The Galleon insider trading cases have drawn considerable attention for their use of techniques not typically seen in white collar crime cases. Those include the use of wire taps and informants wearing wires. These techniques permitted the government to witness or listen in on exchanges of what is alleged to be inside information and illegal trading.
These so-called blue collar tactics have long been used in organized crime and other types of criminal cases. Now these techniques are being used in FCPA cases. DOJ and the FBI unveiled an undercover sting operation used to build FCPA charges against twenty-two individuals charged in sixteen indictments. The cases, filed in the District of Columbia, represent what the Department is calling the first large scale use of undercover law enforcement techniques in an FCPA case. It is also the largest action ever undertaken by DOJ against individuals for violations of the Foreign Corrupt Practices Act.
The indictments, unsealed yesterday, all center a sting operation in which an undercover FBI agent, posing as a sales agent, met with executives of various companies in the defense supply business. The executives were told that the defense minister for an African country was prepared to spend $15 million to outfit the country’s presidential guard. The so-called agent then told the executives that a 20% “commission” was required. Half of the commission would go to the agent and half to the minister. To participate, the executive would then agree to create two price quotes for the equipment. One quote did not have the commission. The other included it.
U.S. v. Goncalves, Case No. CR – 09-335 (D.D.C. Unsealed Dec. 19, 2009), which names as a defendant Amaro Goncalves, is typical of the indictment stemming from the sting. The defendant is the Vice President of Sales of Company A, a U.S. entity headquartered in Springfield, Massachusetts. The company, whose shares are traded on NASDAQ, is a world wide leader in the design and manufacture of firearms.
According to the indictment, Mr. Goncalves met with a self-employed sales agent friend, who in turn introduced him to an agent (identified as UA-1) claimed to be tasked by the Minister of Defense of the African country with obtaining the required material. In reality, UA-1 was an under cover FBI agent. During a meeting at the Ritz-Carlton Hotel in Washington, D.C. with the sales agent and UA-1, Mr. Goncalves is alleged to have agreed to proceed with a deal involving the African country in which the 20% sales commission would be added to the cost of the merchandise. The deal was set up in two phases. The first was a small “test” and the second was the actual deal.
During the test phase, Mr. Goncalves is alleged to have confirmed the arrangement in e-mails. Those included price quotations with the so-called commissions. Mr. Goncalves is also alleged to have sent a wire transfer of the 20% commission to UA-1’s bank account. Half of the payment was for UA-1 and half for the Minister.
Mr. Goncalves was later told at a meeting with the sales agent and another undercover FBI agent that the Minister of Defense was pleased with the test. He was furnished with a written agreement for the second phase. That agreement, which contained the alleged corrupt commissions, was executed by the defendant.
The indictment contains counts alleging conspiracy to violate the FCPA, violations of that Act and conspiracy to commit money laundering. It also contains a forfeiture count. The other fifteen indictments are based on the same core of factual allegations.
To date, the SEC has not brought parallel actions.