Weighing the Legal Ramifications of the Wal-Mart Bribery Case

April 24, 2012

The New York Times on April 23, 2012 released the following:

“BY PETER J. HENNING

The United States government puts a premium on corporate cooperation in foreign bribery cases, relying on companies to conduct thorough internal investigations and voluntarily disclose any wrongdoing.

Indications that Wal-Mart Stores may have taken steps to keep an internal investigation from digging deeper into $24 million in questionable payments — and later promoting an executive who may have been implicated in them — may affect how the government decides to proceed against the giant retailer.

Wal-Mart first disclosed in December that it had started “a voluntary internal review of its policies, procedures and internal controls pertaining to its global anticorruption compliance program.” That review was the result of reporting by The New York Times about bribery by Wal-Mart de México to secure permits and approvals to build new stores.

The company’s disclosures did not give any information about where the foreign bribery issues had arisen, only that the focus was on whether “permitting, licensing and inspections were in compliance with the U.S. Foreign Corrupt Practices Act.” Wal-Mart said it had informed the Justice Department and the Securities and Exchange Commission about the internal investigation, and the company issued a statement in response to the Times article that its outside advisers “have and will continue to meet with the D.O.J. and S.E.C. to report on the progress of the investigation.”

Companies caught up in investigations of foreign bribery often seek to exert a measure of control over the flow of information by meeting early and often with government investigators in an effort to establish credibility regarding the scope and integrity of the investigation, usually sharing the results as quickly as possible. If corporate counsel can demonstrate its reliability, then the Justice Department and the S.E.C. are more likely to accept the findings of the internal investigation without conducting an independent review.

Cooperation is also important because it is a significant factor for prosecutors in deciding how to resolve a case. The Justice Department has allowed companies to pay reduced fines and avoid a guilty plea to criminal charges by entering into deferred or nonprosecution agreements because they came forward voluntarily and readily provided information.

While Wal-Mart may be angling for the same type of resolution, it is questionable whether being prodded by The Times’s reporting to start an internal investigation shows that it took affirmative steps to address a problem. The company had dropped its earlier investigation, and likely would have let that sleeping dog lie if not for potential media scrutiny.

The Times article also raises two significant red flags for investigators that may cause them to take a more aggressive approach in the case. First, the Mexican bribery involved senior management at the subsidiary, not just low-level employees operating on their own. One factor cited in the Justice Department guidelines for deciding whether to charge a business organization is the “pervasiveness of wrongdoing within the corporation,” and the most important consideration “is the role and conduct of management.”

Second, Wal-Mart’s own investigators raised questions about $16 million in “contributions” and “donations” to local governments, but there was no further review of those payments. Simply ignoring these types of transfers is sure to raise questions for the government about whether the company can claim it had an effective compliance program back in 2005 when these issue first came to light, another important consideration in determining whether to file charges.

Wal-Mart also pointed out twice in its statement that the payments in Mexico took place more than six years ago. That may be an effort to explain why it may be unable to conduct a complete investigation. Whether the excuse will fly with the Justice Department and the S.E.C. remains to be seen.

The time lag may present a problem if the Justice Department wants to prosecute any individuals for bribery of Mexican officials. The statute of limitations for a violation of the Foreign Corrupt Practices Act is five years. The limitations period can be extended if the government was seeking evidence from a foreign country, but that does not appear to be the case because Wal-Mart only disclosed the issue in late 2011. So charges related to conduct before 2007 may be lost due to the passage of time.

One way the government can try to avoid the statute of limitations is to charge a conspiracy, which only requires that one act in furtherance of the criminal agreement take place within the last five years. If active steps by Wal-Mart executives to cover up payments to foreign officials occurred in 2007 or later, then prosecutors might be able to pursue that charge.

The statute of limitations will not work as much in Wal-Mart’s favor, however, because the company is required to annually file financial statements covering the previous five years. It is likely that questionable payments were not properly reflected on the company’s books and records. So even if no charges can be brought for any foreign bribery, at a minimum it could be charged with violating the accounting provisions of federal securities law for not properly disclosing the payments made by Wal-Mart de México.

Another potential avenue that prosecutors are likely to investigate is obstruction of justice under 18 U.S.C. § 1519, which was added by the Sarbanes-Oxley Act. If there is evidence that anyone at the company covered up or destroyed records “with the intent to impede, obstruct, or influence” a future investigation, that could be grounds for a criminal charge.

One factor working against Wal-Mart is that the Justice Department may be looking for a prominent case to demonstrate the need for vigorous enforcement of the Foreign Corrupt Practices Act as a response to recent criticisms of the law. The Chamber of Commerce, which hired a former attorney general, Michael B. Mukasey, to lobby for changes to the statute, has argued that aggressive application of the law has caused companies to shy away from overseas investments for fear of being scrutinized.

The Times article makes it clear that Wal-Mart appeared to be more concerned with protecting its fast-growing Mexican operation than with thoroughly investigating allegations that corruption helped fuel its success. Prosecutors can make an example of Wal-Mart to show that the Justice Department will not tolerate foreign bribery, even by a leading American company. That would bolster the argument that revising the statute would send the wrong message to the rest of the world.

The payments at issue are comparatively paltry, perhaps totaling less than $50 million, although that number could increase as the internal investigation moves forward. The ultimate cost to Wal-Mart for the legal and accounting fees for the investigation, along with any monetary penalties the Justice Department and the S.E.C. may seek, will probably far exceed the bribes.”

18 U.S.C. § 1519

————————————————————–

Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment

————————————————————–

To find additional federal criminal news, please read Federal Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition and OFAC SDN Sanctions Removal.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


Henry Fecker, III, and Steven Steiner Indicted by a Federal Grand Jury in a Fifty-Four Count Federal Indictment

August 25, 2011

The U.S. Attorney’s Office Southern District of Florida on August 24, 2011 released the following:

“TWO FT. LAUDERDALE MEN INDICTED FOR MONEY LAUNDERING AND OBSTRUCTION OF JUSTICE IN CONNECTION WITH MUTUAL BENEFITS CORPORATION FRAUD

Wifredo A. Ferrer, United States Attorney for the Southern District of Florida, John V. Gillies, Special Agent in Charge, Federal Bureau of Investigation (FBI), Miami Field Office, and José A. Gonzalez, Special Agent in Charge, Internal Revenue Service, Criminal Investigation Division (IRS-CID), announced the unsealing of a fifty-four count indictment against defendants Henry Fecker, III, 57, and Steven Steiner, a/k/a “Steven Steinger,”59, for their participation in a scheme to launder and conceal proceeds in connection with the Mutual Benefits Corporation (“MBC”) fraud. More specifically, Fecker and Steiner are charged with receiving more than $10 million into the account of Camden Consulting, a company they controlled, and then hiding and concealing assets from the U.S. Securities and Exchange Commission (“SEC”) and the United States District Court. Both defendants were arrested and appeared in court earlier today. A pre-trial detention hearing is scheduled for Tuesday, August 30, 2011 at 1:30 p.m. before U.S. Magistrate Judge Andrea M. Simonton.

As alleged in the indictment, from approximately 1994 to May 2004, MBC purchased life insurance policies and sold them in fractionalized form to investors. MBC and its employees and agents eventually defrauded approximately 30,000 investors by, among other things, misleading them about the accuracy of life expectancies of the insureds and the expenses required to maintain the insurance policies via premium payments. New investor money was thus used to pay premiums on life insurance policies purchased by earlier investors. As the scheme continued, more investor money was required to prevent the Ponzi-scheme from collapsing. After the MBC business collapsed in 2004, investors eventually suffered more than $830 million in losses.

As charged in the indictment, Steiner was a founder and Vice President of MBC and was paid by MBC using the account of Camden Consulting. Fecker was the owner of Camden Consulting. In this way, the MBC funds were used to support a lavish lifestyle for Steiner and Fecker, who lived together and jointly owned waterfront homes in Ft. Lauderdale and Camden, Maine, and a luxury apartment in New York City.

According to the indictment, in May 2004, MBC was sued by the SEC in the civil action, S.E.C. vs. Mutual Benefits Corp., et al., No. 04-60573-CIV-MORENO (S.D. Fla.) (the “SEC Fraud Action”). The SEC obtained a restraining order to halt the alleged fraud at MBC, and thereafter a receiver was appointed by the United States District Court for the Southern District of Florida (the “MBC Receiver”), to identify and trace the assets of MBC. Steiner was a named defendant in the SEC Fraud Action and Fecker was a party due to his control of Camden Consulting.

According to the indictment, after 2004 when MBC was shut down, Fecker and Steiner engaged in a series of transactions to hide assets from the SEC and the MBC Receiver by placing funds attributable to Steiner with third parties or in Fecker’s name alone, and later by causing third parties to make payments of monies due to Steiner, instead to Fecker. In 2006, for example, Fecker obtained a refinance of the Maine property and placed the proceeds of approximately $480,000 into a series of certified checks to conceal their existence from authorities. Fecker began cashing these checks in 2008 and continued this through July 2011, using the funds to support a lavish lifestyle for Fecker and Steiner.

To obtain a favorable settlement of their liability with the SEC, the indictment alleges that in 2006 and early 2007, Fecker and Steiner submitted a series of false and misleading documents to conceal their true financial condition. Based on this documentation, around April 2007, the SEC agreed to settled their liability for $5 million and further agreed to a reduced penalty of $3.95 million, and the court in the SEC Fraud Action thereafter ordered that these sums be paid by order dated April 10, 2007. The indictment alleges that, to date, Steiner and Fecker have paid only $750,000.

The indictment further alleges in late 2009, to further conceal assets from the SEC and the SEC receiver, Steiner sold the luxury New York apartment for $1.3 million, but caused false documents to state that the sales price was $1.1 million and submitted these documents to the SEC and the MBC Receiver. To further thwart the SEC’s efforts to recover assets attributable to MBC, Steiner allegedly provided false and misleading testimony under oath to the MBC Receiver concerning his assets and financial condition.

Previously, in a separate case also in the Southern District of Florida, Steiner was charged in United States v. Joel Steinger, et al. (Case No. 08-CR-21158), with conspiracy to commit mail and wire fraud and money laundering, in relation to the MBC fraud scheme. Trial in that matter is scheduled for February 2013 before U.S. District Judge Adalberto Jordan.

United States Attorney Wifredo A. Ferrer stated, “Ponzi-schemes, like the MBC investment scheme, defraud unwitting investors out of their lives savings. These defendants compounded their legal troubles by then laundering the proceeds of the fraud and attempting to hide assets. Such abuse will not be tolerated.”

“We will vigorously investigate and prosecute individuals who obstruct justice by making false statements and concealing assets from an agency of the United States attempting to carry out its mission, such as the SEC’s efforts to protect investors here,” said FBI Special Agent in Charge John V. Gillies.

“We will hold accountable those who engage in the laundering of funds derived from fraud, particularly through concealment and spending of funds through sophisticated transactions, like the ones employed here,” said IRS Special Agent in Charge José A. Gonzalez.

Mr. Ferrer commended the investigative efforts of the FBI and the IRS-CID, and the Miami Regional Office of the SEC, which previously brought a civil action against MBC and its principals. The matter is being prosecuted by Assistant U.S. Attorney Jerrob Duffy.

An indictment is only a charging document, and a defendant is presumed innocent unless and until proven guilty.”

To find additional federal criminal news, please read Federal Crimes Watch Daily.

Douglas McNabb and other members of the U.S. law firm practice and write extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition and OFAC SDN List Removal.

The author of this blog is Douglas McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.

Bookmark and Share