The biggest U.S. prosecution of individuals accused of foreign bribery was dropped after the government failed to win convictions of 10 people who went to trial among the 22 charged in the case.
The Justice Department yesterday asked a federal judge in Washington to dismiss the indictment, which originally accused the security-industry officials of planning to make payments to a federal agent posing as a representative of the West African nation of Gabon to secure a stake in a fake $15 million deal for weapons and security gear.
It was the first time the government used a sting operation involving undercover techniques to charge violations of the Foreign Corrupt Practices Act.
“I for one hope that this very long and very expensive ordeal will be a true learning experience for the department and the FBI as they regroup to investigate and prosecute FCPA cases against individuals” U.S. District Judge Richard Leon said while granting the government’s request. He had earlier told prosecutors of his concerns about their “aggressive conspiracy theory” of the case, he said.
The dismissal adds to courtroom setbacks for the government in FCPA cases. Last month, a federal judge in Texas acquitted a former manager at a Texas unit of Zurich-based ABB Ltd. who was accused of bribing Mexican officials. A related case was dismissed last year by a judge who said the jury verdict convicting two men at an electricity tower company of bribing Mexican officials was tainted by prosecutor misconduct in “a sloppy, incomplete and notably over-zealous investigation.”
In a crackdown on overseas bribery that started during the Bush administration, the government settled 57 cases against companies from 2005 through 2011 without trial, reaping $4.1 billion for the U.S. treasury, according to Justice Department data. A push to prosecute more individual defendants during the same period produced mixed results.
Of the 93 people charged over the past seven years, including the defendants in the sting case, 41 pleaded guilty and six were convicted at trial by the end of 2011, according to data by Shearman & Sterling LLP. Through 2011, four defendants were fugitives, one was exonerated and three had their cases dismissed. The remainder are awaiting trial. The 31 defendants who’ve been sentenced got an average of 2 years and 2 months in prison.
In seeking to end the so-called Gabon case, the government said in court papers it “carefully considered” the outcomes of the first two trials of 10 defendants and the impact of rulings in those cases on the remaining defendants, as well as the resources needed to continue with “another four or more” trials.
The first trial of four defendants resulted in a hung jury in July after more than six days of deliberations. The four-month trial of six others ended last month with three acquittals and the jury unable to reach a verdict on the rest.
Marc Morales, one of the defendants in the second trial, told reporters yesterday after the hearing that he was “happy to move on with my life and spend time with my family.” Asked how much money he spent defending against the charges, Morales said, “more than I have.”
The jury could not reach a verdict on Morales.
“If, as the DOJ said, there’s a sea of global corruption, it’s much wiser for them to use their resources to prosecute those actual crimes, rather than pursuing this fictitious sting operation,” Eric Bruce of Kobre & Kim LLP, who represented defendant Pankesh Patel, said in an interview.
Laura Sweeney, a Justice Department spokeswoman, declined to comment beyond yesterday’s filing.
The case stemmed from a three-year investigation involving an informant who had pleaded guilty in an earlier bribery case. Investigators recorded telephone calls and videotaped meetings with Federal Bureau of Investigation agents posing as representatives of Gabon, sub-Saharan Africa’s fifth-biggest oil producer.
The government said the defendants agreed to pay a $3 million commission for the business, half of which they were told would be paid to the country’s defense minister.
Assistant U.S. Attorney General Lanny Breuer, who oversees the Justice Department’s criminal division, has cited the Gabon case, along with the Galleon Group LLC insider-trading probe, as examples of the government using wiretaps and other undercover techniques to pursue white-collar criminals.
“I think the decision is based solely on the facts of this case and will not have widespread impact on the FCPA world,” said Paul Pelletier, a partner at Mintz Levin Cohn Ferris Glovsky & Popeo PC in Washington who was a supervisor in the fraud section of the department’s criminal division when the case was filed.
Pelletier said sting cases are hard for prosecutors because investigators rely on cooperating individuals “with all their warts.” The government in the future may “insert” undercover agents into an investigation at an earlier stage so targets can work through them rather than the informant, he said.
The government’s case was put together through Richard Bistrong, a former executive from Armor Holdings Inc. He pleaded guilty in 2010 to bribing officials of the United Nations and the Netherlands to obtain contracts for body armor and pepper spray, according to court papers. He has yet to be sentenced.
Bistrong identified possible targets for the government, according to court papers. Working with the FBI, he recorded telephone and in-person meetings with the defendants. He also introduced them to Pascal Latour, an FBI agent posing as a representative for Gabon’s defense minister.
Bistrong, in testimony given during the second trial, admitted to having a cocaine addiction and to filing false tax returns and other crimes.
Defense lawyers said the lead FBI agent shared cigars, gifts and meals with Bistrong, compromising the government’s investigation. The relationship was documented in text messages and e-mails shown to the jury.
U.S. prosecutor Joey Lipton told Leon that the government has contacted lawyers for three men who pleaded guilty in the case and will discuss with them whether those pleas can remain in place.
The case is U.S. v. Goncalves, 09-cr-00335, U.S. District Court, District of Columbia (Washington).