanford charged under the FCPA? The Justice Department isn't saying. But a few reasons come to mind.
#1. The prosecution's case works better without an FCPA count. Stanford isn't the only one charged. Indicted with him are Laura Pendergest-Holt, Gilberto Lopez and Mark Kuhrt, all officers in his bank. And there's Leroy King himself, Stanford's alleged mole in Antigua's banking regulator.
They're all charged with one count of conspiracy to commit mail, wire and securities fraud; seven counts of wire fraud; ten counts of mail fraud; and one count of conspiracy to commit money laundering. The indictment also charges Stanford, Pendergest-Holt, and King with conspiracy to obstruct an SEC proceeding.
(Facing the same charges through a separate indictment is another company officer, James Davis. And an employee, Bruce Perraud, is separately accused of destroying records related to a federal investigation.)
It makes sense for the government to put Stanford, Pendergest-Holt and King on trial together. They're all part of the same alleged plot to mislead the SEC and derail its investigation. But if Stanford had been charged with violating the FCPA, King could probably demand a separate trial. He can't be charged under the FCPA for taking bribes, and would likely argue he doesn't belong in a trial that includes an FCPA count against someone else.
The government says King's role in the alleged conspiracy was crucial.** So splitting him from the others would leave an empty chair at the defense table and a big hole in the prosecution's case against Stanford. Having him in the courtroom will complete the picture and help the jury get it.
#2. Leroy King is an American. According to the SEC's complaint, he's a citizen of the United States as well as Antigua and Barbuda, West Indies. Can an American citizen be a "foreign official" under the FCPA? If not, then there's no FCPA violation.
The law itself doesn't exclude the possibility of an American being a "foreign official." In fact, there's nothing there about nationality.***
Still, if Stanford were charged under the FCPA because of his alleged payments to King, it would be the first time, we think, where the "foreign official" in an enforcement action is an American with dual citizenship. Do Stanford's prosecutors want to be first to tackle an oddity like that? We doubt it. Foreign means foreign, Stanford might argue, and it doesn't mean American. The dictionary supports that argument, and in the FCPA's legislative history, it's unlikely anyone was talking about Americans as "foreign officials."
Bottom line: The DOJ wants to put Stanford and the others behind bars, not press for a funky new FCPA precedent that could result in years of appeals all the way to the Supreme Court.
#3. Prosecutors don't need the FCPA in this case. With Stanford already facing up to 25o years in prison, would another 5 years on an FCPA count really matter? So why risk sending the co-conspirators into separate trials and injecting the American foreign official controversy into an otherwise clean prosecution? Besides, the government doesn't need the FCPA count to introduce evidence about the alleged bribery. Arrangements between Stanford and King are at the heart of the case already so relevance won't be an issue.
King, by the way, is apparently in Antigua. U.S authorities plan to extradite him.
View the DOJ's June 19, 2009 release here.
Download the June 18, 2009 indictment in US v. Robert Allen Stanford aka Sir Allen Stanford et al here.
View the SEC's Litigation Release No. 21092 / June 19, 2009 in SEC v. Stanford International Bank, Ltd., et al., Civil Action No. 3:09-cv-0298 (N.D. Texas, February 17, 2009) here.
Download the SEC's Second Amended Complaint in SEC v. Stanford International Bank, Ltd., et al. here.
View the Houston Chronicle's excellent full coverage of Stanford from Mary Flood, Tom Fowler and Jennifer Dlouhy here.
View our post Sir Allen And The FCPA.
* The SEC complaint says, "In addition to the cash payments, Stanford gave to King and his wife significant non-cash benefits, including: (i) use of Stanford’s fleet of private jets to travel throughout the United States and the Caribbean; (ii) use of an SIB [Stanford International Bank] corporate car; and (iii) 2004 Super Bowl tickets for King and a companion. Stanford subsequently hired King’s Super Bowl companion as a human resources project manager in Houston."
** The SEC said, "[Leroy King] facilitated the Ponzi scheme by ensuring that the FSRC [Financial Services Regulatory Commission] conducted sham audits and examinations of SIB's [Stanford International Bank's] books and records. In exchange for bribes paid to him over a period of several years, King made sure that the FSRC did not examine SIB's investment portfolio. King also provided Stanford with access to the FSRC's confidential regulatory files on him, including the SEC's requests for information from FSRC in its investigation. King went so far as to allow Stanford to essentially dictate the FSRC's responses to the SEC on those information requests. King made false assurances that there was no cause for concern about Stanford International Bank. He collaborated with Stanford to withhold significant information being requested by the SEC."
*** The FCPA says, The term “foreign official” means any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization.
Great words from Ellen Podgor at the White Collar Crime Prof Blog (here). They're about Attorney General Eric Holder's decision this week to drop the prosecution of former Senator Ted Stevens: This dismissal is monumental in terms of sending a message that this justice department will be very different. Many years ago a group of AGs signed an amicus brief in the case of Gideon v. Wainwright advocating for the defendant. They wanted a fair fight in court, and recognized the importance of the right to counsel to achieving justice. What happened today is on par with what happened back then. It is a recognition that prosecutors are not merely advocates, but rather "ministers of justice." Today an Attorney General took the side of justice.
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When a Chinese provincial official was asked earlier this year if he would support an anti-graft law encouraging office-holders to disclose their wealth, he answered, "No. If that's the case, why don't citizens declare their assets." Well, that's what they're doing. The first was a high school teacher in Zhejiang Province. Chen Yong's disclosure appeared on two of China's most popular online forums.
Chen listed his assets as a small farmhouse built by his parents worth $25,00, his life savings of about $10,000, and stocks worth about $500 that he said had lost 60% of their value. Taking a shot at philandering corrupt officials, Chen said he only had "one girlfriend, no mistresses or lovers." Now others are following his lead all over Chinese cyberspace. A comment on one site said, "We've taken up the challenge and disclosed our assets, now it's your turn." (Source: The Straits Times, Singapore, March 28, 2009).
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In a February post here, we wondered if evidence might emerge that Allen Stanford violated the Foreign Corrupt Practices Act. He hasn't been charged by U.S. authorities with any criminal offenses, but his cosy relationships with Antigua's rulers at least created some blatant conflicts of interest for the regulation of his offshore banks.
Now comes news that the number 2 executive in Stanford's commercial empire is cooperating in the federal criminal investigation. As the law blog's Ashby Jones perfectly put it, "Could this be an uh-oh moment for R. Allen Stanford?" The executive, James Davis, is "fully cooperating with the federal investigations," according to his lawyer. He was a director and chief financial officer of both Stanford Financial and Stanford International Bank, based in Antigua.
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And staying in the Caribbean, this April 1, 2009 report from the U.K.'s Times :
"Michael Misick, the previous Premier of the Turks and Caicos, announced his intention to step down just hours after reports last month that London might seize control of the islands over concern at the allegations of corruption. He is alleged to have built up a multi-million dollar fortune since he was elected in 2003, with a series of loans from banks based in the tax haven and from deals with property developers for land owned by the Crown. Mr. Misick, 43, who condemned the plan to strip the territory of its independence, is at the center of allegations that he and his now estranged wife, the American actress LisaRaye McCoy Misick, lived a celebrity lifestyle far beyond his salary as premier."
As we said in a post here, whether past violations of the Foreign Corrupt Practices Act and other anti-corruption laws might be found by investigators after the British take direct control of the government is an open question.
The U.K. government is in the process of assuming direct rule over its Caribbean dependency, the Turks and Caicos Islands. A U.K. Commission of Inquiry found "clear signs of political amorality and immaturity" in the government there. The BBC said chief minister Michael Misick is alleged to have "built up a multi-million dollar fortune since coming to power in 2003." He denies misusing public funds.
Turks and Caicos, a British Overseas Territory whose citizens have U.K. passports, consists of about 40 islands, eight of which are inhabited by a total population of around 30,000. The U.K.'s preliminary report said there was "information in abundance pointing to a high probability of systematic corruption or serious dishonesty" throughout the government. The CIA World Factbook says T&C is a transshipment point for South American narcotics destined for the U.S. and Europe.
The head of the U.K.'s Commission of Inquiry, Sir Robin Auld, hasn't said whether he'll recommend criminal investigations. His final report is due in April.
Reuters said today, "The U.K. will proceed with the seizure of power when a final report is published next month . . . . The decision is the latest effort by [British Prime Minister Gordon Brown], U.S. President Barack Obama and leaders in Germany and France to crack down on offshore financial centers. Turks & Caicos Premier Michael Misick called on the United Nations to intervene on the country’s behalf."
Antigua, another tiny Caribbean destination, was in the news last month. Texan Allen Stanford, accused by the Securities and Exchange Commission of an $8 billion investment fraud, headquartered his offshore bank there since 1996. As in Antigua, offshore financial services are an important part of the Turks and Caicos economy. That raises the same possibility of corrupt relationships between officials there and offshore operators. Whether past violations of the Foreign Corrupt Practices Act and other anti-corruption laws might be found by investigators after the British take direct control of the government is an open question.
Since hearing about Allen Stanford's cozy relationships with certain Caribbean leaders, we've wondered if he'll eventually face criminal charges under the Foreign Corrupt Practices Act. Neither bribery nor the FCPA have been mentioned yet in connection with Stanford. But here's what's been reported, so far, in the New York Times and elsewhere.
Because of the SEC's suspicions, the FBI helped gather evidence about Stanford's business practices. The investigation led to the SEC's February 16 civil complaint. It alleged that Stanford's representations about his bank's certificates of deposit were false and misleading. It wasn't true, the SEC charged, that the funds were managed by at least 20 professionals and invested in safe, liquid assets. The truth, instead, was that the money went wherever Stanford himself and a couple of close associates directed, including into risky real estate and private equity deals. And at least $8 billion can't be accounted for.
Stanford, 58, is a U.S. citizen (from Texas) and therefore an FCPA "domestic concern." He has to comply with the antibribery provisions. (Before the recent headlines, we always thought he was British or maybe South African; he calls himself "Sir Allen," sports a small mustache, wears crested blazers, and is crazy about international cricket.)
About Stanford's cozy relationships with foreign leaders -- the tightest, it appears, was with the rulers of Antigua, population 85,000. He resettled his offshore bank there after it was booted off neighboring Montserrat in 1996 for unspecified reasons. His closeness to Antigua's former prime minister, Lester Bird, led to him being "knighted" by the tiny country's government a few years ago. On the Stanford website, he signs the chairman's letter as "Sir Allen Stanford." A note on the homepage says, "Stanford Financial Group and other Stanford entities are currently controlled and managed by a receiver."
In the late 1990s, the New York Times said, Prime Minister Bird appointed Stanford to Antigua's banking advisory board. The appointment created a blatant conflict of interest. The advisory board regulated the banks on Antigua, including those owned by Stanford. What's more, the Times said, "The [advisory board] project was paid for by the Antiguan government by money either lent or granted by Mr. Stanford."
Could those loans or grants have violated the FCPA? Not likely. A payment to a foreign government -- even a payment intended to influence decisions in favor of the donor -- cannot violate the FCPA. An FCPA antibribery offense requires a corrupt payment to a foreign official -- that is, to a human being. See §§ 78dd-1(a), 78dd-2(a). See also the DOJ's FCPA Opinion Procedure Release No. 97-02 (November 5, 1997) discussed in our post here. The DOJ said, because the "requestor's donation would go directly to a government entity -- and not to any foreign government official -- the provisions of the FCPA do not appear to apply to this prospective transaction."
In its civil complaint, the SEC alleged no facts about overseas corruption; the complaint focused on misrepresentations related to the certificates of deposit and unregistered investment-adviser activity by Stanford's companies. And we've seen no reports of credible evidence about illegal payments to foreign officials by Stanford or on his behalf. That doesn't mean evidence won't surface, however. In a couple of other recent cases, when the FBI was called in to investigate foreign business practices unrelated to FCPA concerns, it also discovered evidence of antibribery violations.
That's apparently what happened, for example, to Shu Quan-Sheng, the Virginia-based rocket scientist. The naturalized U.S. citizen sold defense-related goods and services to China without first obtaining U.S. export licenses or State Department approvals. During its export-related investigation, the FBI learned Shu was bribing Chinese government officials to buy his products. Shu pleaded guilty in November 2008 to violating the Arms Export Control Act and the FCPA. And in September last year, four U.S. citizens and their Philadelphia-based company, Nexus Technologies, were charged under the Foreign Corrupt Practices Act with bribing government officials in Vietnam. The FBI may have been investigating the defendants' alleged sales of sensitive equipment to Vietnamese government agencies when it discovered the potential FCPA offenses.
Stanford hasn't been charged by U.S. authorities with any criminal acts. The SEC's complaint is a civil enforcement action and, as mentioned, is limited to securities law issues. The New York Times pointed out, though, that he and his organization were big donors to U.S. politicians and courted them with favors and perks. "Mr. Stanford," the Times said, "also wooed lawmakers and their staff with plane rides and 'fact-finding' trips to vacation destinations. Many were paid for by the Inter-American Economic Council, a nonprofit organization that he supported."
Similar donations, gifts and favors to foreign officials might violate the Foreign Corrupt Practices Act. The law prohibits giving or promising to give, directly or indirectly, anything of value -- including cash, gifts and perks -- to a foreign official for the purpose of obtaining or retaining business. There are three narrow exceptions in the FCPA -- for facilitating payments, promotional expenses, and payments legal under the written laws of the host country. The Justice Department and the courts, however, view the FCPA's "obtaining or retaining business" prohibitions expansively, and take a narrow view of the limited exceptions.
So is this an FCPA story? Not yet. But it's one to watch.
The SEC's Feb. 17, 2009 press release is here. With the press release are links to the SEC's Litigation Release No. 20901 (February 17, 2009) in Securities and Exchange Commission v. Stanford International Bank, et al., Case No. 3-09CV0298-L (N.D.TX.) (here), the SEC's civil complaint (here), the SEC's memorandum of law (here), and information for Stanford customers concerning the federal court's order freezing assets and appointing a receiver over property of Stanford and his companies (here).