Nov. 11 (Bloomberg) -- Frederic Bourke, the co-founder of handbag maker Dooney & Bourke, was sentenced to one year and a day in prison and a $1 million fine for conspiring to pay bribes to leaders in Azerbaijan in what U.S. prosecutors called one of the most corrupt investment schemes in the former Soviet Union.

Bourke, 63, was convicted in July after a monthlong trial in New York that featured testimony by 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.

“After years of supervising this case, it’s still not entirely clear to me whether Mr. Bourke is a victim or a crook or a little bit of both,” U.S. District Judge Shira Scheindlin in New York said yesterday while sentencing the Greenwich, Connecticut, entrepreneur.

Prosecutors sought a sentence of 10 years as a deterrent to others. In a sentencing memo to the judge, Assistant U.S. Attorney Harry Chernoff called the scheme “one of the most audacious and most corrupt” ever attempted in the former Soviet Union. In court, he said Bourke actively promoted an investment he knew was corrupt in an effort to help Kozeny “purchase the entire oil wealth of a sovereign nation.”

Bourke, who will remain free while he appeals his conviction, had sought probation. If his conviction is upheld, he will serve three years of probation after completing a jail term at a prison camp in Englewood, Colorado, the judge said.

‘Good Works’

The sentencing caps a case begun almost a decade ago after the collapse of Kozeny’s bid to seize control of the state oil company in Azerbaijan, a former Soviet republic on the Caspian Sea. Prosecutors said Bourke, without paying bribes himself, knew of the plan when he invested with Kozeny in 1998.

Kozeny, dubbed the Pirate of Prague in press accounts, gave Azeri leaders millions of dollars in cash and offered a secret two-thirds interest in a venture he formed to buy the state oil company, known as Socar, according to the government.

In court, Scheindlin cited Bourke’s “lifetime of good works” for a sentence that was far below the 57 months to 71 months recommended by U.S. sentencing guidelines. She said her sentence was influenced by the 80 letters she received on Bourke’s behalf and noted that he had financed and even invented treatments for cancer.

The judge said she agreed with prosecutors that Bourke helped promote a deal he knew was corrupt. At the same time, she said there was “slim proof” that bribes were ever paid.

Bags of Cash

“A period of time in jail, albeit brief, is required,” Scheindlin said. “Bribes must and will result in a jail sentence.”

At the trial, witnesses described plane flights into Azerbaijan with millions of dollars stuffed into suitcases, of shakedowns in government offices, and of lavish spending by a flamboyant Kozeny who saw himself as a new oligarch.

Kozeny told his investors they might control half of Azerbaijan’s economy if they captured Socar, witnesses said.

Bourke 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.

Kozeny Fought Extradition

“This prosecution has served notice to potential violators of the FCPA, including passive investors, as Bourke inaccurately styles himself,” Chernoff wrote to the court. “They will not evade prosecution just because they have left most of the dirty work to foreigners.”

Azerbaijan never sold Socar, wiping out investments by Bourke and others.

Kozeny, 46, who was also charged in the case, has fought extradition from the Bahamas, where he lives. He admits bribing Azeri leaders, denies stealing from 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 is wanted in the Czech Republic in another case.

Witnesses for Bourke, who didn’t testify, included Mitchell, his friend and a former Democratic senator from Maine. 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.

Defense attorney Harold Haddon called the sentence a “compassionate” one and predicted after court that Bourke would prevail on his appeal. Bourke didn’t speak at the proceeding other than to thank the judge for her “patience.”

Three others have pleaded guilty in the case and are waiting to be sentenced.

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 11, 2009 00:01 EST