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FCPA in Latin America: Case Studies

A closer look at some case studies of criminal FCPA violations in Latin America.


CHRONICLE SPECIAL
Shearman & Sterling


The following information on criminal prosecutions for FCPA violations in
Latin America has been compiled from data from the FCPA Digest from U.S.-based law firm Shearman & Sterling. Republished with permission. Copyright Shearman & Sterling. Data organized by country of violation.

 

MULTI COUNTRY

 

BRIDGESTONE CORPORATION

 

United States v. Misao Hioki (S.D. Tex. 2008)


NATURE OF THE BUSINESS
Sale of industrial rubber products, including marine hose used to transfer oil between tankers and storage facilities. According to court documents, Hoiki, a Japanese citizen, was the General Manager for the International Engineered Products (“IEP”) Department of a Japanese company. Press reports identify that company as Bridgestone Corporation.


BUSINESS LOCATION
Argentina, Brazil, Ecuador, Mexico, and Venezuela.


PAYMENT

1. Amount of the value More than $1 million.

2. Amount of business related to the payment Unspecified.

3. Intermediary Agents.

4. The foreign official Employees of state-owned businesses.


INFLUENCE TO BE OBTAINED
From approximately January 2004 until May 2007, Hioki served as the General Manager of Bridgestone Corporation’s IEP Department, which coordinated efforts between the corporation’s headquarters in Japan and its regional subsidiaries to sell IEP products throughout the world. To secure sales in Latin America, local sales agents, who developed relationships with employees in state-owned companies, forwarded information related to potential projects to their counterparts in the company’s regional subsidiaries, including the company’s U.S. subsidiary. The regional subsidiaries then forwarded the information provided by the local agents to the IEP employee in Japan responsible for the particular product. The local agents often agreed to pay officials within the state-owned customer a percentage of the total value of the proposed deal. If the regional subsidiary secured the project, it paid the local sales agent a commission, which included both the agent’s actual commission and the corrupt payments to be paid to the employees of the state-owned customer. The local sales agent then made the agreed-upon payments to the customer’s employees. The regional subsidiaries and the supervisors in Japan authorized, and took steps to conceal, these payments. Hioki personally authorized certain corrupt payments and also approved transactions which he knew included corrupt payments.


ENFORCEMENT
The DOJ filed a criminal information on December 8, 2008. On December 10, 2008, Hioki pleaded guilty to conspiring to violate the FCPA’s anti-bribery provisions and conspiring to rig bids, fix prices, and allocate market shares of marine hose in violation of the Sherman Antitrust Act. Hioki is the first individual to plead guilty in the FCPA conspiracy and the ninth individual to plead guilty in the marine hose antitrust conspiracy. Hioki was sentenced to 24 months in prison and ordered to pay a fine of $80,000..

 

 

 

HELMERICH & PAYNE

 

United States v. Helmerich & Payne, Inc. (2009)


NATURE OF THE BUSINESS
Helmerich & Payne, Inc. (“H&P”), a U.S. corporation, engages in the contract drilling of oil and gas wells in the United States and internationally.


BUSINESS LOCATION
Argentina, Venezuela.


PAYMENT

1. Amount of the value Payments totaling approximately $173,000.

2. Amount of business related to the payment The avoidance of approximately $204,000 in customs-related costs.

3. Intermediary Customs brokers.

4. The foreign officials Argentine and Venezuelan customs officials.


INFLUENCE TO BE OBTAINED
Between 2003 and 2008, H&P’s Argentine and Venezuelan subsidiaries made approximately $173,000 in improper payments through their customs brokers to customs officials in Argentina and Venezuela to allow and to expedite the importation and exportation of equipment and materials that were not in compliance with the regulations of those countries. Those improper payments enabled the subsidiaries to avoid approximately $204,000 in expenses they would have incurred had they properly imported and exported the equipment and materials. The subsidiaries also made approximately $10,000 in facilitation payments. The customs brokers disguised the improper payments and the facilitation payments on their invoices to the subsidiaries.


ENFORCEMENT
On July 29, 2009, the DOJ and H&P entered into a 2-year non-prosecution agreement, under which H&P agreed to pay a fine of $1 million, to take remedial actions, and to make periodic reports to the DOJ regarding its compliance with the NPA. H&P also settled a related action with the SEC, consenting to a disgorgement of $375,681 including prejudgment interest. See SEC Digest Number D-64.

 

WILLBROS INTERNATIONAL

 

United States v. Willbros Group, Inc., and Willbros Int’l, Inc. (S.D. Tex. 2008)

NATURE OF THE BUSINESS
Procurement of contracts for oil and gas construction projects by Willbros International Inc. (“Willbros International”), a wholly-owned subsidiary of Willbros Group, Inc. (“Willbros Group”), both Panama corporations.


BUSINESS LOCATION
Nigeria, Ecuador, Bolivia.


PAYMENT

1. Amount of Value Approximately$10.8 million.

2. Amount of business related to the payment Approximately $390 million.

3. Intermediary Outside consultants; direct.

4. The foreign official Officials of PetroEcuador and PetroComerical in Ecuador [and officials and executives in Nigeria]


INFLUENCE TO BE OBTAINED
From December 2003 through the first half of 2004, Willbros International pursued contracts to refurbish a pipeline in Ecuador with PetroComercial, a subsidiary of state-owned PetroEcuador. In addition, the DOJ alleged that Willbros International and Willbros Group violated the books and records provision by recording all of the above payments as contract costs. In addition, a subsidiary of Willbros International devised a scheme to buy false invoices through a consultant to fraudulently claim VAT tax credits to reduce tax liability in violation of books and records requirements.


ENFORCEMENT
On May 14, 2008, Willbros Group and Willbros International entered into a three year deferred prosecution agreement. Willbros Group and Willbros International agreed, jointly and severally, to a fine of $22,000,000 payable in four installments. In addition, Willbros Group and Willbros International represented that they had implemented and would continue to implement a compliance and ethics program and a review of existing controls, policies and procedures, and agreed to engage an independent corporate monitor for a period of three years.

 

 

 

ARGENTINA

TANNER MANAGEMENT CORPORATION

 

United States v. Herbert Tannenbaum (S.D.N.Y. 1998)


NATURE OF THE BUSINESS
Garbage incinerator manufacturer, Tanner Management Corporation (“Tanner”).


PAYMENT

1. Amount of the value $16,000 paid to an undercover agent posing as an Argentinean

government official.

2. Amount of business related to the payment Not stated in information.

3. Intermediary Incorporation of a fictitious entity, Cybernet USA, to disguise the secret payment to the agent of the government of Argentina.

4. The foreign official An undercover agent posing as a procurement officer of the government of Argentina.


INFLUENCE TO BE OBTAINED
To obtain a contract for sale of a garbage incinerator to the government of Argentina.


ENFORCEMENT

1. Amount of the fine Herbert Tannenbaum pled guilty to conspiring to violate the FCPA and was sentenced to confinement for a year and a day and a fine of $15,000.

2. Individuals charged and their relationship with the business Herbert Tannenbaum,president of the Tanner Management Corporation.

3. Other crimes charged None.

 


BRAZIL

 

INTERNATIONAL MATERIAL SOLUTION CORP

 

United States v. Int’l Material Solutions Corp., and Thomas K. Qualey (S.D. Ohio 1999)

NATURE OF THE BUSINESS
Sale of ten forklift trucks.


PAYMENT

1. Amount of the value $67,563.

2. Amount of business related to the payment $392,250.

3. Intermediary None.

4. The foreign official Lt. Col. in the Brazilian Air Force.


INFLUENCE TO BE OBTAINED
Approval of a bid to sell ten forklift trucks.


ENFORCEMENT

1. Amount of fine as to Corporate Defendant $500 and one year’s probation.

2. Amount of fine as to Individual Defendant $2,500, three years’ probation and four months’ home confinement with work release.
3. Individuals charged and their relationship with the business Thomas K. Qualey,

president of the company.

4. Other crimes charged None.

 

CONTROL SYSTEMS SPECIALIST, INC

 

United States v. Control Systems Specialist, Inc. and Darrold Richard Crites

(S.D. Ohio 1998)

NATURE OF THE BUSINESS
Purchase, repair and resale of surplus military equipment by Control

Systems Specialist, Inc., an Ohio corporation and domestic concern.


PAYMENT

1. Amount of the value $257,139, disguised as consultant fees, paid to a Brazilian Air Force Lieutenant Colonel (“BAF/Lt. Col. Z”) for each bid accepted by BAF/Lt. Col. Z on behalf of the Brazilian Aeronautical Commission (“BAC”).

2. Amount of business related to the payment At least 44 purchases of surplus U.S. military equipment for repair and resale to the BAC.

3. Intermediary None.

4. The foreign official BAF/Lt. Col. Z, who was authorized to make purchases of military equipment on behalf of the BAC.


INFLUENCE TO BE OBTAINED
To obtain a contract for Control Systems Specialist, Inc. to sell surplus U.S. military equipment, including two gas turbine power units, to the BAC.


ENFORCEMENT

1. Amount of the fine Darrold Richard Crites pled guilty to a three count information charging a conspiracy to violate the FCPA, violation of the FCPA and bribery of a U.S. public official.Pursuant to the plea agreement, Crites must pay a special assessment of $50.00 for the conspiracy and FCPA violation counts and $100.00 for the bribery of a U.S. public official count. Crites also agreed to make complete restitution for all damage that resulted from his violations. The plea agreement did not specify the length of a prison term and he was sentenced to three years’ probation and 150 hours of community service. Crites also entered into a cooperation agreement with the DOJ.

2. Individuals charged and their relationship with the business Darrold Richard Crites, president of Control Systems Specialist, Inc.

3. Other crimes charged None.

 

 

CONTROL COMPONENTS, INC (CCI)

United States v. Mario Covino (E.D. Ca. 2008)


NATURE OF BUSINESS
Mario Covino, an Italian national and U.S. resident was the Director of

Worldwide Factory Sales for Control Components, Inc (“CCI”), a California based company that designs and manufactures severe service control valves used in the nuclear, oil and gas, and power generation industries.


BUSINESS LOCATION
Brazil, China, India, Korea, Malaysia, and the United Arab Emirates.


PAYMENT

1. Amount of the value $1 million.

2. Amount of business related to the payment At least $5 million.

3. Intermediary Agents.

4. The foreign official Officers and employees of state-owned enterprises including, but not limited to, Petrobras (Brazil) [and companies in China, Korea, Malaysia and UAE]

 

INFLUENCE TO BE OBTAINED
From 2003 to 2007, Covino caused employees and agents of CCI to make payments totaling approximately $1 million to officials employed by state-owned companies in exchange for their assistance in obtaining sales contracts thereby earning profits of approximately $5 million. (…)


ENFORCEMENT
On
December 17, 2008, Covino entered an agreement with the DOJ under which he pleaded guilty on January 8, 2009 to conspiring to violate the anti-bribery provisions of the FCPA. He and another former CCI employee, Richard Morlok, are scheduled for sentencing on February 14, 2011. They are both required, under the terms of their plea agreements, to cooperate with the government in its continuing investigation and prosecution of six other former CCI employees, including the former CEO, Stuart Carson.

 

 

COLOMBIA

HARRIS CORP

United States v. Harris Corp., John D. Iacobucci, and Ronald I. Schultz (N.D. Cal. 1990)

NATURE OF THE BUSINESS Manufacture of telephone switching systems by Harris Corp. (“Harris”), a Delaware corporation and an issuer, through its Digital Telephone Systems (“Digital Telephone”) division.


PAYMENT

1. Amount of the value $22,845.

2. Amount of business related to the payment Not stated.

3. Intermediary A consultant, doing business as Polo, a Delaware corporation engaged in advising telecommunications companies of ways to obtain business in Latin American countries, and a local Colombian company owned in part by a foreign official.

4. The foreign official A member of the Cámara de Representativos, the national legislature of Colombia, who had some influence in the award of government telecommunications contracts.


INFLUENCE TO BE OBTAINED
To obtain telecommunications contracts from the Empress Nacional de Telecomunicaciones, an instrumentality of the Colombian government.


ENFORCEMENT

1. Amount of the fine After hearing the government’s evidence, the trial judge granted a motion for judgment of acquittal.

2. Individuals charged and their relationship with the business Iacobucci, vice president of Digital Telephone, and Schultz, director of Human Relations at Digital Telephone.

3. Other crimes charged Conspiracy, making false books and records and aiding and abetting.


COSTA RICA

ALCATEL

 

United States v. Christian Sapsizian and Edgar Valverde Acosta (S.D. Fla. 2006)

NATURE OF THE BUSINESS
Procurement of telecommunications business by Christian Sapsizian, an executive of Alcatel S.A. (“Alcatel”), a French corporation with registered shares traded in the United States. Sapsizian held a number of positions in Alcatel including Vice President of Latin America for one of Alcatel’s subsidiaries. Edgar Valverde Acosta was a Costa Rican national who managed the day-to-day affairs of Alcatel’s Costa Rican subsidiary and held the title of Senior Country Officer.


PAYMENT

1. Amount of the value At least $2.56 million.

2. Amount of business related to the payment At least $250 million.

3. Intermediary Consulting firm in Costa Rica.

4. The foreign official Board member of state telecommunications authority.


INFLUENCE TO BE OBTAINED
From around February 2000 through September 2004, Sapsizian and Acosta, on behalf of Alcatel, a French company, allegedly directly made payments to an official of the state-owned telecommunications company, intending for that official to share the payments with another senior official. During this period, Sapsizian and Acosta also employed an agent consulting firm as a conduit for bribe payments to the two officials and the wife of one of the officials.


ENFORCEMENT
On March 20, 2007, a superseding indictment was filed against Sapsizian and Acosta. On June 7, 2007, the DOJ announced that Sapsizian pleaded guilty to two counts of conspiracy and violating the FCPA. The terms of his plea agreement provide for an immediate forfeiture of $261,500, as well as Sapsizian’s continued cooperation with U.S. and foreign law enforcement officials in the ongoing investigation concerning Alcatel CIT. On September 23, 2008, Sapsizian was sentenced to 30 months in prison and three years of supervised release. Separately, on June 14, 2007, the court transferred Acosta to fugitive status.

 

 

OWL SECURITIES

 

United States v. Richard K. Halford (W.D. Mo. 2001)

United States v. Albert Franklin Reitz (W.D. Mo. 2001)

United States v. Robert Richard King and Pablo Barquero Hernandez (W.D. Mo. 2001)

NATURE OF THE BUSINESS Development of port facilities, international airport, resort, marina, residential estates, quarry, salvage operation and dry canal in Costa Rica by OSI Proyectos, the Costa Rican subsidiary of Owl Securities and Investment Ltd. (“OSI Ltd.”). OSI Ltd. has its principal place of business in Kansas City, Missouri and is a domestic concern.


PAYMENT

1. Amount of the value
Conspirators agreed to pay an unspecified total amount, which included one payment of $1,500,000.

2. Amount of business related to the payment Not stated.

3. Intermediary OSI

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