On May 10 2011 Lindsey Manufacturing Company, two of its executives and a Mexican intermediary were convicted by a federal jury on all counts for their alleged respective roles in a bribery scheme involving Mexican government officials. After a five-week trial, the jury took just one day to return the guilty verdicts. Executives Keith E Lindsey and Steve K Lee were each convicted of one count of conspiracy to violate the Foreign Corrupt Practices Act and five counts of Foreign Corrupt Practices Act violations. Angela Aguilar, the Mexican intermediary, was convicted of one count of money laundering conspiracy.
Lindsey Manufacturing hired Grupo Internacional de Asesores SA to act as its Mexican sales representative and to obtain contracts for Lindsey from Mexico's state-owned utility company, Comisión Federal de Electricidad
(CFE). Grupo received a percentage of Lindsey Manufacturing's revenue from CFE contracts. Aguilar and her husband, Enrique Aguilar,(1)
were directors of Grupo.
At trial, the Department of Justice presented evidence that from approximately February 2002 until March 2009, Lindsey Manufacturing and Lindsey, Lee and others orchestrated a bribery scheme whereby Mr Aguilar was paid a 30% commission on Lindsey Manufacturing's sales to CFE, a significantly higher commission than that given to previous Lindsey Manufacturing sales representatives. According to the department's evidence, Lindsey and Lee understood that all or part of this commission amount would be used to bribe CFE officials in exchange for contract awards. According to the evidence presented at trial, Lindsey Manufacturing then increased the price of the goods and services sold to CFE by 30% to ensure that CFE, rather than Lindsey Manufacturing, absorbed the cost of the bribes.
The Department of Justice also presented evidence that:
Grupo submitted fraudulent invoices to Lindsey Manufacturing for the commission amount;
Lindsey and Lee then wired the money requested into Grupo's account, knowing that the invoices were fraudulent and that at least some of the funds were being used as bribes;
Lindsey and Lee learned that Mr Aguilar had a corrupt relationship with a top CFE official;
Mrs Aguilar authorised money in the Grupo account to be used to buy a CFE official a $297,500 Ferrari Spyder and a $1.8 million yacht, in addition to paying more than $170,000 worth of the official's credit card bills; and
Mrs Aguilar also authorised the transfer of $500,000 from Grupo's account to relatives of another CFE official.
The convicted defendants face a penalty of up to five years in prison and a fine of the greater of $250,000 or twice the value gained or lost on the Foreign Corrupt Practices Act conspiracy charge. Each of the five Foreign Corrupt Practices Act counts carries a penalty of up to five years in prison and a fine of the greater of $100,000 or twice the value gained or lost. The money laundering conspiracy count carries a penalty of up to 20 years in prison and a fine of the greater of $500,000 or twice the value of the property involved in the transaction. In addition, the government is seeking forfeiture against all of the defendants. Sentencing for Lindsey Manufacturing and Lindsey and Lee is scheduled for September 16 2011, while sentencing for Mrs Aguilar is scheduled for August 12 2011.
Before trial, the defendants challenged the Department of Justice's definition of 'foreign official' under the Foreign Corrupt Practices Act; however, the court upheld the department's definition, finding that CFE was an "instrumentality" of the Mexican government.(2)
Therefore, the CFE officer who allegedly accepted the bribes was a "foreign official" for Foreign Corrupt Practices Act purposes.
In its press release regarding the convictions, the Department of Justice quoted Assistant Attorney General Lanny Breuer as saying:
"Lindsey Manufacturing is the first company to be tried and convicted on Foreign Corrupt Practices Act violations, but it will not be the last... As this prosecution shows, we are fiercely committed to bringing to justice all the players in these bribery schemes – the executives who conceive of the criminal plans, the people they use to pay the bribes, and the companies that knowingly allow these schemes to flourish.
Several points from the verdicts are noteworthy:
The Department of Justice will continue to pursue Foreign Corrupt Practices Act enforcement aggressively against companies and individuals – and currently plans to do so under a broad definition of 'foreign official'.(4)
Coupled with the department's aggressive pursuit of Foreign Corrupt Practices Act enforcement, the speed with which the jury convicted the defendants is also noteworthy.
Although historically there have been relatively few enforcement actions leading to trial, this case confirms that the department can prevail at trial against both companies and individuals.
Multiple theories of potential liability will be pursued by the enforcement authorities in Foreign Corrupt Practices Act enforcement actions; here, violation of the Foreign Corrupt Practices Act, conspiracy to violate the Foreign Corrupt Practices Act and conspiracy to money launder were theories on which the government prevailed.
The department acknowledged in its press release the assistance that it received from the Mexican authorities during the investigation, marking another continuing enforcement trend of increased international enforcement cooperation.
Given the continuing upswing in aggressive enforcement, companies subject to the Foreign Corrupt Practices Act must ensure that they and their employees, agents, consultants or other third-party representatives take steps to comply with the Foreign Corrupt Practices Act.(5)
Those steps include:
assessing the company's international business reach and environment and establishing a robust risk-based compliance programme;
conducting due diligence on third parties and subsidiaries;
training company personnel and third parties to understand anti-corruption obligations and identify red flags; and
ensuring transparency and accuracy when recording financial transactions.
As US Attorney André Birotte remarked in connection with the convictions, the Department of Justice:
"remains committed to prosecuting violations of the Foreign Corrupt Practices Act to ensure that the payment of bribes can no longer be viewed simply as the cost of doing business in a foreign nation. Bribery, wherever it occurs, will carry the potential cost of criminal prosecution, hefty fines and prison terms.
Mr Aguilar has also been charged with conspiracy to violate the Foreign Corrupt Practices Act, violations of the Foreign Corrupt Practices Act and money laundering. Mr Aguilar remains a fugitive and is presumed innocent unless and until proven guilty.
Department of Justice press release, May 10 2011, "California Company, Its Two Executives and Intermediary Convicted by Federal Jury in Los Angeles on All Counts for Their Involvement in Scheme to Bribe Officials at State-Owned Electrical Utility in Mexico," available atwww.justice.gov/opa/pr/2011/May/11-crm-596.html
The definition of 'foreign official' under the Foreign Corrupt Practices Act has also been challenged in two other current cases – see US v O'Shea
(No 4:09-cr-00629 (SD Tex)) and US v Carson
(No 8:09-cr-00077 (CD Ca)). Those courts have yet to rule on the pending motions.
Companies with operations providing a nexus to the United Kingdom must equally ensure compliance with the UK Bribery Act of 2010, which will come into force on July 1 2011.