On Monday, March 5, 2012, several of the defendants in the Carson FCPA case in California filed a Motion to Dismiss and a Motion to Suppress, raising a new set of interesting issues in a case where the corporation has already settled with the Government and individual employees face charges. In both motions, the defendants raised issues regarding DOJ’s relationship with Control Components, Inc. ("CCI"), the employer of defendants. In the Motion to Dismiss, defendants argued that "the impact of the cumulative impediments – unique investigation tactics preventing Defendants access" to certain evidence deprived them of their Due Process and Sixth Amendment rights, ("including the right to present a complete defense") and that "dismissal is the only appropriate remedy" for such severe prejudice. In the Motion to Suppress, defendants argued that because CCI had collaborated with DOJ during the investigation, it was a Government agent whom improperly compelled statements from the defendants during an internal investigation in violation of their Fifth Amendment rights. As a result, defendants argue that the statements should be suppressed.
On July 31, 2009, DOJ announced that CCI, a California company that designs and manufactures control valves for use in the energy-related industries, had pled guilty to a three-count criminal information for violations of the FCPA and the Travel Act. The Government alleged that CCI had engaged "in a decade-long scheme to secure contracts in approximately 36 countries [including in China, Korea, Malaysia and the United Arab Emirates] by paying bribes to officials and employees of various foreign state-owned companies as well as foreign and domestic private companies." The same day, Judge James Selna ordered CCI to pay an $18.2 million criminal fine, placed it on organizational probation for three years, and ordered it to create and implement a compliance program and retain an independent compliance monitor for three years. That plea marked the culmination of an internal investigation by CCI and the company’s cooperation with DOJ.
The cooperation led to other CCI executives being indicted even before CCI pled guilty. Mario Covino, a former director of worldwide factory sales, pled guilty on January 8, 2009 to one count of conspiracy to violate the FCPA, and Richard Morlok, a former finance director, pled guilty on February 3, 2009 to a conspiracy count, as well.
On April 8, 2009, prosecutors indicted six additional former executives of CCI: Stuart Carson, the former CEO; Hong ("Rose") Carson, the former director of sales for China and Taiwan; Paul Cosgrove, the former director of worldwide sales; David Edmonds, the former vice president of worldwide customer service; Flavio Ricotti, the former vice-president and head of sales for Europe, Africa and the Middle East; and Han Yong Kim, the former president of CCI’s Korean office. In a 16-count Indictment, the Government alleged that the group conspired to pay bribes to officials of foreign state-owned companies in China, Malaysia, and the United Arab Emirates in order to secure contracts which yielded approximately $46.5 million in profits.
The defendants moved to dismiss the Indictment, arguing, among other things, that the FCPA did not extend to payments made to employees of foreign state-owned companies. On May 18, 2012 Judge Selna denied that motion to dismiss, holding that "the question of whether state-owned companies qualify as instrumentalities under the FCPA is a question of fact." At an in Chambers hearing on February 16, 2012, he issued an Order addressing the jury instructions on that issue, rejecting a number of the proposed instructions submitted by the defendants, sticking close to the list of non-exclusive factors he identified in his prior decision on this issue.
In the March 5 Motion to Dismiss, the defendants raised a new issue, arguing that they had been prejudiced by the Government’s investigative tactics (including its relationship with CCI, who, according to defendants, "worked hand-in-hand with DOJ to investigate the matters at issue in this case). The motion enumerated specific issues, including:
• discovery tactics precluding defendants access to millions of pages of normally-discoverable evidence;
• the lack of a meaningful review under Brady (including the fact that CCI would not turn over material to DOJ);
• CCI’s loss of crucial documents underlying many of the counts and transactions; and
• CCI instructing its employees (including key witnesses) not to speak with the defense.
The defendants argued that that combination of tactics "deprived [them] of their Due Process and Sixth Amendment rights, including the right to present a complete defense." According to the motion, the "only appropriate remedy" for such severe prejudice is dismissal.
In the separate Motion to Suppress filed on March 5, defendants detailed the relationship between DOJ and CCI:
In 2007, corporate counsel for IMI plc [and its wholly-owned subsidiary CCI], undertook an internal investigation on behalf of its clients and the governments of the United States and the United Kingdom. By summer 2007, the investigators, including [counsel], believed a number of CCI employees had violated the [FCPA]. For three managers, [Mr. Edmonds, Mr. Cosgrove and Ms. Carson], [counsel] and CCI coerced them to submit to interviews about matters at the heart of [the] investigation at the risk of losing their jobs. Defendants were not told at the time of their interviews that CCI and [counsel] already were convinced of their culpability, were collaborating with the DOJ to obtain their statements and intended to share any statements with prosecuting authorities.
Defendants argue that CCI and its counsel "were de facto public actors" at the time they conducted the interviews. In short, "CCI compelled the Defendants’ statements with the government’s knowledge, certainly at a minimum with the government’s general encouragement, and with the intent to cooperate with the DOJ." According to defendants, "CCI was an agent of the government during the interviews." Defendants further argue that "CCI compelled the Defendants’ statements under a classic ‘penalty situation’ – CCI required them to answer all questions regardless of their Fifth Amendment right against self-incrimination or be fired." This conduct, defendants claim, "violated their Fifth Amendment rights and the statements must be suppressed."
Most companies, when faced with a Government-led FCPA investigation, cannot afford to risk litigating and will frequently settle with government regulators for lesser charges, and a sizable fine. It is often the individual employees who do not cooperate and/or plead who will face the Government. Defendants’ theories in these two motions raise interesting issues which could possibly impact cases involving similar circumstances in the future, and how the Government approaches such situations.
The case is presently scheduled to go to trial on June 5, 2012.