U.S. Drops Major Anti-Bribery Prosecution

By | February 22, 2012

The Obama administration on Tuesday dropped a major bribery prosecution that had been part of a campaign to crack down on corruption after the government suffered several setbacks in court in a case involving military equipment sales.

Federal prosecutors moved to dismiss charges against the remaining 16 defendants rounded up in a “sting” operation to root out corruption under the U.S. Foreign Corrupt Practices Act (FCPA), which makes it illegal to try to bribe officials of foreign governments.

Just over two years ago the Justice Department swooped in at a gun show in Las Vegas to arrest 21 executives – and one more in Miami – on charges that they tried to bribe a supposed African defense minister and his representatives by padding their bids to supply military equipment to his country.

In fact, the defense minister and the representatives were FBI agents who were part of the first large-scale undercover operation related to the U.S. anti-bribery law.

The executives were told they were bidding to equip the military of Gabon and that they would have to add a 20 percent “commission” to price quotes – with the extra money to be split between the purported defense minister and others.

The group, which included a former Secret Service agent and a Smith & Wesson Holding Co. executive, were charged with violating U.S. anti-bribery laws, conspiracy to violate anti-bribery laws and conspiracy to commit money laundering.

However, over the last two years since the arrests, the Justice Department’s case has fallen apart because prosecutors were unable to convince two juries during lengthy trials that what the defendants did was in fact illegal.

Of the 22 charged, three have been acquitted, three pleaded guilty at earlier stages of the case and the remaining 16 were awaiting trial or re-trial. It was not immediately clear whether those who pleaded guilty would seek to have their pleas voided.

Explaining the reasons for dismissing the charges, prosecutors cited the two hung juries, rulings during those cases about what evidence could be used at trial and the “substantial governmental resources, as well as judicial, defense and jury resources” needed to continue the case.

The decision came after a review by the head of the criminal division, Lanny Breuer, and the U.S. Attorney for the District of Columbia Ronald Machen.

Cracking down on bribery and corruption in business contracts has been a big priority of the Obama administration’s Justice Department. Most cases have resulted in settlements or plea agreements, with large penalties, rather than trials.

Since 2009 when President Barack Obama took office, there have been more than 40 guilty pleas, deferred or non-prosecution agreements and more than $2 billion in criminal penalties.

The Justice Department marshalled significant resources to pursue the undercover case over 2 1/2 years, using 250 FBI agents and executing search warrants in the United States and Britain.

Prosecutors also used an informant they caught on unrelated bribery charges, Richard Bistrong. He pleaded guilty in 2010 to charges he conspired to bribe officials to win contracts from the United Nations and other foreign entities.

One of those arrested in the sting was a former U.S. Secret Service agent, R. Patrick Caldwell, who was at one time in charge of the division responsible for the vice president’s protection. He worked for a body armor company when arrested and was acquitted last month of the charges.

DECISION COULD LEAD TO MORE FIGHTS

One expert on the FCPA law said the setbacks the Justice Department encountered could embolden others to fight charges in the future rather than going down the more usual path of entering settlements or plea agreements.

“I think this could result in more individuals, who of course have their liberty on the line, but also more companies feeling that they can fight these cases successfully,” said Alexandra Wrage, president of TRACE, which helps companies comply with anti-bribery laws.

The decision by the Justice Department, coupled with a handful of other setbacks, could also raise more questions about the anti-bribery law that the business-friendly Chamber of Commerce has lobbied to have amended to provide more clarity.

The Justice Department has eschewed efforts to amend the 1970s-era law, but last year pledged to provide greater guidance. One case in Texas was dismissed by a judge before it went to a jury and a federal judge in California threw out the conviction in another bribery case.

“I think any time the Department of Justice fails to achieve what is considered perfect success in a case, people will use that as an opportunity to seek whatever advantage they can,” said Paul Pelletier, who was a senior official in the Justice Department’s fraud section and now at the Mintz Levin law firm.

The case is USA v. Goncalves et al, No. 09-cr-335, in U.S. District Court for the District of Columbia.

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