21 Apr 10 DOJ and FBI Go Undercover to Ensnare Twenty-Two Executives in Foreign Bribery Scheme
On January 19, 2010, the Department of Justice (“DOJ”) unveiled the latest weapon in its arsenal for combating foreign bribery and corruption—undercover “sting” operations.
According to a DOJ press release, twenty-two executives and employees of various law enforcement product companies, including Smith & Wesson, were indicted for conspiring to violate and violating the Foreign Corrupt Practices Act (“FCPA”), and conspiring to commit money laundering based on interactions with federal agents posing as foreign ministers of an African country. The undercover “sting” investigation, which resulted in the execution of 14 search warrants in half a dozen states across the country, is unprecedented in size and scope and is considered to be the largest single investigation and prosecution of individuals in the history of FCPA enforcement.
As Assistant Attorney General Lanny A. Breuer noted in unsealing the grand jury indictments, it represents a significant new strategy for investigating those suspected of foreign bribery: “This ongoing investigation is the first large-scale use of undercover law enforcement techniques to uncover FCPA violations and the largest action ever undertaken by the Justice Department against individuals for FCPA violations. . . . From now on, would-be FCPA violators should stop and ponder whether the person they are trying to bribe might really be a federal agent.”
The DOJ’s announcement also has real implications for corporations and their executives:
- The DOJ continues to prioritize prosecutions of individuals because of the perception that such cases have greater deterrent effects. In fact, the twenty-two individuals involved in this investigation nearly matches the total number of individuals (23) who were indicted or pled guilty to FCPA-related charges in 2009. The DOJ’s continued emphasis on personal criminal liability means that officers and executives should fully appreciate the level of personal risk arising from the company’s foreign business transactions. Effective compliance policies and operations are needed to keep responsible executives informed and directors assured that systems and controls to both avoid and detect corruption schemes are in place.
- US enforcement authorities are dedicating more time and resources to FCPA investigations. According to Assistant Attorney General Breuer, the DOJ now has more than 140 open investigations, many of which do not arise from voluntary disclosures, but rather are the result of proactive investigations. Where a prosecution arises from a DOJ-initiated investigation, rather than from self-reporting, one can expect that the DOJ will be less flexible at the negotiation table and expect a greater return on their “investment” in prosecuting and settling cases. In light of that, corporations need to self-monitor and test compliance policies and structures to ensure that they adequately prevent and detect potential violations of US anti-bribery laws.
- Know your business partners. While we do not yet know all the facts surrounding each individual’s role in the alleged conspiracy, the recently announced indictments serve as a reminder that businesses need to know who they are dealing with by performing background checks and conducting other appropriate due diligence on potential business partners to avoid the reputational damage and collateral prosecution that may result from a business partner’s misconduct.
- “Didn’t know” won’t sell. The ever-greater attention to corrupt payment schemes by both US and non-US enforcement authorities, coupled with the availability to prosecutors of the “conscious avoidance” theory of criminal knowledge, suggests that businesses and their executives can expect authorities to be more demanding of affirmative responses to any indications of corrupt business practices, and more hostile to claims of lack of knowledge where such indications are shown to have existed.
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31 Mar 10 56 New Extradition and Mutual Legal Assistance Treaties Take Effect Throughout Europe and the United States
On February 1, 2010, 56 new agreements between the United States, the European Union (“EU”), and each of the EU Member States addressing extradition and mutual legal assistance took effect, according to the US Department of Justice (“DOJ”). The new treaties will make it easier for US and EU enforcement authorities to investigate and prosecute violations of antibribery and antifraud statutes, including the US Foreign Corrupt Practices Act, by individuals and corporations overseas. The agreements have been under negotiation since the September 11, 2001 terrorist attacks. The DOJ characterized the agreements as constituting “a milestone in cooperation on criminal matters between the EU, along with its Member States, and the United States.”
The agreements as a whole are intended to facilitate both the extradition of individuals charged with transnational crimes, along with the gathering and sharing of information needed to investigate and prosecute those crimes. The agreement on extradition, for instance, replaces lists of crimes which were deemed extraditable with a more flexible “dual criminality standard.” Under prior extradition treaties, if a particular offense was not identified expressly in a given treaty, the individual charged could potentially defeat the prosecuting country’s attempt at extradition. This became more problematic over time as new criminal statutes were added to individual countries’ criminal codes after the effective date of the treaties that had been in effect for years. Individuals charged under such new statutes could avoid extradition because the charged crimes were not listed in the treaty. Dual criminality, on the other hand, typically requires only that the charged offense constitute a criminal act in both countries, regardless of the name given the offense or the listing of the offense in the applicable treaty.
Similarly, the agreement on mutual legal assistance will provide for “prompt identification of financial account information in criminal investigations,” will facilitate “the acquisition of evidence, including testimony, by means of video conferencing” and, perhaps most importantly, will authorize “the participation of US criminal investigators and prosecutors in joint investigative teams in the EU.” Historically, mutual legal assistance treaties required the host country, where evidence was located, to deputize a local prosecutor to act on behalf of the requesting prosecutor for purposes of issuing subpoenas for documents and testimony, and conducting witness examinations without the benefit of the requesting prosecutor’s presence or participation. By authorizing the use of joint investigative teams and video conferencing, requesting prosecutors presumably will be able to examine witnesses personally without traveling to the host country where the witnesses reside, thereby significantly increasing the pace of transnational investigations and reducing costs.
At a time when US enforcement authorities are dedicating significantly more time and resources to Foreign Corrupt Practices Act, conspiracy and other transnational fraud investigations, the new agreements will add yet another weapon to their arsenal.
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