Caveat Obsido: New Red Flag for Investors in Foreign Businesses
Morgan Lewis Title
published on:July 2009
downloads/links:View White Paper
The recent conviction of wealthy investor Frederic Bourke by a federal jury in New York reaffirms that the U.S. government’s anti-corruption enforcement program, led by the Fraud Section of the Department of Justice, continues to push to the brink the limits of an already sweeping statute. The government argued that, although Bourke did not pay or direct the bribes, he was nonetheless guilty because he knew or should have known that bribes were being paid by others involved in the investment deal. The jury unanimously agreed.
The Bourke case serves as both a reminder to investors in international deals (both individuals and businesses) that they are covered by the Foreign Corrupt Practices Act of 1977 (FCPA) and a warning shot to all that mere knowledge, a “refusal to know,” or “willful blindness” may be enough to confer FCPA criminal liability.
No criminal defendant has successfully challenged the government’s application of the FCPA anti-bribery provisions in a jury trial in more than a decade and, with the exception of two Canadian officials who argued they were immune from prosecution, and Bourke’s successful bid to throw out substantive FCPA counts on statute of limitations grounds (Bourke still had to fight conspiracy to violate the FCPA and other charges at trial), few have won any significant concessions or limitations in FCPA prosecutions in U.S. courts. Thus, the government’s increasingly aggressive and broad application of the statute remains relatively unchecked.
The prosecution of Bourke and some of his fellow investors, including Czech-born Viktor Kozeny, Swiss attorney Hans Bodmer, and U.S. hedge fund Omega Advisors, is the second U.S. corruption case involving investors in foreign business opportunities since 2002. The government’s investigations involving ABB/Vetco Gray entities and their successors involved payments of more than $3 million in bribes to foreign officials and resulted in a series of corporate criminal pleas in 2004, 2007, and 2008. The Bourke prosecution, initiated in 2005, involved alleged bribes to Azeri officials in connection with the anticipated sale of Azerbaijan’s state-owned oil company. This closely watched case reemphasizes that even private equity, institutional, and other financial investors are covered by the FCPA’s reach and that if they are not careful, they may find themselves in the crosshairs of a U.S. criminal enforcement action that could result in the loss of substantial investments and business opportunities, as well as possible jail time.
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