Cuba 3I am back from a week of cultural and professional exchange in Cuba. It had been a lifelong dream of mine to go to Cuba and I hopped on the first trip I could enroll in after the travel for cultural exchanges were opened up last year. All I can say is if you ever get the chance to go to Cuba, especially in the next couple of years, run don’t walk to sign up. It was a great experience, yet in many ways almost surreal, as if I stepped back into a 1960s movie set, complete with cars from the 1950s and buildings that have not been repaired from that time period going forward.

The International Section of the State Bar of Texas, led by Section Head George Humphrey and tour organizer, Sasha Dimitroff, sponsored this trip. Our tour agent was Cuba Cultural Tours (CCT) and our CCT tour host was Dani Perez. We were hosted locally by Havana Tours, with Annia de la Nuez as our local cultural expert and tour guide. All of the people we met were enthusiastic about the changes in store for their countries. While we met with some persons who spouted the party line on history and economics, everyone recognized that change is coming to Cuba and they all wanted to be a part of it.

We met with several representatives of the government, lawyers, a historian, professors and an economist who discussed recent changes in Cuban law that have opened the country up from a pure Socialist economic system towards something like a mixed economy. Over the next few blog posts, I will be considering the impending opening of Cuba to US business, what you can do now and what you must wait for until the embargo is lifted; all from the perspective of compliance with the Foreign Corrupt Practices Act (FCPA).

The first, and foremost, thing to understand about doing business in Cuba is that the government literally owns (almost) everything. There is some private enterprise but it is very small scale, from the guys peddling bottled water on the street corner to the restaurateur who has converted his house into an eatery catering to foreigners. However these small-scale entrepreneurs must stay small scale. You can basically have a license to operate one such private enterprise. And here even the homes are owned by the government, or as it would say, the property of the Cuban people.

This means that any US business that desires to open commercial operations in Cuba will have to deal directly with the Cuban government and this clearly means the FCPA will apply to every transaction. From the moment you apply for a Visa to travel to Cuba until you walk about the departure gate at the airport to board your return flight to the US, you will be interacting with people who work for the government of Cuba. They may work for the state in a ministry, in a business that delivers products or services inside the country or interact with foreigners, such as US companies who want to do business in Cuba. But make no mistake about it, they are all paid by the government under a set pay scale across the island, with each business delivering a product or service recognized as one provided by the government of Cuba. If those factors do not convince you, note that all such commercial businesses are owned directly by the government.

This also means that anyone (with the exception of one person I will note in a subsequent blog post) you hire to assist you in this process will be covered under the FCPA. Every Cuban law firm, authorized to do business with foreign clients is government owned. Another chamber of commerce type person, economist or even law professor you might hire to assist you is an employee of the Cuban government so the FCPA will apply in all of your dealings with those persons and entities as well. This is true whether you consider the foreign official or instrumentality prong of the FCPA.

There are three general forms of investment that a foreign entity can make in Cuba. The first is an International Economic Association. This is akin to a partnership or teaming agreement that a foreign entity would make with an existing Cuban entity. The second is Foreign Investment Capital Enterprise, where a foreign company creates a new Cuba entity, which can be up to 100% owned by the foreign company. Such an entity cannot simply be a branch office but a separately incorporated entity in Cuba. The third is called Mixed Investment, which is more akin to a joint venture (JV). Here you should note that the best you can hope for is 51-49 split, with the Cuban government always maintaining the majority position.

The process to obtain a license to do business in Cuba is long and very drawn out. Any business looking for a quick return on investment in this country should look elsewhere as it would appear that you are looking at most probably a two-year process just to obtain a license. Clearly an investment in Cuba is a long-term play so hopefully this means companies that understand such plays will be making the entrees going forward. Also with the government interactions you will need to make throughout the process, a robust set of internal controls will be a must going forward, with your key mantra of Document, Document, and Document.

As the world has seen what happens when a socialist economy moves dramatically to a market economy, most markedly in Russia, I think it is safe to assume that the Department of Justice (DOJ) will be watching US companies very closely to monitor compliance with the FCPA. As the Russian economy may be so large and diverse, the better example of such DOJ review of conduct might by Libya, after the opening under Gadhafi. The US government encouraged several US entities to invest in Libya and now a number of those same companies are under FCPA scrutiny for their dealing with the Libyan Sovereign Wealth Fund and its employees.

While it will be easier to do business in Cuba after the embargo is lifted, which may be several years down the road, if you are interested in doing business with Cuba, you need to start preparing now rather than later. Over the next few blog posts, I will be discussing some of the FCPA issues I see going forward. Tomorrow I will consider agents, more particularly when your agent is also a government employee.

 

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2016

Yesterday, I reviewed the conduct which Weatherford International Limited (Weatherford) engaged in over a period from 2002-2011 in connection with its Foreign Corrupt Practices Act (FCPA) investigation, noted the deficiencies in its compliance program and its internal controls and even how the company intentionally impeded the investigations of both the Department of Justice (DOJ) and Securities and Exchange Commission (SEC). Today, I want to look at how the company changed course in mid-stream during the investigation, brought in a top-notch and well respected lawyer as its Chief Compliance Officer (CCO), created a best-in-class compliance program; all of which saved the company millions of dollars in potential fines and penalties.

  1. I.                    DOJ Fine Calculation

To resolve the criminal aspects of this case, Weatherford agreed to pay an $87.2 million criminal penalty as part of a Deferred Prosecution Agreement (DPA) with the DOJ. There was also another $65.6 million paid to the SEC. However the figure paid to the DOJ was at the very bottom range of a potential criminal penalty. The range listed in the DPA was from $87.2 to $174.3 million. In coming up with this range under the Federal Sentencing Guidelines, it is significant for the actions that Weatherford did not receive credit for during the pendency of the investigation. The company did not receive a credit for self-reporting. The company only received a -2 for its cooperation because prior to 2008 the company engaged in activities to impede the regulators’ investigation.

So the fine range could have been more favorable to the company. But the key is that Weatherford received the low end of the range. How did they do this?

A.     New Sheriff in Town

One of the key things Weatherford did was bring in Billy Jacobson as its CCO and give him a seat at the table of the company’s Executive Board. He was a Federal Prosecutor in the Fraud Section, Criminal Division, US Department of Justice. He also served as an Assistant Chief for FCPA Enforcement Department so we can assume he understood the FCPA and how prosecutors think through issues. (Jacobson also worked as a State Prosecutor in New York City, with my former This Week in FCPA co-host Howard Sklar, so shout out to Howard.) Jacobson was not hired directly from the DOJ but after he had left the DOJ and had gone into private practice. There is nothing that shows credibility like bringing in a respected subject matter expert and giving that person the tools and resources to turn things around.

But more than simply bringing in a new sheriff, Weatherford turned this talk into action by substantially increasing its cooperation with the government, thoroughly investigating all issues, turning over the results to the DOJ and SEC and providing literally millions of pages of documents to the regulators. The company also cleaned house by terminating officers and employees who were responsible for the illegal conduct.

B.     Increase in Compliance Function

In addition to establishing Jacobson in the high level CCO position, the company significantly increased the size of its compliance department by hiring 38 compliance professionals and conducted 30 anti-corruption compliance reviews in the countries in which Weatherford operates. This included the hiring of outside consultants to assess and review the company’s compliance program and beefing up due diligence on all third parties, including those in the sales and supply chain, joint venture (JV) partners and merger or acquisition (M&A) candidates. The company also agreed to continue to enhance its internal controls and books and records to prevent and/or detect future suspect conduct.

If you have ever heard any of the current Weatherford compliance professionals speak at FCPA conferences, you can appreciate that they are first rate; that they know their stuff and the company supports their efforts on an ongoing basis.

C.     Best in Class Compliance Program

During the pendency of the investigation, Weatherford moved to create a best practices compliance program. They appear to have done so and agreed in the DPA to continue to maintain such a compliance program. Under Schedule C to the DPA, it set out the compliance program which the company had implemented and continued to keep in place, at least during the length of the DPA. It included the following components.

  1. High level commitment from company officials and senior management to do business in compliance with the FCPA.
  2. A substantive written anti-corruption compliance code of conduct.
  3. Written policies and procedures to implement this code of conduct.
  4. A robust system of internal controls, including accounting and financial controls.
  5. Risk assessments and risk reviews of its ongoing business.
  6. No less than annual assessments of its overall compliance program.
  7. Appropriate oversight and responsibility of a Chief Compliance Officer.
  8. Effective training for all employees and relevant third parties.
  9. An effective compliance function which can provide guidance to company employees.
  10. A robust internal reporting system.
  11. Effective investigations of any reported compliance issue.
  12. Appropriate incentives for employees to do business ethically and in compliance.
  13. Enforced discipline for any employee who violates the company’s compliance program.
  14. Suitable due diligence and management of third parties and business partners.
  15. A correct level of pre-acquisition due diligence for any merger or acquisition candidate, including a risk assessment and reporting to the DOJ if the company uncovers and FCPA-violative conduct during this pre-acquisition phase.
  16. As soon as practicable, Weatherford will integrate any newly acquired entity into its compliance regime, including training of all relevant new employees, a FCPA forensic audit and reporting of any ongoing violations.
  17. Ongoing monitoring, testing and auditing of the company’s compliance function, taking into account any “relevant developments in the field and the evolving international and industry standards.”

D.    Monitor

Weatherford also agreed to an external monitor. However, the term of the monitor is not the entire length of the three-year DPA; the term of the monitor is only 18 months. The monitor’s primary function is to assess the company’s compliance with the terms of the DPA and report the results to the DOJ at least twice during the terms of the monitorship. After this 18 month term the DOJ will allow the company to self-report to the regulators. It should be noted that the term of the external monitor can be extended by the DOJ.

II.                Conclusion

It certainly has been a long, strange journey for Weatherford. I should note that I have not discussed at all the Oil-For-Food aspect of this settlement, which was an additional $100MM penalty to the company. However, with regard to the FCPA aspects of the matter, there are some very solid and telling lessons to be drawn from this case. First and foremost is that cooperation is always the key. But more than simply cooperating in the investigation is that a company should take a pro-active approach to putting a best-in-class compliance program in place during, rather than after the investigation concludes. Also, a company cannot simply ‘talk-the-talk’ but must come through and do the work to gain the credit. The bribery schemes that the company had engaged in and the systemic failures of its compliance program and internal controls, should serve as a good set of examples for the compliance practitioner to use in assessing a compliance program.

The settlement also sends a clear message from both the DOJ and SEC on not only what type of conduct will be rewarded under the US Sentencing Guidelines, but what they expect as a compliance program. One does not have read tea leaves or attempt to divine what might be an appropriate commitment to compliance to see what the regulators expect these day.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2013

Last week Weatherford International Limited (Weatherford) concluded one of the longest running open Foreign Corrupt Practices Act (FCPA) investigations when it agreed to the ninth largest FCPA fine of all-time and one of its subsidiaries, Weatherford Services Limited (WSL), agreed to plead guilty to violating the anti-bribery provisions of the FCPA. The total amount of fines and penalties for the FCPA violations was $152.6 million. The company was also hit with another $100 million in fines and penalties for trade sanctions bringing its total amount paid to $252.6 million.

The bribery schemes that Weatherford used were varied but stunning in their brazen nature. Further, early on in the investigation, the company thumbed its nose at the Department of Justice (DOJ) by refusing to cooperate in any meaningful way and actually destroying documents and computer hard drives rather than turn over relevant documents. There were also examples of internal company whistleblowers, who were either ignored or, worse, terminated when they internally reported illegal conduct which violated the FCPA. Lastly, the company did not self-disclose their conduct so things started out badly, badly, did I say badly, for the company. But in spite of how things began, Weatherford was able to make a turnaround and substantially improve its position by reversing this initial nose-thumbing at US regulators. Over the next three blog posts I will explore the bribery schemes involved, how the company’s new-found attitude led to lower fines that might otherwise have been expected and what the lessons are for the compliance practitioner going forward.

DOJ Criminal Information and Deferred Prosecution Agreement

To resolve the criminal aspects of this case, Weatherford agreed to pay an $87.2 million criminal penalty as part of a Deferred Prosecution Agreement (DPA) with the DOJ.

In the Information filed as a part of the resolution reveals that company employees established and operated a joint venture (JV) in Africa with two local entities controlled by foreign officials and their relatives from 2004 through at least 2008. These foreign officials selected the entities with which WSL would partner and the company knew that the members of the local entities included foreign officials’ relatives and associates. The sole purpose of those local entities was to serve as conduits through which WSL pay bribes to the foreign officials controlling them as neither of the JV partners contributed capital, expertise or labor to the JV. In exchange for the illegal payments they received, through the JV, lucrative contracts, gave WSL inside information about competitors’ pricing, and took contracts away from WSL’s competitors and awarded them to the JV.

The Information also noted that Weatherford knowingly failed to establish an effective system of internal accounting controls designed to detect and prevent corruption, including FCPA violations. The company failed to implement these internal controls despite operating in an industry with a substantial corruption risk profile and despite growing its global footprint in large part by purchasing existing companies, often themselves in countries with high corruption risks.   As a result, a permissive and uncontrolled environment existed within which employees of certain Weatherford’s wholly owned subsidiaries in Africa and the Middle East were able to engage in corrupt conduct over the course of many years, including the bribery of foreign officials.

In yet another scheme detailed in the Information, a Weatherford employee in the Middle East, gave improper “volume discounts” to a distributor who supplied company products to a government-owned National  Oil Company (NOC), believing that those discounts were being used to create a slush fund with which to make bribe payments to decision-makers at the NOC. Between 2005 and 2011, Weatherford Oil Tools Middle East Limited (WOTME) paid approximately $15 million in “volume discounts” to the distributor.

In its Press Release the DOJ also spoke to the nefarious conduct of the company. Acting Assistant Attorney General Raman was quoted as saying “This case demonstrates how loose controls and an anemic compliance environment can foster foreign bribery and fraud by a company’s subsidiaries around the globe. Although Weatherford’s extensive remediation and its efforts to improve its compliance functions are positive signs, the corrupt conduct of Weatherford International’s subsidiaries allowed it to earn millions of dollars in illicit profits, for which it is now paying a significant price.” He also said that “Effective internal accounting controls are not only good policy, they are required by law for publicly traded companies – and for good reason.” The Federal Bureau of Investigation (FBI) chimed in when Assistant Director in Charge Parlave said that “The FBI is committed to investigating corrupt backroom deals that influence contract procurement and threaten our global commerce.”

SEC Compliant

In its civil Complaint, the Securities and Exchange Commission (SEC) alleged that Weatherford and its subsidiaries falsified its books and records to conceal not only these illicit payments, but also commercial transactions with Cuba, Iran, Syria, and Sudan that violated US sanctions and export control laws. Further, the company failed to establish an effective system of internal accounting controls to monitor risks of improper payments and prevent or detect misconduct. The company obtained more than $59.3 million in profits from business obtained through improper payments, and more than $30 million in profits from its improper sales to sanctioned countries. This conduct lasted from 2002 up until 2011 and included the lack of internal controls plus the affirmative falsification of its books and records to facilitate the bribe payments. The payment of disgorgement, prejudgment interest, and civil penalties to the SEC was in the amount of $65,612,360.34.

As you would expect, the SEC focused on the company’s books and records violations. Andrew Ceresney, co-director of the SEC’s Enforcement Division, was quoted in the SEC’s Press Release that “The nonexistence of internal controls at Weatherford fostered an environment where employees across the globe engaged in bribery and failed to maintain accurate books and records,” said  “They used code names like ‘Dubai across the water’ to conceal references to Iran in internal correspondence, placed key transaction documents in mislabeled binders, and created whatever bogus accounting and inventory records were necessary to hide illegal transactions.” Kara Brockmeyer, Chief of the SEC Enforcement Division’s FCPA Unit, said, “Whether the money went to tax auditors in Albania or officials at the state-owned oil company in Angola, bribes and improper payments were an accustomed way for Weatherford to conduct business. While the profits may have seemed bountiful at the time, the costs far outweigh the benefits in the end as coordinated law enforcement efforts have unraveled the widespread schemes and heavily sanctioned the misconduct.”

All of the settlement documents are chocked full of information about bribery schemes Weatherford engaged in for many years. For the compliance practitioner, they provide a list that can be used a check and balance to see if your company may be engaging in any of these practices. Additionally, both the DOJ and SEC listed out the internal controls and books and records failures of the company. Tomorrow, I will review the specific bribery scheme and failures of the Weatherford compliance program.

For a copy of the DOJ Information, click here.

For a copy of the DOJ Deferred Prosecution Agreement, click here.

For a copy of the SEC Civil Compliant, click here.

For a copy of the Plea Agreement, click here.

For a copy of the DOJ Press Release, click here.

For a copy of the SEC Press Release, click here.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2013

Welcome back my friends, to the show that never end;

We’re so glad you could attend, come inside, come inside;

There behind the glass stands a real blade of grass;

Be careful as you pass, move along, move along.

 

Those lines come from the Emerson, Lake & Palmer (ELP) song, Karn Evil No. 9: First Impression, Part 2. I was introduced to the progressive rock trio, through the album Welcome Back, My Friends, to the Show That Never Ends…Ladies and Gentlemen, Emerson, Lake & Palmer, which was released on this date 39 years ago. I still think that this is the greatest live 3 disc album release by a single group ever. To say that the album blew me away would be an understatement. I was not exposed to too much prog rock in my podunk little hometown and even the signals of decent FM radio stations were fleeting, so this album was a revelation. I had been a rocker for some time but the musicianship of Keith Emerson, Greg Lake and Carl Palmer was simply unbelievable. For me the centerpiece was the epic three song trilogy of Karn Evil No. 9. So here’s to you lads, and I hope that you will do a full US reunion tour one day.

“Welcome back my friends” would certainly seem to be an excellent way to introduce today’s topic; that being the stunning report in the Sunday New York Times (NYT), that JP Morgan is under Foreign Corrupt Practices Act (FCPA) scrutiny in China for its hiring practices. In an article, entitled “Hiring in China By JPMorgan Under Scrutiny”, reporters Jessica Silver-Greenberg, Ben Protess and David Barboza broke the story that the Securities and Exchange Commission (SEC) is investigating JP Morgan Chase to determine “whether JPMorgan Chase hired the children of powerful Chinese officials to help the bank win lucrative business in the booming nation.” The article is based upon “a confidential United States government document”.

The article details several situations where JPMorgan hired the children of Chinese government officials and sometime thereafter the bank was able to secure work from the business or industry of a parent of a hired employee. The examples included the hiring of a “son of a former Chinese banking regulator who is now the chairman of the China Everbright Group, a state-controlled financial conglomerate, according to the document, which was reviewed by The New York Times, as well as public records. After the chairman’s son came on board, JPMorgan secured multiple coveted assignments from the Chinese conglomerate, including advising a subsidiary of the company on a stock offering, records show.” In another instance, the bank hired the daughter of a Chinese railway official. After hiring the daughter, JP Morgan was hired to assist the company to go public.

The FCPA Professor was quoted in the NYT article for the following, “While the hire of a son or daughter itself is not illegal, red flags would be raised if the person hired was not qualified for the position, or, for example, if a firm never received business before and then lo and behold, the hire brought in business.” In blog post, entitled “JPMorgan’s Hiring Practices In China Under Scrutiny”, the FCPA Professor reviewed some enforcement actions “where the conduct at issue involved the hiring of children or spouses of alleged “foreign officials.”” He pointed to the “Tyson Foods enforcement action, part of the FCPA conspiracy alleged was “to place the wives of the [Mexican government] veterinarians on [a subsidiary company’s] payroll, providing them with a salary and benefits, knowing that the wives did not actually perform any services…”. According to the Department of Justice (DOJ), approximately $260,000 “in improper payments were made to the … veterinarians, both indirectly and directly, including through payments to wives of [the] veterinarians.” Next, in the UTStarcom enforcement action, the FCPA Professor noted that the “SEC’s allegations included that the company provided foreign government customers or their family members with work visas and purportedly hired them to work for [the company] in the U.S., when in reality they did no work for the company.” Finally, the Houston-based company Paradigm, got into FCPA hot water “during the same time frame as [a business deal was being discussed with an alleged Mexican “foreign official”], the same [alleged “foreign official”] requested that Paradigm Mexico hire his brother.” The DOJ stated: “Paradigm Mexico acquiesced to that demand and hired the decision maker’s brother as a driver. While employed at Paradigm Mexico, the brother did perform some work as a driver.”

The NYT notes that “there is nothing inherently illicit about hiring well-connected people. To run afoul of the law, a company must act with “corrupt” intent, or with the expectation of offering a job in exchange for government business.” However a company needs to be very careful when hiring such a family member. Indeed, I advise clients that the following definition should be used for a government official”

A “Foreign Official” for purposes of the FCPA and UK Bribery Act mean any:

  • non-U.S. government official (includes municipal, provincial, central, federal or any other level of government);
  • officer or employee of a foreign government, or any department, agency, ministry or instrumentality thereof (includes executive, legislative, judicial or regulatory);
  • person acting in an official capacity on behalf of a foreign government or any department, agency, ministry or instrumentality thereof;
  • officer or employee of a company or business owned or controlled in whole or in part by a foreign (non-U.S.) government (“state owned enterprise”);
  • officer or employee of a public international organization such as the United Nations or World Bank;
  • member of a royal family;
  • foreign political party, member, or official thereof;
  • candidate for foreign political office; and
  • elected officials of foreign countries, civil servants and military personnel.

The term also includes the children, spouse or other close relatives of Foreign Officials. If a child, spouse or other close relative is hired there should be close scrutiny of how the request for the hire was made, who made the request and what are the qualifications of the child, spouse or other close relative for the job in question? There should also be a close look at the work of the proposed candidate to ascertain if anything they might do for the prospective employer would in any way touch upon the business relationship with the government official.

JP Morgan has come under quite a bit of regulatory scrutiny lately. The NYT notes that is the “focus of investigations in the United States by at least eight federal agencies, a state regulator and two foreign nations.” Most of these investigations revolve around the financial crisis and its aftermath or the London Whale incident. Even if one discount’s the ‘too big to manage’ moniker, the NYT does note that a FCPA investigation and any enforcement action can be quite different. “The agency’s bribery inquiry could pose an even steeper challenge to JPMorgan. Although banks are prone to the occasional trading blunder — JPMorgan produced record quarterly profits despite the losses in London last year — a corruption inquiry could leave a more lasting mark on its reputation. It might also spur the Justice Department to open a criminal investigation.”

So after the GlaxoSmithKline PLC (GSK) bribery and corruption investigation has quieted down and settled in for the long haul, the NYT breaks this story about yet another avenue for potential corruption in China. As ELP might say “Welcome back my friends, to the show that never ends.”

For a video clip of ELP playing Karn Evil No. 9, First Impression, Pt. 2 at the 1974 California Jam, click here.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2013

As most readers of this blog know, I am a recovering trial lawyer. I almost always acted as defense counsel for corporations in my trial lawyer career. In the trial lawyer world, there are four recognized defenses to any claim which are known as the “Dog Bite Defenses”. They are:

  1. My dog didn’t bite you.
  2. Even if my dog did bite you, it’s because you provoked him.
  3. Even if my dog did bite you, you really aren’t injured.
  4. My dog didn’t bite you because I don’t have a dog.

The fourth version of the Dog Bite defense is certainly an ‘all-in’ move. You had either (1) better be right or (2) have some big kahunas to make that argument to a jury with a straight face.

I recently saw a couple of examples of the ‘Dog Bite’ defense which caught my eye. The first was in an article in the most recent issue of The New Yorker, entitled “Buried Secrets”, by Patrick Radden Keefe. His article discussed the ongoing situation involving the Beny Steinmetz Group Resources Group (BSGR), its mining concession in the country of Guinea and its representative Frederic Cilins, who is in jail in New York, denied bail and awaiting jail for obstruction of justice charges. In an exhaustively reported article, Keefe wrote about his interviews with many of the principal players in this saga including BSRG founder Beny Steinmetz, its representative Cilins and the current President of Guinea, Alpha Condé.

As reported in two Financial Times (FT) articles, entitled “Contracts link BSGR to alleged bribes” (the “mine rights article”) and “FBI sting says that ‘agent’ sought to have mining contracts destroyed” (the “FBI sting article”), by the same triumvirate of FT reporters Tom Burgis, Misha Glenny and Cynthia O’Murchu; there are allegations that “The resources arm of Beny Steinmetz Group agreed to pay $2m to the wife of an African president to help it secure rights to one of the world’s richest untapped mineral deposits, according to documents seen by the Financial Times”. These payments were allegedly memorialized in “Copies of two contracts from 2007 and 2008, apparently signed by BSGR’s representatives in the mineral-rich west African nation of Guinea, set out agreements for the company to make payments and transfer shares to Mamadie Touré, wife of the then president Lansana Conté.”

The FBI sting article reported that on Sunday April 14, 2013, “Frederic Cilins held the last of a series of meetings with the widow of an African dictator to discuss what she was going to do with some sensitive documents.” Unfortunately for Cilins he “did not realise that the woman he was talking to was wearing a wire and that FBI agents were watching. As he left the meeting, the agents arrested him carrying envelopes filled with $20,000 in cash, the indictment says. That was a pittance compared with the $5m he was taped offering the dictator’s widow during what US authorities say was a two-month campaign to tamper with a witness and destroy records.”

So how does the Dog Bite defense come into play here? As reported by Keefe during his interview with Beny Steinmetz, Steinmetz said “the documents that were discussed in Jacksonville did not prove anything, he said-they were forgeries”, these were the ‘alleged documents’ that Cilins was so keen to get back from Mamadie Touré. Keefe also reported that the BSGR representative, Asher Avidan, when presented with a photograph of a signature told Keefe that the signature “was identical to his own but dismissed it as “a simple Photoshop.”

While it might not be anything new to claim that a signature on a contract is a forgery, especially if you do not want to acknowledge that you signed the document in question, the next line of defense is certainly an ‘all-in’ play. During the interview with Avidan, he said that Mamadie Touré was “not his [the deceased President’s] wife. Not even sleeping with him. Then he added, “She is a lobbyist. Like a thousand others.” What this means for a defense under the Foreign Corrupt Practices Act (FCPA) is if the payments were made but they were not to a foreign government official or spouse, it might not be covered under the FCPA. The problem with this defense is that you do have to admit that (1) the contracts exist and (2) the payments were made or promised. So you had better hope that the jury believes it when you claim the counter-party to the contract was not the wife of the President.

And that ladies and gentlemen is Dog Bite defense No. 4.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2013