In what is to date the largest number of individuals netted in a single FCPA case, the US Department of Justice (DoJ) has arrested and charged 22 executives at military and law enforcement production companies with attempting to bribe foreign government officials to win business contracts.

The 22 executives, who hailed from different companies based in the US, UK, and Israel, were indicted at the conclusion of a joint undercover sting operation carried out in cooperation with the FBI. It marks the first time that the DoJ has made use of such a technique in going after US companies who bribe foreign officials, as well as being the largest single investigation and prosecution against individuals in the history of the department’s enforcement of the US Foreign Corrupt Practices Act (FCPA).

“This on-going investigation is the first large scale use of under-cover law enforcement techniques to uncover FCPA violations and the largest action ever undertaken by the DoJ against individuals for FCPA violations. The fight to erase foreign bribery from the corporate play book will not be won overnight, but these actions are a turning point. From now on, would be FCPA violators should stop and ponder whether the person they are trying to bribe might really be a federal agent,” said Lanny Breuer, assistant attorney general of the DoJ’s criminal division.

According to the indictments, the accused allegedly engaged in schemes to pay bribes to the defence minister of an African nation. As part of the undercover operation, FBI agents posed as sales agents who were led to believe represented a minister of defence in a country in Africa. The executives are accused of allegedly agreeing to pay a 20 per cent commission to the sales agent, in what they believed would lead to the award of US$15 million contract to outfit the country’s presidential guard.

The accused executives, who are aged between 25 and 66 and hailed from a range of companies producing gear ranging from small arms, to ballistic vests and armoured vehicles, were told that half of this commission amount would be paid directly to the said defence minister. They also agreed to prepare price quotations in connection with the deal, one which represented the true cost of the contract, and another which included the extra 20 per cent kickback. The executives also allegedly agreed to do a small test deal to show the fictitious defence minister that he would receive the 10 per cent bribe.

They were arrested in Las Vegas and in Miami by FBI agents, and all were charged with conspiring to violate the FCPA, conspiring to engage in money laundering, and engaging in substantive violations of the FCPA. The indictments also sought to forfeit any illegal profits the company may have generate from bribery. If found guilty, the executives each face a maximum prison sentence of five years for both the conspiracy and FCPA counts, as well as 20 years for money laundering.

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A former broker at investment Credit Suisse has been jailed for five years for misleading his clients by telling them that nearly US$1 billion was being invested in US government backed student loans, when in fact were tied to more risky sub-prime mortgages.

Eric Butler, formerly a managing director in Credit Suisse’s private banking division in charge of the corporate cash management group, was also ordered to pay a US$5 million fine. The recent sentce follows his trial and conviction last August. Federal prosecutors had originally asked for a sentence of at least 15 years.

According to facts unveiled during last year’s trial, between 2005 and 2007, Mr Butler, whose unit was responsible for helping clients manage excess corporate cash holdings, and a colleague misled clients by either sending or directing assistants to send emails with names of securities falsified to make them appear less risky.

This was done by removing terms referring to mortgages or collateralised debt obligations (CDO), which is type of product tied to sub-prime mortgages. Prosecutors said this was replaced with words which created an impression that the investments, consisted of auction rate securities totalling around US$900 million, were backed by student loans, and the clients were told that the product was a safe alternative to bank deposits or money market funds.

As a result of this scheme, some of Butler’s clients, which included sophisticated corporate investors the likes of drug company GlaxoSmithKline, lost as much as US$500 million, when the market for auction rate securities tied to CDOs froze in 2007. Butler’s clients were then left with securities whose values sank as mortgage defaults rose. On the other hand, the sale of the products generated high commissions for Butler and his colleague.

A spokesman for Credit Suisse, David Walker, told the Wall Street Journal: “Since 2007, when we promptly informed our regulators of this matter, Credit Suisse has assisted the authorities to bring these individuals to justice.”

Paul Weinstein, Butler’s lawyer, said his client would seek to appeal the sentence.

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