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Entries in Serious Fraud Office (252)

Tuesday
Aug042009

Here Comes The SFO, Part Two

The U.K.'s Serious Fraud Office is supposed to prosecute overseas corruption. But its track record has been weak. Last month, however, it announced a break-through enforcement action against Mabey & Johnson (here). We wondered if that case could mark the emergence of an energized Serious Fraud Office. According to the SFO itself, the answer is yes.

The agency issued an "operational note" on July 21 that spells out how companies can benefit from self-reporting overseas corruption and proving they have an effective compliance program. The document amounts to an enforcement blueprint similar to the way the U.S. Justice Department enforces the Foreign Corrupt Practices Act. The SFO said part of its reason for the new approach is eventual adoption of the U.K.'s pending anti-corruption bill that we discussed here.

The SFO hopes to soon have 100 staff working on overseas bribery cases. And it said that after the Mabey & Johnson prosecution, "More will follow. We shall be using all of the tools at our disposal in identifying and prosecuting cases of corruption that we find."

The idea is to reward self-reporting with civil instead of criminal penalties. But if a company hasn't been sincere about compliance -- if it doesn't have what amounts to the U.K.'s version of an effective compliance program -- it might still face criminal penalties. As the SFO explained:

In any discussions about procedures within the corporate [defendant] we shall be looking to find evidence of adequate procedures to assess how successful the corporate has been in mitigating risk. We shall also be looking closely at the culture within the corporate to see how well the processes really reflect what is happening in the corporate. For example, we shall look for the following:

• a clear statement of an anti-corruption culture fully and visibly supported at the highest levels in the corporate.

• a Code of Ethics.

• principles that are applicable regardless of local laws or culture.

• individual accountability.

• a policy on gifts and hospitality and facilitation payments.

• a policy on outside advisers/third parties including vetting and due diligence and appropriate risk assessments.

• a policy concerning political contributions and lobbying activities.

• training to ensure dissemination of the anti-corruption culture to all staff at all levels within the corporate.

• regular checks and auditing in a proportionate manner.

• a helpline within the corporate which enables employees to report concerns.

• a commitment to making it explicit that the anti-bribery code applies to business partners.

• appropriate and consistent disciplinary processes.

• whether there have been previous cases of corruption within the corporate and, if so, the effect of any remedial action.

Finally, the SFO said that no matter how much the company cooperates, individuals -- including directors -- could still face criminal prosecution. It added that it will help self-reporting companies resolve potential liabilities they face in other jurisdictions, presumably including the U.S.

The SFO's July 21, 2009 operational note on self-reporting overseas bribery can be downloaded here.
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Thursday
Jul232009

Here Comes The SFO, Part One

The last time we had a serious discussion about the U.K.'s Serious Fraud Office was to report its thrashing in June 2008 by a former American prosecutor. Jessica de Grazia, who'd been an assistant district attorney in Manhattan for 13 years, was hired by the U.K.'s then-attorney general to find out why the SFO couldn't get it right. As the U.K. Times said, her arrival at the SFO sparked panic.

But times change and even the SFO gets a second chance. Earlier this month it brought what may be the first of several cases against British firms for overseas corruption.

Mabey & Johnson pleaded guilty this month to violating the U.N.'s old Iraq sanctions and to an additional ten charges of overseas graft. The BBC reported that the company, which specializes in making temporary bridges, admitted at the Westminster Magistrates Court that it tried to influence officials in Jamaica and Ghana to award it public contracts. It also admitted paying more than £123,000 to the pre-war Iraqi regime in violation of the U.N. sanctions. The company hasn't been sentenced yet.

Reuters said Mabey & Johnson's admissions let to the resignation of Jamaica's junior minister of transport and works after he was linked to the U.K. company's corrupt business practices.

The emergence of an energized Serious Fraud Office, if that's what we're seeing, could mean the start of a lot more anti-corruption enforcement from London. According to the Telegraph, the SFO has spent £22 million investigating breaches by British firms of the oil-for-food program and more prosecutions could follow.

Former SFO director Robert Wardle left his post in April 2008, two months before de Grazia released her report. The U.K. Times' story about de Grazia was called "She came, she saw, she scythed through the SFO." The paper quoted an ex-staffer at the SFO as saying, “She caused chaos. She called meetings of case controllers and asked them to identify the crap assistant directors. Then she went to the investigators and asked them who was a crap case controller.”

The SFO had often been in hot water because of blown prosecutions. The worst trouble, though, came after its 2006 decision to drop the high-profile investigation of BAE Systems for bribery. It said it had no choice because Saudi Arabia threatened not to buy Typhoon aircraft or continue sharing anti-terrorism intelligence. The High Court in London called the episode an outrage, an abject surrender to threats, and a capitulation. On the government's appeal to the House of Lords, five law lords decided the SFO's action was legal but "extremely distasteful."

In de Grazia's 157-page report, she compared prosecution rates for the Serious Fraud Office with those of her former employer, the New York District Attorney's Office. In 2007, she said, the SFO had about three times more lawyers than the Frauds Bureau at the Manhattan District Attorney's Office. The New York DA's 19 lawyers -- with virtually no outside help -- managed to conclude the prosecution of 124 white collar defendants from 2003 to 2007. During the same period, the SFO's 56 staff lawyers concluded 166 prosecutions, and spent more than £4 million on external counsel. That means the per-lawyer prosecution rate in the New York DA's office was at least double and maybe triple that of the SFO.

Britain's Sunday Times reported that after release of de Grazia's report, dozens of lawyers, accountants and investigators were offered large severance packages to leave the agency.

Download a copy of Jessica de Grazia's June 2008 report here.

Coming up: The SFO meets the DOJ.
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Monday
Apr132009

Around The Horn

He wasn't kidding. Last week's record-setting indictment under the Foreign Corrupt Practices Act of six individuals from one company highlights the Justice Department's strategy to target people, not just companies. In September last year, Mark Mendelsohn -- the DOJ official responsible for FCPA criminal prosecutions -- told an audience: The number of individual prosecutions has risen – and that’s not an accident. That is quite intentional on the part of the Department. It is our view that to have a credible deterrent effect, people have to go to jail. People have to be prosecuted where appropriate. This is a federal crime. This is not fun and games. See our post here.

* * *
Victims Rights? Congress didn't want prosecutors deciding American foreign policy through FCPA enforcement actions, so bribe-taking foreign officials aren't targeted. Taking that a step further, the names of bribe-takers don't even appear in FCPA complaints. That censorship may make foreign-policy sense, but it's got people in Nigeria upset and frustrated. They want to hear from the Justice Department which of their officials took any of the $182 million in bribes that KBR admitted paying, and where the money is now. Reports are here and here.

* * *
Ask him. Prosecutors think Jeffrey Tesler knows who got KBR's bribe money. They allege he's the middleman who was spreading it around. Tesler, 60, a London lawyer, was indicted in February for violating the FCPA. He now faces up to 55 years in prison. British police arrested him in March at the request of U.S. authorities. Last week, Tesler appeared at his first extradition hearing. The London Magistrates' Court released him on bail and continued the proceedings. Here's a press report.

* * *
An open and shut case. Aluminum Bahrain's federal civil suit in Pittsburgh against Alcoa alleging behavior that would violate the FCPA appears in the docket as "Closed." But not really. The court's order from March 2008 says, "To allow the Government to fully conduct an investigation without the interference and distraction of ongoing civil litigation, it is ordered that this case is administratively closed, to be reopened at the close of the Government's investigation." We talked about the Justice Department's intervention in the case here.

* * *
Where's Clayton? Regarding our post yesterday about Frederic Bourke (here), a reader asked, What's happened to Clayton Lewis? He worked for Omega Advisors Inc. It invested and lost more than $100 million with Viktor Kozeny in the failed Azeri privatization program. The government said Lewis knew about the bribery scheme allegedly involving Kozeny and Bourke but went ahead with Omega's investment anyway. In 2004, Lewis pleaded guilty to onspiring to violate the FCPA. Where's he now? Still waiting to be sentenced. Almost everything in his court record is sealed. But a June 2008 letter from the DOJ said Lewis is a cooperating witness and shouldn't be sentenced until he's testified for the government at Bourke's trial. A copy of the letter can be downloaded here.

* * *
Ashes to ashes? It's off our topic, but creepy. Two Los Angeles-area women allegedly cheated life insurance companies out of at least $750,000 by staging funerals for fictitious people. Last Wednesday, FBI agents arrested Faye Shilling, 60, and Jean Crump, 67, on federal fraud charges. According to the indictment, Shilling, a phlebotomist (a medical technician who collects blood), and Crump, an employee at a now-defunct Long Beach mortuary, cashed in life insurance policies for non-existent people they claimed had died. They allegedly obtained bogus death certificates, purchased burial plots and staged phony funerals to lend credibility to the scheme. When staging the funerals, the women allegedly "filled caskets with various materials" to make it appear they contained actual corpses. The DOJ's release is here.

* * *
Real magic. What is it about Augusta that makes it so special? And this year was the final appearance of three-time champ Gary Player, 73. He showed up 52 times! Our favorite golf story: Gary Player was still on the practice tee, long after sunset, hitting balls. Buckets of them. Someone watching said, "I'd give anything to play golf like that man." Player looked up and said, "Would you really?" And he held out his hands to show the onlooker two bloody, torn-up palms.

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A community effort. Our thanks again to everyone who contributes time and resources to the FCPA Blog. We're thinking of our readers who send suggestions, tips, clips and encouragement. And those who order Bribery Abroad -- sometimes by the dozen. And our wonderful sponsors who stand shoulder-to-shoulder with us every day.
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Tuesday
Apr072009

Dear BAE And Prince Bandar: You're Boring

That, at least, is the verdict from Tony Perry of the LA Times in his review of "Frontline: Black Money." The PBS documentary by Lowell Bergman and Oriana Zill de Granados features the story of BAE and the Saudi Prince. Perry says the show "is first-class journalism: high-minded, fact-filled and balanced, with some eye-catching visuals." The problem, he says, is that Americans have moved on.

"Months ago," Perry writes, "in the world before the AIG bonuses, Bernie Madoff's Ponzi scheme and credit derivatives, news that the U.S. was looking at BAE as a test of U.S. anti-bribery laws would have seemed interesting, a nice bit of reporting. Now there's something unsettling about the prospect of government lawyers taking actions that could throw more Americans out of work. . . In journalism there is a concept called 'being overtaken by events' in which news developments undercut your story before it's published. 'Black Money' has been overtaken by a tidal wave."

But while the Times' Perry was lamenting the producers' unfortunate timing, his colleagues at the paper, Tom Hamburger and Josh Meyer, apparently thought otherwise. What caught their eye wasn't BAE or Prince Bandar, but Former FBI Director Louis J. Freeh. He's been representing the Prince and speaks for him in the Frontline program.

Alexandra Wrage had this to say about Freeh's on camera performance: If Bush and Blair make you wince, Louis Freeh will make you cringe. Freeh represents Prince Bandar and argues that a plane given to Bandar by BAE was for Saudi Arabia’s military purposes and was not a personal gift. And, no, according to Freeh, the fact that Bandar used the plane himself and had it painted in the colors of his beloved Dallas Cowboys doesn’t change the aircraft’s military nature.

Hamburger and Meyer report that Freeh's staunch defense of Prince Bandar is drawing some high-level flack. They quote Richard Clarke, a counter-terrorism advisor to Presidents Clinton and George W. Bush. He told the Times, "Someone [like Freeh] who characterizes himself as a U.S. patriot and national security advocate ought not to be on the side of someone blackmailing people not to investigate crimes by threatening to withdraw a nation's cooperation against terrorists."

Freeh has said "the claim that Prince Bandar attempted to interfere" with the British investigation is "refuted by the facts." But the U.K. High Court found otherwise. It said that in July 2006, as the Serious Fraud Office was about to obtain access to Swiss bank accounts, "those described discreetly as 'Saudi representatives' [made] 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." (See our post here)

And the U.K. Guardian reported that the two-judge High Court panel "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."

Dennis Lormel, a former supervisory agent with the FBI working on the BAE case, said although he has "utmost regard" for Freeh's integrity, it's still "a mistake for him to represent someone who reportedly helped shut down the British investigation into BAE," according to the LA Times' story.

BAE, meanwhile, seems to be heading in another direction from the Prince. Its statement quoted in the LA Times said: "BAE Systems' view is that the interests of the company as well as of all its stakeholders, including the general public, are best served by allowing these investigations to run their course. The company is working with regulators towards that end, with a view to achieving resolution of the ongoing investigations."
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Wednesday
Mar252009

First Look: The U.K.'s Draft Antibribery Law

Britain's Justice Secretary, Jack Straw, unveiled a draft bill on March 25 that will completely overhaul the country's antibribery laws. He called the old laws anachronistic, inconsistent, unclear, and difficult for the public to understand and for prosecutors and the courts to apply. The new legislation, he said, will simplify and modernize the law, and help bring transparency and accountability to international business deals.

The draft bill creates a framework of two general offenses: one dealing with the giving, promising, and offering of a bribe, and another with agreeing to receive or accept a bribe. The other main provisions are:

• extra-territorial jurisdiction to prosecute bribery committed abroad by persons ordinarily resident in the U.K. as well as U.K. nationals, and U.K. corporate bodies,

• a maximum penalty of 10 years imprisonment for all new offenses and corporate offenses will carry an unlimited fine,

• a new corporate liability offense of negligently failing to prevent bribery,

• provision for the Secretary of State to authorize conduct that would constitute a bribery offense by the intelligence agencies, and

• setting aside Parliamentary Privilege to make evidence from proceedings in Parliament admissible in the prosecution of a member of either of the Houses of Parliament for a bribery offense or in related proceedings.

For those familiar with U.K. law, the bill replaces the offenses at common law and under the Public Bodies Corrupt Practices Act 1889, the Prevention of Corruption Act 1906 and the Prevention of Corruption Act 1916 (known collectively as the Prevention of Corruption Acts 1889 to 1916 and which would be repealed).

Our correspondent from Paris, Guillermo Christensen, who sent us the draft bill, thinks it will cause big changes in the compliance landscape. He said, "The inclusion of liability for organizations that are negligent in preventing bribery by their employees is going to require a major awakening of compliance efforts among U.K. companies and executives (and non-U.K. companies operating in the U.K. . . . even more interesting), who have been frequently quoted in industry surveys as seeing compliance as something that they do 'over there' in the USA."

Justice Secretary Straw also signaled a new tone in the U.K.'s enforcement strategy and its cooperation with international investigations. That follows criticism from the OECD and others about Britain's failure for the past decade to prosecute overseas public bribery. Three years ago, the Serious Fraud Office dropped an investigation into BAE's alleged £1 billion bribery of Saudi officials after the Blair government said the U.K.'s domestic security could be threatened. The U.S. Justice Department picked up the investigation, which is ongoing.

Straw said, "The UK is determined to work closely with its international partners to tackle bribery. We are already, for example, providing technical assistance to developing countries to promote better governance and making significant progress on tracing, recovering and repatriating money-laundered misappropriated assets. We are also supporting the implementation of the UN Convention against Corruption, the OECD Bribery Convention and the Council of Europe’s Criminal Law Convention on Corruption."

Download a copy of the U.K.'s draft bribery legislation released on March 25, 2009 here.

Jack Straw's comments quoted above appear in the foreword to the draft bill.
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Sunday
Mar082009

Kenya, Corruption And Global Security

A Reuters report said FBI Director Robert Mueller made a one-day visit to Kenya last week. After meeting with the prime minister, Mueller was quoted as saying, "We discussed what could be described as the unhealthy climate of impunity here in Kenya and steps that can be taken to investigate and to prosecute public corruption."

Perhaps looking for a reason for Mueller's visit, Reuters said Kenya is "sandwiched between the chaotic Horn of Africa and turbulent Great Lakes region [and] was the target of Al Qaeda-linked extremists who blew up the U.S. embassies in Kenya and in Tanzania in 1998."

What's the connection between the corruption Mueller was talking about and the security concerns mentioned by Reuters? We haven't seen hard studies linking the two. But our eyes tell us that corruption breeds weak institutions that aren't dependable when it comes to the fight against terrorism. So does that explain why the FBI director was in Kenya last week? Was he there to urge the government to clean itself up or risk becoming a haven for extremists? We don't know the answer. But knowing John Githongo's story, it's easy to see why Kenya's corruption might be a special concern to Mueller. Here's what happened.

In December 2002, Kenya's new president, Mwai Kibaki, said he'd end corruption. And when he needed someone to lead the fight, he picked John Githongo (pictured above). Named permanent secretary for ethics and governance in the office of the president, Githongo, then 37, was a perfect choice. He was a popular journalist, a passionate anti-corruption crusader, and founder and head of Transparency International's Kenya office since 1999. It all looked good. But then came the so-called Anglo Leasing Finance scandal -- or Kenya's Watergate, as many called it.

The government in 2002 had said it wanted to update the way it printed and tracked its passports. Everything would be new and high-tech. A French company was found for the job, at a price of €6 million. But the contract went instead to an unknown U.K. company called Anglo Leasing Finance, at a price of €30 million. There was no public tender and the story only leaked to the press because of a junior civil servant. Githongo grabbed the investigation. Two years later, he'd uncovered about twenty government contracts awarded to phantom overseas companies at inflated prices, signaling the presence of high-level corruption. And most of the tainted contracts related to Kenya's security apparatus -- passport controls, forensic labs, security vehicles and satellite services, among others.

He wrote a report and delivered it to the president in November 2005. (A copy, later leaked to the public, can be downloaded here.) Soon after, he left Kenya for England, fearing for his safety. From his exile in the U.K., Githongo publicly blew the whistle on Kenya's top politicians. President Kibaki was forced to fire three ministers -- though he reappointed two of them a year and half later.

As his friend and fellow journalist Michela Wrong put it in 2006:

Appointed within days of the opposition's election victory in the 2002 polls, Githongo spent two years as permanent secretary for ethics and governance. When he fled to London last year, it was clear he had stumbled on something toxic.

His 36-page dossier . . . reveals what that was. In compelling detail -- Githongo was always fastidious about keeping a diary -- he records what he alleges were his conversations with Kenya's vice-president and three ministers, who confess their roles in concealing a series of bogus contracts designed to leach hundreds of millions of dollars from the exchequer. . . .

In July 2007, Britain's Serious Fraud Office opened a criminal investigation. It was looking into contracts between the Kenyan government and "business entities collectively known as the Anglo Leasing matter." With help from the City of London Police, in May 2008 private and business addresses in the U.K. were searched. Documents seized in the raids led the SFO to ask for and receive evidence from Spain, France and Switzerland. But Kenya refused to cooperate, and without its help, the SFO said it couldn't make a case.

On February 4, 2009, the SFO ended its investigation into Anglo Leasing Finance. Its announcement is here. A month later, FBI director Mueller was in Nairobi, talking about Kenya's "unhealthy climate of impunity."

Was Mueller perhaps telling the country's leaders that the FBI will pick up the case where the Serious Fraud Office left off, just as it did with BAE Systems? Did the director tell the Kenyan prime minister that the FBI and Justice Department will use the Foreign Corrupt Practices Act to pursue the people behind Anglo Leasing Finance and phantom companies like it? Did he explain that when that happens, Kenya's crooked politicians will be named and shamed on the global stage?

And what about John Githongo? In 2006, the New York Times had said:

In tilting against graft, Mr. Githongo seems to be positioning himself across a far broader front, part of a generational shift among Africans burdened by what he calls the ancestral ties between urban homes and rural roots that bind and, in his view, stymie much of the continent. . . . That has to change, he says. "Africa has been left behind by Asia and the others. We need to get our act together."
Maybe Kenya's exiled anti-corruption czar is about to get some badly needed help. This time from the FBI and the Foreign Corrupt Practices Act.
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Michela Wrong's book about John Githongo and the Anglo Leasing Finance scandal was published last month. It's Our Turn to Eat: The Story of a Kenyan Whistleblower is available from Amazon (UK) here.
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Thursday
Mar052009

KBR's U.K. Middlemen Indicted

Two U.K. citizens who allegedly helped Houston-based Kellogg Brown & Root (KBR) bribe Nigerian officials have been indicted for violating the Foreign Corrupt Practices Act. Jeffrey Tesler, 60, of London, England, and Wojciech Chodan, 71, of Maidenhead, England, were indicted on Feb. 17, 2009 by a federal grand jury sitting in Houston. The Justice Department didn't unseal the indictments until after yesterday's arrest of Tesler by British police, who acted at the request of U.S. authorities. Chodan hasn't been arrested but faces an outstanding U.S. warrant. The DOJ said it will try to extradite Tesler and Chodan from the U.K. to stand trial in the U.S.

Tesler, a lawyer in London, and Chodan, a former employee and consultant of KBR's U.K subsidiary, were charged with one count of conspiracy to violate and ten counts of violating the FCPA. They face up to 55 years in prison if convicted on all counts. The indictment also seeks forfeiture from them of more than $132 million.

The indictment says a joint venture that included KBR entered into consulting contracts with a Gibraltar corporation allegedly controlled by Tesler called Tri-Star Investments. The joint venture paid Tri-Star about $132 million to be used to bribe Nigerian government officials. The bribes were intended to secure contracts worth more than $6 billion to build liquefied natural gas facilities on Bonny Island, Nigeria. The joint venture, known as TSKJ, was equally owned by KBR, Technip, SA of France, Snamprogetti Netherlands B.V. (a subsidiary of Saipem SpA of Italy) and JGC of Japan. Chodan allegedly participated in meetings where the bribery was discussed and he wired $50 million from KBR-controlled accounts to a Japanese trading company to be used to bribe Nigerian officials.

Among the details in the indictment: In August 2002, a KBR representative, using money KBR provided to Tesler, "delivered a pilot's briefcase containing one million U.S. dollars in one-hundred dollar bills to the [Nigerian] Official at a hotel in Abuja, Nigeria, for the benefit of a political party in Nigeria." And in April 2003, a KBR representative "delivered a vehicle containing Nigerian currency valued at approximately $500,000 to the hotel of the [Nigerian] Official in Abuja, Nigeria, for the benefit of a political party in Nigeria, leaving the vehicle in the hotel parking lot until the . . . Official caused the money to be removed."

Last month, KBR pleaded guilty to violating the Foreign Corrupt Practices Act. It agreed with the DOJ to pay a $402 million fine. KBR and its former parent company, Halliburton Company, also agreed to pay $177 million in disgorgement to the Securities and Exchange Commission to settle the FCPA offenses. KBR's former CEO, Albert "Jack" Stanley, pleaded guilty in September 2008 to conspiring to violate the FCPA and to mail and wire fraud charges. He has been cooperating with prosecutors. His sentencing is now scheduled for Aug. 27, 2009.

The DOJ said it had help in the case from "authorities in France, Italy, Switzerland and the United Kingdom, including in particular the Serious Fraud Office’s Anti-Corruption Unit, the London Metropolitan Police and the City of London Police."

The indictment against Tesler and Chodan contains only FCPA charges. Usually the DOJ adds other criminal counts, such as money-laundering, mail and wire fraud. Relying strictly on alleged antibribery offenses will test the jurisdictional reach of the FCPA over foreign citizens who apparently were not in the U.S. at any times relevant to the charged conduct.

The FCPA asserts jurisdiction over foreign companies and nationals that take any act in furtherance of a corrupt payment while within the territory of the United States. See §78dd-3(a), (f)(1). This part of the FCPA is untested in court, but the DOJ interprets it expansively as conferring jurisdiction whenever a foreign company or national acting as an agent of an issuer or domestic concern causes an act to be done within the territory of the United States. (See the United States Attorneys' Manual, Title 9, Criminal Resource Manual §1018 “Prohibited Foreign Corrupt Practices” here.) The indictment says Tesler and Chodan were agents of KBR and sent some of the bribe money through U.S. bank accounts.

Another unusual aspect of the indictment is the use of the forfeiture remedy against Tesler and Chodan. (See 28 USC Section 2461, and Title 18 USC Section 981 (a)(l )(C), "all property, real and personal, which constitutes or is derived from proceeds traceable to the violations.") The U.S. government says it wants the entire $132 million that KBR transferred to Tesler's Gibraltar company or the property derived from it. The DOJ apparently isn't distinguishing the KBR money Tesler allegedly paid out in bribes from amounts he may have kept.

Jeffrey Tesler was identified in KBR's 2007 annual report. British and French authorities investigated him two years ago but didn't file any charges. In 2007, British authorities searched his London office at the request of U.S. officials. He is listed as a consultant to a small North London law firm called Kaye Tesler & Co. Among other things, the firm offers anti-money laundering training. 

As the Justice Department says: Criminal indictments are only charges and not evidence of guilt. A defendant is presumed to be innocent until and unless proven guilty.

The DOJ's March 5, 2009 release can be downloaded here.

The federal grand jury's February 17, 2009 indictment of Jeffrey Tesler and Wojciech Chodan can be downloaded here.

Monday
Feb022009

A Bit Of An Old Boy's Club

The U.K.'s Serious Fraud Office was created in 1988 with the mission to investigate and prosecute big-time fraud and corruption -- the misdeeds, as Teddy Roosevelt would have said, of the wealthy criminal class. But things at the SFO haven't gone well, and Britain's Sunday Times is reporting that dozens of lawyers, accountants and investigators are being offered up to three times their annual salaries to leave their jobs.

The SFO has often been in hot water because of blown prosecutions. But the worst trouble came after its 2006 decision to stop investigating BAE Systems for bribery. It said it had to drop the case because Saudi Arabia threatened not to buy Typhoon aircraft or continue sharing anti-terrorism intelligence. The High Court called the episode an outrage, an abject surrender to threats, and a capitulation.

After the BAE debacle, the U.K.'s then-attorney general, Lord Goldsmith, hired a former New York City prosecutor to find out why the SFO couldn't get it right. Jessica de Grazia had been an assistant district attorney in Manhattan for 13 years before she took the job. As the Times said, her arrival at the SFO sparked panic.

What de Grazia found, among other things, was that in 2007, the Serious Fraud Office had about three times more lawyers than the Frauds Bureau at the Manhattan District Attorneys Office. The New York DA's 19 lawyers, with virtually no outside help, managed to conclude the prosecution of 124 white collar defendants from 2003 to 2007. During the same period, however, the SFO's 56 staff lawyers concluded 166 prosecutions, even though the SFO spent more than £4 million on external counsel, ranging from newly qualified barristers to Queen’s Counsel. In other words, the per-lawyer prosecution rate in the New York DA's office was at least double and maybe triple that of the SFO.

De Grazia also found huge discrepancies in conviction rates. During the 2003-2007 period, the SFO’s average conviction rate for serious and complex white collar crimes was just 61%; the Frauds Bureau in New York had a 92% conviction rate for the same type of offenses. And at the federal prosecutor's office in New York City, the conviction rate was a nearly perfect 97%.

What's the problem in the SFO? De Grazia cited "a commingling of external and internal factors." External factors, she said, were the laws, government policy, and legal professional rules and practices. The big problem within the SFO's control, she said, was "insufficient innovation." The Times newspaper wasn't so polite. Cronyism and incompetence, it said, and “a bit of an old boy’s club.”

Former SFO director Robert Wardle left his post in April 2008, two months before de Grazia released her report. “She caused chaos,” one of her eventual victims recalled last week. The Times report said, “She called meetings of case controllers and asked them to identify the crap assistant directors. Then she went to the investigators and asked them who was a crap case controller.”

More changes at the SFO are probably ahead. The Times says de Grazia has just delivered another report -- this one highly confidential -- to Britain's new attorney general, Baroness Scotland. The new report, the Times says, is far more blunt than the June '08 version released to the public. It calls the SFO “a demoralised and underperforming agency” where the work of many dedicated and competent employees was “ blocked by inadequate management and leadership.”

Our thanks to a friend, now in Paris, for sending us the Times stories this weekend.

Download a copy of Jessica de Grazia's June 2008 report here.

Listen to this podcast here.
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Friday
Jan092009

Aon Pays £5.25 Million Corruption Fine

The U.K.'s Financial Services Authority said yesterday that it has fined Aon Ltd £5.25 million ($8.05 million) for failing to recognize and control the risks of overseas payments being used as bribes. The fine is the largest the FSA has levied for financial crimes. Aon Ltd is the principal U.K. subsidiary of Chicago-based Aon Corporation, the world's biggest insurance broker.

Aon Corporation disclosed in November 2007 an internal investigation into possible violations of the Foreign Corrupt Practices Act and non-U.S. anti-corruption laws. Aon said then in its Form 10-Q that it had self-reported the investigation to the Department of Justice, the Securities and Exchange Commission and others, and that it had already agreed with U.S. prosecutors to toll any applicable statute of limitations. The U.S. investigations are still pending.

This is now the third case brought by U.K. authorities involving overseas bribery by U.K. companies. In September 2008, the Overseas Anti-Corruption Unit of the City of London Police said an employee of CBRN Team Ltd, a U.K. security consulting firm, and an official of Uganda, had pleaded guilty to bribery charges. The CBRN employee received a suspended sentence and the Ugandan official was sentenced to twelve months in jail. And in October last year, the U.K.'s Serious Fraud Office reached a £2.25 million civil settlement with construction firm Balfour Beatty plc for alleged unlawful accounting in connection with overseas "payment irregularities" which it self-reported.

Apparently to emphasize the new willingness of her agency and other U.K. authorities to prosecute overseas bribery, Margaret Cole, the FSA's director of enforcement, said:

The involvement of UK financial institutions in corrupt or potentially corrupt practices overseas undermines the integrity of the UK financial services sector. The FSA has an important role to play in the steps being taken by the UK to combat overseas bribery and corruption. We have worked closely with other law enforcement agencies in this case and will continue to take robust action focused on firms’ systems and controls in this area.
According to its website, the Financial Services Authority is an independent non-governmental body with statutory powers under the Financial Services and Markets Act 2000. It has a range of rule-making, investigatory and enforcement powers intended to "promote efficient, orderly and fair financial markets and help retail financial service consumers get a fair deal." The Treasury appoints its 12-member board.

Between January 2005 and September 2007, according to the FSA, Aon Ltd didn't properly assess or control the risks involved in its dealings with overseas firms and individuals who helped it win business. "As a result of Aon Ltd’s weak control environment, the firm made various suspicious payments, amounting to approximately US$7 million, to a number of overseas firms and individuals." The payments were made in Bahrain, Bangladesh, Bulgaria, Burma, Indonesia and Vietnam.

The FSA said Aon cooperated fully and agreed to settle early in the investigation, qualifying for a 30% discount under the FSA’s settlement discount scheme. Without the discount the fine would have been £7.5 million.

View the FSA's January 8, 2009 release here.

Download the FSA's Final Notice (January 6, 2009) here.

View Aon's January 8, 2009 statement here.
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Sunday
Oct192008

Amid OECD Criticism, A Breakthrough In Britain

The U.K.'s failure to prosecute its multinationals for overseas bribery, while other European countries and the U.S. are stepping up enforcement, threatens the integrity of the international anti-bribery effort. That's what a fed-up OECD Working Group on Bribery says in its just-released report.

The 37-member OECD anti-bribery group launched an investigation into Britain's enforcement practices after the U.K.'s Serious Fraud Office quashed a corruption investigation into BAE Systems in December 2006. The military equipment supplier had been accused of funneling £1 billion in secret payments to the former Saudi ambassador to the United States, Prince Bandar bin-Sultan, in exchange for help selling jet fighters to the Saudi government. Both BAE and the Prince have denied breaking any laws.

The OECD was blunt. It said in its report:

The Working Group is disappointed and seriously concerned with the unsatisfactory implementation of the [OECD Anti-bribery] Convention by the UK. The continued failure of the UK to address deficiencies in its laws on bribery of foreign public officials and on corporate liability for foreign bribery has hindered investigations. . . . The Working Group also strongly regrets the uncertainty about the UK's commitment to establish an effective corporate liability regime in accordance with the Convention, as recommended in 2005, and urges the UK to adopt appropriate legislation as a matter of high priority.
Meanwhile, the U.K. government is celebrating two well-timed maiden anti-corruption victories. The breakthrough prosecutions are reported in a briefing from a Fulbright & Jaworski team led by Washington partner William B. Jacobson. Billy -- who joined Fulbright last month after serving with distinction as the Assistant Chief for FCPA Enforcement at the Justice Department's Fraud Section, Criminal Division -- graciously consented to our liberal use of the material. We're happy about that. For the past few days we haven't had a spare minute due to the ALCS -- i.e., planning to watch the games, watching the games, then talking about what happened in the games.

Here, then, is an abridged version of Fulbright's report:

In the course of just a few weeks, the UK has brought two separate foreign bribery cases to conclusion - the first such cases brought by UK authorities.

First, in late September, the Overseas Anti-Corruption Unit ("OACU") of the City of London Police announced that both an employee of CBRN Team Ltd ("CBRN"), a UK security consulting firm, and an official of Uganda pled guilty to bribery charges stemming from a scheme in which CBRN paid the Ugandan official in order to receive a contract to advise the Ugandan Presidential Guard. While the CBRN employee received a suspended sentence, the Ugandan official was sentenced to twelve months' incarceration.

Second, on October 6, 2008, the UK's Serious Fraud Office ("SFO"), in a case the SFO was investigating for evidence of foreign bribery, announced that it had reached a £2.25m (US$3.9m) settlement with major construction firm Balfour Beatty plc for alleged unlawful accounting in connection with certain 'payment irregularities' which it self-reported. While the SFO acknowledged that there were no grounds for criminal prosecution of either the company or any individual, this marks the first time a company has reached this type of civil settlement as part of a foreign bribery investigation. This is a significant event in the UK's enforcement of anti-corruption laws and comes only 6 months after the SFO was given the powers to make a civil recovery of the proceeds of crime.

The SFO's Powers

The SFO is a UK investigation and enforcement authority established to deal with serious financial crime and has the power to investigate any suspected offence appearing on reasonable grounds to involve serious or complex fraud. In the course of an investigation, the SFO may give notice to the subjects of the investigation, or to anyone else that the SFO thinks may have relevant information, to answer questions or to provide information or specified documentation, and in appropriate circumstances may issue warrants to compel production. The SFO may also commence and conduct criminal proceedings relating to that fraud. The SFO's powers to obtain civil recoveries in relation to the proceeds of crime are relatively new. In April 2008, the Serious Crime Act 2007 transferred the civil recovery powers formerly vested in the Assets Recovery Agency to a number of agencies including the SFO.

The CBRN Team Case

The prosecution of the managing director of CBRN and the Ugandan official who received the bribe is noteworthy in many respects. First and foremost, it represents the first convictions for foreign bribery in UK history. Second, having been investigated by the City of London Police's OACU, it also marks the first successful foreign bribery investigation by that recently-formed unit. Third, the prosecution was handled by the Crown Prosecution Service and not the SFO, which usually investigates foreign bribery with the OACU.

Additionally, the UK's ability to prosecute the foreign official who took the bribe sets the UK's legislation apart from the United States' foreign bribery law, the Foreign Corrupt Practice Act ("FCPA"). Under the FCPA, only the giver of a bribe, and not the foreign official who received the bribe' may be prosecuted. For all the criticism that the UK's foreign bribery legislation has received in recent years, those laws are, in this respect, stronger than the FCPA.

View Fulbright's full briefing on the cases here.

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Tuesday
Jul292008

Distasteful But Not Illegal, Say The Lords

The House of Lords ruled today that the Serious Fraud Office didn't break the law when it stopped its investigation into bribery allegations involving BAE Systems and Saudi Arabia.

In April this year the High Court in London slammed the SFO's decision. In its appeal to the Lords, however, the SFO argued that then-director Robert Wardle was justified in shutting down the investigation because of national security concerns. Wardle said he believed the Saudi threats to stop sharing anti-terrorism intelligence with the U.K government put British lives at risk.

All five law lords hearing the case agreed that the SFO acted lawfully. One of the Lords, Baroness Hale, said it was "extremely distasteful that an independent public official should feel himself obliged to give way to threats of any sort." Nevertheless, she said, the SFO's Wardle didn't break the law. And Lord Bingham said Wardle "was confronted by an ugly and obviously unwelcome threat." But because he believed British lives to be at risk, his action in stopping the investigation was justified.

The High Court in April 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," the court said. It added that to give in so easily "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."

U.S. authorities are continuing their investigation of BAE's sales to Saudi Arabia.

BAE has denied breaking any laws.

View our prior posts about BAE here.

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Thursday
Jul102008

Heading For The Hammock

It's the weekend again. Good thing. We need (and deserve) some rest. What serious mind, after all, wouldn't be exhausted pondering how Tampa Bay can be one and a half games clear of the Red Sox? Strangely, our spouse seems to hold no opinion on the subject. So in our household the burden of the American League East falls entirely on our shoulders.

Still, we managed to cover some new ground this week. Iraq's civil suit against those implicated in the oil-for-food scandal caught our eye. And we noted the appeal to the House of Lords by Britain's Serious Fraud Office. We're not sure if the bigger scandal there involves BAE and Prince Bandar or the SFO itself.

What else? Oh yes -- we were wowed by the D&O Diary's trend-spotting. Looks like FCPA-inspired civil litigation is the next big hazard in the lives of our already-pummeled corporate leaders.

Meanwhile, we're waiting for the DOJ to deal with Panalpina. The global logistics firm may have stretched "facilitating payments" well beyond the current legal definition -- and in the process caused compliance headaches for practically everyone in the oil-and-gas services sector.

Siemens' hopes for a quick resolution in the U.S. of its massive corruption problems have now evaporated. Our first post about that company was back in September 2007, an eon ago in the life of a blog.

Speaking of eons . . .

Aon Corporation -- the giant insurance broker -- disclosed back in November 2007 an internal investigation into possible violations of the FCPA. When it self-reported to the DOJ it also agreed to toll the statute of limitations. So we guess no one's in a big hurry to wrap up that one.

The orthopedic device makers are waiting to learn their fate with the FCPA. We first wrote about the investigation by the DOJ and SEC into the group's overseas sales practices in October 2007. That post was also our first mention of John Ashcroft's appointment as a compliance monitor in a domestic bribery case for Zimmer Holdings.

The revelation that Mr. Ashcroft might take home $52 million from the appointment prompted our favorite blog editor emeritus, Prof Peter Henning, to note in his '07 Thanksgiving Day message: That's not a bad payday, and Zimmer -- like every other company that enters into a deferred or non-prosecution agreement -- can hardly object to the fees lest it look uncooperative and bring down the wrath of the U.S. Attorney's Office. So much to give thanks for this Thanksgiving.

Well, with the FCPA backlog still growing, we could keep at this for a long time. But our thoughts must now return to more weighty matters. That's right -- the mystery of the American League East.

Enjoy the weekend.

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