White Collar Crime

http://www.fbi.gov/about-us/investigate/white_collar

FCPA caution to individuals

Two more former employees of Direct Access Partners plead guilty to FCPA and Travel Act violations

December 2014Authors: Richard Craig Smith, Marsha Z. Gerber, Paul Edward Sumilas

In a case that underscores the US Department of Justice’s (“DOJ”) continued commitment to prosecuting individuals for violating the US Foreign Corrupt Practices Act (“FCPA”), two former employees, including the former chief executive officer (“CEO”), of a broker-dealer pleaded guilty to FCPA-related offenses. As noted by Principal Deputy Assistant Attorney General for the Criminal Division Marshall L. Miller in a September 17, 2014 speech, “[t]he prosecution of individuals—including corporate executives—for white-collar crimes is at the very top of the Criminal Division’s priority list . . . .”[1] These recent enforcement actions demonstrate that the DOJ is serious about pursuing enforcement actions against individuals at all levels of the corporate hierarchy, “whether they’re sitting on a sales desk or in a corporate suite.”[2]

As part of this aggressive approach to combating bribery, the DOJ has been creative in achieving successful prosecutions. For example, in this instance, the defendants also pleaded guilty to violations of the Travel Act. Although the Travel Act is a decades-old statute originally aimed at combating US-based organized crime, it has been used more recently in conjunction with allegations of FCPA violations. A violation of the Travel Act occurs when travel or communication facilities are used in either interstate or foreign commerce to carry out unlawful activity. The Travel Act defines unlawful activity as, among other things, both public and private (or commercial) bribery. This catch-all statute can enhance financial penalties and prison time for individuals and provides the DOJ with an additional tool in its campaign to eradicate global anti-corruption through prosecution of individuals.

Background

Benito Chinea, the former CEO of Direct Access Partners, LLP (“Direct Access Partners”), and Joseph DeMeneses, former managing director of Direct Access Partner, a US-based broker-dealer, pleaded guilty on December 17, 2014 to charges arising from a bribery scheme to win bond-trading business from an economic development bank owned by the Venezuelan government. Specifically, the defendants pleaded guilty to conspiring to pay bribes to Maria De Los Angeles Gonzalez De Hernandez, the former head trader at Banco de Desarrollo Economico y Social de Venezuela (“BANDES”), in return for trading business that allegedly generated more than US$60 million in commissions. Messrs. Chinea and DeMeneses joined other former Direct Access Partners employees, including Tomas Alberto Clarke Bethancourt, Ernesto Lujan, and Jose Alejandro Hurtado, as the fifth and sixth defendants to plead guilty for their roles in this alleged bribery scheme, which lasted from late 2008 to 2012.[3]

Among other financial services, Direct Access Partners provided fixed income trading services related to the purchase and sale of foreign sovereign debt for institutional clients. These services were provided on a commission basis by the company’s Global Markets Group (“GMG”). After receiving an order from a customer for a particular bond it wished to purchase, the GMG would locate and purchase the bond and then resell it to the customer at a higher price and retain the “mark-up.” Conversely, when selling a bond for a customer, the GMG would purchase the bond from the customer at a below-market price and then sell that bond on the market for a higher price, retaining the “mark-down.”

BANDES, a state-controlled economic development bank and client of Direct Access Partners, operated under the direction of the Venezuelan People’s Ministry of Planning and Finance. Serving at relevant times as either the Vice President of Finance or the Executive Manager of Finance and Funds Administration of BANDES, Ms. Gonzalez oversaw the bank’s trading abroad, including trading by Direct Access Partners on behalf of BANDES. In exchange for her directing BANDES business to Direct Access Partners, Messrs. Chinea and DeMeneses, and other defendants allegedly organized a scheme involving kickbacks of revenue to Ms. Gonzalez.

The defendants also allegedly misrepresented the amount of the mark-ups and mark-downs charged on Direct Access Partners’ trades for BANDES so that the defendants could increase their profits by paying her less than the portion they had initially agreed to pay. Among the various methods employed to carry out the scheme, the defendants allegedly designated certain intermediary persons as “foreign finders” or “foreign associates” of Direct Access Partners to route funds disguised as finder’s fees to Ms. Gonzalez. From approximately April 2009 through August 2009, for example, Direct Access Partners paid approximately US$8 million in purported fees to a third party, a portion of which was then routed to Swiss accounts maintained by Ms. Gonzalez.

Source: http://www.nortonrosefulbright.com/us/knowledge/publications/124388/fcpa-caution-to-individuals