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

Two years ago, Western Titanium was indicted in the U.S. District Court for the Southern District of California on 19 counts, including mail fraud and conspiracy, for allegedly selling substandard titanium to the government to use in aerospace equipment and engine mounts for military jets and allegedly falsely certifying that the metal met technical specifications, according to an article on San Diego Signon. Also indicted were Western Titanium's CEO, Daniel Schroder, and three other current and former executives. The "titanic" prosecution involved some 900 docket entries, extensive pretrial hearings and finally an 11 week trial.

However, the trial terminated last week with Western Titanium pleading guilty to a single count of mail fraud for causing an alleged loss of $51,350 and the charges against the executives being dismissed under deferred prosecution agreements. The reason for the abrupt end was the defense's accusations that the prosecution had withheld thousands of pages of documents favorable to the defense showing that the titanium was not substandard. Counsel for the defendants claimed that the government did not disclose the materials until approximately six weeks into the trial in an act of intentional prosecutorial misconduct.

The U.S. Attorney's Office has denied that the prosecution acted in bad faith.

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As the oil spill from the Deepwater Horizon well in the Gulf of Mexico turns two months old, an article in Digital Journal details how the government considered bringing criminal charges against British Petroleum and its executives during the Bush Administration. The article quotes Scott West, a former Special Agent in Charge for the Environmental Protection Agency. West was in charge of investigating the rupture of a pipeline at Prudhoe Bay, Alaska, which occurred in March 2006. The rupture went undetected for nearly a week due to malfunctions in monitoring equipment, and spilled more than a quarter of a million gallons of crude oil. The rupture was reportedly the size of a pencil eraser and was caused by corrosion. BP shut down five oil processing centers for nearly two weeks, causing a rise in gas prices.

EPA's criminal division, the Federal Bureau of Investigation and the Department of Justice spent thousands of hours investigating the rupture, and supposedly was considering criminal charges against BP and certain of its executives for ignoring warnings from employees about the condition of pipeline and the monitoring equipment.

However, the article claims that the DOJ allegedly "killed" the investigation in August of 2007. BP pled guilty to a misdemeanor violation of the Clean Water Act and paid a $20 million fine. BP also entered into a deferred prosecution agreement with the government in relation to an explosion at a refinery in Texas City which resulted in 15 deaths.  

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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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As reported by the Wall Street Journal, the U.S. Department of Justice and Wachovia Bank have entered into a $160 million settlement and deferred prosecution agreement to settle the DOJ's allegations that Wachovia enabled drug traffickers to launder drug money through transfers of money from Mexican currency exchange houses to the bank. The bank has agreed to forfeit $110 million to the government and to pay an additional $50 million in fines.

The government alleges that Wachovia failed to use proper money laundering detection and allegedly processed billions in transactions. Currency exchange houses, or casas de cambio, are primarily used as a legitimate means for immigrants to send money to relatives abroad, but authorities have stated that the houses are also used by drug traffickers to launder drug money. The government alleged that Wachovia laundered at least $110 million in drug proceeds, some of which was used to purchase aircraft for use in drug trafficking.

Wachovia released a statement in which the company stated that it had made significant enhancements to its anti-money laundering and Bank Secrecy Act compliance program and its mechanisms for detecting wrongdoing. The bank has spent $42 million to improve its compliance program. On the other hand, the U.S. Attorney's Office for the Southern District of Florida has stated that Wachovia "blatantly" disregarded banking laws.

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The Securities and Exchange Commission announced this week a new initiative to encourage private individuals and corporations to cooperate in SEC investigations and enforcement. The SEC will revise its Enforcement Division's enforcement manual to add a new section entitled "Fostering Cooperation." The section will allow SEC investigators to use the following "tools":

Cooperation Agreements — Formal written agreements in which the Enforcement Division agrees to recommend to the Commission that a cooperator receive credit for cooperating in investigations or related enforcement actions if the cooperator provides substantial assistance such as full and truthful information and testimony.

Deferred Prosecution Agreements — Formal written agreements in which the Commission agrees to forego an enforcement action against a cooperator if the individual or company agrees, among other things, to cooperate fully and truthfully and to comply with express prohibitions and undertakings during a period of deferred prosecution.

Non-prosecution Agreements — Formal written agreements, entered into under limited and appropriate circumstances, in which the Commission agrees not to pursue an enforcement action against a cooperator if the individual or company agrees, among other things, to cooperate fully and truthfully and comply with express undertakings.

The proposed changes also streamline the process for requesting immunity from the Justice Department for witnesses assisting in SEC investigations and enforcement actions. They futhermore set forth considerations for evaluating cooperation by individuals, including:

The assistance provided by the cooperating individual.
The importance of the underlying matter in which the individual cooperated.
The societal interest in ensuring the individual is held accountable for his or her misconduct.
The appropriateness of cooperation credit based upon the risk profile of the cooperating individual.
As the announcement recognizes, the "tools" are tools which the Department of Justice has long employed to secure cooperation and obtain information. Professor Ellen S. Podgor of Stetson University College of Law and the White Collar Crime Prof Blog has listed concerns regarding the SEC's new cooperation criteria.

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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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