Last week, corporate defendant Lindsey Manufacturing, Inc. (“Lindsey Manufacturing”) was convicted of violating the Foreign Corrupt Practices Act (FCPA) for allegedly bribing and conspiring to bribe representatives of a state-owned Mexican utility through a third party intermediary.
The Department of Justice’s press release on the case can be found here.
- The Department of Justice (DOJ) alleged that Lindsey Manufacturing, an electric utility equipment manufacturer, headquartered in Azusa, California, and two of its executives conspired to pay bribes to Mexican government officials at the Comisión Federal de Electricidad (CFE), a state-owned utility company.
- According to the DOJ, CFE is responsible for supplying electricity in Mexico, and contracts with Mexican and foreign companies for goods and services to help supply electricity services to its customers. Lindsey Manufacturing, allegedly, hired Grupo Internacional de Asesores S.A. (Grupo) to serve as its sales agent in Mexico and to obtain contracts from CFE, in exchange for a percentage of the revenue Lindsey Manufacturing realized from its contracts with CFE.
- According to the DOJ, from approximately February 2002 until March 2009, Lindsey Manufacturing, its CEO, Dr. Keith Lindsey, its CFO, Steve K. Lee, and Grupo directors Enrique Aguilar and Angela Aguilar allegedly orchestrated a scheme to obtain contracts from CFE by channeling improper payments to CFE officials through Grupo. According to the DOJ, “Lindsey Manufacturing directed that a 30 percent commission on all the goods and services it sold to CFE be paid to Enrique Aguilar, even though this was a significantly higher commission than previous sales representatives for the company had received.” Lindsey Manufacturing allegedly directed these 30 percent commission payments to Enrique Aguilar for the purpose of using the money to pay bribes to Mexican officials in exchange for CFE awarding contracts to Lindsey.
- Enrique and Angela Aguilar allegedly laundered 30 percent commission payments in the Grupo brokerage account to make concealed payments for the benefit of CFE officials.
- According to the DOJ, “within months of hiring Enrique Aguilar, Lindsey Manufacturing began receiving contracts from CFE and over the course of the next seven years received more than $19 million in CFE business.” Enrique and Angela Aguilar allegedly purchased a yacht for approximately $1.8 million named the Dream Seeker and a Ferrari for $297,500 for a CFE official. Enrique and Angela Aguilar also allegedly paid more than $170,000 worth of American Express bills for a CFE official and sent approximately $600,000 to relatives of a CFE official.
- Lindsey Manufacturing, Keith Lindsey, Lee and Angela Aguilar elected to hold the DOJ to its burden of proof and take their chances at trial. Enrique Aguilar did not participate in the trial and remains a fugitive.
- On May 10, 2011, following a five-week trial and after less than 24 hours of deliberations, the jury returned guilty verdicts on all counts against the defendants on trial in the case. Angela Aguilar was convicted of one count of conspiracy to commit money laundering. Lindsey Manufacturing, Keith Lindsey, and Steve Lee were each convicted of one count of conspiracy to violate the FCPA and five counts of violating the FCPA.
- Angela Aguilar’s sentencing is set for August 12, 2011, while the other three defendants are scheduled to be sentenced on September 16, 2011.
- The defendants face a maximum penalty of five years in prison and a fine of the greater of $250,000 or twice the value gained or lost on the FCPA conspiracy charge. Each of the five FCPA counts carries a maximum penalty of five years in prison and a fine of the greater of $100,000 or twice the value gained or lost. The money laundering conspiracy count carries a maximum penalty of 20 years in prison and a fine of the greater of $500,000 or twice the value of the property involved in the transaction. The government is seeking forfeiture against all defendants.
- Since the inception of the FCPA in 1977, only one other corporate defendant had elected to defend an alleged FCPA violation at trial. In 1990-1991, Harris Corporation (and certain of its executives) were acquitted of alleged FCPA violations at trial. Obviously, Lindsey and its executives did not fair as well. The Lindsey Manufacturing verdict, therefore, represents the first case where a corporate defendant was convicted of FCPA violations after fully litigating the matter through trial.
- Because Lindsey Manufacturing was itself convicted of FCPA violations, the DOJ will seek to forfeit its corporate assets in subsequent proceedings. This undoubtedly will have a deleterious effect on Lindsey Manufacturing’s viability as a business concern and the jobs of its employees because once convicted, related forfeiture actions are almost invariably successful.
- The Lindsey Manufacturing case is also noteworthy because the defendants had challenged the FCPA counts in the indictment based upon the argument that the definition of “foreign official” under the FCPA does not include employees of foreign state owned corporations. The Court rejected defendants’ arguments and sided with the DOJ, ruling that CFE was an “instrumentality” of the Mexican government, and, therefore, the CFE representative who purportedly accepted bribes qualified as a “foreign official” under the FCPA.
Reference: DOJ Press Release No. 11-596, (dated May 10, 2011); U.S. v. Noriega et al, U.S. District Court, Central District of California (Western Division – Los Angeles), Case #: 2:10-cr-01031-AHM-4.