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More on 'Catch 22′ — Plot Thickens in Huge FCPA Shakedown

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  • More on 'Catch 22′ — Plot Thickens in Huge FCPA Shakedown

    Yeah, yeah, yeah. Last week’s big decision — Citizens United — was undeniably huge. But it’s probably fair to say that of equal or greater importance, certainly to white-collar practitioners, was news of the indictments and arrests of 22 individuals in Las Vegas and Miami, alleging violations of the Foreign Corrupt Practices Act, the Comeback Statute of the 2000s.

    What to make of this development? We’ve got a bit to say about it. For now, we’d just like to catch you up on the news from last Tuesday, as well as later last week, which saw a fascinating development in the case. Tuesday, we’ll deliver a Part II, in which we’ll give a little broader context on what this means for all those who practice in this area and, well, for all those doing business abroad.

    For now, a recap: Back in May, according to indictments unveiled last week, federal authorities carried out a huge sting operation involving three undercover operators.

    The operation unfolded over two days at the Mandarin Hotel in Miami and then a few days later in Washington. A parade of executives of small and mid-sized arms companies sat down with the undercover team, which was made up of one agent posing as a representative of the defense minister of an unidentified African nation and a second agent posing as a procurement officer who reported directly to the defense minister. The third person, identified in the indictments as “Individual 1,” was a former executive in the law enforcement and military equipment industry who, it seems, was used partly to lend credibility to the operation. Click here for the NYT story on the unveiling of the indictments. Refer to this post on the FCPA blog to get copies of the indictments.

    In any event, over and over again, the executives who sat down with the undercover team allegedly agreed to pay bribes to the defense minister in order to win munitions contracts with the African nation.

    The DOJ’s press release on the bust puts it this way:
    The indictments allege that the defendants engaged in a scheme to pay bribes to the minister of defense for a country in Africa. In fact, the scheme was part of the undercover operation, with no actual involvement from any minister of defense. As part of the undercover operation, the defendants allegedly agreed to pay a 20 percent “commission” to a sales agent who the defendants believed represented the minister of defense for a country in Africa in order to win a portion of a $15 million deal to outfit the country’s presidential guard. In reality, the “sales agent” was an undercover FBI agent.

    Now, on Friday, the DOJ (led by Assistant Attorney General Lanny Breuer (pictured)) filed a separate document up in Washington that moved the story forward. A criminal information named Richard Bistrong, a former vice president for international sales at Armor Holdings, a Jacksonville manufacturer that BAE purchased back in 2007, of paying bribes to secure contracts from 2001 to 2006.

    In its charges against Bistrong, the DOJ has alleged that from 2001 through 2006, he and others concealed about $4.4 million in payments to agents and other intermediaries who helped Armor Products obtain business from “foreign government customers” in Nigeria and the Netherlands.

    According to this NYT story, people briefed on the broader investigation confirmed that Bistrong was also the key intermediary identified as “Individual 1″ in the sting operation made public last Tuesday. It doesn’t a genius to put together that Bistrong’s extensive cooperation with the government was likely undertaken in order to get himself some sort of favorable plea deal. As the NYT’s Diana Henriques writes, criminal informations are often filed when a defendant has waived indictment and is homing in on a plea deal.

    John Suttle, senior vice president for corporate communications at the American unit of BAE, confirmed to Henriques that Bistrong had been employed at Armor and said he was fired before BAE acquired the company in 2007. Armor had “disclosed this to the Department of Justice and the Securities and Exchange Commission,” he added.

    So what to make of the case against the 22 individuals? Well, reading over just the indictment gives the impression that the government has a good case.

    That said, lawyers tell us that for an FCPA case, the operation is unusual both in its complexity and scope. And the fact that it’s uncommon could benefit the defendants, says Wendy Wysong, a partner at Clifford Chance in Washington not involved in the case.

    Wysong says the government here is taking on quite a bit, perhaps more than it can chew. She foresees many separate trials, trials that won’t necessarily be easy for the government to win, partly because of the defenses that naturally get raised in cases like these.

    “Because this is all the result of undercover work, the entrapment defense will invariably come into play,” she says. “The government is going to have to show that these individuals were predisposed to this [criminal behavior]. It’s going to be hard given such a complex set of facts.”

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