The Foreign Corrupt Practices Act:

Through the Lens of Azerbaijan and the Republic of Georgia

By Peter G. Strasser

260 December 2013 / January 2014 t is virtually impossible to pick up cases: deferred prosecution, trial or guilty ance policy and revised its code of conduct a local newspaper anywhere in the . However, Azerbaijan and Georgia are for its worldwide employees. It also paid a world without seeing a headline about two particularly complex countries located in penalty of $7.35 million and made an ad- corruption. In the past year alone, one of the world’s most complicated regions ditional settlement with the SEC by paying moreI than one in four people (27 percent) — the Caucasus, which also includes Arme- a disgorgement of $8 million.7 reported having paid a bribe.1 Revelations nia and the North Caucasus of the Russian of widespread bribery of foreign officials Federation. This geographical region is rife Frederic Bourke by U.S. companies prompted Congress, with local, separatist, nationalist and global Frederic Bourke, co-founder of the back in 1977, to enact the Foreign Corrupt interests, cross-cutting diverse religions, eth- luxury-handbag maker Dooney & Bourke, Practices Act (FCPA).2 Through its various nicities and cultures. Strategic transportation entered federal prison in May 2013 to criminal and civil provisions, the Act was routes traverse one another; ethno-territorial begin serving a one-year sentence. He had intended to halt corrupt practices, create a conflicts persist unresolved; and even some unsuccessfully fought his FCPA charges at level playing field for honest businesses, and national borders are still hotly contested. his jury trial and appeal. Bourke’s problems restore public confidence in the integrity of Each state struggles to overcome a daunt- stemmed from an investment venture in the marketplace. ing set of internal and external challenges, Azerbaijan to purchase the state-owned In general, it is no easy matter for U.S. ranging from the need for economic and oil company, SOCAR. He was convicted companies operating overseas to comply political reform to combating the constant despite his defense that he was unaware that with both U.S. and foreign laws while con- threat of violent and destructive conflicts.6 his business partner, Victor “the Pirate of ducting business in cultures that do not view Recent political and legal developments, Prague” Kozeny, was bribing top-level of- the rule of law through the lens of Western however, offer cause for cautious optimism ficials, including the president of Azerbaijan. ideals. Such environments pose metaphori- for foreign investors and corporate counsel The 2nd Circuit affirmed the conviction in cal minefields for many U.S. businesses. seeking to facilitate U.S. business in this United States v. Kozeny, 667 F.3d 122 (2 Cir. Accordingly, the Department of Justice unique part of the world. 2011), holding that a can indeed (DOJ) and the Securities and Exchange be found criminally liable under the FCPA Commission (SEC) recently published a Corrupt Practices: Three if he is found to be “consciously avoiding” 130-page guide that explains the FCPA, Case Studies knowing that an intermediary is paying its relevance to international business and bribes to a foreign official. The court relied, corporate compliance programs, and the inter alia, on testimony at trial demonstrating Tidewater Marine DOJ/SEC’s joint enforcement approaches that Bourke “was aware of how pervasive 3 In November 2010, Tidewater Marine 8 and priorities. International, Inc., a Cayman Islands sub- corruption was in Azerbaijan.” Nevertheless, the DOJ and the SEC sidiary of Tidewater, Inc., paid a combined have been exponentially increasing their Daniel Alvirez 4 $15 million to the DOJ and the SEC to FCPA enforcement actions over the years. settle FCPA allegations. Tidewater, Inc., In March 2011, Daniel Alvirez, presi- The DOJ now has attachés in more than headquartered in New Orleans, is a global dent of Arkansas military equipment 30 embassies around the world assigned to operator of offshore service and supply ves- company ALS Technologies, pleaded work closely with foreign law enforcement sels for energy exploration. Over the course guilty to participating in a scheme to pay and international organizations. Beyond of time, Tidewater Marine employees had bribes to the Georgian Defense Ministry collaborating on specific cases, the attachés paid $160,000 in bribes to tax inspectors in in exchange for obtaining an $11-million review foreign anti-corruption legislation Azerbaijan to secure favorable tax assess- contract selling ammunition and MREs to and programs and train foreign ments and also paid $1.6 million in bribes the Georgian military. However, a year later, in combating corrupt activities.5 These ef- this FCPA charge was dismissed “without to Nigerian customs officials relating to 9 forts are yielding noticeable results: FCPA the importation of vessels into Nigerian prejudice.” Alvirez, in a separate scheme, cases are arising out of high-risk countries waters. Upon learning of the DOJ/SEC in- also had been part of the “SHOT Show” where law enforcement historically looked vestigation, Tidewater conducted an internal case (the FBI arrested the at the the other way. investigation and voluntarily reported its Las Vegas Shooting, Hunting and Outdoor Three recent cases involving transactions findings to federal prosecutors. As a result, Trade Show). That investigation was the in Azerbaijan and the Republic of Georgia Tidewater Marine received a deferred first of its kind to pursue FCPA violations illustrate the resolutions that have become prosecution agreement from DOJ whereby using traditional undercover tactics such as typical in these types of criminal corruption it implemented an enhanced FCPA compli- informants, wiretaps and hidden cameras.

LouisianaLouisiana BarBar JournalJournal Vol.Vol. 61,61, No.No. 44 261261 But after two consecutive mistrials, the DOJ mented efforts to clean up corruption at the court. Such proceedings are time-consuming dismissed with prejudice all FCPA charges mid-levels of government. Recent years have and subject to capricious judicial outcomes, against all 22 defendants.10 With respect to seen rising salaries for civil servants and which often produce no concrete results. But, Alvirez’s Georgian scheme, federal prosecu- special training offered to raise awareness to its merit, when judicial authorization is tors explicitly stated they were continuing to within the bureaucracy about corruption. given, the ACD follows through to conclu- investigate and would “determine whether An Azerbaijani government service center sion.21 In the Tidewater Marine investigation, to bring criminal charges relating to that (ASAN) was recently established in Baku the ACD cooperated fully with the U.S. Em- conduct.”11 to cut bureaucracy, strengthen transparency, bassy. Pursuant to an official DOJ request, and improve the ease of doing business. ACD sought and obtained judicial search International Business ASAN’s mission is to open up and simplify warrant approval to retrieve documents Rankings and Assessments all areas of government, including the is- from Tidewater’s office in Baku. Those suance of forms, registration, workplace documents were then promptly delivered In its handbook, “Business Principles for compliance and tax issues. Already the to the U.S. Embassy. Countering Bribery,” Berlin-based Transpar- number of procedures involved in starting ency International (TI) states, “Bribery may a business in Azerbaijan has been reduced An Overview of the from 30 to seven, and the overall cost has be so much a part of a business culture in 15 Corruption in Georgia some places, that dealing with it can seem been halved. an overwhelming challenge and no one As seen in the Kozeny case, true cor- A decade ago, Georgia had an appalling business can fight it alone.”12 According to ruption in Azerbaijan is at the elite level reputation for corruption. But subsequent TI’s latest annual assessments of corrupt and based mostly on extracting rents from political changes have brought about the energy sector (the country’s primary countries, Armenia and Azerbaijan rank 16 substantial reform. By 2012, Georgia was 94th and 127th, respectively, out of 177 national asset). It is well documented that, ranked by the World Bank as the 12th most countries surveyed, although Georgia posted through hidden ownership structures, the favorable country in the world for the ease a better ranking of 55th.13 The TI ranking for first family has profited personally from of doing business.22 Nonetheless, many massive construction projects throughout Azerbaijan effectively confirms that it is dif- 17 Georgians dispute that their new and osten- ficult to do business in Azerbaijan, especially Baku. In its 2012 country progress report, sibly showcase system of transparency tells when it involves Azerbaijan’s oil resources, the Organisation for Economic Co-operation the whole story. Despite President Mikheil without paying bribes and kickbacks. Yet and Development (OECD) noted that, Saakashvili’s vow in 2009 to bring about a even those figures obscure the realities of although Azerbaijan has made progress in “new wave of democratization,” his govern- corruption in the region. fighting corruption, efforts toward judicial ment perpetuated the highly criticized Soviet independence and meritocracy have largely practice of using the to safeguard the taken a back seat. Police investigators al- An Overview of Corruption in security of the ruling regime rather than most never open criminal cases against top 23 Azerbaijan serving the larger community. government officials and, when they do, Immediately after being elected presi- judges often decline to rule against them.18 Today, Azerbaijan is a politically closed dent in January 2004, Saakashvili made it No high-level government official has ever clear that fighting corruption would be one society with a dynastic presidency. The been prosecuted. Further, no judge has ever considerable revenues it has earned from of his top priorities. Capitalizing on his been prosecuted for any corruption-related election mandate, he quickly implemented its vast hydrocarbon reserves have, unfor- charge, despite the fact that the judiciary is tunately, failed to produce greater openness reforms, although often circumventing regarded as one of the country’s most cor- time-consuming democratic procedures to or democracy. Instead, those same riches 19 rupt institutions. achieve his goals. He further ensured that have made the country’s rulers progressively Even so, the OECD report praised the more independent and self-confident. It is Parliament adopted certain constitutional efforts of the Anti-Corruption Department amendments that strengthened presidential widely recognized that corruption is deeply (ACD) within Azerbaijan’s institutionalized throughout Azerbaijani powers at the expense of the legislative and General’s Office. The ACD prosecuted 298 judicial branches.24 society and poses a major obstacle to both defendants in 2012 and 229 defendants in social and economic development in the Saakashvili also hijacked the state’s 2011 — all of them, unsurprisingly, mid- administrative resources — police, pros- country. In terms of specific areas of cor- level officials.20 ruption, the State Customs Committee and ecutor’s offices, courts, prisons, national Further, Azerbaijani law makes it difficult banks, tax inspection and the media — to the Ministry of Taxes are the institutions of for prosecutors to gain access to a target’s greatest concern to both local and foreign serve his own ends. It was not long before bank, financial or commercial records by major commercial interests, such as telecom- companies operating in Azerbaijan.14 requiring disclosure authorization from a Nonetheless, Azerbaijan has imple- munications, broadcasting, advertising, oil,

262 December 2013 / January 2014 pharmaceuticals and mining, were under the by his rival, billionaire Bidzina Ivanishvili. legislation on the protection of witnesses ownership of then-current members of the However, the history of this region is all and collaborators in corruption cases. He government, their allies and relatives, all via about settling scores. Soon after the new gov- is steadfast and emphatic to the ideal that a complicated web of companies registered ernment was seated, a string of Saakashvili’s any American business that reports extor- offshore. As evidenced by Daniel Alvirez’s former ministers and party officials were tion and cooperates in ACD investigations guilty plea, Saakashvili’s top officials fre- under investigation. Reminiscent of what will receive the Azerbaijani government’s quently used the government apparatus to happened after Saakashvili’s Rose Revolu- personal protection. control and extort money from businesses. tion ousted President Eduard Shevardnadze, Likewise in Georgia, the new Deputy Further, the administration often used the officials who did not flee the country were Minister of the Interior is adamant that any state’s resources as tools for the persecu- arrested and prosecuted.29 Commenting on American business that reports extortion tion of political opponents, with the police this state of affairs, the chair of the Board of and cooperates with law enforcement will freely engaging in the excessive use of force. Transparency International Georgia stated: receive the government’s gratitude and Top officials also appropriated private land protection. The new Minister of Justice, for investment projects, telling the owners Is it politically motivated? Yes. Is it a former lawyer at the European Court of they had to gift the land to the state or face a reasonable exercise in the rule of Human Rights, faces the daunting task of prosecution. law? Yes, because there were so many overhauling the courts, the prosecutor’s In cynically fabricated cases, plea bar- laws broken. The thing to watch is office and the prison system to restore faith gaining was abused to extract both land the trend line — will this continue? in the much-maligned criminal justice and money.25 In fact, plea bargaining was Is this going to be a way of making system. He knows the eyes of the West are viewed as an effective revenue-raising tool sure there is no opposition?30 upon Georgia, and he is reversing many of in criminal cases. If a defendant wanted a his predecessor’s predatory policies. Many sentence reduced, he had to pay a specified Conclusion senior policemen who were fired after ob- amount for each year deducted from the jecting to Saakashvili’s practices have been maximum sentence. Under this scheme, a The threshold consider­ation in deciding reappointed. In the spirit of the times, the total of $50 million was collected. As the what, if any, FCPA enforcement action will Georgian Parliament has adopted a sweep- new speaker of the Georgian Parliament told be taken is, of course, the target’s conduct. ing amnesty, releasing some 8,400 pre-trial The Economist, “We had a system where Regardless, the DOJ and the SEC place a and convicted inmates. The Parliamentary the prosecutor was the chief economist in high premium on self-reporting. As the dif- speaker told The Economist: the country.”26 ferent outcomes in the Tidewater, Kozeny The Georgian judiciary, whose mandate and Alvirez cases indicate, cooperation We have not emptied the prisons to it is to review each case for evidentiary and remedial efforts are major factors in fill them up again. The only way to serve sufficiency and sentence fairness, practi- determining the appropriate resolution of justice is to make the process as transparent cally rubber-stamped every guilty plea. FCPA matters.31 as possible by subjecting it to the scrutiny Monitoring groups reported that judges Those efforts can and should start in the of the media and international watchdogs.34 not only routinely sided with motions from foreign country itself. Even though bribery is the prosecution, they also based judgments still a part of the culture of the Caucasus, the FOOTNOTES on questionable .27 As a result, the attitudes of the governments of Azerbaijan judiciary today is viewed as “one of the least and Georgia have changed. Both are now 1. Transparency International, Global Corrup- trusted institutions in the country.”28 parties to the United Nations Convention tion Barometer 2013, 3, 14 (2013), available at www. transparency.org/gcb2013 . However, democracy is still, at least 32 Against Corruption. As such, both have 2. Foreign Corrupt Practices Act (FCPA), 15 in part, very much alive in Georgia. Less implemented specific anti-corruption mea- U.S.C. §§ 78dd-1 (West 2013). than two weeks before the October 2012 sures to encourage disclosure. Bribers who 3. Department of Justice and Securities and Ex- parliamentary elections, public outrage are extorted and subsequently report the change Commission (DOJ/SEC), A Resource Guide to was ignited when leaked videos showing the U.S. Foreign Corrupt Practices Act (2012), available bribe are often “relieved of responsibility” at www.sec.gov/spotlight/fcpa/fcpa-resource-guide.pdf sexual torture and other egregious abuse of 33 because of their cooperation. (hereinafter, FCPA Resource Guide). prison inmates were broadcast on national The director of the Azerbaijani ACD has 4. See Gibson Dunn, 2013 Mid-Year FCPA Up- television. Those images triggered mass been working closely with DOJ attachés date (2012), available at www.gibsondunn.com/pub- demonstrations and had a decisive impact on and understands the legal dilemmas fac- lications/pages/2013-Mid-Year-FCPA-Update.aspx the elections. Saakashvili’s party was voted (citing various cases brought by the DOJ/SEC under ing American companies operating there. the FCPA). out of office. Although Saakashvili himself He is committed to implementing the new 5. See FCPA Resource Guide, supra note 3, at 6-7. still had a year remaining in his presidency, Azerbaijan National Anti-Corruption Action 6. Alexandre Kukhianidze, George Mason Uni- there was now a new government headed Plan for 2012-15, which provides for better versity, Terrorism, Transnational and Cor- ruption Center, Rethinking Organized Crime and

Louisiana Bar Journal Vol. 61, No. 4 263 Corruption (2012); see also Richard Giragosian, 19. The judicial sector in Azerbaijan is weak, ruption (2000), available at www.unodc.org/docu- “Networks of Crime and Corruption in the South primarily because of the executive branch’s exces- ments/treaties/UNCAC/Publications/Convention/08- Caucasus,” 9 Caucasus Analytical Digest (Sept. 17, sive influence over the judiciary, due not only to the 50026_E.pdf. The convention, which went into force 2009), available at www.css.ethz.ch/publications/ regulatory framework of the judicial system, but also on Dec. 14, 2005, contains 71 Articles and requires pdfs/CAD-9-2-5.pdf. to the historical, Soviet-based perception that judges States Parties to implement specific anti-corruption 7. United States v. Tidewater Marine Interna- are viewed as an extension of the state. In cases where measures even if that may affect their laws, institu- tional, Inc., Court Doc. No. 2010-CR-770 (S.D. Tex.). the state is a party, regardless of the merits of the case, tions and practices. To date there are 167 Parties, in- 8. United States v. Kozeny, 667 F.3d 122, 133 (2 the expectation is that the interests of the state will cluding the United States. See id. Cir. 2011), cert. denied; see also, Bourke v. United prevail. Despite the highly structured written and oral 33. This immunity can apply, at the prosecution’s States, 133 S.Ct. 1794 (2013). examination process (instituted only within recent discretion, to a person who is either (1) extorted, or 9. United States v. Daniel Alvirez, Court Doc. No. years as a result of Western pressure), appointments (2) after giving a bribe voluntarily, makes a report 09-CR-335 (D.D.C. 2012). for judgeships allegedly are still either purchased or of the occurrence. In practicality, the immunity is 10. Id.; see also, United States v. Amaro Gon- allocated to those who are acceptable to the Minis- given to those who are arguably extorted and then calves, Court Doc. No. 09-CR-335 (D.D.C. 2012). At try of Justice. It is widely perceived that judges must quickly report the payment. Even though the Azeri trial, the government’s primary informant was repeat- abide by the government’s explicit interests and im- and Georgian authorities designed this loophole to edly attacked by defense counsel as a cocaine addict, plicit demands. See United States Agency for Interna- encourage disclosure in exchange for amnesty, no tax cheat and admitted thief of millions of dollars tional Development, Analytical Paper on Corruption parallel protection is afforded under U.S. law. Thus, from his prior employer. In addition, defense counsel in the Judicial Sector of Azerbaijan (2005), available even though the improper payment may be explicitly cited examples of “vulgar” and “unprofessional” text at http://pdf.usaid.gov/pdf_docs/PNADP873.pdf. forgiven under foreign law, this forgiveness is not a bar messages between FBI agents and the informant. See 20. Those convicted include heads of regional to federal prosecution. See, United States v. Kozeny, id. education departments, regional labor and social No. 05-518 (SAS) (S.D.N.Y Oct. 21, 2008). In a pre- 11. United States v. Alvirez, Court Doc. No. 09- protection departments, teachers, doctors, chairmen trial motion, Bourke argued that the FCPA includes an CR-348 (D.D.C. 2012). of small municipalities and mid-level employees of affirmative defense that provides that if a payment to a 12. Transparency International, Business Principles the Ministry of Defense, Interior Ministry, etc. See foreign official was legal under the law of the country for Countering Bribery, 4 (2008), available at www.cgu. generally, Office of the Prosecutor, Azerbaijan, Anti- in which it was made (Bourke claimed Kozeny was gov.br/conferenciabrocde/arquivos/English-Business- Corruption Department, Guidebook (2013) (copy of extorted and thus was not a voluntary briber), then the Principles-for-Countering-Bribery.pdf. file with author). person who paid the bribe is immune from prosecution 13. Transparency International, Corruption Percep- 21. OECD Report, supra note 18. under the FCPA. The district court ruled, however, that tions Index (2013), available at http://cpi.transparency. 22. World Bank, Doing Business 2012: Do- for the lawful payments exception to apply, the pay- org/cpi2013/results/. ing Business in a More Transparent World (2011), ment must have been specifically permitted under the 14. European Commission, Progress Report of the available at www.doingbusiness.org/reports/global- foreign law at the time it was made. Azerbaijani (and EU-Azerbaijan European Neighborhood Policy Action reports/doing-business-2012. Georgian) law, of course, specifically criminalizes all Plan (2012), available at http://ec.europa.eu/world/enp/ 23. Alexander Kupatadze, “Georgia’s Fight bribe payments (whether extorted or not), and thus the docs/2013_enp_pack/2013_progress_report_azerbai- Against Organized Crime: Success or Failure?,” court held that the affirmative defense did not apply. jan_en.pdf; see also, Amanda Paul, The German Mar- 9 Caucasus Analytical Digest 11 (Sept. 17, 2009), Bourke never raised the extortion argument at trial, shall Fund of the United States, How Do You Deal with available at www.css.ethz.ch/publications/pdfs/CAD- but, in a motion for a new trial, he complained that the an Autocratic and Energy-Rich Ally like Azerbaijan? 9-9-12.pdf. court should have issued the FCPA lawful payments (2010), available at www.gmfus.org/wp-content/blogs. 24. Id. at 10. (i.e., extortion payment) exception as an affirmative dir/1/files_mf/galleries/ct_publication_attachments/ 25. Paul Rimple, Who Owned Georgia 2003- defense jury instruction. The district court again denied onwider_series_azerbaijan_jun10_final.pdf. 2012 (2013) (on file with author); see also, Steve the motion. United States v. Kozeny, 664 F. Supp. 2d 15. “Azerbaijan Cracks Down on Corruption, Rosenberg, “Georgia: Are glass-walled police stations 369, 394 (S.D.N.Y. 2009). Cuts Bureaucracy and Improves Government Ser- enough to tackle corruption?,” BBC News, July 9, 34. The Economist, supra note 26. vices with Wide-Ranging Initiative,” Wall St. J., 2013, www.bbc.co.uk/news/world-europe-23231993 April 22, 2013, http://online.wsj.com/article/PR- (hereinafter Rimple). Peter G. Strasser is a CO-20130422-904254.html . 26. “Georgia’s government: Caucasian circles,” partner in the New Orleans 16. “The government does not even bother itself The Economist, May 11-17, 2013, at 54, available at office of Chaffe McCall, to explain to the public recent well-sourced publica- www.economist.com/news/europe/21577399-squab- L.L.P, working with the tions in foreign media (The Washington Post) about bles-between-president-and-prime-minister-distract- Government Investiga- ownership by the president’s family members of attention-georgias-real (hereinafter The Economist). multimillion-dollar villas in Dubai, acquisitions of 27. Freedom House, Sylvana Habdank-Kolacz- tions and White Collar large shares in local banks, and one of the three cell kowska, Nations in Transit 2013: Authoritarian Ag- Criminal Defense Group. phone operators, Azerfon.” See Shahin Abbasov, gression and the Pressures of Austerity, 218 (2013), A former assistant U.S. “Azerbaijan Swimming in a Sea of Bribes, Despite available at www.freedomhouse.org/sites/default/ attorney, he served as an Anti-Corruption Tide,” Azeri Report (2011), avail- files/inline_images/NIT-2011-Georgia.pdf. the Department of Jus- able at http://azerireport.com/index/php?option=com_ 28. Organisation for Economic Co-operation and tice Legal Attaché at the content&task=view&id=3584. Development, Anti-Corruption Network for Eastern U.S. Embassies in Baku, 17. “Azerbaijani President Aliyev Named Cor- Europe and Central Asia, Istanbul Anti-Corruption Azerbaijan, from 2008-10 and Tbilisi, Georgia, ruption’s Person of the Year” (Radio Free Europe/Ra- Action Plan: Second Round of Monitoring: Georgia, from 2002-06. In 2010, under the auspices of the dio Liberty, radio broadcast, July 17, 2013), available 44 (2010), available at www.oecd.org/countries/geor- Organisation for Economic Co-operation and at www.rferl.org/content/azerbaijan-ilham-aliyev- gia/44997416.pdf. Development, he co-authored the 2010 OECD corruption-person-of-the-year/24814209.html. 29. Dimitri Avaliani, “The United National Anti-Corruption Monitoring Report of Georgia. In 18. Organisation for Economic Co-operation and Movement and the Georgian Dream: The First Steps July 2013, he returned to the South Caucasus for Development, Anti-Corruption Network for Eastern of Their Administrations,” Tabula Magazine, June the United States European Command to analyze Europe and Central Asia, Istanbul Anti-Corruption 2013, available at www.tabula.ge/en/story/72022-the- what progress Azerbaijan and Georgia had made in Action Plan: Second Round of Monitoring: Azer- first-steps-of-their-administrations. anti-corruption compliance during the intervening baijan Progress Report (2012), available at www. 30. Rimple, supra note 25. oecd.org/corruption/acn/49910887.pdf (hereinafter 31. FCPA Resource Guide, supra note 3, at 54. years. (Ste. 2300, 1100 Poydras St., New Orleans, OECD Report). 32. United Nations Convention Against Cor- LA 70163)

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