Federal Criminal Defense Blog : Georgia Federal Criminal Defense Lawyer & Attorney : Gillen Withers & Lake Law Firm : White Collar Crime, RICO, Trial : Atlanta, Savannah, GA

In a press release by the Department of Justice today, the Department announced that, in cooperation with the Ministry of Justice of Japan, it has recovered more than $40.2 million in proceeds from an alleged $1 billion Ponzi scheme by a Japanese citizen, Isamu Kuroiwa, involving investments in Filipino shrimp farms.

Kuroiwa operated "World Ocean Farm" from February 2005 to May 2007. Authorities allege that World Ocean Farm was a Ponzi style investment scheme which claimed to operate shrimp farms in the Philippines, and promised investors a 100 percent annual return on their money. According to the government, World Ocean Farm did own a couple of ponds in the Philippines, which contained no shrimp and were used to dupe traveling Japanese investors.

Instead, investors were treated to shrimp from local markets. Kuroiwa and his accomplices also allegedly told investors that World Ocean Farms was invested in high-yield investments in the U.S.

The scheme affected over 30,000 Japanese investors and defrauded them of approximately $1 billion (or ¥91 billion). Kuroiwa and his co-conspirators allegedly laundered investment monies through Japanese and American financial institutions. They used the proceeds to pay earlier investors and for their own personal uses, including a lavish gambling trip to Las Vegas. Kuroiwa was arrested, along with his accomplices.

The $40 million was returned to Japanese investors pursuant to an order of forfeiture by the U.S. District Court for the District of Columbia.

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Ashby Jones at the Wall Street Journal Law Blog also notes the rise in Foreign Corrupt Practices Act enforcement actions by the government. In the latest instance, Jones cites U.S. and British authorities' investigation of Alcoa, the third largest producer of aluminum in the world, based in Pittsburgh, for alleged bribery in negotiating contracts in the Middle East and elsewhere. The authorities are also investigating Victor Dahdaleh, a Canadian citizen and businessman who resides in London, for alleged bribery and money laundering. The allegations center on possible bribes to officials in Bahrain. Specifically, between 2001 and 2005, a company controlled by Dahdaleh allegedly made several million dollars in payments to the bank account of an executive for Alba, a Bahrain government-owned manufacturing company.

The investigation of Alcoa and Dahdaleh began in 2008 after Alba filed suit against Alcoa and Dahdaleh in the U.S. for allegedly conspiring to overcharge Alba for the purchase of thousands of tons of alumina, which is used to make aluminum. Representatives of Alcoa and Alba have issued statements stating that they are cooperating with authorities. Alcoa and a spokesperson for Dahdaleh have also stated that they will "vigorously" defend themselves.

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The Federal government has massively ramped up enforcement against domestic and foreign corporations for violation of the Foreign Corrupt Practices Act (FCPA), essentially an anti-bribery or kickback statute applicable to overseas transactions. The latest target to fall to FCPA allegations, according to an SEC press release, is German automotive giant Daimler AG. The Securities and Exchange Commission had alleged that Daimler allegedly paid bribes to foreign government officials to secure business in Eastern Europe, Africa and Asia. Last Thursday, the SEC announced that Daimler had entered into a settlement agreement with the SEC in which Daimler agreed to pay $91.4 million in disgorgement. Daimler also agreed to pay $93.6 million in fines to settle alleged criminal charges which were announced by the Department of Justice last week.

The SEC complaint, filed on March 22, charges that Daimler allegedly paid $56 million in improper payments, involving more than 200 transactions in 22 countries, over a period of 10 years. The government contends that Daimler allegedly earned $1.9 billion in revenue and at least $90 million in illegal profits as a result of the payments. Included in the government's allegations are allegations that Daimler paid kickbacks to Iraqi officials in relation to sales of vehicles and spare parts to Iraq under the United Nations Oil for Food Program. The complaint also alleges that Daimler kept ledger accounts of credit balances for the benefit of foreign government officials.

Daimler allegedly made bribes or kickbacks through several methods. Amounts of alleged discounts or rebates on sales contracts were allegedly kicked back to foreign officials. Daimler also alleged used false sales intermediaries, corrupt business partners and cash desks to funnel bribes to officials. The government alleges that Daimler's management sanctioned the practices.

Daimler has issued a press release relating to the settlement. The company notes that it cooperated with SEC and DOJ during their investigations, entering into a consent agreement with the SEC and a deferred prosecution agreement with DOJ. The release also notes that Daimler North East Asia Ltd., also entered into a deferred prosecution agreement with DOJ and Mercedes-Benz Russia SAO and Daimler Export und Trade Finance GmbH pled guilty to charges of violations of the FCPA in the U.S. District Court for the District of Columbia.

Daimler also states that it has taken steps to ensure that its future conduct will comply with all applicable laws and Daimler's "Integrity Code." Daimler states that under its deferred prosecution agreements, it must maintain a comprehensive compliance program and not commit any further violations of the FCPA for two years. If Daimler successfully complies with these terms, the charges against the corporation and its subsidiaries will be dismissed.

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On Monday, BAE Systems PLC, a United Kingdom-based, multinational defense contractor, pled guilty in the U.S. District Court in the District of Columbia to charges of allegedly conspiring to defraud the United States by impairing and impeding its lawful functions, allegedly making false statements about its Foreign Corrupt Practices Act (FCPA) compliance program, and allegedly violating the Arms Export Control Act (AECA) and International Traffic in Arms Regulations (ITAR), according to PR Newswire. U.S. District Judge John D. Bates ordered BAE Systems to pay a $400 million criminal fine. The fine is one of the largest ever imposed in a foreign corrupt practices/export control case. BAE Systems also agreed to retain an independent compliance monitor.

BAE Systems, the prime military contractor in the UK, was alleged to have represented to various U.S. government agencies from 2000 to 2002 that it would would create and implement policies and procedures to ensure its compliance with anti-bribery provisions of the FCPA and the Organization for Economic Cooperation and Development (OECD), but failed to implement the policies and procedures. BAE Systems was alleged to have saved approximately $200 million in failing to implement the policies and procedures.

The government also alleged that BAE Systems made payments to shell corporations and third party intermediaries which were not subject to the scrutiny required by the U.S. government. BAE Systems is alleged to have retained "marketing advisors" to secure defense contracts and to have allegedly concealed its relationship with these advisors from the U.S. government and made undisclosed payments to them, encouraging them to set up offshore shell corporations to receive payments. The company is alleged to have created one company in the British Virgin Islands in order to allegedly conceal its marketing advisor relationships, the identities of the advisors and how much they were paid; to help the advisors avoid tax liability, and  to obstruct investigating authorities and circumvent laws of countries which prohibit such relationships. BAE Systems is alleged to have made more than £135 million in payments through the shell entity.

BAE Systems was also alleged to have given benefits to an official of the Kingdom of Saudi Arabia in order to influence sales of fighter jets and other armaments to the country without properly reviewing or verifying the benefits pursuant to U.S. law. BAE Systems is alleged to have transferred millions through a bank account in Switzerland controlled by an intermediary in relation to the deal.

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As observed by Law.com, a French court has convicted a dozen French wine traders, vintners and wine cooperatives of passing off local wines as expensive Pinot Noir for importation to the United States. The leader of the scheme, M. Claude Courset of the Ducasse wine trading company received a suspended six month prison sentence and was fined 45,000 Euros, and Sieur d'Argues, the company which sold Ducasse wines to the U.S. was fined 180,000 Euros. The defendants were charged in a court in Carcassonne, in Southwest France, with "fraud in the quality and composition of the wine"--no doubt a crime the French take very seriously. The vintners and wine cooperatives were from the Aude and Herault, in the Languedoc-Rousillon. They passed Merlot and Syrah grapes off as Pinot Noir.

M. Courset was unrepentent, however, stating that his wines were irreproachable and stating that he had reserved the right to appeal. U.S. wine conglomerate E.&J. Gallo has issued a statement stating that it is no longer selling the wines. It is unclear how many U.S. consumers noticed a difference.

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Balli Aviation Ltd., a subsidiary of United Kingdom-based Balli Group, PLC, pled guilty on Friday in the U.S. District Court for the District of Columbia to charges of illegally exporting Boeing 747 aircraft from the United States to Iran. Balli Aviation had agreed in a plea agreement to pay a $2 million fine and to be placed on corporate probation for five years, as reported on the PM Newswire. The information against the company alleged that, from 2005 through 2008, the company conspired to export three Boeing 747 aircraft to Iran without obtaining the required export licenses from the U.S. Bureau of Industry and Security (BIS), or required permission from the U.S. Office of Foreign Assets Control (OFAC). Balli Aviation was charged with purchasing the aircraft through a subsidiary, Blue Sky Companies, with financing from a private Iranian airline, Mahan Air, and with entering into a lease agreement with Mahan Air.

Balli Aviation and Balli Group announced on Friday that they have also reached a $15 million settlement of a parallel civil action with BIS and OFAC. Balli Aviation and Balli Group also had their export privileges revoked for five years, however this condition was suspended on the condition of the companies' payment of the civil penalty and refraining from committing any further violation of export laws. The companies must also submit to independent audits of their export compliance program for five years with the results being reviewed by BIS and OFAC. Former Chancellor of Britain, Lord Lamont, is a non-executive director for Balli Group.

Businesses considering engaging in trade abroad in countries which may be subject to sanctions or restrictions by the U.S. should examine both BIS' export control rules and requirements and OFAC's information on sanctions programs and also consult with counsel.

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The culture of corruption of some foreign nations may heavily influence to U.S. companies doing business abroad to play along in order to be competitive. Regardless of the competitive disadvantages, the Foreign Corrupt Practices Act (FCPA) stands as a serious deterrent to engaging in bribery or kickbacks in business transactions abroad. The force of the FCPA was demonstrated once again on Thursday, when two former executives of Willbros International, a subsidiary of Willbros Group, an engineering-construction firm headquartered in Houston, were sentenced in the U.S. District Court for the Southern District of Texas for participating in a $6 million bribe of Nigerian officials to secure a contract for a major natural gas pipeline. As reported by the Houston Chronicle, Jason Edward Steph and Jim Bob Brown had pled guilty to violating the FCPA. U.S. District Judge Sim Lake sentenced Steph to 15 months imprisonment and Brown to a year and a day. Willbros Group has also agreed to pay $32.3 million under a deferred adjudication settlement.

The bribe was made in relation to a $387 million natural gas pipeline project in the Niger Delta known as the Eastern Gas Gathering System. Steph and Brown gave bribes to Nigerian officials to ensure that Willbros was awarded the contract, at one point keeping $1 million in a suitcase.

The prosecution requested consideration for Steph and Brown based on their cooperation with and assistance to the government. Steph told the court that he was doing what his superiors had told him to do.

Brown's attorney pointed out at the sentencing hearing that Brown had been threatened, kidnapped, beaten and shot at while in Nigeria. The court noted the corrupt conditions in Nigeria, observing that one of the Nigerian officials bribed is currently running for office. However, the court stated that it wanted to send a message to the business community in sentencing Steph and Brown.

Another former executive, Kenneth Tillery, remains a fugitive in the case.

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As reported in the National Law Journal, on Monday, more than 150 federal agents in South Florida and Las Vegas arrested two dozen corporate executives and employees in the military and law enforcement equipment industry, including 21 people who were attending a convention in Las Vegas, as the result of a two year investigation. 16 indictments were unsealed against the defendants on Tuesday in the U.S. District Court for the District of Columbia, charging them with violations of the Foreign Corrupt Practices Act (FCPA). The defendants include Mr. Amaro Goncalves, Vice President of Sales for firearm manufacturer Smith & Wesson. The government has alleged that the defendants allegedly believed they were bribing the minister of defense of an African nation through a sales agent in order to obtain part of a $15 million contract to equip the country's presidential guard. The defense minister was supposed to receive a 10% bribe. The transaction however, was an orchestrated undercover sting operation.

As the indictments were unsealed, DOJ officials told reporters that the Department currently has 140 active FCPA investigations overseas. Officials state that they are increasingly targeting the pharmaceutical industry for such investigations. The cases illustrate the incredibly long and expanding arm of government investigations and prosecutions. Corporations and individuals doing business overseas should proceed cautiously.

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As reported by the Wall Street Journal and DOJ, UTStarcom Inc., a California-based global communications corporation which designs, manufactures and sells network equipment and handsets has agreed to pay $1.5 million in penalties to the government for alleged acts of bribery in the People’s Republic of China in violation of the Foreign Corrupt Practices Act (FCPA). The company simultaneously reached a settlement with the Securities and Exchange Commission over the same conduct in which it agreed to pay an additional $1.5 million.

UTStarcom entered an agreement with the government--in which UTStarcom neither admitted nor denied the allegations--which states that, between 2002 and 2007, the company's employees and agents allegedly arranged and paid for employees of Chinese state-owned telecommunications companies and UTStarcom customers to travel to popular tourist destinations in the U.S., including New York City, Las Vegas and Hawaii, purportedly to participate in training at UTStarcom facilities. However, UTStarcom purportedly had no facilities in the locations and conducted no training. UTStarcom recorded the trips as alleged "training" expenses. The government charged that the trips were for the alleged purpose of securing telecommunications contracts in China. The value of the trips and other gifts to foreign employees was alleged to be approximately $7 million.

The SEC has also alleged that UTStarcom obtained work visas for employees of its foreign customers to work in the U.S. and paid the individuals salaries and benefits although the individuals allegedly did no work. It claims that UTStarcom allegedly falsely accounted for payments to the individuals as employee compensation and created false annual performance reviews for personnel files of the individuals.

In addition to paying penalties, the agreement requires UTStarcom to implement various internal controls and to cooperate fully with the Department of Justice. The agreement also recognizes UTStarcom's voluntary disclosures to, and cooperation with, the government, and the company's efforts to correct the conduct. DOJ has agreed not to prosecute UTStarcom or its subsidiaries in exchange for its cooperation and its compliance with the agreement.

UTStarcom's focus has been Asian markets, in particular China. The company does business in China through UTStarcom China Co. Ltd., a wholly-owned subsidiary.

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According to Law.com, a jury in the U.S. District Court for the Central District of California found Gerald and Patricia Green guilty of conspiracy, money laundering and violation of the Foreign Corrupt Practices Act (FCPA).

The Greens were film producers based in Beverly Hills. They were charged and found guilty of conspiring to bribe a government official of Thailand in exchange for being awarded contracts, including for control of the annual Bangkok International Film Festival. The Government alleged that the Greens paid approximately $1.8 million in bribes to Juthamas Siriwan, the former Governor of the Tourism Authority of Thailand, between 2002 and 2007, in exchange for contracts. The kickbacks were paid to Siriwan's daughter through banks in the United Kingdom and SIngapore. The Greens used different business names, with false addresses and telephone numbers, to conceal the payments. It alleged that the Greens' businesses earned approximately $13.5 million from the contracts.

The Greens' trial was the first involving the FCPA and the film industry, and lasted nearly three weeks. They will be sentenced in December. Mr. Green is 77 and Mrs. Green is 52. They face a maximum of up to 20 years in prison.

The Green case once again raises the dilemma of the interplay of U.S. laws and corrupt foreign customs and practices in some cases. Bribery, corruption and graft can be deeply ingrained in some foreign countries (fully recognizing that some areas of the U.S. suffer from the same!) and U.S. nationals and businesses operating in those countries may be expected or required to play along. For industries such as the U.S. film industry which frequently operates abroad, these situations can carry serious consequences under U.S. law. Individuals and businesses operating overseas which are confronted with such situations should consult counsel before determining how to act or respond.

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As previously reported here, the Department of Justice and UBS entered into a deferred prosecution agreement wherein UBS is to pay a fine and disclose to DOJ the names of its some 52,000 clients that have used UBS to park income in violation of U.S. tax laws. The New York Times reports today that the President of Switzerland has asked Treasury Secretary, Timothy Geithner, to drop what the Times inexactly reports to be a lawsuit to disclose the names of the UBS clients. In fact, under the deferred prosecution agreement, UBS has to cooperate with DOJ by providing the client’s names. My guess, Mr. Geithner, who had his own tax issues, isn’t going to touch this one. DOJ has already prosecuted two folks whose names UBS disclosed and, inevitably, many more such prosecutions will follow.

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    In rare circumstances, United States citizens are the victims, or even the perpetrators, of crimes in foreign nations. It is a basic premise—one that some Americans overlook—that while in a foreign county an American citizen is subject to that country’s laws, which in some cases can carry far harsher penalties that similar violations in the U.S. When charged with a crime in a foreign country, a U.S. citizen must go through that country’s criminal justice system and—as memorably attested to by films such as Midnight Express, Return to Paradise, Brokedown Palace and the National Geographic Channel’s series Locked Up Abroad—stay in that country’s prisons, sometimes under far worse conditions than American prisons.

    The United States Department of State protects the rights of American citizens abroad, provides a wide array of service to citizens who are detained abroad, works to ensure that citizens are afforded due process under local laws and are treated consistent with internationally recognized standards of human rights, and monitors conditions in foreign prisons. When a U.S. citizen is convicted of a crime in a foreign country, he or she, in some cases, may apply to be transferred to the United States to serve out the remainder of his or her foreign sentence if the foreign country has a “prisoner transfer treaty” with the U.S. See 18 U.S.C. § 4100 et seq. (In contrast, prosecutors who wish to prosecute individuals located in a foreign country utilize “mutual legal assistance treaties,” which the U.S. currently possesses with over 50 other nations, including the European Union as a whole). The U.S. is a party to two multilateral prisoner transfer treaties, the Council of Europe Convention on the Transfer of Sentenced Persons, or COE Convention, and the Inter-American Convention on Serving Criminal Sentences Abroad, or OAS Convention, and, in addition, has bilateral prisoner transfer treaties in effect with approximately thirteen countries.

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