United States: FCPA Guilty Verdict Underscores Enforcement Priority: Individuals

Originally published July 30, 2009

Keywords: FCPA, guilty verdict, enforcement priority, Frederic Bourke, SOCAR, Travel Act, false statements

On July 10, 2009, investor Frederic Bourke was convicted in New York of conspiring to violate the Foreign Corrupt Practices Act ("FCPA") and the Travel Act, and making false statements to authorities during an investigation. The allegations related to Bourke's efforts to acquire interests in the Azeri state-owned oil company in the 1990s. Sentencing in the case is scheduled for October 2009, and Bourke faces up to 10 years in prison and a significant fine.

The Bourke trial and conviction underscore an important enforcement priority at both the US Department of Justice and the US Securities and Exchange Commission: Individuals will be investigated and charged for violating the FCPA. While this is not a new trend, the rare trial conviction serves as a sharp reminder of the potency of the message being sent.

In this Client Alert, we review the background of the Bourke trial and conviction, and describe two lessons we draw from the verdict.

Bourke Trial and Conviction

The investigations stemming from the privatization of the Azeri oil industry in the 1990s spawned a series of FCPA cases involving, among others, a Swiss lawyer, a Swiss bank, an Irish citizen living in Bermuda, a hedge fund, a subsidiary of the insurance giant AIG, and American investor Frederic Bourke.

In summary, when the government of Azerbaijan sought to privatize the State Oil Company of the Azerbaijan Republic ("SOCAR"), according to the allegations in Bourke's 2005 indictment, Bourke and others sought corruptly to obtain a controlling interest in the privatized oil company, SOCAR. According to the indictment, Bourke and others conspired to bribe Azeri officials with cash flown into Azerbaijan by private plane, jewelry and other gifts, and hundreds of millions of dollars worth of stock.

After years of pre-trial litigation, Frederic Bourke's trial started on June 2, 2009. Evidence at trial included audio tapes of a conversation involving Mr. Bourke; the testimony of former U.S. senator George Mitchell; and a government expert who opined on the extent and notoriety of corruption in Azerbaijan in the 1990s. Following two days of jury deliberation, Bourke was convicted on the conspiracy and false statement counts, and acquitted on a money-laundering charge. 

Two Lessons

Two important lessons emerge from the Bourke trial and conviction. First, 2009 is shaping up to be the "Year of the Individual" for FCPA prosecutions. In the first half of 2009, the Department of Justice indicted eight people; obtained five guilty pleas; one person was sentenced (to a period exceeding four years); Bourke received a verdict of guilty; and, the DOJ started another, rare FCPA trial against an individual. The trial and conviction of Bourke, although initiated years ago, sharply underscores the current point being made by the DOJ: individuals will be prosecuted for FCPA violations. The era is long past when the company alone would be the subject of an FCPA prosecution.

The second lesson to emerge from the Bourke trial relates to the FCPA's definition of a "knowing" violation. While the statute and legislative history have long made clear that consciously avoiding knowledge of corruption by a third party acting on your behalf may suffice to demonstrate knowledge under the FCPA, obtaining a conviction at trial on such a theory is a different matter.

Bourke's defense rested on his denial of knowledge that the organizer of the investment had bribed Azeri officials to gain control of SOCAR. The trial judge clearly applied the FCPA's expansive definition of "knowing" in her jury instructions, charging that the jury was permitted to find knowledge on the part of Bourke as follows:

The import of this is clear: If you suspect a fact (for example, that a third party has made or may in the future make an improper payment on your behalf) and realize that the fact is highly probable, there may be a consequence in not obtaining the final confirmation.

The practical instruction derived from the facts underlying the Bourke prosecution is equally clear: When operating in countries or industries where corruption red flags continue to exist, conduct due diligence to identify the specific corruption risks. Once the risks have been identified, appropriate mitigating compliance controls can be designed, implemented and monitored.

While the Bourke prosecution arose out of the acquisition of an interest in a company, history has shown that the issue of due diligence is not limited to the M&A context. The need to vet and monitor third parties acting on your behalf applies equally to joint venture partners, consultants, agents and distributors.

For more information about the Bourke trial and conviction or to obtain a copy of our Pocket Guide to the Foreign Corrupt Practices Act, please contact the author.

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