Monthly Archives: May 2015

Thomas Farmer Acquitted Puerto Rico Shipping Price Fixing Trial

Posted on by

by Leave a Comment

After a three-week trial, Thomas Farmer, a former Crowley Liner Services Vice-President was acquitted of price-fixing and bid rigging charges by a jury in Puerto Rico. The trial was before Federal District Court Judge Daniel Dominguez. The jury was composed of six men and six women. They deliberated for three hours before returning their verdict. Framer had been indicted on March 21, 2013 on a charge of conspiracy to fix and rig Puerto Rico freight surcharges with counterparts from Horizon Lines and Sea Star Line in the U.S. mainland-Puerto Rico trade.

The acquittal marks the end of the Antitrust Division’s otherwise successful investigation into price-fixing on ocean shipping route between Puerto Rico and the United States. Farmer was the second executive to go to trial. Frank Peake, the former President of Sea Star, was convicted in 2013 on a similar charge (here). Peake’s case was noteworthy in that he was sentenced to five years in prison, a record sentence for a Sherman Act conviction (here). The Peake trial came after subordinates of his and co-conspirators from other companies had pled guilty and cooperated with the government. Peak’s direct subordinate at Sea Star, Peter Baci, was sentenced to 48 months in prison and fined $20,000. Peake’s counterpart at Horizon, Gabriel Serra, was sentenced to 34 months in prison. Other executives at Sea Star and Horizon had pled guilty, and received prison terms ranging from seven months to 29 months. Three companies have paid more than $46 million in fines for their involvement in a conspiracy that included setting rates, bid rigging and other practices.

Farmer faced a maximum sentence of ten years in prison. Farmer was represented by Joseph C. Laws, Melanie Matos Gilroy Cardona and Terrance Reed.  Farmer was facing a maximum of ten years in prison if convicted and his legal team deserves great credit for the best outcome Farmer could have hoped for.  But, there are great difficulties that the Antitrust Division faces in a “last man standing trial.”  I am not familiar with the specifics of the Farmer trial but some of these inherent difficulties are:

  • Staleness:  Farmer was indicted in March 2013.  The indictment charged a conspiracy: “From at least as early as mid-2005, to in or about April 2008.”  So, Farmer was indicted just before the five-year statute of limitations expired.  His trial did not begin until more than two years after indictment.  Farmer was tried in 2015 for conduct that ended in early 2008.  Antitrust violations do not “shock the conscience” the way a crime of violence might, and the long delay between conduct and trial can diminish whatever “jury appeal” a price-fixing case might have had.
  • Witness Fatigue:  When a witness signs a cooperation agreement with the Antitrust Division, he usually doesn’t realize that his cooperation may last longer than many marriages.  It can be difficult to work with a witness who has long since (hoped) he had put this chapter of his life behind him.  Witness prep so many years after the alleged conduct occured can involve an increasing frequency of “I’m not sure.  That was a really long time ago.”  And, in this case it was.
  • Prior Statements:  As I said, I have not read the record in the Farmer case so I do not know who the witnesses were.  But, there is a good chance some of the witnesses previously testified in the Peake trial.  So besides witness fatigue and faded recollections, defense attorneys have prior statements to work with on cross-examination.
  • The Weak Cases Are The Ones That Go To Trial:  It used to be fair to say that the Antitrust Division got plea agreements from those who they had the strongest cases against, but often found itself trying weaker cases, sometimes against senior managers that had insulated themselves from most of the illegal conduct.  But, my opinion is that today cases go to trial because the sentencing guidelines are so severe (based on volume of commerce) that the “last man standing,” who can’t get a 5K cooperation agreement/downward departure, has little to lose by going to trial.  Mr. Farmer went to trial because he declared he was innocent and a jury did in fact acquit him.  But, even a guilty party might go to trial because: (a) he has at least a chance at acquittal; (b) even if convicted at trial, he will likely be sentenced to less time than he could have negotiated with the Antitrust Division pursuant to a recommended guidelines plea agreement; and (c) in any event he can appeal and hope to get a conviction reversed on appeal.  In essence, the trial is an extended sentencing hearing, with a chance of acquittal, and even if convicted, a hope the conviction can be overturned.  I co-authored an article “A Peek Behind the Record Peake Sentence” (here) that explored some of these ideas.

Congratulations to Farmer’s defense team and also to the Antitrust Division for an otherwise very successful investigation.

Thanks for reading.

ANTITRUST GUIDANCE IN BRAZIL

Posted on by

ANTITRUST GUIDANCE IN BRAZIL

by Leave a Comment

Today we have an update from Brazil by Mauro Grinberg, a former Commissioner of CADE, a former Attorney of the National Treasury and senior partner of Grinberg Cordovil.

****************************************

A Resolution issued by Conselho Administrativo de Defesa Econômica (CADE), dated March 11, 2015, made a comeback of the procedure for antitrust guidance to be requested to CADE. This request for guidance can be used in all competition cases, including cartels.

The first article of such Resolution says that any interested party can forward a request for guidance to CADE, related to specific situations, which may be real or potential. Interested parties can also be trade associations which have, as their goals, representation of the involved sector and can demonstrate that at least one of the represented companies is legitimately interested in such guidance.

There are some requirements for such request for guidance and, although it is pointless, for the purpose of this note, to go through all of them, it is interesting to mention that the party must declare all CADE´s precedents related to the object. So, no request for guidance can be asked before a thorough research through CADE´s jurisprudence. However, any research may have its problems and it is not clear what will happen if a certain research does not present a decision that CADE may understand as fundamental.

Another point that must be reported says that the request for guidance cannot refer to a purely hypothetical issue. This may be a somewhat tricky question because CADE may understand that a question that is not under practice is hypothetical (which, in a way, it may be). It is not clear what can happen if, e.g., a party asks whether it is legitimate to have certain contacts with competitors and, if the conduct is approved by CADE and the party does not perform it due to a further strategic and/or commercial decision, could the party can be punished for having submitted a request for guidance that CADE may consider hypothetical?.

The answer to the request for guidance is binding for CADE and the parties for five years, although the Resolution states that CADE can reconsider its decision, if based on new facts. So, in practice, the Resolution is really binding only for the parties submitting the request for guidance.

A last problematic article states that, if CADE understands that an already existing conduct, which is the object of the request for guidance, has the possibility of being illegal, an administrative file will be opened in order to prosecute the interested party. If the conduct is a possible cartel, a criminal file may also be opened. So, it is fundamental that, in case a party wants to make such request related to a conduct that is under way, it is advisable to stop such conduct before requesting the guidance.

Consequently, a request for guidance, in order to be in the safe side, must be related to conducts that are not being performed but are to be performed and depend on the guidance, with the additional task of demonstrating to the authorities that the request for guidance is not hypothetical.

Mauro Grinberg is a former Commissioner of CADE, a former Attorney of the National Treasury and senior partner of Grinberg Cordovil.

3C’s: Global Glimpses of Cartel Capers

Posted on by

Global Glimpses of Cartel Capers

by Leave a Comment

There have been a number of developments around the globe relating to cartel enforcement that I think might be of interest:

Australia

I wrote about this in an earlier post, but a billionaire businessman in Australia invited an investigation, which has now been dropped, with his comments at a business dinner griping about low prices in the market.  He got himself in hot water, which never reached a boiling point, by stating he was ready to reduce output of iron ore if his competitors would do likewise. (here)

Cambodia

People are people and as Adam Smith noted, “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

In Cambodia, the Ministry of Agriculture and Forestry said that they were investigating a possible secret agreement between middlemen or traders in the supply chain to manipulate the price of agriculture commodities, leaving farmers with no option but to sell their products at a lower price. A spokesperson at the Ministry said traders had divided regions into zones, giving farmers no choice but to sell to that trader and at the trader’s asking price. In this case, if true, the conspiracy was to reduce the prices paid to farmers.  (full story here)

Canada

On April 27th, after a seven-month trial and six days of deliberation, a jury in Ottawa found nine defendants not guilty on all 60 charges of bid rigging and conspiracy to rig bids. “Six years earlier federal prosecutors had charged 14 individuals and seven computer services firms with rigging bids in connection with more than $60 million worth of contracts at three federal departments. Now in the courtroom were six individuals and three of their firms — they had elected to be tried by a jury, the first time anyone had done so in the 39-year history of the Competition Act.” (full story here)

Also in Canada here is a helpful article on the shift in on corporate criminal liability. Corporate criminal liability can now be based on the conduct not only of senior corporate officers such as board members, but also middle managers in some circumstances.

EU Grapples with Extraterritoriality of Competition Law

Like the United States, the EU is working to define the scope of the extraterritorial application if its competition laws. The Advocate General of the European Court of Justice, Melchior Wathelet, urged the court to rescind the Court’s decision that based part of a fine against Innolux based on LCD panels sold by the manufacturers to other companies and eventually shipped to the EU as components in other devices. Wathelet wrote in an opinion that: “It seems to me that, unless further evidence can be furnished that the cartel creates qualified effects in the [European Economic Area], the commission goes too far if it fines cartels relating to products manufactured and sold outside the EEA for the sole reason that those products are subsequently ‘transformed’ or incorporated into other products which (either wholly or in part) arrive in the EEA.”  The opinion agreed that EU law could be applied extraterritorially to component price-fixing if the Commission had met a “qualified effects” test. Innolux’s fine stand to be cut almost in half if the Court reduces its fine in accord with the Advocate General’s opinion.

United States

  • Civil Settlement News

Civil settlements have now exceeded $270 million in federal litigation stemming from the ongoing U.S. criminal antitrust investigation into automotive supplier price-fixing (here). These settlements, however pale in comparison to the civil settlements reached in the follow-on civil suits to the air cargo price-fixing cartel. These settlements now top $1 billion (here).  In fairness, the auto parts civil litigation is far from over.  These figures relate only to civil settlements in the U.S.  Civil damage actions, including class action suits (collective redress), are quickly spreading thoughout the globe.

  • Senate Committee Launches Investigation of Dish and affiliates

The Senate Committee on Commerce, Science and Transportation has begun an investigation of possible bid rigging between Dish and several of its smaller affiliates on a recent $3 billion spectrum auction. The investigation follows a complaint filed by Verizon with the Federal Communication Commission alleging that Dish colluded with its affiliates to violate the bidding rules as well as antitrust laws. (full story here)

Thanks for reading.

PS.  Guest posts, especially about cartel/compliance related developments outside of the United States, are most welcome.

CEO’s Say the Darndest Things (and salespeople too)

Posted on by

CEO’s Say the Darndest Things (and salespeople too)  

by Leave a Comment

Since I spent over 30 years with the Antitrust Division, US Department of Justice, people sometimes ask me how investigations get started. This blog post addresses one way: “loose lips sink ships” or put another way “CEO’s Say the Darndest Thing (and salespeople too).”

This is a story from down under. The Chairman of Australia’s Fortescue Metals, Andrew Forrest, was at a business dinner on March 24th when he expressed his frustration that his main rivals, BHP Billiton and Rio Tinto were driving down the prices of iron ore with excess production. Mr. Forrest declared:

“I’m absolutely happy to cap my production right now. All of us should cap our production now and we’ll find the iron ore price will go straight back up to $70, $80, $90 and the tax revenues which that will generate will build more schools, more hospitals, more roads, more of everything which Australia needs — universities etc. I’m happy to put that challenge out there: let’s cap our production right here and start acting like grown-ups.”(full story here)

OOPS. The Australian Competition & Consumer Commission (which has the great shorthand name: A-Triple C) started an investigation. The ACCC just announced it would no take action against Mr. Forrest because of the “context and circumstances” of his remarks.  The ACCC Chairman Rod Sims warned: “However, it is important that the business community understands that public statements calling for competitors to agree to limit production or to raise prices may constitute a serious cartel ­offence.”  (full statement here).

In the United States an offer to fix prices, even if not accepted, can and has been, prosecuted by the Antitrust Division as mail and/or wire fraud.  And the Federal Trade Commission has charged price-fixing/bid rigging solicitations as violations of Section 5 of the FTC Act. That is not to say that either agency would have charged Mr. Forrest for the remarks he made, but with different circumstances, prosecutions have been brought for what are called “invitations to collude.” (A Sherman Act prosecution requires an actual agreement between the competitors, so unless an offer to collude is accepted, it can be prosecuted, but not under the Sherman Act.)  Mr. Forrest’s statement was also problematic because if competitors did raise prices, even if they had already been planning to do so, suspicion of collusion would be high.  And civil law suits may well have followed.

I am going to be making a presentation on this very subject with my friend Barbara Sicalides at the Society of Corporate Compliance and Ethics (SCCE’s) annual Compliance & Ethics Institute (October 4-7th) in Las Vegas. This is the SCCE’s primary education and networking event for professionals working in the Compliance and Ethics profession across all industries around the world. Sessions at the 2015 conference will offer the latest compliance information on hot topics and current events.   Our session is titled:  CEO’s (and salespeople too) Say The Darndest Things: How an Ill-Advised Statement or Email Can Start an Antitrust Investigation or Lawsuit – Robert E. Connolly, Partner, GeyerGorey LLP; Barbara T. Sicalides, Partner, Pepper Hamilton LLP.  We will have numerous examples, sometimes funny, sometimes not so funny and very expensive, of how companies and individuals have found themselves under investigation and/or charged with antitrust violations for things that simply never should have been said/written.  It should be a good session on how to counsel the unsuspecting of the potential perils of off the cuff remarks.

Hope to see you there.

Thanks for reading.

Thirty-Three Defendants Charged in Massive Criminal Conspiracies Including Allegations of Fraud, Prescription Drug Diversion, and Money Laundering

Posted on by
FOR IMMEDIATE RELEASE
Thursday, May 7, 2015

Thirty-two people were arrested yesterday after being charged variously with racketeering conspiracy, conspiracy to commit identity theft, conspiracy to commit access device fraud, conspiracy to commit mail, wire and bank fraud, conspiracy to commit money laundering, conspiracy to use a facility of interstate commerce to commit murder-for-hire and conspiracy to engage in the unlicensed wholesale distribution of drugs, announced U.S. Attorney Melinda Haag of the Northern District of California, Special Agent in Charge David J. Johnson of the Federal Bureau of Investigation, and Special Agent in Charge José M. Martinez of Internal Revenue Service (IRS) Criminal Investigation.  A thirty-third defendant remains at large and is subject to an active arrest warrant.

According to an indictment that was unsealed yesterday, Ara Karapedyan, 45, Mihran Stepanyan, 29, and Artur Stepanyan, 38, were at the center of a nationwide conspiracy—with at least 18 other person—to conduct the affairs of a wide-ranging criminal enterprise through a pattern of racketeering.  This enterprise was fueled by a broad range of criminal activity including unlicensed wholesale drug distribution, money laundering and fraud.  The indictment names 33 defendants in all and describes an enterprise that spanned throughout California as well as in Minnesota, Ohio and Puerto Rico.

One key aspect of the alleged criminal activity described in the indictment was a multi-million dollar prescription drug diversion scheme.  Members and associates of the enterprise are alleged to have procured prescription drugs from unlicensed sources and to have resold the drugs to unknowing customers.  A central figure to these allegations is David Miller, 50.  Miller is alleged to be the owner and operator of a drug wholesaler called Minnesota Independent Cooperative (MIC) that, between 2010 and 2014, bought approximately $157 million of drugs from Mihran Stepanyan and Artur Stepanyan.  Miller and his employees allegedly knew the Stepanyans were not licensed to sell drugs and knew the Stepanyans procured their drugs through unlicensed sources.  Miller and his employees nevertheless purchased the drugs from the Stepanyans’ various companies, including Panda Capital Group, Red Rock Capital, Trans Atlantic Capital, GC National Wholesale, Sky Atlantic Capital and Nationwide Payment Solutions and resold the drugs as legitimate products.

A separate investigation has resulted in another indictment in the Southern District of Ohio charging David Miller, Mihran Stepanyan, Artur Stepanyan and MIC with various crimes arising from their sale of millions of dollars of illicitly-procured drugs.

The indictment also charges Karapedyan and his associates with engaging in the fraudulent unlicensed distribution of drugs.  For instance, from 2013 through 2015, Karapedyan, either personally or through an associate, sold several hundred thousand dollars’ worth of drugs such as Abilify, Liboderm, Cymbalta and Namenda, as well as HIV drugs such as Atripla, Truvada and Isentress and the cancer drug Gleevec.  Likewise, from roughly the latter part of 2014 through early 2015, Karapdyan and his racketeer co-conspirator Maxwell Starsky, 36, sold to another complicit wholesaler more than $1 million in illicitly procured drugs.  Karapedyan also supplied the Stepanyans with drugs.

Hugo Marquez, 41, Eric Figueroa, 29, Arman Zagaryan, 32, and their associates are likewise charged with procuring drugs from unlicensed sources and distributing the drugs to buyers.  According to the indictment, Alexander Soliman, 46, was one of their principal customers.  Between roughly 2012 and 2014, Soliman, through his companies Apex Pharmaceuticals and Maroon Pharma, knowingly purchased illicitly-procured drugs from Marquez, Figueroa and Zagaryan and then re-sold them as legitimate drugs.  During this time period, Marquez, Figueroa, Zargaryan and Soliman engaged in the distribution of more than $20 million worth of drugs.

Another aspect of the alleged criminal activity is a massive check and bank fraud operation.  As part of the enterprise, Karapedyan and his associates, including Asatour Magzanyan, 53, Tigran Sarkisyan, 38, and Hripsime Khachtryan, 41, allegedly used fraudulent identification information to prepare fraudulent tax returns, which were then filed with the government in order to induce the U.S. Treasury to issue tax refund checks.  Karapedyan associate Khachig Geuydjian, 74, allegedly used his unlicensed mail-box business to provide addresses for these fraudulent tax filings.  They and other members and associates of the enterprise then negotiated the tax refund checks using fraudulent identities or through a complicit check cashing business operated by Jean Dukmajian, 61, Karine Dukmajian, 33, and Angela Dukmajian, 26.  In addition to the tax refund scheme, members and associates of the enterprise also engaged in negotiating counterfeit and stolen checks.  In all, from roughly late 2012 to late 2014, Karapedyan and his associates negotiated more than 500 fraudulent checks worth more than $5 million.

In addition to the fraudulent unlicensed distribution of drugs and negotiating fraudulent checks, Karapedyan, the Stepanyans, Miller and others are charged with conspiring to launder money in an effort to promote their criminal activities and to conceal proceeds collected from their criminal activities.  For example, a description of Miller’s activity between 2012 through 2014, wherein he attempted to hide the fact he was paying the Stepanyans for drugs is alleged in the indictment.  The indictment further alleges Miller made the payments to the Stepanyans’ company GC National Wholesale through companies in Puerto Rico he controlled, such as B&Y Wholesalers and FMC Distributors.  The payments were for sales of drugs that the Stepanyans actually delivered to Miller’s company MIC.  Similarly, the indictment includes allegations Karapedyan and Starsky also arranged payments for more than $1 million of illicitly-procured drugs through a shell company.  In addition, Karapedyan also allegedly laundered money for the Stepanyans.  According to the indictment, in 2013, the Stepanyans transferred more than $1 million in proceeds derived from MIC to Karapedyan, who caused the money to be withdrawn as cash.

Furthermore, in addition to the foregoing, defendants Karapedyan and Gevork Ter-Mkrtchyan are charged with conspiring to use a facility of interstate commerce to commit murder-for-hire.  According to the indictment, these defendants made several attempts to find a person who would be willing to kill someone who had angered Ter-Mkrtchyan.  Although the defendants paid $1,500 for the hit, it was never carried out.

According to the indictment, a significant portion of the criminal activity took place in the Northern District of California.  For example, one delivery of drugs took place in the Northern District of California and many of the checks were negotiated in the Northern District as well.  In addition, much of the proceeds from the check and the drug schemes were laundered through the Northern District of California, where Karapedyan and his associates regularly picked up large amounts of cash.  In addition, Miller’s company, MIC, posted fraudulent information relating to the origins of the drugs he sold via a website.  The website was maintained by an Internet service provider in the Northern District of California.  Furthermore, Karapedyan made numerous calls to the Northern District of California in order to find individuals willing to perform the hit he sought.

An indictment merely alleges that crimes have been committed, and all defendants are presumed innocent until proven guilty beyond a reasonable doubt.   All the defendants except Miller were arrested yesterday.  Miller remains at large and is the subject of an active arrest warrant.

In sum, the indictment includes seven counts as follows: count One, RICO conspiracy, in violation of 18 U.S.C. § 1962(d) (maximum term of imprisonment, life or 20 years); Count Two, conspiracy to commit identity theft, in violation of 18 U.S.C. §  1028(f) (maximum term of imprisonment, 15 years); Count Three, conspiracy to commit access device fraud, 18 U.S.C. § 1029(b)(2) (maximum term of imprisonment, 5 years); Count Four, conspiracy to commit mail, wire, and bank fraud, in violation of 18 U.S.C. § 1349; Count Five, conspiracy to commit money laundering, in violation of 18 U.S.C. § 1956(h) (maximum term of imprisonment, 20 years); Count Six, conspiracy to use interstate facility to commit murder-for-hire, in violation of 18 U.S.C. § 1958); Count Seven, conspiracy to engage in unlicensed wholesale distribution of drugs, in violation of 18 U.S.C. § 371 (maximum term of imprisonment, 5 years).

The following charges apply as against the following defendants are: Ara Karapedyan on Counts one through seven, Mihran Stepanyan on counts one through five and seven, Artur Stepanyan on counts one through five and seven, Gevork Ter-Mkrtchyan on counts 1-7, Khachig Geuydjian on counts one through five, Arman Petrosyan on counts one through five, Lanna Karapedyan on counts one through five, Maxwell Starsky on counts one through five and seven, Sevak Gharghani on counts one through five and seven, Jean Dukmajian, on counts one through five, Karine Dukmajian on counts one through five, Angela Dukmajian on counts one through five, Arman Danielian count one, four, five and seven, Asatour Magzanyan conts one through five, Tigran Sarkisyan counts one through five, Hripsime Khachtryan counts one through five, Loui Artin on counts one through five, Hugo Marquez on counts one through five and seven, Arman Zargaryan on counts one through five and seven, Dmitriy Kustov on counts two through four, Michael Inman on counts two through four, Araxia Nazaryian on counts two five and seven, Alexander Soliman on counts four, five and seven, Cheryl Barndt on counts four, five and seven, Eric Figueroa on counts four, five and seven, Marc Asheghian on counts four, five and seven, Michael Asheghian on counts four, five and seven, David Milleron cunts one through five and seven, James Russoon on counts four, five and seven, Jeannette Couch counts four, five and seven, Marie Polichetti counts four, five and seven, Bernardo Guillen counts four, five and seven, Javier Ramirez on counts four and seven.

Additional periods of supervised release, fines and special assessments also could be imposed.  Any sentence following conviction would be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.

Thirty-one defendants appeared before the Honorable Victor B. Kenton and Michael R. Wilner in the Central District of California on Wednesday, May 6, 2015, to be advised of the charges against them and to determine conditions of release.  Some of those hearings have been continued at the request of the defendants.  Specifically, the bail hearing for Eric Figueroa has been continued to Friday, May 8, 2015, and the hearings for Hugo Marquez and Michael Inman have been continued to Monday, May 11, 2015, before the Honorable Michael R. Wilner.  In addition, Karapedyan will appear on Friday, May 8, 2015, before the Honorable Victor B. Kenton.

Further, Ter-Mkrtchyan has requested a hearing in which the government will be required to prove his identity, i.e., that he is the individual named in the indictment.  That hearing will occur on Friday, May 8, 2015, before the Honorable Victor B. Kenton.

The remaining 26 defendants have been ordered to appear before the Honorable Jacqueline Scott Corley in the Northern District of California. Alexander Soliman, Araxia Nazaryian and Asatour Magzanyan will appear on May 12, 2015.  Cheryl Barndt, Marc Asheghian, Michael Asheghian, Hripsime Khachtryan, Bernardo Guillen, Javier Ramirez, Jean Dukmajian, Karine Dukmajian, Angela Dukmajian, Khachig Geuydjian and Arman Zargaryan will appear on May 20, 2015.  Jeannette Couch, Loui Artin, Dmitriy Kustov, Marie Polichetti, Arman Danielian, Lanna Karapedyan, Sevak Gharghani, Arman Petrosyan and Maxwell Starsky will appear on May 22, 2015.

Mihran Stepanyan, Artur Stepanyan and Tigran Sarkisyan are being transported to the Northern District of California by the U.S. Marshal Service and will make court appearances after their arrival.

Assistant U.S. Attorneys Damali A. Taylor, David Countryman and W.S. Wilson Leung are prosecuting the case with the assistance of Lance Libatique, Ponly Tu, Daniel Charlier-Smith.  The prosecution is the result of an investigation by the Federal Bureau of Investigation and the Internal Revenue Service.



Posted on by

Company Must Pay $232.7 Million Penalty

The U.S. District Court of the District of Columbia entered a formal judgment yesterday memorializing the sentence requiring Schlumberger Oilfield Holdings Ltd. (SOHL), a wholly-owned subsidiary of Schlumberger Ltd, to pay a $232,708,356 penalty to the United States for conspiring to violate the International Emergency Economic Powers Act (IEEPA) by willfully facilitating illegal transactions and engaging in trade with Iran and Sudan.

The judgment was announced by Assistant Attorney General for National Security John P. Carlin, Acting U.S. Attorney Vincent H. Cohen Jr. of the District of Columbia and Under Secretary Eric L. Hirschhorn of the U.S. Commerce Department’s Bureau of Industry and Security (BIS).

At a hearing on April 30, 2015, the District Judge John D. Bates of the District of Columbia accepted the company’s guilty plea and sentenced the company to the proposed sentence articulated in the plea agreement, which called for the fine and other terms of corporate probation.  The court recognized the seriousness of SOHL’s criminal conduct, which posed a threat to our national security.  In addition, the court noted that the scope of criminal conduct justified the large monetary penalty imposed.  Finally, the court concluded that the terms of probation provided adequate deterrence to SOHL as well as other companies.  Yesterday, the court entered the written judgment confirming the sentence imposed on April 30, 2015.

“The court’s judgment represents a milestone in the enforcement of U.S. sanctions laws,” said Assistant Attorney General Carlin.  “This case marks the first conviction of a corporate entity for facilitating violations of the International Economic Emergency Powers Act and the highest criminal fine ever imposed in a sanctions prosecution.  The Court’s imposition of this serious sentence should serve as a strong deterrent for multinational corporations doing any business in countries subject to U.S. economic sanctions.”

“This guilty plea and sentence hold this company accountable for violating trade laws by doing business with sanctioned countries and undermining the interests of the United States,” said Acting U.S. Attorney Cohen. “We hope that other companies tempted to break our export laws take note of the $232.7 million penalty that will be paid in this case.”

The criminal information and plea agreement were filed on March 25, 2015, in federal court in the District of Columbia, charging SOHL with one count of knowingly and willfully conspiring to violate IEEPA.  The plea agreement that the court approved also requires SOHL to submit to a three-year period of corporate probation and agree to continue to cooperate with the government and not commit any additional felony violations of U.S. federal law.  SOHL’s monetary penalty includes a $77,569,452 criminal forfeiture and an additional $155,138,904 criminal fine.  The criminal fine represents the largest criminal fine in connection with an IEEPA prosecution.  In addition to SOHL’s commitments, under the plea agreement SOHL’s parent company, Schlumberger Ltd., has also agreed to the following terms during the three-year term of probation, among others: maintaining its cessation of all operations in Iran and Sudan, reporting on the parent company’s compliance with sanctions, responding to requests to disclose information and materials related to the parent company’s compliance with U.S. sanctions laws when requested by U.S. authorities, and hiring an independent consultant to review the parent company’s internal sanctions policies and procedures and the parent company’s internal audits focused on sanctions compliance.

The court agreed that in addition to SOHL continuing its cooperation with U.S. authorities throughout the three-year period of probation and agreeing not to engage in any felony violation of U.S. federal law, SOHL’s parent company, Schlumberger Ltd., will also hire an independent consultant who will review the parent company’s internal sanctions policies, procedures and company-generated sanctions audit reports.

According to court documents, starting on or about early 2004 and continuing through June 2010, Drilling & Measurements (D&M), a United States-based Schlumberger business segment, provided oilfield services to Schlumberger customers in Iran and Sudan through non-U.S. subsidiaries of SOHL.  Although SOHL, as a subsidiary of Schlumberger Ltd., had policies and procedures designed to ensure that D&M did not violate U.S. sanctions, SOHL failed to train its employees adequately to ensure that all U.S. persons, including non-U.S. citizens who resided in the United States while employed at D&M, complied with Schlumberger Ltd.’s sanctions policies and compliance procedures.  As a result of D&M’s lack of adherence to U.S. sanctions combined with SOHL’s failure to train properly U.S. persons and to enforce fully its policies and procedures, D&M, through the acts of employees residing in the United States, violated U.S. sanctions against Iran and Sudan by: (1) approving and disguising the company’s capital expenditure requests from Iran and Sudan for the manufacture of new oilfield drilling tools and for the spending of money for certain company purchases; (2) making and implementing business decisions specifically concerning Iran and Sudan; and (3) providing certain technical services and expertise in order to troubleshoot mechanical failures and to sustain expensive drilling tools and related equipment in Iran and Sudan.

The investigation that commenced in 2009 was led by the Justice Department’s National Security Division, the U.S. Attorney’s Office of the District of Columbia and the U.S. Department of Commerce BIS’ Dallas Field Office.  Assistant Attorney General Carlin is grateful to Special Agent Troy Shaffer from BIS’ Dallas Field Office for his excellent work.  Assistant Attorney General Carlin also acknowledged the work of those who handled the case from the National Security Division and the U.S. Attorney’s Office, including former Trial Attorney Ryan Fayhee and former Assistant U.S. Attorneys John Borchert and Ann H. Petalas.

The case was prosecuted by Trial Attorney Casey Arrowood of the National Security Division, Assistant U.S. Attorney Maia L. Miller of the National Security Section and Assistant U.S. Attorney Zia Faruqui of the District of Columbia.

ExIm Bank seeks fugitive

Posted on by

WASHINGTON, Feb. 5, 2015 /PRNewswire-USNewswire/ — The Office of Inspector General (OIG) for the Export-Import Bank of the United States (Ex-Im Bank) announced today that it is seeking information on the whereabouts of Richard M. Grinhaus, age 58, pursuant to charges that he conspired to commit wire fraud in connection with Ex-Im Bank loans resulting in loan defaults and claims paid by Ex-Im Bank of approximately $5 million.

Grinhaus and a co-conspirator, Fernando Pascual-Jimenez, were indicted on charges of 18 U.S.C. section 1349 (conspiracy to commit wire fraud). Pascual was arrested on January 30, 2015 as he arrived on an international flight in Las Vegas, NV. Grinhaus remains at large and is believed to be residing in the Queretaro or Mexico City areas of Mexico.

According to the allegations in the indictment, from in or around July 2005 through July 2010, Grinhaus conspired with Pascual and others to obtain an Ex-Im Bank guaranteed loan for exporting U.S. goods overseas. The indictment alleges that Grinhaus and others conspired to create false documents and did not use the loan proceeds for the purchase and shipment of the goods guaranteed by Ex-Im Bank.

Individuals with information concerning the location of the fugitive in question may call the Ex-Im Bank OIG Hotline at 1-888-OIG-EXIM (1-888-644-3946) or Homeland Security Investigations (HSI) Communications at 1- 407-975-1820 or 1-800- BE-ALERT (1-800-232-5378).

An indictment is merely a charge and should not be considered as evidence of guilt. The defendant is presumed innocent until proven guilty in a court of law.

Ex-Im Bank is an independent federal agency that helps create and maintain U.S. jobs by filling gaps in private export financing. Ex-Im Bank provides a variety of financing mechanisms to help foreign buyers purchase U.S. goods and services.

Ex-Im Bank OIG is an independent office within Ex-Im Bank. The OIG receives and investigates complaints and information concerning violations of law, rules or regulations, fraud against Ex-Im Bank, mismanagement, waste of funds, and abuse of authority connected with Ex-Im Bank’s programs and operations. Additional information about the OIG can be found at www.exim.gov/oig. Complaints and reports of waste, fraud, and abuse related to Ex-Im Bank programs and operations can be reported to the OIG hotline at 888-OIG-EXIM (888-644-3946) or via email at [email protected].

 

SOURCE Office of Inspector General for the Export-Import Bank of the United States

US Lender Pays $3.8 Million to Resolve Liability Relating to ExIm Bank Loans

Posted on by
The Justice Department announced today that Hencorp Becstone Capital L.C. (Hencorp) has agreed to pay $3.8 million to resolve allegations under the False Claims Act that it made false statements and claims to the Export-Import Bank of the United States (Ex-Im Bank) in order to obtain loan guarantees.  Hencorp is a Miami-based lender and financial services company that provides financing and other financial services to Latin American businesses.

“The Ex-Im Bank provides vital support for U.S. manufacturing by enabling foreign businesses to obtain financing to purchase U.S.-made goods and equipment,” said Acting Assistant Attorney General Benjamin C. Mizer of the Justice Department’s Civil Division.  “The Justice Department will continue to vigorously pursue those who attempt to take advantage of this important program.”

The Ex-Im Bank guarantees loans made by approved lenders to foreign businesses for the purchase of American-made products.  The lender is responsible for performing a credit review of the transaction to ensure that it meets applicable criteria.  The government alleged that Ricardo Maza, a Peruvian-based former Hencorp business agent, created false documentation to obtain Ex-Im Bank guarantees on fictitious transactions on which no products were sold or exported, and that Hencorp acted recklessly by outsourcing key credit review functions to Maza without adequate supervision or oversight.  The government alleged that Maza then diverted the proceeds of the loans to himself and to his friends and business associates in Peru, and that the transactions resulted in losses to the Ex-Im Bank when the loans were not repaid.  In 2012, Mario Mimbella, 64, of Miami, Florida, the purported U.S.-based exporter on three of the fraudulent transactions, pled guilty to making false records for his participation in the scheme and was later sentenced to prison.

“Lenders that use Ex-Im programs have an obligation to prevent and detect fraud,” said Acting Inspector General Michael T. McCarthy for the Ex-Im Bank.  “The Office of Inspector General will pursue accountability for all participants involved in schemes that defraud the Ex-Im Bank.”

This settlement resolves allegations made in a whistleblower lawsuit filed under the False Claims Act by Genaro Benites Caballero, the former owner of one of the purported purchasers who stated that he had no part in the scheme and that his signature was forged on key documents without his knowledge, and Patricia Doris Lee Dominguez, a former attorney for the purported purchaser.  Under the False Claims Act, private citizens can sue on behalf of the government and share in any recovery.  The whistleblowers will receive $608,000 of the settlement.

This case was handled by the Civil Division’s Commercial Litigation Branch, the U.S. Attorney’s Office for the District of Columbia and the Office of Inspector General for the Ex-Im Bank.

The lawsuit is captioned United States ex rel. Benites Caballero, et al. v. Hencorp Becstone Capital, L.C., et al., cv-13-168 (D.D.C.).  The claims resolved by the settlement are allegations only, and there has been no determination of liability with respect to Hencorp.

Former ExIm Bank Officer Pleads to Accepting Over $78,000 in Bribes

Posted on by
The nation’s most experienced Export Import Bank Fraud prosecutors, Senior Litigation Counsel Patrick M. Donley and Trial Attorney William H. Bowne of the Criminal Division’s Fraud Section, continue in their efforts.

* * * * *

A former loan officer at the Export-Import Bank of the United States (Ex-Im Bank) pleaded guilty in federal court today for accepting more than $78,000 in bribes in return for recommending the approval of unqualified loan applications to the bank, among other misconduct.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, Acting Inspector General Michael T. McCarthy of the Export-Import Bank of the United States and Assistant Director in Charge Andrew G. McCabe of the FBI’s Washington Field Office made the announcement.

Johnny Gutierrez, 50, of Stafford, Virginia, pleaded guilty before U.S. District Judge Gladys Kessler of the District of Columbia to one count of bribery of a public official.  A sentencing hearing is scheduled for July 20, 2015.

“Gutierrez risked both taxpayer dollars and the integrity of the Ex-Im Bank for his personal financial gain,” said Assistant Attorney General Caldwell.  “Those charged with serving the public will be held accountable when they seek personal enrichment at the public’s expense.”

“Gutierrez betrayed the trust and confidence of the hardworking Ex-Im Bank employees and the U.S. taxpayers,” said Acting Inspector General McCarthy.  “The Office of Inspector General will continue to aggressively and diligently investigate all allegations of waste, fraud, and abuse related to Ex-Im Bank programs.”

“In his role as a loan officer, Gutierrez betrayed the trust that was placed in him by fellow citizens and took bribes in exchange for providing favorable action on loan applicants,” said Assistant Director in Charge McCabe.  “The FBI, with our partners, will continue to investigate and expose fraudulent schemes that tarnish the good and ethical work of the U.S. government.”

According to his plea agreement, Gutierrez was a loan officer for the Ex-Im Bank based in Washington, D.C.  The Ex-Im Bank is the federal agency responsible for promoting the export of U.S. goods to foreign countries through the guarantee of domestic loans to foreign buyers.  As an Ex-Im Bank loan officer, Gutierrez was responsible for conducting credit underwriting reviews for companies and lenders submitting financing applications to the Ex-Im Bank.

As part of his guilty plea, Gutierrez admitted that on 19 separate occasions between June 2006 and December 2013, he accepted bribes totaling more than $78,000 in return for recommending the approval of unqualified loan applications and improperly expediting other applications.

Specifically, Gutierrez admitted that he intentionally ignored the fact that one company had previously defaulted in 10 previous transactions guaranteed by the bank, causing the Ex-Im Bank to lose almost $20 million.  Despite these defaults, Gutierrez accepted bribes to continue to recommend the approval of the company’s loan applications.  Additionally, Gutierrez admitted that he accepted bribes from a financing broker to expedite applications submitted by the broker, and that he privately assisted the broker to improve its applications before submission to the bank.  In exchange, Gutierrez was to receive half of the broker’s profit on the transactions financed by the bank.  Further, Gutierrez disclosed to the broker inside information about financing applications submitted to the Ex-Im Bank, so that the broker could solicit the applicants as clients.

The case was investigated by the Inspector General of the Export-Import Bank of the United States and the FBI, with significant assistance provided by the Internal Revenue Service-Criminal Investigation’s (IRS-CI) Washington Field Office.  The case is being prosecuted by Senior Litigation Counsel Patrick M. Donley and Trial Attorney William H. Bowne of the Criminal Division’s Fraud Section.