The Gun Sting Case Defeats and What it means For FCPA Enforcement? Absolutely Nothing!

In a stunning rebuke of the Department of Justice’s (DOJ) trial strategy, all defendants in the second group of Gun Sting defendants walked out of the federal courthouse, still free. Two defendants were acquitted and the remaining three defendants were granted a mistrial. One defendant was dismissed at the close of the prosecution’s case in December as was the DOJ’s Foreign Corrupt Practices Act (FCPA) conspiracy count against all defendants. So, as the FCPA Professor noted, the DOJ is 0-10 in trial prosecutions in its Gun Sting case. However, that stark number does not tell the full picture of what is going on in enforcement of the FCPA.

First and foremost, not all of the Gun Sting defendants have been acquitted or even been granted mistrials, three defendants, Haim Geri, Daniel Alvarez and Jonathan Spiller all pled guilty. A fourth defendant, Richard Bistrong, reported by the FCPA Blog to be “the key intermediary between the FBI and the shot-show defendants”, pled guilty to one count of conspiracy to violate the FCPA and other statutes in 2010. So to imply the DOJ is zero in obtaining guilty verdicts and pleas for all defendants in its Gun Sting case is not precisely correct.

The defeats in the Gun Sting trials, coupled with the overturning of the guilty verdict in the Lindsey Manufacturing case and the O’Shea acquittal, have lead many commentators to make one of two arguments: (1) the DOJ is getting is comeuppance for ‘aggressive’ prosecution of the FCPA; and (2) coupled with the claim that the FCPA hurts US competitiveness overseas, it is the end of FCPA enforcement as we know it. Both positions are far wide of the mark. So what does the DOJ record for the two Gun Sting trials mean for FCPA enforcement? Absolutely nothing! As reported by the FCPA Blog, in 2011 15 companies settled FCPA enforcement actions by paying a total of $508.6 million in fines and penalties. Although this is a drop from both the number of companies which resolved FCPA enforcement actions and aggregate amount of fines and penalties paid over the previous year, this number is still significant. One need only take a look at the reported ongoing FCPA investigations to see that there is still significant enforcement occurring. As to the ‘aggressive’ DOJ enforcement, remember these enforcement actions against companies are made largely through self-disclosure. If the DOJ does not believe that there is a sufficient basis to bring an enforcement action, it will decline to prosecute the company.

What can be portended by the defeats at trial? First the whole notion that the Lindsey Manufacturing company defendants were somehow acquitted or over-zealously prosecuted is just plain wrong. They were found guilty and this guilty verdict was thrown out due to prosecutorial misconduct. As to O’Shea, it appears that the trial judge concluded that the government simply did not have enough evidence to get it to a jury. While it appears that the O’Shea case should not have gone to trial, the government at least put enough evidence forward to get to trial.

Such was not the case in the Gun Sting trials, where it appears the jury both (a) did not think the defendants were guilty, or (b) leaned so heavily towards acquittal that no unanimous decision could be made. It is still not clear why the government failed so miserably with the juries in the Gun Sting trials. It may be that people do not understand why the government would set up an apparently legitimate business transaction and then overlay a corruption case on it. After all, everyone understands that any business dealing involving illegal narcotics is illegal from the get-go. It does not matter if bribery and corruption are involved, the entire transaction is illegal. It may be the jurors did not feel the same about an underlying transaction which was clearly legal; here the sale of armaments to a foreign government, something the US government does on a routine basis.

It may also be the jury simply did not believe or even like the government’s star co-operating witness, Richard Bistrong. As reported by the FCPA Professor, Bistrong pled guilty long before any of the 2010 arrests in the Gun Sting case. He pled guilty back in 2009 which means that at least some of the time he was working undercover for the government, he had already pled guilty. This fact may have persuaded the jury in the Gun Sting trials that his testimony did not support the illegal conduct that the government claimed it supported. Or as asked by the FCPA Professor, in a post entitled “Will Bistrong’s Plea Impact The Africa Sting Cases?”, “What impact will Bistrong’s plea have in the Africa [Gun] Sting case – particularly the defendants’ expected entrapment defense?” It may have been quite a bit.

As your company’s compliance officer, what should you make of all this? My take is that you had better double down on your compliance program because I believe that the DOJ will refocus its efforts where it will have the most success, with enforcement actions against corporations. Why do I say this? First of all, there is the self-disclosure issue noted above which is now compounded by the Dodd-Frank Whistleblower provision. Second is the new norm of industry sweeps, and remember these started long before Johnson & Johnson who agreed, as part of its DPA, to turn in its competitors for alleged FCPA violations. Also name one company which will go to trial? The answer is easy because it’s none, nada, zilch and zero. After Arthur Anderson, no public US Company will go to trial in a FCPA case and risk a guilty verdict. Lindsey Manufacturing and the individual defendants went to trial because they were the company and the company was them.

So what is my take on the effect on ongoing FCPA enforcement of the failure of the DOJ to convict any of the Gun Sting defendants at trial? Once again, Absolutely nothing!

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2012

Observations on the FCPA Gun Sting Trial

Last week I was in Washington DC and had the opportunity to visit the Federal District Courthouse, where the first of the Gun Sting defendants currently in trial. Chris Matthews is reporting daily for MainJustice and although I think Chris is a great reporter, unfortunately I do not have a subscription to MainJustice so I cannot read what he has been writing about this trial. So the following are my observations are from sitting in the trial for a short time.

I am not going to reveal the name of the defendant which they were discussing at the time I sat in court but one of the federal Prosecutor’s was direct examining an FBI agent, who was an undercover operative in the sting operation, on some recorded conversation where he was present. The Prosecutor was proving up the transcripts of wiretaps and video recordings of the defendant in question. The direct examination was straight forward with the Prosecutor reading the transcript, then asking the FBI agent if he was present and if the FBI agent heard the defendant state the lines of transcript submitted and, if so, then requesting admission and publication to the jury. Riveting stuff or perhaps not.

My first observation is really that from my wife, who sat in with me. She is English and had never seen a US criminal trial live and in person. So her first reaction was something along the lines of “Is this it?” followed by “How does the jury stay awake?” It was immediately before lunch so that may have been one reason the jury was awake.

Needless to say I found it riveting. But I found it riveting for the same reason that my wife found it somewhat tedious. My explanation to her was that it was a slow, methodical presentation of the evidence. The Prosecution puts building block up after building block, in an inexorable march towards an impenetrable case based upon the admitted evidence. The simple act of reading line after line of conversations where the defendant either heard about requests to pay a bribe or actually agreed (or seemed to agree – not to supplant my opinion for the jury’s role as the trier of fact) to pay monies for a bribe. This seemed to me to be one of the trial tactics of the Federal Prosecutors Galleon insider trading case; that is, to build such a powerful case based upon the defendant’s own words, gesture or agreements that it simply cannot be explained away.

I understand that this was the prosecution’s case and it was direct testimony. The defense counsel is already going after the undercover FBI agent on cross-examination this week. Additionally the defendant has raised the defense of entrapment and other substantive and jurisdictional defenses. But the slow plodding forward by the prosecution of the defendant’s own words and actions may well have a powerful effect on the jury. My colleague Howard Sklar often says that if you have to raise jurisdictional defenses or claim that you were entrapped, you are already in a place you do not want to be in. He may well be right in this assertion.

Another strong impression that I had while watching this slow, steady march of evidence was how much of a game changer the Gun Sting case is for the Foreign Corrupt Practices Act (FCPA) world. Watching this direct examination was the direct result of using organized crime fighting techniques in a very mundane white collar case. My civil side clients need to be very aware of what is happening around them, both from any solicitations for bribes by any customers and any comments by competitors regarding such actions. While in the past such comments may have been laughed off, any competitor which makes any such comments must be taken very seriously and immediately denied and refuted by your sales team. Your company can simply not afford, literally or figuratively, to be caught up in any similar circumstances.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2011