As 2013 draws to a close, I am reminded about Mike Volkov’s spring prediction that “It is clear that FCPA enforcement for 2013 will go down as the year of criminal prosecutions of individuals.” He was right when he said it and it is still correct. This year had the largest number of individual Foreign Corrupt Practices Act (FCPA) enforcement actions since 2010, the year of the Gun Sting case. Here are the highlights of FCPA related enforcement actions against individuals in 2013.
A. BizJet Executives
The lineup of those three BizJet executives and one employee involved in these enforcement actions is as follows:
Bernd Kowalewski – President and Chief Executive Officer (CEO);
Peter DuBois – Vice President of Sales and Marketing;
Neal Uhl – Vice President of Finance; and
Jald Jensen – Regional Sales Manager
Defendants DuBois and Uhl pled guilty in January, 2012 and had their pleas unsealed on April 5, 2013. Defendants Kowalewski and Jensen were charged by Criminal Indictment, also in January, 2012, but are still at large today. The Department of Justice (DOJ) Press Release stated that “The two remaining defendants are believed to remain abroad.” The bribes were characterized as “commission payments” and “referral fees” on the company’s books and records. Payments were made from both international and company bank accounts here in the US. In other words, this was as clear a case of a pattern and practice of bribery, authorized by the highest levels of the company, paid through US banks and attempts to hide all of the above by mis-characterizing them in the company’s books and records.
B. Alstom Executives
In April, two individuals from a company, later identified as Alstom Power, Inc., were charged or had their charges made public in April. According to a DOJ Press Release dated April 16, 2013, “Frederic Pierucci, 45, a current company executive [of Alstom] who previously held the position of vice president of global sales for the Connecticut-based U.S. subsidiary, was charged in an indictment unsealed yesterday in the District of Connecticut with conspiring to violate the FCPA and to launder money, as well as substantive charges of violating the FCPA and money laundering.” Pierucci was arrested. Additionally, former Alstom executive “David Rothschild, 67, of Massachusetts, a former vice president of sales for the Connecticut-based U.S. subsidiary, pleaded guilty on Nov. 2, 2012, to a criminal information charging one count of conspiracy to violate the FCPA.”
In May, a third Alstom executive was charged when William Pomponi, a former vice president of sales for Alstom’s US subsidiary, was indicted for conspiring to violate the FCPA and to launder money, as well as substantive FCPA and money laundering offenses. In August, a fourth executive, Lawrence Hoskins, who was the Asia Region Vice President for the company, was also charged. In the prior charging documents, Hoskins was generically referred to as “Executive A.”
All four were charged around the same set of facts, that being the payment of bribes to officials in Indonesia, including a member of Indonesian Parliament and high-ranking members of Perusahaan Listrik Negara (PLN), the state-owned and state-controlled electricity company, in exchange for assistance in securing a contract for the company to provide power-related services for the citizens of Indonesia, known as the Tarahan project. The charges allege that, in order to conceal the bribes, the defendants retained two consultants purportedly to provide legitimate consulting services on behalf of the power company and its subsidiaries in connection with the Tarahan project.
C. Frederic Cilins
At the 2013 Dow Jones Compliance Symposium in Washington, D.C., a FBI official warned the attendees that the Shot Show debacle would not deter law enforcement from using proactive investigations techniques. It was a stark warning because it was realized in less than thirty days. This was dramatically demonstrated with the arrest of Frederic Cilins, in April.
An article in the Financial Times (FT), entitled “FBI sting says that ‘agent’ sought to have mining contracts destroyed”, reported that “Frederic Cilins held the last of a series of meetings with the widow of an African dictator to discuss what she was going to do with some sensitive documents.” What were these ‘sensitive documents’? The FT reported that it had seen “some of the documents” and “According to one copy of a contract seen by the FT” it appeared to agree to pay $4m to the wife of the then President of the country to help to secure rights to a mining concession in Guinea. Unfortunately for Cilins he “did not realise that the woman he was talking to was wearing a wire and that FBI agents were watching. As he left the meeting, the agents arrested him carrying envelopes filled with $20,000 in cash, the indictment says. That was a pittance compared with the $5m he was taped offering the dictator’s widow during what US authorities say was a two-month campaign to tamper with a witness and destroy records.”
Cilins has been charged with obstruction of justice and was remanded to Manhattan for trial. After bail was initially set at $15MM, Cilins requested that it be reduced. The trial judge, William H. Pauley III threw the $15MM bail out and set a trial date for March 2014.
D. Uriel Sharef – Siemens
Uriel Sharef was a former officer and board member of Siemens. According to the Securities and Exchange Commission (SEC) Press Release announcing resolution of his matter, “The settlement resolves the Commission’s civil action against Sharef for his role in Siemens’ decade-long bribery scheme to retain a $1 billion government contract to produce national identity cards for Argentine citizens. The final judgment, to which Sharef consented, enjoins him from violating the anti-bribery and related internal controls provisions of the FCPA and orders him to pay a $275,000 civil penalty, the second highest penalty assessed against an individual in an FCPA case.”
The SEC Press Release further stated that “Sharef met with payment intermediaries in the United States and agreed to pay $27 million in bribes to Argentine officials. Sharef also enlisted subordinates to conceal the payments by circumventing Siemens’ internal accounting controls.”
E. Paul Novak – Willbros
In April, the DOJ announced the sentencing of Paul G. Novak, a former consultant of Willbros International, Inc., a subsidiary of the Houston based Willbros Group, for his role in a conspiracy to pay more than $6 million in bribes to government officials of the Federal Republic of Nigeria and officials from a Nigerian political party. According to the DOJ Press Release announcing the sentencing, “Novak pleaded guilty to one count of conspiracy to violate the FCPA and one substantive count of violating the FCPA. Novak admitted that from approximately late-2003 to March 2005, he conspired with others to make a series of corrupt payments”. Novak was sentenced to serve 15 months in a federal prison.
The sentencing continues the long running saga of the company over efforts by Willbros, Novak, certain employees and others to make a series of corrupt payments to assist Willbros and its joint venture partner, a construction company based in Mannheim, Germany, in obtaining and retaining the Eastern Gas Gathering System (EGGS) Project, which was valued at approximately $387 million. The EGGS project was a natural gas pipeline system in the Niger Delta designed to relieve existing pipeline capacity constraints.
F. Alain Riedo
In October, an indictment was unsealed in the Southern District of California deriving from the Maxwell Technologies, Inc. FCPA enforcement action. This indictment was brought through the Grand Jury against Alain Riedo, who was described as a Swiss citizen, General Manager of Maxwell Technologies SA, (the Swiss company – Maxwell SA) a wholly owned subsidiary of Maxwell Technologies, Inc. (the US parent – Maxwell). Riedo was later promoted to Senior Vice President and officer of the US parent.
The Riedo Indictment gave further detailed specifics about the bribery scheme. The Swiss company used a Chinese Agent (Agent 1) to market its products. The bribes were funded through an overbilling to the end user of 20% above the company’s actual cost. After the end-user paid the fraudulent amount, Agent 1 would then bill the Swiss company separately for the additional 20% and characterize the mark up as “extra amount”, “special arrangement” or “consulting” fee. Riedo would then either pay or request direct payment, from the US, of this extra 20% to Agent 1, who would then in turn distribute this money as bribes for the securing of the contracts.
G. Direct Access Partners
In the first action against investment brokers, two brokers Tomas Alberto Clarke Bethancourt and Jose Alejandro Hurtado, affiliated with the New York brokerage firm Direct Access Partners, LLC (DAP) were charged in federal court with paying at least $5 million in bribes to María de los Ángeles González de Hernandez, an official at a state-owned Venezuelan bank, Banco de Desarrollo Económico y Social de Venezuela (BANDES) to win bond trading work. After receiving the bribes, she authorized fraudulent trades, which generated more than $66 million in revenue on trades in Venezuelan sovereign or state-sponsored bonds for DAP.
In June, Ernesto Lujan, the former head of the Miami office of DAP, was arrested for conspiracy to bribe an officer at a state-owned Venezuela bank in exchange for bond trading business. He was charged with substantive FCPA and Travel Act offenses and conspiracy counts. He was also charged with two money laundering-related counts.
In August all three pled guilty in New York federal court to conspiring to violate the FCPA, the Travel Act and to commit money laundering, as well as substantive counts of these offenses related to the scheme to bribe a foreign official employed at BANDES. Lujan, Hurtado and Clarke each also pled guilty to an additional charge of conspiring to violate the FCPA in connection with a similar scheme to bribe a foreign official employed by Banfoandes (the “Banfoandes Foreign Official”), another state economic development bank in Venezuela, and to conspiring to obstruct an examination by the SEC of the New York-based Broker-Dealer where all three defendants had worked, to conceal the true facts of the Broker-Dealer’s relationship with BANDES.
The DOJ also charged Hernandez with Travel Act conspiracy and substantive offenses, and two money laundering-related counts. In November, she pled guilty to taking $5 million in kickbacks from DAP in exchange for bond-trading business from her employer. She agreed to cooperate with prosecutors investigating a massive bribery and fraud scheme by a US broker.
A Happy, Joyous and Safe New Year to all…