Significant FCPA Enforcement Actions In 2013 – Individuals

by Thomas Fox
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77 years – that is how long Great Britain went without a native son winning the Men’s Singles title at Wimbledon. This past Sunday that drought ended when Andy Murray won the coveted trophy in a straight set win over Novak Djokovic. This year’s championship was a wild ride, with the incredible upsets in the early rounds and the decimation of the women’s favorites by the semi-finals. But it was Murray’s year and his hoisting the Wimbledon Cup on Sunday was certainly one for the ages. Well done, Andy.

As singles tennis is that most individual of sports, it seems proper that in today’s post, I will discuss the individual Foreign Corrupt Practices Act (FCPA) enforcement actions in the year to-date. Both the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) made clear in the first half of this year that they will aggressively enforce the FCPA against individuals. Mike Volkov has gone so far as to predict that “It is clear that FCPA enforcement for 2013 will go down as the year of criminal prosecutions of individuals.”

A.     BizJet Executives

The lineup of those three BizJet executives and one employee involved in these enforcement actions is as follows:

  1. Bernd Kowalewski – President and Chief Executive Officer (CEO);
  2. Peter DuBois – Vice President of Sales and Marketing;
  3. Neal Uhl – Vice President of Finance; and
  4. 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 DOJ Press Release states 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 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, the FCPA Blog reported that a third Alstom executive was charged. 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.

All three 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

In a blog post, entitled “The Danger of FCPA “Proactive” Investigations”, Mike Volkov stated “At the recent Dow Jones Compliance Symposium in Washington, D.C., an 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 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 Dec. 2, 2013.

D.    Uriel Sharef – Siemens

Uriel Sharef was a former officer and board member of Siemens. According to the 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 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 totaling more than $6 million to various Nigerian government officials and officials from a Nigerian political party 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.     Direct Access Partners

In May, the FCPA Blog, in a post entitled “Two traders and a bank official charged for Venezuela bribes”, reported that 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. The DOJ also charged her with Travel Act conspiracy and substantive offenses, and two money laundering-related counts.

In June, the FCPA Blog reported, in a post entitled “Brokerage boss charged in Venezuela kick back scheme”, that 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.

Both the DOJ and SEC have made clear it that they will prosecute individuals for FCPA violations. As noted by Mike Volkov, the DOJ is going to prosecute individuals when they have strong evidence of criminal conduct and will pick those individual cases where prosecutions are warranted. Further, the BizJet prosecutions demonstrate that the DOJ will continue to use all investigative techniques to build criminal cases including wiring cooperating witnesses and recording telephone calls to make their criminal cases. Finally, the DOJ will prosecute officials when they have evidence of obstruction or witness tampering and will also use the Travel Act to bring enforcement actions.

It has been quite a first half of the year.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Thomas Fox, Compliance Evangelist | Attorney Advertising

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