Quarterly FCPA Report: Fourth Quarter 2011

1. Introduction

   The fourth quarter brought to a close one of the most active years in the history of Foreign Corrupt Practices Act enforcement. The U.S. Department of Justice ("DOJ") continues to aggressively prosecute violators in the courtroom, as evidenced by the historic fifteen-year prison sentence handed down against Joel Esquenazi, convicted principal in the Haiti Teleco case. Outside of the courtroom, the DOJ and the U.S. Securities and Exchange Commission ("SEC") reached settlements expected to total more than $75 million in criminal fines. Three companies also disclosed that the DOJ and SEC had commenced FCPA related investigations, namely Halliburton, Avon, and Embraer. The government scrutiny of corporate activities has incentivized companies to be proactive in exposing corruption, and the fourth quarter saw several major corporations, including Walmart, Avon, and Analogic, announce internal investigations focused on uncovering violations of the FCPA.

   The government also intensified its efforts in pursuing not just corporate offenders, but the individual actors responsible for FCPA violations. In the fourth quarter, the DOJ indicted eight former executives of Siemens AG for their alleged roles in an illegal payment scheme and won a thirty-month prison sentence for former Innospec agent, Ousama Naaman. The government also had a significant victory in December, when the Second Circuit Court of Appeals upheld the conviction of Frederick Bourke for conspiracy to violate the FCPA for Bourke's role in a scheme to purchase a state-owned oil company in Azerbaijan through illicit payments to Azeri government officials.

   The government's zeal in pursuing FCPA cases has not gone entirely unimpeded. The May 2011 convictions the government won in the Lindsey trial were heralded at the time as significant victories, but in November, a federal district court dismissed the indictments against the executives, citing misconduct by the Office of the United States Attorney in conducting the investigation and prosecution. Similarly, the government filed a motion to dismiss charges against Si Chan Wooh, in spite of a previous guilty plea, due in part to concerns over the handling of the case. Finally, in December, the government had a significant set-back in its prosecution of the Arms Contract Case, the large-scale undercover investigation in which federal agents posed as a foreign minister of defense in order to uncover illicit payments being made in exchange for contracts. A federal judge acquitted Stephen G. Giordanella, an alleged principal in the case, for failure to prove beyond a reasonable doubt that Giordanella participated in an overarching conspiracy. These legal obstacles for the government in the fourth quarter may signify that courts are beginning to push back against the tactics used to pursue FCPA violators. This will no doubt be an important trend to follow in the coming year.

   Overall, this quarter saw a wide variety of enforcement actions. For corporate defendants, this included three SEC settlements, two of which resulted in a deferred prosecution agreement and a non-prosecution agreement with the DOJ. For individuals, there were three prison sentences handed down, as well as indictments issued in one case against eight former executives. Five individuals had charges against them dismissed, while one had his conviction upheld by the Court of Appeals.

2. Enforcement Actions Against Individuals

   1. Keith Lindsey, Steve Lee, and Angela Aguilar – Indictments/Conviction Dismissed

      On November 29, 2011, Federal District Judge Howard Matz dismissed with prejudice the indictment against executives Keith Lindsey, Steve Lee, and Lindsey Manufacturing. In a final order released December 1, 2011, Judge Matz detailed a laundry list of violations by the Office of the United States Attorney, noting that "the Government team allowed a key FBI agent to testify untruthfully before the grand jury, inserted material falsehoods into affidavits submitted to magistrate judges in support of applications for search warrants and seizure warrants, improperly reviewed e-mail communications between one Defendant and her lawyer, recklessly failed to comply with its discovery obligations, posed questions to certain witnesses in violation of the Court's rulings, engaged in questionable behavior during closing argument and even made misrepresentations to the Court." Judge Matz described the government's investigation as "sloppy," "incomplete" and "overzealous," and expressed "deep regret" that he was compelled to dismiss the...