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.
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Bourke Prepares His Defense

Frederic Bourke is taking video testimony from a critically ill friend that may help prove Bourke was an innocent victim of a massive investment fraud perpetrated by Viktor Kozeny. Bourke, 62, goes on trial June 1 for violating the Foreign Corrupt Practices Act. He's accused of helping the Czech-born Kozeny bribe officials in Azerbaijan in a failed attempt to take over the state oil company, Socar. Bourke faces up to 35 years in prison on FCPA charges, money laundering and lying to federal investigators.

In late March, the federal court in New York City granted Bourke's request to take video testimony from Harry Demetriou, a British citizen who's been living in Miami. Demetriou has advanced bladder cancer. After five years of chemotherapy and surgeries, Bourke said his friend now plans to stop all treatment and "let the cancer run its course." Rule 15(a) of the Federal Rules of Criminal Procedure allows a party to depose witnesses to preserve testimony for trial because of exceptional circumstances. "Mr. Demetriou offers significant exculpatory evidence and is unavailable to appear at trial," Bourke said. The government didn't oppose his request.

Demetriou invested $500,000 in 1998 in Blueport, Inc., the company Bourke set up to handle investments by his family and friends in the Azeri deal. The court pleading said, "Mr. Demetriou suffered the same financial fate as Mr. Bourke -- he lost his entire investment." Bourke invested $8 million with Kozeny.

Bourke and Kozeny were indicted under the FCPA in 2005. Kozeny, 45, has been a fugitive living in the Bahamas for ten years. He's fighting extradition to the U.S. and is also wanted by authorities in the Czech Republic, where he's accused of stripping Czech pensions funds of $1.1 billion.

According to Bourke's court filing, Demetriou was at several meetings in 1998 that included Bourke, Kozeny and others the government says were involved in the plot to bribe Azeri officials. He also attended meetings for investors before and after Bourke learned about Kozeny's alleged illegal actions. Bourke said, "Mr. Demetriou was aware of and in some instances personally involved in Mr. Bourke's efforts to draw attention to and expose Mr. Kozeny's wrongdoing."

Bourke has maintained that he invested with Kozeny only after lawyers advised him the deal didn't violate any laws. But soon after investing, he said he suspected illegal behavior and became a whistleblower. His lawyers said he traveled to Azerbaijan to warn then-President Heydar Aliyev about the scheme. He later testified before a New York grand jury "as a victim of Kozeny's fraud." New York state prosecutors charged Kozeny with fraud for keeping $182 million of his investors' money.

In August 2008, a Washington, D.C.-based non-profit watchdog group that defends whistleblowers, the Government Accountability Project, said Kozeny's scheme in Azerbaijan came to light "in 1999, when U.S. investor and whistleblower Frederic Bourke came forward and exposed the fact that at least one major investor had been defrauded." Bloomberg reported (here) that Bourke provided documents and funding to GAP.

Last month, Bloomberg's David Glovin reported (here) that Bourke plans to challenge key parts of the government's case. Prosecutors said the scheme to bribe Azeri leaders involved giving them vouchers Azeri citizens could use to participate in privatizations. With $350 million from his investors, Kozeny was supposed to buy enough vouchers to gain control over Socar if it was privatized. U.S. prosecutors allege Kozeny and Bourke gave some of the vouchers to Azeri officials.

But according to documents Glovin saw before the judge sealed them, Bourke will argue that most of the vouchers can be accounted for. They're now in the hands of Gerald O’Shaughnessy, another Kozeny investor who lives in Wichita, Kansas. O'Shaughnessy hasn't been charged in the case. "The documents tell of O’Shaughnessy’s years-long quest to recover the $350 million he and other investors gave Kozeny to buy vouchers," Glovin's story said. O’Shaughnessy gained control of about three-quarters of the outstanding vouchers by 2003. "He then sought to force the Azeris to buy them for $350 million so investors could recover their lost stakes, the documents show."

In a pretrial hearing last September, Bourke argued that any payments to Azeri officials didn't violate the FCPA. He said that under Azeri law, once he reported the payments to the country's president, they weren't punishable there. Therefore, he argued, he was protected by the FCPA's local-law affirmative defense. It provides that a payment to a foreign official is permitted if it 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).

But the trial judge ruled against Bourke. Judge Shira Scheindlin said Azerbaijan's law relieving a bribe payer from criminal liability if the bribe is properly reported doesn't make the payment lawful when it was paid. Instead, she ruled, reporting the bribe erases the stain of criminality retroactively. While a person cannot be guilty of violating the FCPA if the payment was lawful under the foreign law, she said, there's no immunity merely because a person couldn't be prosecuted in the foreign country due to a technicality (see our post here).

Bourke hired a new lawyer last month to lead his defense team. Denver-based Harold A. Haddon replaced Dan Webb. Haddon's former clients include John and Patsy Ramsey and Kobe Bryant.

Download Frederic Bourke's Motion to Take Video Deposition of Witness for Trial Preservation filed March 26, 2009 here.

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Coming Events. Kevin Abikoff and Gregory Williams, partners at Hughes Hubbard & Reed LLP, will chair a BNA Briefing on the FCPA. It's happening Tuesday, April 21, from 8:00 AM to noon, at 1801 S. Bell Street, Arlington, Virginia. The panel includes Helen Garlick, former assistant director of the U.K.'s Serious Fraud Office and now senior director of investigations in London for Nardello & Co. She was recently featured on Frontline: Black Money.
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Bourke's Defense Is Revealed, Then Sealed

Bloomberg's David Glovin filed a story Friday (here) reporting that Frederic Bourke will argue that he didn't violate the Foreign Corrupt Practices Act because there were no corrupt payments to foreign officials. Bourke, 62, was indicted in 2005 with Czech-born fugitive Viktor Kozeny, 45, for bribing government officials in Azerbaijan in a failed attempt to take over the state oil company known as Socar.

Bourke's trial on FCPA charges, money laundering and lying to federal investigators is scheduled to start June 1. He could be jailed up to 35 years if convicted on all counts. His co-defendant Kozeny has been a fugitive for about a decade. From the Bahamas, he's been fighting extradition to the United States. He's also wanted by the Czech Republic for allegedly looting a national pension fund.

Glovin learned details of Bourke's defense from a hearing transcript and other documents filed in the U.S. District Court in Manhattan. But after he obtained copies, Judge Shira Scheindlin sealed the documents from public view. Glovin reported, however, that at a December 24, 2008 hearing, Dan Webb, Bourke's lead trial lawyer at the time, said, “It is not clear if there was ever a bribery. Whether or not bribes actually got paid here, I am probably going to be refuting.”

Bourke invested and lost $8 million with Kozeny. The government alleged Kozeny's scheme to bribe Azeri leaders involved giving them vouchers that Azeri citizens could use to participate in privatizations. With $350 million from his investors, Kozeny was supposed to buy enough vouchers to gain control over Socar if it was privatized. U.S. prosecutors allege Kozeny and Bourke gave some of the vouchers to Azeri officials.

Now, though, according to Glovin's story, most of the vouchers can be accounted for. They're in the hands of Gerald O’Shaughnessy, another Kozeny investor who lives in Wichita, Kansas. O'Shaughnessy hasn't been charged in the case. "The documents tell of O’Shaughnessy’s years-long quest to recover the $350 million he and other investors gave Kozeny to buy vouchers," Glovin's story says. "According to the documents, O’Shaughnessy had gained control by 2003 of about three-quarters of the outstanding vouchers. He then sought to force the Azeris to buy them for $350 million so investors could recover their lost stakes, the documents show."

Leon G. Cooperman's Omega Advisors Inc. invested more than $100 million with Kozeny in 1998 for the Azeri privatization program. When the program fizzled, Omega and the other investors lost their entire investments. In 2004, Clayton Lewis, a former employee of Omega, pleaded guilty to conspiring to violate the FCPA in connection with the Kozeny investment. And in July 2007, Omega itself settled with the government, entering into a non-prosecution agreement with the DOJ and agreeing to a civil forfeiture of $500,000.

In addition to the federal FCPA indictment, New York state prosecutors charged Kozeny with fraud for keeping $182 million of his investors' money.

Bourke -- owner of the luxury handbag brand Dooney & Bourke -- said after his indictment in 2005 that he invested $8 million with Kozeny only after lawyers had advised him the deal was legal. Soon after, he said, he suspected illegal behavior. His lawyers said he traveled to Azerbaijan to warn then-President Heydar Aliyev about the scheme and he testified before a New York grand jury "as a victim of Kozeny's fraud."

Earlier this month, Bourke's lead trial counsel, Dan Webb, withdrew from the case. Bourke brought in new lawyers--Denver-based Harold A. Haddon and Saskia A. Jordan. In a March 6 letter to Judge Scheindlin, Webb said,

Mr. Bourke has requested that the Haddon firm serve as lead trial counsel in this matter and that I seek to withdraw my appearance. Going forward, I will cease to have any involvement in the case. At Mr. Bourke's request, my colleagues at Winston & Strawn will continue their involvement in the case through trial.

Harold Haddon's former clients include John and Patsy Ramsey and Kobe Bryant.

Last November, Webb raised the possibility that Bourke's prosecution was vindictive. He asked Judge Scheindlin then to review internal prosecution documents prepared before Bourke was charged. "The documents may show," Webb said, "whether prosecutors brought the case to punish Bourke for disclosing a crime involving the Socar deal and interfering in the U.S.'s relationship with Azerbaijan a decade ago."

A copy of the 2005 indictment against Kozeny and Bourke can be downloaded in two parts here and here.

A copy of Dan Webb's March 6, 2009 letter to Judge Scheindlin seeking to withdraw from the case can be downloaded here.

Read all posts about U.S. v. Kozeny and the prosecution of Frederic Bourke here.
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Following Kozeny's Money

The Justice Department obtained a federal court order ten days ago against Viktor Kozeny, barring him from touching any of the proceeds from the 2001 sale of his Aspen, Colorado residence (left), amounting now to about $23 million. The government said the funds came from the money laundering offenses alleged in U.S. v. Kozeny, a federal criminal prosecution in New York that includes Foreign Corrupt Practices Act charges. A copy of the restraining order can be downloaded here.

The DOJ sought the order after Kozeny settled a nine-year-old London High Court case last month. Bloomberg has the story here. During the London suit, court orders obtained by the plaintiff, Omega Advisors, Inc., froze $177 million of Kozeny's assets, including the Aspen house. Last month's settlement resulted in the freeze orders being discharged. Omega had sued Kozeny for more than $100 million in damages -- the amount Omega invested in Kozeny's 1998 failed attempt to take over the Azerbaijan state oil company, Socar. Omega lost its investment and, in 2007, paid a civil penalty of $500,000 in an FCPA enforcement action brought because of bribery allegations in the Socar deal.

Czech-born Kozeny has been a fugitive for about a decade. From the Bahamas, he's been fighting extradition to the United States and the Czech Republic. He was indicted in 2003 in a New York state criminal case for stealing $182 million from investors, including Omega and AIG. And in 2005, he and co-defendant Frederic Bourke were charged under the Foreign Corrupt Practices Act for bribing Azerbaijan officials in the Socar privatization. Kozeny hasn't appeared in the case, which is scheduled for trial in June this year.

After Kozeny fled the jurisdiction of the United States, his house in Aspen sat empty. In 2001, a federal judge in Denver allowed the house to be sold, with the proceeds to remain frozen. The buyer, Priceline.com boss Richard Braddock, paid $22 million -- a Colorado record at the time. The money went into an escrow at Wells Fargo for Kozeny's creditors, where it still sits today.

Kozeny bought the "Peak House," as it's known, in 1997 for $19.7 million. It has 24,000-square-feet, five bedrooms and nine bathrooms and sits on Red Mountain, overlooking Aspen. Kozeny threw fancy parties there and hosted investment seminars for his wealthy neighbors. Frederic Bourke, Kozeny's eventual co-defendant in the FCPA case, was a part-time resident of Aspen when Kozeny was there.

The Justice Department's restraining order freezing the "Peak House" proceeds is bad news for Kozeny. Although he's entering his second decade of exile in the Bahamas, it looks like the Justice Department isn't likely to forget about him (or his money) any time soon.

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Bloomberg's David Glovin visited Viktor Kozeny last year in the Bahamas. Glovin's account of their meeting (here) is a great piece of reporting and writing. Here's an excerpt:

. . . The life of a fugitive is tough, Kozeny says during three days of interviews at his $29 million estate in July. "I feel a little like Napoleon sent to St. Helena,'' the 45-year-old Czech native says of his life in the Bahamas, which he hasn't left since 1999.

"Havel was jailed,'' he says of the former Czech president. "People would have laughed if they saw him as a president.'' He rattles off the names of other famous figures who've been imprisoned: "Nelson Mandela. Alexander Solzhenitsyn.'' Kozeny says he plans to clear his own name and run for the European Parliament by 2014.

Prosecutors would like to thwart Kozeny's political ambitions and send him to jail. New York District Attorney Robert Morgenthau says Kozeny stole $182 million from Americans who invested in his 1998 bid to win control of an oil company in the former Soviet republic of Azerbaijan.

U.S. Attorney Michael Garcia in New York says Kozeny offered millions of dollars in bribes to Azeri leaders to cement the acquisition. Czech prosecutors, meanwhile, are presenting evidence to a court that is trying Kozeny in absentia on charges of embezzling $1.1 billion from mutual funds he established in the early 1990s. . . .
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Siemens: Systematic Global Corruption

[Updated and Corrected] It was a corporation that tolerated fraud, deceit and concealment. There were slush funds used to bribe public officials. There were phony contracts and fake invoices to cover up the corruption, and there was a boardroom that knew for years what was happening but feigned ignorance. And yet it was one of the world's most important companies, a global powerhouse in electronics and electrical engineering, with nearly 400,000 employees and yearly revenues above $100 billion.

As reported Friday, Siemens AG will plead guilty as early as Dec. 15th to Justice Department charges of violating the Foreign Corrupt Practices Act, likely resulting in fines of $450 million. And once an expected agreement with the Securities and Exchange Commission is signed, the company will also be required to disgorge at least $350 million of its tainted profits.

The Justice Department's Information charging Siemens in the biggest FCPA enforcement action ever tells of more than 4,000 payments worth at least $1.4 billion to foreign officials to obtain or retain business -- and systematic and intentional violations of the internal controls and books and records provisions that might have prevented or detected the payments (15 U.S.C. §§ : 78m(b)(2), 78(b)(5) and 78ff(a)).

How could it have happened? Because of the corporate structure Siemens created and the culture it nourished. Where operating groups and foreign subsidiaries were accountable for their bottom line but little else. Where ethics training didn't happen. Where compliance personnel and inside auditors were choked off from resources and hobbled by internal restrictions and a confused mission. Where reliable reports to headquarters of large-scale corruption weren't investigated. Where senior employees known to have paid bribes and cooked the books were never disciplined -- but instead were allowed to retire with benefits, bonuses and severance packages.

And then there's the story in the Sentencing Memorandum of Siemens' eventual road to redemption. Because of the scope of its bribery, the company faced fines under the Federal Sentencing Guidelines of up to $2.7 billion. But the DOJ's prosecutors are asking for a penalty reduced to $450 million. And they haven't charged Siemens under the FCPA's antibribery provisions, so it probably won't be barred from U.S. government contracts. Why? The Justice Department said it views as exceptional Siemens’ wide-ranging cooperation efforts throughout this investigation, which included a sweeping internal investigation, the creation of innovative and effective amnesty and leniency programs, and exemplary efforts with respect to preservation, collection, testing, and analysis of evidence. ... More on that in later posts.

For today, here are some key allegations from the 36-page Information:

• In April 2006, in response to a special audit request by the board of directors, Siemens’ outside auditors reported at least 250 suspicious payments made through the parent to companies in foreign jurisdictions. The audit report was provided to the board of directors, members of management and the Corporate Compliance Office. But no one made any attempt to investigate these facts, or explore whether they were related to other similar instances of wrongdoing.

• From 2004 to 2006, in addition to learning of corruption issues involving Siemens in Nigeria, Italy, Greece, Liechtenstein, and elsewhere, the company's senior management learned of government investigations into corruption by Siemens in Israel, Hungary, Azerbaijan, Taiwan, and China. Nevertheless, executives and senior management failed to adequately investigate or follow up on any of these issues.

• Siemens also failed to take effective disciplinary measures with respect to any of the employees implicated in the various investigations. For example, the three managers implicated in the Italian cases each received a severance package standard for early retirees, despite the fact that certain Siemens board members knew that at least two of the managers had already admitted to paying bribes at the time of their retirement.

• From 2004 to 2006, the Corporate Compliance Office continued to lack resources, and there was an inherent conflict in its mandate, which included both defending the company against prosecutorial investigations and preventing and punishing compliance breaches. In addition, there were extremely limited internal audit resources to support compliance efforts. All of these factors undermined the improved policies because violations were difficult to detect and remedy, and resources were insufficient to train business people in anti-corruption compliance.

• There was a consistent failure on the part of certain members of management to alert the Audit Committee to the significance of the compliance failures discovered within Siemens. Reports to the Audit Committee by the Chief Compliance Officer were principally status reports on prosecutorial investigations and often conveyed incomplete information. In some instances, management provided inaccurate information in response to Audit Committee inquiries. At no time did management convey to the Audit Committee a sense of alarm or growing crisis.

And here, from the final paragraph of the Information, are the DOJ's books-and-records charges against the company:

From at least March 2001 to November 2006, Siemens knowingly falsified and caused to be falsified books, records, and accounts required to, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the company. In doing so, Siemens:

(a) used off-books accounts as a way to conceal corrupt payments;

(b) entered into purported business consulting agreements with no basis, sometimes after Siemens had won the relevant project;

(c) justified payments to purported business consultants based on false invoices;

(d) mischaracterized bribes in the corporate books and records as consulting fees and other seemingly legitimate expenses;

(e) accumulated profit reserves as liabilities in internal balance sheet accounts and then used them to make corrupt payments through business consultants as needed;

(f) used removable Post-It notes to affix signatures to approval forms authorizing payments to conceal the identity of the signors and obscure the audit trail; and

(g) drafted and backdated sham business consulting agreements to justify third party payments; and

(h) falsely described kickbacks paid to the Iraqi government in connection with the Oil for Food Program in its corporate books and records as commission payments to agents when Siemens and Siemens France, Siemens Turkey and others were aware that a substantial portion of these payments was being passed on to the Iraqi government in exchange for being awarded contracts with the Iraqi government.
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Download a copy of the DOJ's Information charging Siemens AG here.

Download the DOJ's Sentencing Memorandum here.

Download here the charges related to Argentina, Bangladesh and Venezuela.

Download the Joint Statement here.

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Our special thanks to readers who assisted in compiling the documents filed by the DOJ in U.S. District Court in Washington, D.C. Friday. Those linked above are at the heart of this extraordinary FCPA enforcement action.

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The FCPA, With All The Fixins . . .

U.S. v. Kozeny. Bloomberg's David Glovin continues his great coverage of Frederic Bourke's prosecution under the Foreign Corrupt Practices Act. His latest story says the government's witnesses will include a former U.S. Defense Department analyst, Christine Rastas, who worked for an investment bank run by co-defendant Victor Kozeny, and John Pulley, an ex-agent with the Drug Enforcement Administration who was Kozeny's security chief. Testifying with immunity, Rastas and Pulley are among at least "six people [who] have now said they were aware of wrongdoing in the deal" to privatize Azerbaijan's state oil company, reports Glovin.

Blasts from the past. A story yesterday by Lynne Marek of The National Law Journal (carried in law.com here) mentions the potential resolution of a couple of FCPA investigations that have been pending for years -- Halliburton (from 2003) and DaimlerChrysler (from 2004). "Halliburton," the story says, "disclosed in 2003 that regulators were probing $2.4 million in payments by one of its subsidiaries for favorable tax treatment in Nigeria. The DaimlerChrysler probe was triggered when a former employee alleged in a now-settled 2004 whistleblower lawsuit that the company had secret bank accounts for bribing foreign officials."

No telephones, please. We're Bulgarian. About our post yesterday, Thomas in Tokyo believes the cell phone ban is meant to prevent the store's disarmed patrons from calling for help. Others have speculated it's somehow related to electronic surveillance or, as one imaginative reader put it, to keep detonating devices off the premises. We're still scratching our head.

Real heroes. A special salute to the men and women in uniform everywhere who serve their countries and communities, and to their loved ones.

We're thankful for . . . These words spoken by Robert F. Kennedy in March 1968: Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country. It measures everything, in short, except that which makes life worthwhile.

Happy Thanksgiving.

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Bourke Raises Vindictive Prosecution

Frederic Bourke wants to know if the U.S. is prosecuting him for violating the Foreign Corrupt Practices Act because he was a whistleblower who interfered in the strategic relationship between the United States and Azerbaijan.

Bourke's lawyer -- the high-profile Dan Webb -- has asked U.S. District Judge Shira A. Scheindlin to review internal prosecution documents prepared before Bourke was charged. "The documents may show whether prosecutors brought the case to punish Bourke for disclosing a crime involving the Socar deal and interfering in the U.S.'s relationship with Azerbaijan a decade ago," Webb said. Bourke's showing that he's the target of a vindictive prosecution could result in a dismissal of the charges against him.

These are among the details in a current story carried by the Bloomberg wire and written by David Glovin. Last month Glovin wrote a fascinating profile and interview of Bourke's co-defendant, Victor Kozeny, who's in the Bahamas fighting extradition. Bourke is accused of helping Kozeny pay bribes to government officials in Azerbaijan in a failed attempt to take over the state oil company known as Socar. Bourke's trial is scheduled to start in March next year.

At a hearing last week in U.S. v. Kozeny, 05-cr-518, U.S. District Court, Southern District of New York (Manhattan), defense attorney Webb said Bourke wants to explore "the possibility that somebody decided to silence him. Why did a whistleblower get indicted?''

Bourke invested and lost $8 million with Kozeny. His lawyers have said in court filings that Bourke suspected in late 1998 that Kozeny was stealing from investors. Bourke then began collecting evidence to prove the fraud. Bloomberg reports: "Bourke took the evidence to state and federal prosecutors in New York and met with Azerbaijan's then-president, Heidar Aliyev, to expose Kozeny's wrongdoing, the court papers say. . . 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."

Assistant U.S. Attorney Harry Chernoff urged Judge Scheindlin to deny Bourke's request that she review the documents, saying there is no evidence to support his claim and that Bourke is engaged in "a fishing expedition." Scheindlin hasn't yet made a ruling.

Webb also asked Judge Scheindlin to order prosecutors to search for records in the Central Intelligence Agency and the U.S. State Department that may support other defense claims. In addition, he wants the judge to force the U.S. National Security Agency to turn over recorded intercepts of conversations involving Kozeny, Bourke or others in Azerbaijan, if they exist.

In August this year, a Washington-based non-profit watchdog group that defends whistleblowers alleged that James Wolfensohn, the former head of the World Bank, helped Kozeny by quashing staff concerns and writing letters on Kozeny's behalf. Wolfensohn has said the report by the Government Accountability Project (GAP) is wrong.

An earlier Bloomberg story, also by David Glovin and co-reported by Christopher Swann, said Bourke's lawyers provided documents to GAP and that Bourke funded the Kozeny-World Bank report. GAP says Kozeny's scheme in Azerbaijan came to light "in 1999, when U.S. investor and whistleblower Frederic Bourke came forward and exposed the fact that at least one major investor had been defrauded . . . ." Kozeny has denied taking money illegally from investors and criticized GAP for its work on Bourke's behalf.

New York State prosecutors brought a case against Kozeny in 2003 for stealing $180 million from U.S. investors. Bourke, who wasn't charged in that case, testified before the grand jury against Kozeny and said he was a victim of the fraud. In 2005, the U.S. government accused Bourke of joining the bribery plot. Kozeny, who has spent the last nine years in the Bahamas, is also wanted by authorities in the Czech Republic, where he's accused of stripping Czech companies of $1.1 billion.

A special thanks to Bloomberg's David Glovin for his excellent coverage of this story.

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Limiting The Local Law Defense

The Opinion and Order in U.S. v. Kozeny issued October 21, 2008 mentioned in our post yesterday deals directly with the Foreign Corrupt Practices Act's local law affirmative defense. That defense says a bribe paid to a foreign official is permitted if it 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).

Defendant Frederic Bourke, heading to trial in New York for FCPA violations, asked for a jury instruction on the local law defense. He argued that under the laws of Azerbaijan, the payments in question were not punishable once they were reported to the country's president. Prosecutors didn't agree and, after a hearing in September, Judge Scheindlin issued her Opinion and Order.

She analyzed it this way. The Azerbaijan law relieving a bribe payer from criminal liability if the bribe is properly reported doesn't make the payment lawful when it was paid. Instead, reporting the bribe retroactively erases the stain of criminality.

It is true, she said, that a person cannot be guilty of violating the FCPA if the payment was lawful under the foreign law. But, there's no immunity under the FCPA merely because a person couldn't be prosecuted in the foreign country due to a technicality (e.g., time-barred) or because a provision in the foreign law relieves the person of criminal responsibility. "[I]t is inaccurate to suggest," Judge Scheindlin said, "that the payment itself suddenly became 'lawful' -- on the contrary, the payment was unlawful, though the payer is relieved of responsibility for it." (emphasis in original) On that basis, she denied Bourke's request for a jury instruction on the local law affirmative defense.

She was deciding the issue, by the way, under Rule 26.1 of the Federal Rules of Criminal Procedure. The Rule makes it clear that questions of foreign law are not facts for the the jury to decide but are questions of law for the judge to decide.

Bourke also asked for a specific instruction on true extortion. Judge Scheindlin left that door open, depending on Bourke's evidence at trial. She also said evidence of extortion would go to the issue of whether Bourke possessed a corrupt intent in making the payments. The government has to prove beyond a reasonable doubt, she said, that Bourke had an improper motive or purpose for the payment that was intended to induce the recipient to misuse his official position in discharging an official act. But the government, she said, is not required to show that the official accepted the bribe, that the official had the power or authority to perform the act sought, or that the defendant intended to influence an official act which was lawful.

Judge Scheindlin's decision doesn't reach beyond her courtroom in the SDNY, at least for now. But it does reinforce the idea -- stretching back to the Meade and Kay cases -- that courts generally agree with the government's narrow view of the FCPA's exception and defenses.

Please contact us here for a copy of Judge Scheindlin's Opinion and Order.

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Kozeny's Co-Defendant Wins Appeal

Frederic Bourke won't face Foreign Corrupt Practices Act charges after all. He was indicted in May 2005 with Victor Kozeny and David Pinkerton over an alleged plan to bribe officials from Azerbaijan from 1997 to 1999 in connection with the privatization of the state oil company. But the U.S. Court of Appeals for the Second Circuit affirmed the June 2007 dismissal of FCPA charges against Bourke, saying the government failed to indict him within the FCPA's five-year statute of limitations.

Kozeny wasn't a party to the appeal because he's outside the United States and fighting extradition. In October 2007, the Bahamas Supreme Court refused to order his return to the U.S. to face trial. He's from the Czech Republic and reportedly has Irish citizenship, but he's been living in the Bahamas for more than a decade. The Bahamas court said the FCPA charges against Kozeny were not provable or prosecutable under local law, and there was an abuse of the court process. Apparently the U.S. government did not properly disclose the U.S. trial court's dismissal of the FCPA charges on statute of limitations grounds, a failing the Bahamas judge cited as a reason for the ruling.

Co-defendant Pinkerton was dropped from the case in July this year after the government withdrew all charges against him. See United States v. Kozeny, No. 1:05-cr-00518-SAS (S.D.N.Y. July 2, 2008) (order of nolle prosequi). The former head of AIG Global Investment Corp. invested about $15 million of AIG's money with Kozeny. After the government ended the case against Pinkerton, his lawyer said, "We have always known that David Pinkerton is completely innocent of any wrongdoing and we are thrilled by his vindication. Mr. Pinkerton is a self-made man who through his hard work, integrity and talent rose to the highest levels of his profession. Now that these charges have been entirely dismissed, Mr. Pinkerton looks forward to continuing his career."

Prosecutors obtained a related conviction in the case in February 2004. Clayton Lewis, a former employee of Omega Advisors, Inc., pleaded guilty to conspiring to violate the FCPA. Then in July 2007, Omega itself settled with the government, entering into a non-prosecution agreement with the DOJ and agreeing to a civil forfeiture of $500,000. Omega invested more than $100 million with Kozeny in 1998 for the Azeri privatization program. The program fizzled and Omega lost its entire investment, as did Bourke, AIG and others. Reports said Kozeny kept $182 million from the deal.

Bourke, 62 -- owner of the luxury handbag brand Dooney & Bourke -- said after his indictment in 2005 that he invested $8 million with Kozeny only after lawyers had advised him the deal was legal. Soon after, he said, he suspected illegal behavior. His lawyers said he traveled to Azerbaijan to warn then President Heydar Aliyev about the scheme and he testified before a New York grand jury "as a victim of Kozeny's fraud."  

Last month, a Washington-based non-profit watchdog group that defends whistleblowers alleged that James Wolfensohn, the former head of the World Bank, helped Kozeny by quashing staff concerns and writing letters on Kozeny's behalf. Wolfensohn has said the report by the Government Accountability Project (GAP) is wrong.

On its website, GAP says,

The report shows that James Wolfensohn, then president of the World Bank, personally assisted a rogue financier in his efforts to gain control of the State Oil Company of the Republic of Azerbaijan (SOCAR). While these efforts were ultimately unsuccessful, documents show that Wolfensohn silenced Bank staff members who spoke out about corrupt government officials working with Viktor Kožený, a notorious financial operator who had allegedly defrauded investors in the Czech Republic of nearly $1 billion only three years earlier.

“Before the financial fiasco in Azerbaijan occurred, Bank staff tried to expose the risks inherent in dealing with Kožený and corrupt government officials poised to profit illicitly from Caspian oil,” said Bea Edwards, GAP International Program Director and author of the report. “They were silenced about the impending fraud, however, when Wolfensohn directly intervened on Kožený’s behalf.”

A Bloomberg story said Bourke's lawyers provided documents to GAP and that Bourke funded the Kozeny-World Bank report. GAP says Kozeny's scheme in Azerbaijan came to light "in 1999, when U.S. investor and whistleblower Frederic Bourke came forward and exposed the fact that at least one major investor had been defrauded . . . ." Kozeny has denied taking money illegally from investors and criticized GAP for its work on Bourke's behalf.

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Good News For Mr. Pinkerton

A report yesterday from Dow Jones said the United States has dropped its sputtering prosecution of David B. Pinkerton on charges of conspiring to violate the Foreign Corrupt Practices Act.

The government had alleged that in June 1998, as the head of AIG Global Investment Corp., Pinkerton invested about $15 million of AIG's money in a consortium headed by Victor Kozeny -- with the understanding that Kozeny was bribing Azeri officials to ensure the privatization of the State Oil Company of the Republic of Azerbaijan (SOCAR).

Prosecutors last year suffered a double setback in the case. In June 2007, a federal district court in Manhattan dismissed all FCPA and related counts against Kozeny, Pinkerton and their co-defendant, Frederic Bourke, Jr. The court said the FCPA's five-year statute of limitations had already expired. The government appealed, but then in October the Bahamas Supreme Court ruled against Kozeny's extradition, refusing to order his return to the U.S. to face trial. He's from the Czech Republic and reportedly has Irish citizenship, but he's been living in the Bahamas for more than a decade.

Dow Jones said U.S. District Judge Shira A. Scheindlin's order of nolle prosequi dismissing the charges against Pinkerton was signed but hadn't yet appeared in the court's public electronic filing system. The report continued,

In the nolle prosequi request - a copy of which was reviewed by Dow Jones Newswires - Assistant U.S. Attorney Jonathan Abernethy wrote, "Based upon a review of the evidence and information pertaining to this defendant acquired since the filing of the indictment, the government concluded that further prosecution of David Pinkerton in this case would not be in the interest of justice."

No word yet on whether the government will also drop its case against Bourke.

Prosecutors obtained a related conviction in February 2004. Clayton Lewis, a former employee of Omega Advisors, Inc., pleaded guilty to conspiring to violate the FCPA. Then in July 2007, Omega itself settled with the government, entering into a non-prosecution agreement with the DOJ and agreeing to a civil forfeiture of $500,000. As the Justice Department noted then, Omega invested more than $100 million with Kozeny in 1998 for the Azeri privatization program. But the program fizzled and Omega lost its entire investment.

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A safe and happy Fourth of July to our American readers. It's easy to be cynical, and somehow "patriotic" has become a slur. That's too bad. Expressing gratitude for the blessings of country and countrymen is always fitting. To be sure, our Republic reflects human nature -- all of it. The flaws and pettiness and insecurities are there, but so are our finest traits. And while Americans from left, right and center are often bothered by the messiness of our great experiment with democracy, we can all be proud that ours is still a country of freedom, opportunity and hope. See you next week.

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