CATCH-22: Lessons from DOJ’s Massive Undercover FCPA Sting

January 22, 2010

This week’s Shot Show in Las Vegas started off with a bang, courtesy of the DOJ.

The FBI used the annual firearms industry trade show as an opportunity to sweep up 21 of the 22 defendants targeted by a large-scale undercover sting operation. The defendants were charged in 16 indictments with violations of the Foreign Corrupt Practices Act (FCPA), and conspiracy to violate the FCPA and to commit money laundering. Each defendant faces up to 30 years in prison if convicted on all counts.

This widely publicized sting marks a dramatic shift in federal law enforcement’s approach to FCPA investigations. It indicates that recent pronouncements regarding the development of specialized investigatory units, an increase in cross-border cooperation and a focus on individuals are being backed up in practice and are producing real results. The operation’s known demographics are enough to indicate it had an impressive scope for a white collar, much less FCPA, sting:

  • 22 executives and employees from military and law enforcement equipment suppliers and sales agents, from three countries and five states.
  • One fictitious minister of defense of a foreign country, to whom bribes of 20 percent commissions were offered through an undercover FBI agent posing as a sales agent. The bribes were meant to obtain part of $15 million in contracts to outfit the country’s presidential guard.
  • Two years of investigation.
  • 150 FBI agents executing 14 search warrants in several cities in Florida, Virginia and California.
  • One coordinated sting at a 60,000-person trade show that included all but one of the defendants.

The sting provides some preliminary lessons worth noting.

FCPA Enforcement is No Longer Reactive

The last several years of increasing FCPA enforcement activities have been predominantly reactive. However, any period of consistent focus on one area of enforcement is going to result in increasing sophistication and experience among investigators and prosecutors, and an increasing ability to reach out and target potential violators.

Although this type of sting is somewhat outside the norm of the typical white collar case, federal law enforcement is clearly intent on redefining what the norm is for FCPA investigations. While there is nothing currently in the public record about what triggered this investigation, it appears that an industry insider cooperated with the FBI in laying the trap for these defendants.

Assistant Attorney General Lanny Breuer of the DOJ’s Criminal Division has already made public pronouncements indicating an intent to target the pharmaceutical and medical device industries, as well as individuals (see our 11/13/09 alert). This week’s operation is a strong demonstration of the resources the federal government is willing to put behind that effort, and the proactive steps it will take to achieve results.

Individuals are in the Crosshairs

The DOJ has already stated that the investigation and prosecution of individuals is a significant focus in FCPA cases because “[e]ffective deterrence requires no less . . . for our enforcement efforts to have real deterrent effect, culpable individuals must be prosecuted and go to jail” (see our 11/13/09 alert). This week’s arrests drive the point home.

Cross-border Cooperation is Working

As part of this week’s operations, City of London police executed seven search warrants in connection with parallel investigations in the UK. This is indicative of an increasingly vigorous approach to anticorruption enforcement in the UK, and an increasingly seamless interaction between U.S. law enforcement and its foreign counterparts (see our 12/3/09 alert).

McGuireWoods’ Government, Regulatory and Criminal Investigations Department has attorneys with extensive experience with FCPA/anticorruption matters, as well as the defense of white collar criminal investigations. The most valuable weapons a corporation and its officers and directors have against potential FCPA/anticorruption issues are preparedness, responsiveness and the deployment of a robust compliance program designed to identify, address and prevent issues before they become government investigations.

McGuireWoods is prepared to assist with everything from defending such investigations, to conducting FCPA/anticorruption risk assessments, audits and internal investigations, and designing and helping to implement overall and FCPA/anticorruption-specific corporate compliance programs and training.

For more information about our capabilities in this or any other area, please contact the authors.