December 10, 2018

December 10, 2018

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DOJ Employs Money Laundering Statute to Prosecute Venezuelan Oilmen for Foreign Bribery

As forecasted in a blog post last summer, the United States Department of Justice (“DOJ”) has again used the money laundering statute to accomplish the otherwise elusive goal of prosecuting foreign officials who allegedly receive bribes. On Monday, DOJ unsealed its Indictment against five Venezuelans employed by or closely connected to Petroleos de Venezuela S.A. (“PDVSA”), the Venezuelan state-owned and state-controlled oil company.

The unsealing of the charges against these five Venezuelan individuals marks the latest development in a multi-year effort by DOJ to investigate and prosecute bribery at PDVSA. As DOJ’s press release notes, ten individuals have already pleaded guilty in the investigation thus far.  Key among these individuals are Roberto Enrique Rincon Fernandez and Abraham Jose Shiera Bastidas, two American businessmen who pleaded guilty in 2016 to violating the Foreign Corrupt Practices Act of 1977 (the “FCPA”) for paying bribes to PDVSA.  In connection with their pleas, the two admitted to paying PDVSA bribes in order to win lucrative energy contracts and to be given payment priority over other PDVSA vendors during a time when PDVSA faced a liquidity crisis.

Last October, more than one year after these guilty pleas, Spanish police announced the arrests of four of the five individuals named in Monday’s Indictment.  The arrests were described as “part of a months-long sting ordered by the U.S. Department of Homeland Security.”  Currently, three of the defendants remain in Spain pending extradition, the fourth was extradited to the United States and made his initial appearance last Friday, and the fifth remains at large.

As noted above, the Indictment is notable for using the money laundering statute to accomplish what the FCPA statute cannot—bringing charges against a foreign official. Last summer, we blogged about the conviction and sentencing of Guinea’s former Minister of Mines and Geology.  There, we noted the FCPA generally prohibits individuals and businesses from paying bribes to foreign officials to assist in obtaining or retaining business.  However, “foreign officials” cannot be charged under the FCPA or with conspiracy to violate it.  Therefore, a foreign official could not be prosecuted for his conduct in soliciting or receiving bribes under the FCPA.

Here, Monday’s Indictment begins by stating that three of the five Venezuelan defendants were “foreign officials” as that term is used in the FCPA. The Indictment then alleges, in detail, how the defendants laundered the proceeds of the aforementioned PDVSA bribery scheme through numerous financial transactions in the names of various companies.  They are alleged to have worked together to provide banks with false justifications for the bribe payments and, in one instance, used the bribe proceeds to purchase a condominium in Miami in the name of a company controlled by a relative.  All five defendants are alleged to have engaged in at least one conspiracy to commit money laundering, and each is charged with one or more counts of money laundering.  The Specified Unlawful Activity, or SUA, underlying the money laundering counts is the FCPA.  Thus, the FCPA supports money laundering counts in instances in which the FCPA itself could not be charged directly.

The paradox of the latest development in this investigation is intriguing. The investigation was and remains, in its essence, a prototypical FCPA case, in which DOJ is seeking to combat the bribery of foreign officials.  Yet, without the money laundering statute, the U.S. would be unable to prosecute some of the individuals central to the alleged activities.  This paradox is highlighted in the Indictment’s lone count that does not allege a violation of the money laundering statute, Count Two.  There, the Indictment alleges a conspiracy to violate the FCPA, but only names the two defendants who were not “foreign officials.”  In other words, the Indictment implicitly acknowledges that a majority of the defendants are outside the reach of the FCPA statute.  Thus, the money laundering statute acts not simply as a supplement to the FCPA, but as an instrumental component of DOJ’s strategy to prosecute wrongdoing at the highest levels.

The unsealing of the Indictment comes at a tumultuous time in the U.S.-Venezuela relationship and amidst what is described as a time of economic crisis in that country.

Last year, we blogged about the U.S. Department of Treasury’s designation of Venezuela’s Executive Vice President, Tareck Zaidan El Aissami Maddah (“El Aissami”), as a Specially Designated Narcotics Trafficker under the Foreign Narcotics Kingpin Designation Act.  Through this designation, U.S. individuals and entities are prohibited from dealing with El Aissami and certain named entities to which he is allegedly connected, and any assets held by him or those entities in the U.S. are frozen.

More recently, U.S. Secretary of State Rex Tillerson announced earlier this month that the U.S. is considering banning sales of Venezuelan oil in the United States and halting the refining of Venezuelan crude by U.S. companies.  Venezuela, for its part, recently announced its President’s plan to float a new cryptocurrency backed with the country’s oil reserves in an attempt to fend off economic distress.  That plan was met with resistance from Venezuela’s parliament, the U.S. Treasury Department and investors worldwide.  Notably, the article linked above quotes one commentator as predicting this new crytocurrency would “become a money laundering tool for well-connected people” within the President’s regime.

While some commentators believe Venezuela’s frayed relationship with the U.S. may have played some role in the decision to pursue the five Venezuelan executives named in Monday’s Indictment, the message here is universal. An unwary foreign official receiving bribes can easily fall within the ambit of the U.S. money laundering statute.  And the effort to find and arrest any such foreign official is not confined to the U.S. borders.  Perhaps this was best stated by a commentator referencing the October 2017 arrests in Spain:  “There are lots of people that are not sleeping well tonight.

Copyright © by Ballard Spahr LLP

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About this Author

Evan W Krick, white collar defense, civil litigation, Delaware, lawyer, Ballard Spahr, Law Firm
Associate

Evan W. Krick focuses on white collar criminal defense and complex civil litigation, with an emphasis on the banking and health care industries. 

302-252-4463