This article was reprinted with permission
from FCPA Professor
[This post is part of a periodic series
regarding "old" FCPA enforcement actions]
The year was 1982 and the Foreign Corrupt Practices Act
was nearing five years old. Up to this point, enforcement was sparse and
focused on single-actor type cases. See here,
here,
here, here
and here for
FCPA enforcement actions up to this point.
In 1982, the first FCPA mega-case was brought and it
involved five corporate defendants and twelve individual defendants.
Specifically, in October 1982, the DOJ brought an
indictment (here)
against:
- Crawford
Enterprises Inc. ("CEI") (a Houston based private company that sold
compression equipment systems to oil and gas companies);
- Donald
Crawford (CEI's Chairman and sole shareholder and, at certain
relevant times, CEI's President);
- William
Hall (CEI's Executive Vice President and, at certain relevant times, CEI's
President);
- Ricardo
Beltran (President and majority shareholder of Grupo Industrial
Delta, a Mexican corporation);
- Mario
Gonzalez (a U.S. citizen who assisted Grupo Delta and CEI
communicate with certain alleged foreign officials);
- Andres
Garcia (a U.S. citizen who assisted Grupo Delta and CEI
communicate with certain alleged foreign officials);
- George
McLean (Vice President of Solar Turbines International ("Solar"), a
division of International Harvester Company);
- Luis
Uriarte (the Latin American Regional Manager of Solar);
- Al
Eyester (President of Ruston Gas Turbines "Ruston");and
- James
Smith (Vice President of Ruston).
The indictment charged a conspiracy between the
defendants and others to pay money to Mexican foreign officials and
Grupo Delta "knowing that all or a portion of such money would be offered,
given or promised directly or indirectly" to foreign officials for the purpose
of influencing the acts and decisions of the officials "in their official
capacity, and inducing them to use their influence with Pemex so as to
affect and influence the acts and decisions of Pemex in order to assist"
Crawford, the other defendants, and others in "obtaining or retaining business
with Pemex."
The indictment alleges that
Petroleos Mexicanos ("Pemex") was the "national oil company wholly
owned by the Government of the Republic of Mexico and was responsible for the
exploration and production of all of the oil and natural gas resources of
Mexico and for acquiring the equipment, including compression equipment
systems, necessary for such exploration and production."
The indictment alleged that "Pemex was an
instrumentality of a foreign government" and that two individuals (Ignacio de
Leon and Jesus Chavarria) were "foreign officials" based on their positions of
"subdirector of Pemex responsible for the purchase of goods and
equipment on behalf of Pemex" and "subdirector of Pemex responsible for
the exploration and production of Mexican oil and natural gas."
[As an aside, it should be noted that
in the recent "foreign official" challenges, the DOJ has argued
that its charging decision in the Crawford cases as to Pemex demonstrated
the validity of its position that employees of SOEs are "foreign
officials" under the FCPA. For instance, the recent FCPA Guidance states
that the SEC and DOJ ''have pursued cases involving instrumentalities since the
time of the FCPA's enactment'' and that the ''second-ever FCPA case charged by
the DOJ'' involved bribes to executives of the Mexican national oil company.
However being consistently wrong, does
not make one right and, as noted in my article "Grading the
FCPA Guidance," missing from the Guidance discussion or
associated citations on this issue, is any reference to the fact
that George McLean, the only defendant in the series of related cases to
put DOJ to its burden of proof at trial, was found not guilty by the jury.]
The conspiracy charge alleged that CEI and Crawford
agreed to pay and paid the "foreign officials" "bribes equalling
approximately 4.5% of each Pemex purchase order for compression
equipment systems in which" CEI participated and that "it was further a part of
the conspiracy" that CEI and Crawford arranged with defendants Beltran,
Gonzalez and Garcia that Grupo Delta would: "(a) hold itself out as the Mexican
agent of CEI, while in truth acting primarily as the conduit for the bribe
payments; (b) disguise the bribe payments as 'commissions' due by providing to
CEI false and fictitious invoice for each payment received; and (c) provide Gonzalez
and Garcia with a base of operations from which to perform their function as
middlemen and channels of communications between the co-conspirators" and the
foreign officials."
The indictment further alleged that the defendants used
the term "folks" as a code word for the "foreign officials" "in order to
conceal from others their true identities as Pemex officials and the
existence of the bribe scheme." The indictment alleged that "in order to
create a pool of money with which to pay bribes" CEI along with Solar and
Ruston "submitted to Pemex bids which were inflated to include a 4.5% markup
for the "folks."
The indictment alleged that CEI, along with Solar
and Ruston received purchase orders from Pemex for compression equipment
systems in the approximate amount of $225 million and that approximately $10
million in bribe payments were made to the "foreign officials" as part of the
bribery scheme.
In addition to the conspiracy charge, the indictment also
alleged approximately fifty substantive FCPA anti-bribery violations against
various combinations of the defendants. The indictment also charged CEI,
Crawford and Hall with an obstruction charge based on allegations that the
defendants destroyed certain documents relevant to a grand jury subpoena.
Media reports described the action as the first
major criminal investigation under the FCPA. According to the reports, in
November 1982, CEI, Crawford, Hall, Garcia, McLean, Uriate, and
Eyster pleaded not guilty. Crawford and Hall stated that while
commission payments were made to Grupo, no such bribes were paid to Pemex
officials.
CEI released a statement which said that "despite
vigorous and repeated denials by Crawford Enterprises of any wrongdoing in
connection with these allegations, the investigation has continued for nearly
3.5 years." The company said that Pemex and the Mexican government
had looked into similar charges and found no wrongdoing in the award of
Pemex contracts to Crawford. The company's statement further indicated as
follows. "Four factors accounted for CEI's success in becoming one of
Pemex's principal gas compression contractors: its proven experience
in the industry; its aggressive delivery schedules that other firms simply
could not match; its maintenance and repair of equipment installed in Mexico;
and the lower costs to Pemex as a result of all the above."
Prior to the above-reference October 1982 indictment,
in September 1982 the DOJ charged Ruston Gas Turbines Inc., C.E.
Miller Corporation and Charles Miller based on the same core set of
allegations. The DOJ charged Ruston Gas Turbines in a one count criminal
information (see here)
with a substantive FCPA violation and the company pleaded guilty and was
ordered to pay a $750,000 fine (see here).
The DOJ charged C.E. Miller Corporation and Miller (President, Chairman of
the Board, and majority shareholder of the company) in a one count
criminal information charging substantive FCPA violations and aiding
and abetting FCPA violations. (See here).
C.E. Miller Corporation and Miller both pleaded guilty and the company was
ordered to pay a $20,000 fine and placed on probation for three years (see here)
and Miller was sentenced to three years probation (see here).
Prior to the above-referenced September 1982 charges, in
May 1981 the DOJ charged Gary Bateman (an International Sales Manager for CEI
and also Chairman of the Board, President and sole shareholder of Applied
Process Products Overseas, Inc.) in a multi-count information (see here) charging
various misdemeanor violations of the Currency and Foreign
Transactions Reporting Act concerning the transportation of money to Mexico in
connection with the bribery scheme. Bateman pleaded guilty and agreed to pay a
civil penalty of approximately $330,000. In January 1983, the DOJ also charged
Applied Process Products Overseas, Inc. in a one-count information (here)
charging a substantive FCPA violation based on the same core set of allegations.
The company pleaded guilty and was ordered to pay a $5,000 fine. (See here).
After the above-referenced October 1982 charges, in
November 1982 the DOJ also filed a criminal information against International
Harvester (see here).
The information was based on the same core set of allegations as set forth
above and based on the conduct of its employees McLean and Uriarte. International
Harvester pleaded guilty to conspiracy to violate the FCPA (see here) and
was ordered to pay a $10,000 fine and agreed to also pay $40,000 civil cost
reimbursement.
The DOJ's offer of proof in the International Harvester
case (see here)
contained the following statement.
"After Solar had agreed to participate and to cooperate
with CEI, and pursuant to the 1977 enactment of the Foreign Corrupt Practices
Act [International Harvester's long-standing Policy on Conflicts of Interest
and Ethical Business Conduct] was revised and supplemented to affirm that
improper payments prohibited by the Act were also prohibited as a matter of
company policy. In 1977, 1978, 1979, and 1980, through an annual audit process,
each International Harvester managerial employee was required to certify his
or her compliance and to report any action that might conflict with
company policy for review by the Office of the General Counsel and corrective
action, if warranted. During those years, Uriarte and McLean each reported in
the annual audit process that he was aware of International Harvester policy and
had taken no action in violation thereof. Insofar as each of them participated
in the conspiracy described herein, he accordingly concealed from International
Harvester his participation and the participation of the Solar Turbine Division.
Neither Solar employee held a position which required him to report to
International Harvester management. There has been no evidence that any
officers, directors or management of International Harvester knew of or
participated in the conspiracy charged."
In January 1983, the DOJ charged Marquis King (an officer
and director of C.E. Miller) in a one-count information charging a
misdemeanor violation of the Currency and Foreign Transactions Reporting Act
concerning the transportation of money to Mexico in connection with the bribery
scheme. (See here).
King pleaded guilty and he was sentenced to 14 months probation and ordered to
pay a $5,000 fine. (See here).
In June 1985, CEI pleaded guilty to conspiracy to violate
the FCPA and 46 substantive FCPA violations. (See
here). CEI agreed to pay a $10,000 criminal fine as to the conspiracy
charge and $75,000 as to each of the 46 substantive charges for a total fine
amount of $3,460,000. At the same time, the following defendants pleaded
nolo contendere: Donald Crawford, Al Eyster, James Smith, Andres
Garcia, and William Hall. Crawford pleaded nolo contendere to
conspiracy to violate the FCPA and 46 substantive FCPA violations and was
ordered to pay a total fine amount of $309,000 (see here);
Eyster pleaded nolo contendere to conspiracy to violate the
FCPA and 41 substantive FCPA violations and was ordered to pay a total
fine amount of $5,000 (see here);
Smith pleaded nolo contendere to conspiracy to violate the
FCPA and 44 substantive FCPA violations and was ordered to pay a total
fine amount of $5,000 (see here);
Garcia pleaded nolo contendere to conspiracy to violate the
FCPA and 46 substantive FCPA violations and was ordered to pay a total
fine amount of $75,000 (see here);
and Hall pleaded nolo contendere to conspiracy to violate the
FCPA and 32 substantive FCPA violations and was ordered to pay a total
fine amount of $150,000 (see here).
That leaves McLean and Uriarte. Stay tuned for the rest
of the story.
Of further note from this enforcement action,
Pemex filed a civil suit in U.S. District Court in Houston against
Crawford, CEI, the two foreign officials, and twelve others in a bid to
recover monies allegedly extracted from Pemex. In its complaint,
Pemex sought several million dollars in both compensatory and punitive
damages from Crawford and the other entities based upon the same conduct that
was alleged in the DOJ enforcement actions. Pemex's suit was based
upon alleged violations of the Sherman Antitrust Act, the
Robinson-Patman Act, and the Racketeering Influenced and Corrupt
Organizations Act. Pemex also asserted causes of actions based upon
commercial bribery and common law fraud. Various of the defendants in the civil
action sought relevant documents from Pemex and it was ultimately held in
contempt for not producing the documents. For additional background on this
case, see 643 F.Supp. 370; 826 F.2d 392.
Read more articles on the FCPA by Mike
Koehler at FCPA
Professor.
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