FCPA: Defense Wins

January 23, 2012

For the third time since December 1, 2011, an FCPA case brought by the US government against a defendant has been defeated by a Federal Court judge. The most recent dismissal occurred last week when a former manager of the Swiss engineering company ABB Ltd. accused of violating the FCPA on 12 counts (including one count of conspiracy) had his case dropped by a federal judge in Houston. In granting defendant John O’Shea’s motion to dismiss, Judge Lynn Hughes became the third federal judge in the last six weeks to throw out an FCPA case. Reports indicate that the government’s key witness who himself was awaiting sentencing on conspiracy charges was unable to convince the judge that O’Shea was tied to the alleged crime of channeling bribes through an intermediary to officials at Mexican state-owned utility Comision Federal de Electricidad (CFE) with the expectation to win contracts on behalf of ABB’s Houston subsidiary.

Last month, Lindsey Manufacturing Co., the first corporation to go to trial on charges it violated the FCPA, won dismissal of its conviction after a judge in US District Court Central District of California found the prosecution had engaged in “flagrant” misconduct. The Judge noted the government’s “sloppy, incomplete and notably over-zealous investigation.” A second matter was dismissed in Washington DC against Stephen G. Giordanella of conspiracy to violate the FCPA, finding that the Government’s evidence was insufficient to sustain a conviction in an alleged bribery of an African defense minister to win contracts to provide military supplies. The chief witness in that case was an individual who had been himself convicted for foreign bribery, tax evasion, drug trafficking, and embezzlement.

While it would be premature to declare these recent dismissals as a growing critique by federal judges against the DOJ’s FCPA enforcement, it begs the question whether their ramped up investigations as of late are being conducted with the expected level of professionalism and diligence. These cases indicate that the more one challenges the government, flaws will be exposed. Usually companies settle well before trial without admitting any wrongdoing. However, according to a recent report in Forbes, the government’s record of prosecuting FCPA cases in US courts has been dismal.

While O’Shea could still face a second trial on separate charges of international money laundering and one count of falsifying records, the success of his fight against the FCPA charge demonstrates that federal prosecutors can’t assume all foreign bribery actions will be open and shut cases. Getting the right facts, using trusted sources, and understanding the full scope of an alleged violation will be key for both prosecution and defense.