Alcatel-Lucent to pay $137 million to settle Justice Department Foreign Corrupt Practices Act lawsuit

The federal government has yet again successfully enforced the Foreign Corrupt Practices Act (“FCPA”) as Alcatel-Lucent, the large Paris-based telecommunications company, has agreed to pay more than $137 million to settle charges brought against it by the Securities and Exchange Commission (“SEC”) and Department of Justice (“DOJ”). The SECs complaint can be read here.

The company was accused of violating the FCPA by paying bribes to foreign government officials in various Latin American and Asian countries to win business. $45 million will go to the SEC, while $92 million will go to settle criminal FCPA charges brought by the DOJ.

Alcatel-Lucent subsidiaries had used third-party agents and consultants to obtain business in foreign countries. These agents and consultants were conduits for bribe payments to foreign officials to obtain or retain business. The bribes went to government officials in Costa Rica, Honduras, Malaysia and Taiwan between 2001 and 2006. The Company had listed the payments in its books and records as “consulting fees”. According to the government, leaders of Alcatel-Lucent subsidiaries either knew, or were reckless in not knowing, about the misconduct. Two executives with the company have been prosecuted, and one was sentenced to 30 months in prison.

As stated by Robert Khuzami , director of the SECs division of enforcement, “Alcatel and its subsidiaries failed to detect or investigate numerous red flags suggesting their employees were directing sham consultants to provide gifts and payments to foreign government officials to illegally win business.”

The settlement with the government is still subject to court approval. However, the case emphasizes that in todays charged enforcement environment, companies must do adequate due diligence to ensure that their overseas agents, consultants and distributors are not engaging in corrupt payments on their behalf to gain business. Red flags must be investigated and resolved to managements satisfaction. Our firm is experienced in conducting such due diligence investigations.

Civil Suit Seeks to Hold Bank Liable for Haitian Ponzi Scheme

Recently, the court appointed receiver of Creative Capital Consortium, LLC, the organization at the center of a massive Haitian ponzi scheme, filed a civil suit in the United States District Court for the Southern District of Florida against Wells Fargo Bank, N.A. for its predecessors role in furthering the ponzi scheme. This case highlights the potential culpability of financial institutions for their lack of effective anti-money laundering programs and errors in compliance with the Bank Secrecy Act.

The Bank Secrecy Act (“BSA”), and its applicable federal regulations, require financial institutions to verify the sources of money coming into its customers accounts. Financial institutions are required to file Suspicious Activity Reports (“SAR”) for transactions which appear suspicious and are given the authority to shut down accounts should money laundering be suspected. Financial institutions generally accomplish the goals of the BSA through the use of an anti-money laundering compliance program that allows a financial institution to effectively monitor transactions and determine if they are suspicious.

According to the complaint filed by the receiver, George Theodule, founder and director of Creative Capital Consortium, LLC (“CCC”), operated a massive ponzi scheme that was directed at Haitian Americans. The complaint alleges that from 2007 to the end of 2008, Theodule targeted thousands of investors from Florida, Georgia, and New Jersey by promising quick and large profits from their initial investments. Theodule allegedly formed numerous, in excess of 100, “investment clubs” and used CCC to oversee the scheme. The clubs would then structure transactions between themselves through their separate accounts to appear as investments. In total, the complaint alleges that Theodule made $68 million from the scheme.

Having already settled with Theodule in a separate suit for $5.5 million, the receiver has now turned its attention to Wells Fargo Bank, N.A. for the remainder based upon the actions of its predecessor Wachovia Bank, N.A. According to the complaint, Wachovia failed to provide adequate safeguards to prevent the scheme from occurring. The complaint alleges that Wachovia provided special privileges to Theodule, CCC, and the 36 investment clubs that had accounts at the bank and often ignored “red flags” of suspicious activity. Examples of Wachovias alleged failures include a failure to investigate and inquire into the nature of CCC and Theodules business and failing to file SARs for numerous structured transactions.

This is not the first time Wachovia has been accused of failing to comply with its duties under the BSA. Prior to its merger with Wells Fargo, in 2009, Wachovia was criminally charged with violations of the BSA for willfully failing to establish an anti-money laundering compliance program and for failing to file SARs. As a result, Wachovia and Wells Fargo entered into a deferred prosecution agreement, forfeited $110 million and paid $50 million in fines.

If you have questions pertaining to the BSA, anti-money laundering compliance or how to ensure that your business maintains regulatory compliance at both the state and federal levels, contact Fuerst Ittleman PL at contact@fidjlaw.com.

Former executives of Latin Node, Inc. charged with FCPA violations for bribing Honduran government officials

In its continuing ramp up of enforcement of the Foreign Corrupt Practices Act, (“FCPA”), the government recently announced the indictments of two former senior executives of Latin Node, Inc., a provider of wholesale telecommunications services using Internet protocol technology. The two executives, the former chief executive officer and the vice-president of business development, are charged with violating the anti-bribery provisions of the FCPA and anti-money laundering laws. The indictment may be viewed here.

The FCPA forbids American businesses or persons from paying bribes to officials of a foreign government in order to obtain or retain business. It also requires public companies to make and keep accurate books and records and to devise and maintain accounting controls to detect and prevent the paying of bribes to foreign officials.

The alleged scheme to bribe Honduran officials centered on an “interconnection agreement” Latin Node, Inc. had with Hondutel, the Honduran state owned telecommunications authority. This agreement allowed Latin Node, Inc. to use Hondutels lines to establish a network between Honduras and the United States and provide long distance services. Latin Node, Inc. was required to pay Hondutel a set rate per minute for calls to Honduras.

The charged executives sought a rate reduction from Hondutel. In order to effectuate this rate reduction, they agreed to a secret deal to pay bribes to a Hondutel manager, as well as to a senior attorney for Hondutel who acted as the managers “straw man” and a minister of the Honduran government. More than $500,000 in bribes was paid to the officials, concealing the payments by laundering the money through Latin Node subsidiaries in Guatemala and to accounts in Honduras controlled by Honduran government officials.

Latin Node, Inc. had previously pled guilty to violating the FCPA regarding the same conduct for which the executives were charged. By indicting the executives, who now face prison time if convicted, the Department of Justice is showing it is “committed to holding accountable individuals and companies alike for alleged foreign bribery schemes” according to Assistant Attorney General Lanny Breuer. According to Anthony Mangione, the Special Agent in Charge of ICE Homeland Security Investigations in Miami, “anyone who believes paying bribes in foreign countries is just the cost of doing business should think about the repercussions-whether it is worth going to prison”.

According to John Gillies, Special Agent in Charge of the FBI in Miami, “this new indictment represents the FBIs commitment to investigating not just the corrupt acts of a corporate entity, but the individuals who are behind it.”

Violations of the FCPA are punishable by a maximum of 5 years in prison. Money Laundering is punishable by a maximum of 20 years in prison. The defendants may also be liable for substantial monetary fines if convicted.

It is important for companies and their executives who conduct international business to be familiar with the prohibitions contained in the FCPA and to ensure that their companies and employees are trained on how to comply with its provisions. Lawyers at Fuerst Ittleman PL are experienced in conducting internal investigations of companies and executives in order to prevent violations, and in the event of violations, to defend against regulatory or criminal proceedings brought pursuant to the FCPA.

Justice Department Announces Plea Agreement in UBS Case

On December 22, 2010, the United States Attorney’s Office for the Southern District of New York issued a press release, found here, regarding a former UBS client who entered a guilty plea to conspiring to defrauding the United States and for filing false income tax returns by hiding $4.9 million in UBS bank accounts.  As part of his plea agreement, Ernest Vogliano agreed to a civil penalty of approximately $940K, or 50% of the value as of December 31, 2004.  Mr. Vogliano was one of seven individuals indicted in April, and is the fourth to enter a guilty plea admitting is culpability.

In 2000 and 2002 Mr. Vogliano opened accounts at UBS using shell corporations in order to avoid the Bank Secrecy Act reporting requirement. In order to repatriate funds to the United States Mr. Vogliano traveled to Switzerland to obtain travelers checks that he both personally brought to the United States and mailed to the United States in order to evade detection by federal authorities.

As we previously reported, Mr. Gadola’s prosecution and plea demonstrates that the Department of Justice is targeting both participants of tax avoidance schemes and those individuals that assist in evading tax by United States citizens and resident aliens. Further prosecutions are anticipated in the months and years to come.

Three Pharmaceutical Manufacturers Agree To Pay $421.2 Million In False Claims Act Settlement

On December 7, 2010, the United States Department of Justice announced that it had reached a $421.2 million settlement agreement with three pharmaceutical manufacturers for alleged violations of the False Claims Act. The violations stem from allegations that the drug manufacturers published false and inflated prices of numerous medicines to defraud Medicare and Medicaid. A copy of the Department of Justice press release can be read here.

Authorities allege that the manufacturers, Abbott Laboratories, Inc., Roxane Laboratories, Inc., and B. Braun Medical, Inc., falsely published inflated average wholesale prices of numerous pharmaceuticals in an effort to market, promote, and sell the drugs to existing and potential customers. According to the Department of Justice, the scheme involved an agreement between healthcare providers and the manufacturers to falsely adjust the “spread” on the price of pharmaceuticals in order to create larger profits for the healthcare providers. The “spread” is the difference between the inflated published price, which the government reimburses at, and the actual price paid by the healthcare provider for drugs. The larger the “spread” the more profit the healthcare provider makes in reimbursements from the federal government.

Authorities alleged that providers would purchase pharmaceuticals from the companies at prices lower than the reported average wholesale price. Medicare and Medicaid would then reimburse healthcare providers at those higher prices and the providers would pocket the difference. The scheme was designed to allow the healthcare providers to make more profits and for the drug manufacturers to retain the providers as customers for the future. As a result of the scheme, federal healthcare programs paid millions more too healthcare providers than they would have had the manufacturers been truthful.

Under the settlement agreements, though each company denied wrongdoing, Roxane will pay $280 million, Abbott will pay $126.5 million, and B. Braun Medical will pay $14.7 million in civil fines. The settlements resolve allegations brought by a whistleblower under the qui tam provisions of the False Claims Act.

The False Claims Act allows for private persons to file suits to provide the government information about wrongdoing. Under the statute, if it is established that a person has knowingly submitted or caused others to submit false or fraudulent claims to the United States, the government can recover treble damages and $5,500 to $11,000 for each violation of the statute. If the government is successful in resolving or litigating its claims, the whistle blower who initiated the action can receive a share of between 15 percent to 25 percent of the amount recovered. In this case, the False Claims Act suits were brought by Ven-A-Care, a Florida home infusion company. As a result of its whistle blowing efforts, Ven-A-Care will receive approximately $88.4 million.

If you have any questions regarding qui tam actions, or for information about Fuerst Ittlemans experience litigating white collar criminal cases, please contact us at contact@fidjlaw.com.

Freight Forwarder and Oil Service Companies Pay Huge Fines For Violating The Foreign Corrupt Practices Act

In another example of the recent enhancement in enforcement of the Foreign Corrupt Practices Act, (FCPA) a global freight forwarder and five oil and gas service companies resolved FCPA investigations conducted by the Department of Justice and the Securities and Exchange Commission by agreeing to pay $156,565,000 in criminal penalties and civil disgorgement, interest and penalties in the sum of $80,000,000.

A criminal information was filed on November 4 charging Panalpina World Transport (Holdings) Ltd., the global freight forwarding company based in Switzerland , (“Panalpina”)with conspiring to violate the anti-bribery provisions of the FCPA. In a deferred prosecution agreement and a plea agreement filed in federal court in the Southern District of Texas, Panalpina, and its U.S. subsidiary Panalpina, Inc., admitted that they engaged in a scheme to pay bribes to numerous foreign government officials on behalf of their many customers in the oil and gas industry. These bribes allowed them to circumvent local rules and customs regulations governing the importation of cargo into numerous foreign countries. Panalpina admitted paying bribes totaling $27,000,000 to foreign officials in Angola, Azerbaijan, Brazil, Kazakhstan, Nigeria, Russia and Turkmenistan.

Panalpinas customers, Shell Nigeria Exploration and Production Company Ltd., Transocean Inc. and Tidewater Marine International, Inc. admitted in deferred prosecution agreements that they knew of and condoned the bribes paid on their behalf. These companies recorded the bribes as legitimate business expenses in their corporate books and records. These companies agreed to pay criminal fines in excess of $50,000,000 . Under the terms of the deferred prosecution agreements, Panalpina and its customers are required to cooperate fully with U.S. and foreign authorities in any ongoing investigations of the companies corrupt payments. Each company is also required to implement and adhere to a set of enhanced corporate compliance and reporting obligations.

In recent years, the Department of Justice has made FCPA prosecutions a priority, allocating substantial resources to a team of FBI agents and prosecutors dedicated solely to bringing FCPA cases against companies and their executives. Compliance with the FCPA, along with expanded due diligence, anti-bribery prevention programs and regular auditing of foreign payments are now essential for businesses with international operations and sales. As shown in this case, failure to abide by the FCPA can have catastrophic consequences and is at a companys (and its executives) peril.

Pharmaceutical Company Lawyer Indicted For Obstructing FDA Investigation Into Promotions of Unapproved Uses of Prescription Drug

An in-house counsel for a large pharmaceutical company was indicted for obstruction of justice and making false statements in relation to an FDA investigation into promotions of “off-label” uses of the companys prescription drugs. According to the indictment, the in-house counsel sent a series of letters to the FDA in response to FDA inquiries that falsely denied that the company had promoted the drug for “off-label” uses, even though the attorney knew that the company had sponsored numerous such promotions. The lawyer also knew that the company had paid physicians to give promotional talks that included information about unapproved uses of the drug. One physician had been paid to speak at more than 500 promotional events and another at 488 such events.

The indictment also alleges that the lawyer did not provide the FDA with certain slides used by the physicians in their presentations even though the FDA specifically requested them. With knowledge that the slide sets contained incriminating evidence, the lawyer wrote the FDA, and instead of producing the slide sets, informed FDA that the responses made to FDA were “final” and “complete”. According to the U.S. Attorney for the District of Massachusetts, “there is a difference between legal advocacy based on the facts and distorting the facts to cover up the truth. Federal agencies such as the FDA cannot protect the public health if the entities and individuals they regulate provide false information and conceal the true facts”.

Each of the obstruction of justice charges carry a maximum penalty of 20 years imprisonment upon conviction. Each of the false statement charges carry a maximum penalty of 5 years imprisonment. The pharmaceutical company for whom the lawyer worked was not charged with a crime and was not identified in the indictment.

Whistleblower Lawsuit Results in $750 million Settlement for GlaxoSmithKline

Facing criminal and civil charges relating to the manufacturing and distribution of certain adulterated drugs made at its Cidra Manufacturing Plant in Puerto Rico, GlaxoSmithKline (GSK) has pleaded guilty and agreed to pay the United States $600 million in settlement of criminal charges and $150 million for civil violations.

The Cidra Manufacturing Plant had been cited by the FDA for manufacturing violations as early as 2002. GSK had instructed Cheryl Eckard and a team of scientists to fix these manufacturing violations. According to Eckards lawyers, she and her team found additional problems than those already cited by the FDA, including mixed-up products, contaminated water systems, and air-handling systems that misdirected the flow of product powder. She recommended GSK shut down the plant, advice which GSK ignored. Her lawyers indicate that she was fired in 2003 after she had, on numerous occasions, requested GSK to address the problems at the Cidra Manufacturing Plant.

Eckard then instituted a qui tam lawsuit in federal court in the District of Massachusetts under the False Claims Act in 2004. The qui tam, or whistleblower, lawsuit permits private citizens to bring suits on behalf of the United States and share in any recovery. In a press release dated October 26, 2010, the Justice Department discussed the effectiveness of the False Claims Act in cases involving fraud against federal health care programs, indicating total recoveries since January 2009 of $5.4 billion. The whistleblower in this case, Cheryl Eckard, will receive approximately $96 million as her share of the settlement amount.

Among the drugs manufactured at the closed Cidra facility were Kytril, a sterile anti-nausea medicine, and Bactroban, a topical anti-infection ointment. The criminal information alleges that GSK failed to ensure that these products were free of contamination from microorganisms. Additionally, it is alleged that manufacturing deficiencies resulted in Paxil CR, a two-layer tablet which is the controlled-release formulation of the popular anti-depressant drug, Paxil, to split apart. Also, Avandemet, a combination Type II Diabetes drug, allegedly was not always composed of the FDA approved mix of active ingredients, and potentially contained too much or too little of the ingredient with the therapeutic effect. The Cidra facility also allegedly suffered numerous product mix-ups.

Commenting on the settlement, Mark Dragonetti, Special Agent in Charge of the FDA New York Field Office, stated:

FDA expects pharmaceutical companies to abide by these manufacturing standards and correct deficiencies in an expedited manner. FDA and its law enforcement partners will continue to aggressively pursue those companies that place the public health at risk by distributing products that do not comply with all FDA requirements.

U.S. Attorney Carmen Ortiz expressed his views that the industry must comply with all of the rules and regulations or face these severe consequences. “To do less erodes public confidence and compromises patient safety.”

If you have any questions regarding qui tam actions, FDA manufacturer requirements or any other FDA regulations, please contact Fuerst Ittleman, PL at contact@fidjlaw.com.

U.S. Attorney’s Office For the Southern District Of Florida Increasing Training And Expanding To Combat Fraud

The U.S. Department of Justice has granted the request of the US Attorney for the Southern District of Florida, Wifredo Ferrer, for additional resources and manpower as the US Attorneys office struggles with its efforts to combat rampant fraud in South Florida.

As South Florida has experienced increased amounts of health-care, mortgage and financial fraud, the U.S. Attorneys Office has found it increasingly difficult to prosecute offenders due to the strain on the offices staff of 280 attorneys and their resources. As a result of the large caseload and limited resources, the offices efforts at prosecuting fraud have been stifled. U.S. Attorney Ferrer hopes this will change based upon the news he received last month from the Department of Justice that his request to hire four new prosecutors was granted.

The new prosecutors and their support staff will focus on the voluminous amounts of Medicare fraud that occur in South Florida. South Florida currently has the reputation as being ground zero for the $60 billion a year that is bilked from Medicare as a result of fraud. The four new prosecutors follow Ferrers recent hire of 10 “top-flight” attorneys since June in the offices major crime division and the hiring of four prosecutors by the previous U.S. Attorney Jeff Sloman.

Ferrer also announced that the U.S. Attorneys office is focused on increasing training for all of the districts Assistant U.S. Attorneys. Recently, Ferrer appointed Assistant U.S. Attorney Dawn Bowen as the districts first training director. The new training will emphasize the importance of effective advocacy during the sentencing phase of criminal trials. As a result of the U.S. Supreme Courts landmark decision in United States v. Booker, 543 US 220 (2005), which declared that the U.S. Sentencing Guidelines were advisory rather than mandatory, the role of the prosecutor at the sentencing phase has changed. Federal prosecutors must now advocate what the right sentence for a particular crime is and why. In May, U.S. Attorney General Eric Holder issued a memo explaining the governments new policy that proposed sentences be weighed on a case-by-case basis.

For information about Fuerst Ittlemans experience litigating white collar criminal cases, please contact us at contact@fidjlaw.com.

Arizona Aviation Company Indicted for Violating Arms Export Control Act

On October 28, 2010, a federal grand jury indicted Floyd Stilwell, president and CEO of Marsh Aviation Co., an Arizona company for violating the Arms Export Control Act. The indictment charges that Stilwell and his company were part of a conspiracy to ship arms to Venezuela from November 2005 until February 2008.

The indictment alleges that Stilwell and his company shipped military engines to the Venezuelan air force and provided training on how to maintain them in violation of federal law. The engines sold are listed on the United States Munitions List. Under federal law, the export of arms on the US Munitions List is illegal without a federal export license or written authorization issued by the Department of State. Since 2006, the U.S. government has forbidden the export of military hardware to Venezuela because Venezuela does not cooperate with United States anti-terrorism efforts. Additionally, the Office of Foreign Assets Control also issues regulations regarding the import and export of goods to countries which do not comply with U.S. counter-terrorism efforts. These regulations can be found at the OFAC Website.

According to the indictment, Stilwell and Marsh Aviation agreed to upgrade turboprop engines for use on Venezuelan air force reconnaissance planes. The indictment further alleges that Stilwell agreed to disassemble the upgraded engines, disguise them as civilian models when exporting them, and that Marsh Aviation sent employees to Venezuela to reassemble the engines once they had arrived.

U.S. Authorities also allege that Stilwell received $1.8 million in his personal bank account for his role in the arms exporting scheme. If convicted, Stilwell faces up to 15 years in federal prison for the arms violations and conspiracy charges.

For information about Fuerst Ittlemans experience litigating white collar criminal cases, as well as information regarding OFAC and strategies on maintaining compliance with federal customs regulations please contact us at contact@fidjlaw.com.