Nov. 10 (Bloomberg) -- Frederic Bourke, the co-founder of handbag maker Dooney & Bourke, seeks to avoid prison when he’s sentenced today for conspiring to pay bribes to leaders in Azerbaijan in what U.S. prosecutors call one of the most corrupt investment schemes in the former Soviet Union.

Bourke was convicted in July after a monthlong trial in New York that featured testimony from former U.S. Senator George Mitchell. Jurors found that Bourke conspired with Czech expatriate Viktor Kozeny to bribe Azeri leaders including former President Heidar Aliyev to spur the sale of the state-owned oil company. The U.S. Foreign Corrupt Practices Act outlaws payments to non-U.S. officials for business.

“Bourke’s conviction is a game-changer,” Richard Cassin, the founder of the Cassin Law LLC firm in Singapore who writes an FCPA blog, said in an interview. “Not just paying bribes yourself, but merely investing in an overseas deal that might be tainted with bribery, is now illegal. If there’s a hint of bribery, run.”

U.S. District Judge Shira Scheindlin has said she won’t impose the 10-year sentence sought by prosecutors. Bourke, who was convicted of conspiracy and lying to investigators, seeks probation. Court probation officials recommend two years behind bars.

“This prosecution has served notice to potential violators of the FCPA, including passive investors, as Bourke inaccurately styles himself,” Assistant U.S. Attorney Harry Chernoff wrote in a pre-sentencing brief. “They will not evade prosecution just because they have left most of the dirty work to foreigners.”

Hollywood Executives, Congressman

In the months after Bourke’s conviction, the Justice Department won guilty verdicts in FCPA cases against Hollywood film executives accused of bribing Thai officials for contracts. Former U.S. Representative William Jefferson, a Louisiana Democrat, was also convicted in a corruption case that included FCPA allegations.

“It says two things,” said attorney Danforth Newcomb, who started the FCPA practice at New York’s Shearman & Sterling LLP. “The Justice Department takes cases to trial, and they win.”

Bourke, 63, was convicted of investing with Kozeny in 1998 knowing the Czech businessman, dubbed the Pirate of Prague in U.S. Press Accounts, gave Azeri leaders millions of dollars in cash and a secret two-thirds interest in a venture he formed to buy the state oil company, known as Socar. Prosecutors said Bourke didn’t pay bribes and only knew of them.

Bourke’s Loss

Bourke, a Greenwich, Connecticut, entrepreneur who successfully launched home-building, accessory and biotechnology startups, denied knowing of the payments. His lawyers said Kozeny stole $180 million from Bourke and other investors, including the hedge fund Omega Advisors Inc. and insurer American International Group Inc. A Bourke investment vehicle placed $8 million in the deal.

Azerbaijan, a former Soviet Republic on the Caspian Sea, never sold Socar, wiping out investments by Bourke and others.

Kozeny, who was also charged, has fought extradition from the Bahamas, where he lives. He admits bribing Azeri leaders, denies stealing from his investors and says they knew their money was used for payoffs. He says the FCPA doesn’t apply to him because he isn’t a U.S. citizen. Kozeny, 46, is wanted in the Czech Republic in another case.

Juror Neil McCormack said after the trial that he believed prosecutors targeted Bourke because they couldn’t reach Kozeny.

‘Next Best’

“Mr. Bourke was the next best person,” McCormack said in an interview after the verdict. Of Bourke, he said, “I think he knew there was bribery, but I didn’t think he knew the extent.”

At the trial, witnesses told of plane flights into Azerbaijan with millions of dollars stuffed into suitcases, of shakedowns in government offices, and of dealings with Chechen mobsters who provided protection to Kozeny’s operation. Kozeny told his investors they might control half of Azerbaijan’s economy if they captured Socar, witnesses said. Others believed their investment might grow tenfold.

The government’s case centered on two witnesses, former Kozeny aide Thomas Farrell and ex-Kozeny lawyer Hans Bodmer. Both said they told Bourke about the bribes. The two pleaded guilty and cooperated with prosecutors in bids for leniency. Bodmer’s cooperation came after he spent months in prison.

“Mr. Bodmer -- I felt so bad for the guy,” another juror, Salome Bankersingh, said in a post-trial interview. “He’s the only one who went to jail.”

‘No Small Feat’

Prosecutors also argued that Bourke “consciously avoided” learning about the bribes by not asking questions about them. Jurors could convict Bourke if they found he knew of the payments or took steps to avoid learning about them.

In his sentencing brief, Chernoff called the scheme “one of the most audacious and most corrupt” ever attempted in the former Soviet Union.

That, he added, “is no small feat.”

Bourke didn’t testify. His lawyers attacked Farrell’s and Bodmer’s accounts, saying conversations they said they had with Bourke in Azerbaijan didn’t take place because he wasn’t there at the time. The defense also said Bourke believed Azeri leaders had lawfully paid for their stake in a company Kozeny formed to buy Socar.

The witnesses for Bourke included Mitchell, his friend and a former Democratic Maine senator. Mitchell, who was brought into the deal by Bourke as a $200,000 investor, said he was unaware of the bribes even after meeting with President Aliyev. Mitchell, 76, is a special U.S. Middle East envoy for the Obama administration.

Cassin, the lawyer who writes the FCPA blog, said the case signals an expansion of the law’s enforcement.

‘Outer Limits’

“After Bourke’s conviction, it’s hard to know the outer limits of U.S. anti-bribery law,” Cassin said. “His crime? Investing in a deal he should have known was tainted by corruption.”

The intended bribe recipients in Azerbaijan included current President Ilham Aliyev and two officials overseeing the sale of state property in 1998, prosecutors said. Along with Farrell and Bodmer, a former Omega executive also pleaded guilty.

In Bourke’s pre-trial brief, defense attorneys cited dozens of letters written on his behalf and his many years of financing and even inventing new treatments for cancer.

“Mr. Bourke’s lifetime of law-abiding behavior, good deeds, contributions to society and upstanding character -- both before and after the offenses in this case -- are not extinguished by the jury’s verdicts,” Harold Haddon, his lawyer, wrote. “Kindness, integrity, loyalty and numerous selfless acts on his part are reflected throughout the letters.”

Scheindlin also will decide today whether Bourke, who is free on $10 million bail, may remain at liberty while he appeals his conviction.

The case is U.S. v. Bourke, 05-cr-00518, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: David Glovin in U.S. District Court in New York at dglovin@bloomberg.net.

Last Updated: November 10, 2009 00:01 EST