Groundbreaking FCPA case ends with dismissals

DOJ showed inexperience in Catch-22 string, but won't back down on future enforcement

Two years ago, the so-called Catch-22 sting was heralded as a game-changer. Never before had the Department of Justice (DOJ) so broadly employed the kind of aggressive investigation tactics normally associated with drug and mob cases in a Foreign Corrupt Practices Act (FCPA) context.

In January 2010, after a two-and-a-half year investigation, federal agents snared 21 target individuals at a small arms industry trade show in Las Vegas, and one more in Miami. It was the largest mass indictment in FCPA history. In the course of the complex operation, FBI agents had posed as the representatives of a corrupt Gabonese defense minister, soliciting
20 percent bribes on a phony $15 million arms and equipment contract.

If you think it sounds like the setup for a Hollywood crime caper, you’re not alone. In text messages revealed at trial, the key informant and FBI agents speculated on who would play them in the movie. From the way things turned out, Will Ferrell is more likely than Al Pacino.

The government’s case was troubled from the start. The defendants were split into several groups for trial, the first of which ended in a hung jury last summer. The second trial saw key charges dropped and the acquittal of two defendants, one of whom—R. Patrick Caldwell—was a former Secret Service agent who had only been on the job for six weeks when he was nabbed.

Caldwell’s sterling reputation did a lot to undermine the investigation’s credibility (former National Security Advisor Gen. James L. Jones testified as a character witness). Furthermore, a confusing and embarrassing litany of phone and text message records painted a jaded picture of the alleged crimes for jurors.

On Feb. 21, the DOJ decided to cut its losses and asked Judge Richard Leon to dismiss the indictments against the remaining 16 individual defendants. It was another black eye for a division still reeling from a December 2011 dismissal in Lindsey Manufacturing and a January acquittal in O’Shea. Still, experts caution, it shouldn’t be interpreted as a high-water mark for FCPA enforcement.

“Obviously this is not good news for the DOJ, but the notion that this is somehow a sea change in FCPA enforcement is overblown,” says T. Markus Funk, a white-collar partner at Perkins Coie and chair of the American Bar Association’s Global Anti-Corruption Task Force. “The bottom line is that the investigation didn’t go the way the prosecutors and agents no doubt wanted it to go, that they’re going to learn important lessons from the experience, and that they’re going to stand a far better chance of having things go their way the next time around.”

Inexperience Shows

In announcing the sting back in 2010, Assistant Attorney General Lanny Breuer made it clear that the rules had changed—federal investigators would now be active and aggressive in rooting out business corruption. The entire operation was a clear attempt to make a splash and send the signal that going forward, any bribe-taker may be a federal agent.

Buried in that message, however, was just how passive and reactive the feds previously had been. Historically, the DOJ’s FCPA unit relied almost exclusively on self-reporting—companies voluntarily walking in the door, confessing to violations and fingering bad actors. “There’s probably no other area of criminal law enforcement in which federal prosecutors and agents do less proactive investigating,” says one former prosecutor.

Assistant U.S. attorneys working out in the trenches build their skills gradually. They start with straightforward cases such as bank robberies where they learn evidentiary rules, how to prep
witnesses and how to collaborate with the FBI, and eventually graduate to bigger, more complex cases involving undercover operatives, wiretaps and collaborating witnesses.

In contrast, attorneys who come up at Main Justice often have little or no investigation or trial experience. That inexperience—something of an open secret in the white-collar bar—was revealed, perhaps inevitably, in a case as ambitious as the Catch-22 sting.

Tactless Texts

The government’s star witness was Richard Bistrong, a former vice president at Armor Holdings Inc., who was embroiled in his own FCPA problems when he flipped and went to work for the feds. He helped investigators set up the sting, and in the process, forged a chummy rapport with his FBI handlers. Their communication was documented in a large volume of text messages.

Later revealed at trial, the messages were loaded with sex jokes, gay-baiting references to the Village People and lots of cigar talk. One text published by the Washington Post oddly alluded to a well-known Saturday Night Live sketch, with an FBI agent advising Bistrong that his efforts needed “more cowbell.” The inappropriate tone of the messages made investigators look casual, arrogant and unprofessional to jurors and defense teams alike.

According to Lisa Prager, a partner at Morvillo Abramowitz who represented defendant Israel Weisler—owner and CEO of U.S. Cavalry Inc.— the phone and text messages provided a play-by-play of the investigators’ actions that didn’t align with the story prosecutors were trying to tell in court.

“The text messaging issue was particularly important to us because our client didn’t really understand what was going on,” Prager says, “and that was evidenced in emails and correspondences that he had after the fact.”

She also says Bistrong gave the investigation targets a hard sell, citing one phone call where he vigorously and vulgarly berated an individual who wanted out of the fictional corrupt deal.

If at First You Don’t Succeed

In the wake of the dismissals, FCPA blogs have been abuzz with commenters lambasting the DOJ, calling the sting another case of prosecutorial overreaching.

That may be so, but former prosecutors still expect the government to stick to the more aggressive course Breuer laid out in 2010.

“Look, the Justice Department has suffered a number of embarrassments over the past couple years,” says Jacqueline Wolff, co-chair of the white-collar practice at Manatt, “but I don’t necessarily get a sense that they won’t try to do a sting operation again. They were trying to do something much more aggressive. It was introduced with a lot of hype, and it frightened a lot of people.”

That gave the case a higher profile than it may have deserved and placed this first effort squarely in the spotlight. Despite the dismissals, however, most experts believe undercover tactics are entirely appropriate in FCPA enforcement, and that over time, the FCPA unit will get better at them.

“You can use these tactics in white-collar investigations, but it’s more difficult because there are no drugs or guns on the table,” Prager says. “Many white-collar cases are crimes of the mind, so you have to make sure that the script is crystal clear.”

Contributing Author

Steven Andersen

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