The conviction last week of Lindsey Manufacturing Inc. (see here for the prior post) was indeed the first instance of a company being tried and convicted on FCPA violations - as noted in the DOJ's release (here).
However, contrary to numerous media reports, it was not the first instance of a company putting the DOJ to its burden of proof in an FCPA trial.
That first occurred in 1990-1991 when Harris Corporation (and certain of its executives) prevailed in an FCPA trial.
Thus, the DOJ's record in corporate FCPA trials is one win, one loss.
This post summarizes the Harris Corporation enforcement action and includes information gleaned from original source newspaper accounts.
*****
In 1990, Harris Corporation ("Harris"), John D. Iacobucci, and Ronald L. Schultz were charged in a criminal indictment (here) filed in U.S. District Court - Northern District of California.
As alleged in the indictment, Harris was a Delaware publicly-traded corporation headquartered in Melbourne, Florida and through its Digital Telephone Systems ("DTS") division it manufactured telephone switching systems. Iacobucci was the Vice President and General Manager of DTS and Schultz was, at various times, Director of Human Relations and Facilities at DTS, Director of Administration at DTS and responsible for Contracts Administration.
Robert O'Hara (an unindicted co-conspirator - more on O'Hara below) was the President and sole stock-holder of Polo Associations Corporation, Inc. - a Delaware corporation created by O'Hara "to engage in the business of advising telecommunications companies of ways to obtain business in Latin American countries, particularly Colombia."
The conduct at issue involved "The Empress Nacional de Telecomunicaciones or Telecom" an alleged "instrumentality of the Government of Colombia responsible for the operation of telex services, maritime communications, and long distance and international telephone and telegraph services within the country of Colombia." According to the indictment, "Telecom was an instrumentality of the Government of Colombia within the meaning of the FCPA." However, as detailed below, none of the improper payments at issue were alleged to have been paid to Telecom officials.
The indictment charged that Harris, Iacobucci, Schultz and O'Hara conspired to violate the FCPA by paying and authorizing the payment of money to O'Hara "while knowing that a portion of such money" would be offered or given, directly or indirectly, to "foreign officials, that is, officials of the Government of Colombia" in order to influence the officials to award government telecommunications contracts to Harris in violation of the FCPA. The indictment further charged a conspiracy to violate the FCPA's books and records provisions.
According to the indictment, part of the conspiracy was that Harris retained O'Hara "as a consultant based upon the representation of O'Hara that he had connections with officials of the Government of Colombia that he would use to assist" Harris in obtaining telecommunications contracts. According to the indictment, Harris agreed to pay O'Hara a 10% commission of the value of any telecommunications contracts entered into between Harris and Telecom.
The indictment does not allege that any payments went to officials of Telecom, but rather that payments went to a "member of the Camara de Representates (CDR), the national legislative of Colombia;" a local Colombian company "that was owned in part by a foreign official, that is, a member of the CDR;" and "various officials of the Government of Colombia."
The indictment alleged specific meetings and documents that set into motion the bribery scheme.
In addition to the conspiracy charge, the indictment also charged substantive FCPA anti-bribery and FCPA books and records offenses.
Original source newspaper reports from the time detail as follows.
Theodore S. Greenberg, deputy chief of the Fraud Section of the Criminal Division, stated upon issuance of the indictment - "The department continues to view violations of the Foreign Corrupt Practices Act as serious matters and will pursue them accordingly."
A statement from John Hartley, Chairman and Chief Executive of Harris, stated as follows. "We believe that these charges are based upon a distorted view of the facts, and they represent a radical departure from existing enforcement policies. We have cooperated fully with the Justice Department in its investigation of the allegations, providing clear evidence refuting the charges."
At the time of the indictment, Harris Corp. was ranked 57th among Department of Defense contractors in terms of total dollar volume of contracts awarded.
Harris, Iacobucci, and Schultz put the DOJ to its burden of proof and the criminal trial began on March 4, 1991. The San Francisco Examiner stated that "the trial is significant because the Justice Department prosecutes only a few such foreign bribery cases a year."
The same article contained the following background on the case. "The government's case is based on the testimony of a whistle-blower who handed over company documents to the FBI and a consultant who has pleaded guilty to helping Harris Corp. falsify its records. [...] The defendants insist that they authorized only legitimate consulting payments to secure Colombia's business and claim that the government's case rests on trumped-up charges by a disgruntled employee. [...] At a pretrial hearing, U.S. District Judge Charles A. Legge rejected a request by defense attorneys to exclude dozens of Harris Corp. documents from the trial. They claim that [the whistleblower] stole the documents on behalf of the FBI. [...] A key prosecution witness is Robert O'Hara, a consultant who is based in New York. He pleaded guilty in August to a charge of aiding Harris Corp. with falsifying its financial records."
On March 19, 1991, Judge Legge, "after hearing the prosecution's case ... granted a verdict of acquittal ... the defense was not called upon to present its case." The San Francisco Chronicle stated as follows. "Shortly after the government rested its case, U.S. District Judge Charles Legge of San Francisco ruled from the bench that 'no reasonable jury' could convict the company nor its executives on any of the five bribery-related counts for which they were indicted. Citing insufficient evidence, Legge said the government had failed to show any intent by the defendants to enter into a criminal conspiracy. Legge also said it was the first time in his six years on the federal bench that he had dismissed a criminal case at mid-trial for lack of evidence." The Chronicle called the dismissal a "stunning defeat for the Justice Department" after a 12-member jury heard two weeks of testimony by prosecution witnesses.
The Chronicle further stated as follows. "The acquittal also reinforced the Justice Department's poor track record of prosecutions in overseas bribery cases. Federal prosecutors have won only two dozen convictions under the Foreign Corrupt Practices Act of 1977 since the law was adopted more than a decade ago."
Hartley (the above referenced Chairman and Chief Executive of Harris) stated as follows. "We're very pleased that our Digital Telephone Systems Division and its employees have been vindicated, but we believe the charges should never have been brought in the first place. The Justice Department's case was based upon a distorted view of the facts and represented a radical departure from existing enforcement policies. As a result, American taxpayers have been burdened with unnecessary litigation costs, and Harris has incurred more than $3 million in legal fees, spent many hundreds of hours of our people's time, and suffered a substantial disruption of the corporation's business to prove an absence of wrongdoing that should have been apparent from the beginning. The case has also placed a heavy strain on our two employees named in the indictment."
Michael Fayad, a lawyer for Harris, stated as follows. "[Judge Legge] decided to dismiss the case for all of the same reasons we had pointed out to the Department of Justice early on, prior to indictment ... that there was no bribe, no contract, no agreement to pay a bribe, no corrupt intent."
Charles Bryer, Schultz's lawyer, stated as follows. "The case was paper-thin, built on a con man's story and a disgruntled employee's vengeance. We were conned to pay some money that we thought was going to be used for a legitimate purpose."
According to newspaper accounts, DOJ prosecutor Scott MacKay said the government brought the case in good faith - "We're disappointed with the judge's ruling. We feel that we presented a good case, but we accept the judge's ruling."
Today, Harris Corporation is alive and well. See here for its webpage.
As to O'Hara, as suggested above, he pleaded guilty to related charges in the Eastern District of N.Y. before the Harris et. al trial. However, after the California directed verdict of acquittal, but before his sentencing, O'Hara sought to withdraw his guilty plea. The trial court judge denied his motion and concluded that the acquittal of O'Hara's alleged co-conspirators was not a "fair and just reason" sufficient to allow O'Hara to withdraw his guilty plea. O'Hara appealed and the Second Circuit affirmed (See 960 F.2d 11).
*****
If non-prosecution and deferred prosecution agreements existed in 1990, would Harris have resolved the enforcement action via such a resolution vehicle? Likely yes. Yet Harris and the individual defendants all prevailed at trial.
Was there anything wrong with this prior era when NPAs and DPAs were not an option in an FCPA enforcement action? I submit no and believe that abolishing NPAs and DPAs in the FCPA context should be subject to serious debate and discussion. For more on this issue (see here).
However, contrary to numerous media reports, it was not the first instance of a company putting the DOJ to its burden of proof in an FCPA trial.
That first occurred in 1990-1991 when Harris Corporation (and certain of its executives) prevailed in an FCPA trial.
Thus, the DOJ's record in corporate FCPA trials is one win, one loss.
This post summarizes the Harris Corporation enforcement action and includes information gleaned from original source newspaper accounts.
*****
In 1990, Harris Corporation ("Harris"), John D. Iacobucci, and Ronald L. Schultz were charged in a criminal indictment (here) filed in U.S. District Court - Northern District of California.
As alleged in the indictment, Harris was a Delaware publicly-traded corporation headquartered in Melbourne, Florida and through its Digital Telephone Systems ("DTS") division it manufactured telephone switching systems. Iacobucci was the Vice President and General Manager of DTS and Schultz was, at various times, Director of Human Relations and Facilities at DTS, Director of Administration at DTS and responsible for Contracts Administration.
Robert O'Hara (an unindicted co-conspirator - more on O'Hara below) was the President and sole stock-holder of Polo Associations Corporation, Inc. - a Delaware corporation created by O'Hara "to engage in the business of advising telecommunications companies of ways to obtain business in Latin American countries, particularly Colombia."
The conduct at issue involved "The Empress Nacional de Telecomunicaciones or Telecom" an alleged "instrumentality of the Government of Colombia responsible for the operation of telex services, maritime communications, and long distance and international telephone and telegraph services within the country of Colombia." According to the indictment, "Telecom was an instrumentality of the Government of Colombia within the meaning of the FCPA." However, as detailed below, none of the improper payments at issue were alleged to have been paid to Telecom officials.
The indictment charged that Harris, Iacobucci, Schultz and O'Hara conspired to violate the FCPA by paying and authorizing the payment of money to O'Hara "while knowing that a portion of such money" would be offered or given, directly or indirectly, to "foreign officials, that is, officials of the Government of Colombia" in order to influence the officials to award government telecommunications contracts to Harris in violation of the FCPA. The indictment further charged a conspiracy to violate the FCPA's books and records provisions.
According to the indictment, part of the conspiracy was that Harris retained O'Hara "as a consultant based upon the representation of O'Hara that he had connections with officials of the Government of Colombia that he would use to assist" Harris in obtaining telecommunications contracts. According to the indictment, Harris agreed to pay O'Hara a 10% commission of the value of any telecommunications contracts entered into between Harris and Telecom.
The indictment does not allege that any payments went to officials of Telecom, but rather that payments went to a "member of the Camara de Representates (CDR), the national legislative of Colombia;" a local Colombian company "that was owned in part by a foreign official, that is, a member of the CDR;" and "various officials of the Government of Colombia."
The indictment alleged specific meetings and documents that set into motion the bribery scheme.
In addition to the conspiracy charge, the indictment also charged substantive FCPA anti-bribery and FCPA books and records offenses.
Original source newspaper reports from the time detail as follows.
Theodore S. Greenberg, deputy chief of the Fraud Section of the Criminal Division, stated upon issuance of the indictment - "The department continues to view violations of the Foreign Corrupt Practices Act as serious matters and will pursue them accordingly."
A statement from John Hartley, Chairman and Chief Executive of Harris, stated as follows. "We believe that these charges are based upon a distorted view of the facts, and they represent a radical departure from existing enforcement policies. We have cooperated fully with the Justice Department in its investigation of the allegations, providing clear evidence refuting the charges."
At the time of the indictment, Harris Corp. was ranked 57th among Department of Defense contractors in terms of total dollar volume of contracts awarded.
Harris, Iacobucci, and Schultz put the DOJ to its burden of proof and the criminal trial began on March 4, 1991. The San Francisco Examiner stated that "the trial is significant because the Justice Department prosecutes only a few such foreign bribery cases a year."
The same article contained the following background on the case. "The government's case is based on the testimony of a whistle-blower who handed over company documents to the FBI and a consultant who has pleaded guilty to helping Harris Corp. falsify its records. [...] The defendants insist that they authorized only legitimate consulting payments to secure Colombia's business and claim that the government's case rests on trumped-up charges by a disgruntled employee. [...] At a pretrial hearing, U.S. District Judge Charles A. Legge rejected a request by defense attorneys to exclude dozens of Harris Corp. documents from the trial. They claim that [the whistleblower] stole the documents on behalf of the FBI. [...] A key prosecution witness is Robert O'Hara, a consultant who is based in New York. He pleaded guilty in August to a charge of aiding Harris Corp. with falsifying its financial records."
On March 19, 1991, Judge Legge, "after hearing the prosecution's case ... granted a verdict of acquittal ... the defense was not called upon to present its case." The San Francisco Chronicle stated as follows. "Shortly after the government rested its case, U.S. District Judge Charles Legge of San Francisco ruled from the bench that 'no reasonable jury' could convict the company nor its executives on any of the five bribery-related counts for which they were indicted. Citing insufficient evidence, Legge said the government had failed to show any intent by the defendants to enter into a criminal conspiracy. Legge also said it was the first time in his six years on the federal bench that he had dismissed a criminal case at mid-trial for lack of evidence." The Chronicle called the dismissal a "stunning defeat for the Justice Department" after a 12-member jury heard two weeks of testimony by prosecution witnesses.
The Chronicle further stated as follows. "The acquittal also reinforced the Justice Department's poor track record of prosecutions in overseas bribery cases. Federal prosecutors have won only two dozen convictions under the Foreign Corrupt Practices Act of 1977 since the law was adopted more than a decade ago."
Hartley (the above referenced Chairman and Chief Executive of Harris) stated as follows. "We're very pleased that our Digital Telephone Systems Division and its employees have been vindicated, but we believe the charges should never have been brought in the first place. The Justice Department's case was based upon a distorted view of the facts and represented a radical departure from existing enforcement policies. As a result, American taxpayers have been burdened with unnecessary litigation costs, and Harris has incurred more than $3 million in legal fees, spent many hundreds of hours of our people's time, and suffered a substantial disruption of the corporation's business to prove an absence of wrongdoing that should have been apparent from the beginning. The case has also placed a heavy strain on our two employees named in the indictment."
Michael Fayad, a lawyer for Harris, stated as follows. "[Judge Legge] decided to dismiss the case for all of the same reasons we had pointed out to the Department of Justice early on, prior to indictment ... that there was no bribe, no contract, no agreement to pay a bribe, no corrupt intent."
Charles Bryer, Schultz's lawyer, stated as follows. "The case was paper-thin, built on a con man's story and a disgruntled employee's vengeance. We were conned to pay some money that we thought was going to be used for a legitimate purpose."
According to newspaper accounts, DOJ prosecutor Scott MacKay said the government brought the case in good faith - "We're disappointed with the judge's ruling. We feel that we presented a good case, but we accept the judge's ruling."
Today, Harris Corporation is alive and well. See here for its webpage.
As to O'Hara, as suggested above, he pleaded guilty to related charges in the Eastern District of N.Y. before the Harris et. al trial. However, after the California directed verdict of acquittal, but before his sentencing, O'Hara sought to withdraw his guilty plea. The trial court judge denied his motion and concluded that the acquittal of O'Hara's alleged co-conspirators was not a "fair and just reason" sufficient to allow O'Hara to withdraw his guilty plea. O'Hara appealed and the Second Circuit affirmed (See 960 F.2d 11).
*****
If non-prosecution and deferred prosecution agreements existed in 1990, would Harris have resolved the enforcement action via such a resolution vehicle? Likely yes. Yet Harris and the individual defendants all prevailed at trial.
Was there anything wrong with this prior era when NPAs and DPAs were not an option in an FCPA enforcement action? I submit no and believe that abolishing NPAs and DPAs in the FCPA context should be subject to serious debate and discussion. For more on this issue (see here).
Post Title
→One Win, One Loss
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