Article by William F. Pendergast , Jennifer D. Riddle , Nisa Gosselink-Ulep , Sara A. Murphy & Joshua R. Christensen, and summer associate Edward P. Cadigan.
The second quarter of 2011 was an action packed three months for the Foreign Corrupt Practices Act ("FCPA"), which included judicial opinions, jury verdicts, and a Congressional hearing. In the Control Components Inc.1 and Lindsey trials,2 defendants challenged the definition of "foreign official" under the FCPA, and in both cases, the government's interpretation was upheld.3 There were also rulings entered in the twenty-two defendant arms contract case.4 There, the judge ruled that no actual foreign official is necessary to establish the element of intent under the FCPA and denied defendants' motion to dismiss, which had challenged the government's tactic of having an undercover FBI agent pose as an agent of an African country in order to solicit illicit payments from the defendants. Also in that case, the judge threw out one of the government's charges against U.K. citizen and defendant, Pankesh Patel, based on a lack of jurisdiction.
While the courts were active determining the perimeters of the current law, Congressional representatives held a hearing to discuss possible amendments to the FCPA. On June 14, 2011, the House Judiciary Committee's Subcommittee on Crime, Terrorism and Homeland Security held a hearing on the FCPA. During this hearing, various amendments to the law were discussed, including: 1) clarifying the definition of "foreign official" and "instrumentality," 2) creating a compliance program affirmative defense, 3) implementing changes to successor liability, 4) implementing changes to the mens rea requirement for company-defendants, and 5) creating a de minimis exception. At the end of the hearing, subcommittee Chairman James Sensenbrenner announced that the committee will be drafting a bill to amend the FCPA.
In addition to these developments on the interpretations of the law, there were numerous enforcement actions against individuals and companies. The individual actions included four guilty pleas and two guilty jury verdicts for FCPA violations, and the trial of the first four defendants in the arms contract case ended in a mistrial after the jury was unable to reach a verdict. The corporate actions included one guilty jury verdict and one deferred prosecution agreement ("DPA"). Also, three entities entered into settlement agreements with the Securities and Exchange Commission ("SEC"), two of which also entered into a DPA or non-prosecution agreement ("NPA") with the Department of Justice ("DOJ"). A final corporate entity entered into the first ever DPA with the SEC, while also entering into an NPA with the DOJ.
ENFORCEMENT ACTIONS AGAINST INDIVIDUALS
Haim Geri – Arms Contract Case
On April 28, 2011, Haim Geri became the fourth defendant to plead guilty in the twenty-two defendant arms contract case. Geri was an executive at HighTech USA, a Florida-based company that serves as a sales agent for companies in the law enforcement and military products industries. He had been charged in a superseding indictment on April 19, 2010 and pleaded guilty to one count of conspiracy to violate the FCPA. In the plea agreement, the government suggested an eighteen to twenty-four month prison sentence.
The indictment alleged that between May and December of 2009, Geri and twenty-one other defendants participated in a conspiracy to make illegal payments to government officials in the countries of Gabon and Georgia in order to secure contracts to supply the countries with ammunition and body armor, among other products. The defendants allegedly agreed to pay a twenty-percent "commission" to a sales agent, who the defendants believed represented the minister of defense for the country of Gabon, and were allegedly told that half of the "commission" would be paid directly to the Gabon's Minister of Defense. In fact, the "agent" was an undercover FBI agent and the Defense Minister had no involvement in the investigation.
Flavio Ricotti – CCI
On April 28, 2011, Flavio Ricotti pleaded guilty to conspiring to violate the FCPA and the Travel Act. Ricotti is a former executive of Control Components Inc. ("CCI"), a California-based valve company. He was extradited to the United States in July 2010 after being arrested in Germany earlier that year. He faces up to five years in prison.
Ricotti admitted to conspiring with other CCI employees to make illegal payments to non-U.S. government officials in Saudi Arabia and officers and employees of private companies in Qatar. This included an official at Saudi Aramco, the Saudi Arabian state-owned oil company, and an employee at a Qatari private company.
CCI pleaded guilty in 2009 to conspiring to violate the FCPA and Travel Act and for violating the FCPA. CCI admitted to making unlawful payments in over thirty countries and was ordered to pay an $18.2 million fine, among other compliance requirements. Also in 2009, Mario Covino and Richard Morlok, former CCI employees, pleaded guilty to charges of violating the FCPA, while Ricotti and five other former CCI executives were charged for their roles in the scheme.
Arms Contract Case Defendants
On May 6, 2011, Judge Richard Leon, presiding over the twenty-two defendant arms contract case, ruled on a list of pretrial motions. Most notably, Judge Leon ruled that "an actual foreign official is not a necessary element" of the FCPA. Defendants had argued that because no foreign official was ever involved in the scheme, since...