Fcpa enforcement-aerospace-defense-industry

Understanding FCPA Enforcement
Trends in the Aerospace and Defense
Industry: A Launch Pad to Effective
Management of Anticorruption Risks
April 2013
LW.com

Latham & Watkins | Understanding FCPA Enforcement Trends in Aerospace & Defense
Contents
I. Introduction....................................................................................1
II. A Brief Introduction to the FCPA............................................1
III. The International Compliance Landscape..........................4
A. The UK Bribery Act
B. Enforcement in BRIC Countries
IV. Recent Enforcement Actions Against Companies
in the Aerospace and Defense Industry: Trends and
Case Studies.....................................................................................5
A. The Use of Third-Party Agents May Be the Single Riskiest Practice
B. US Authorities Are Aggressively Targeting Industry Executives
C. The First Large-Scale Undercover Investigation in FCPA History Targeted
Defense Industry Executives
D. FCPA Enforcement in the Aerospace and Defense Industry Could Have National
Security Implications
E. The United States and the United Kingdom Worked Together to Obtain the
Largest Criminal Penalty Ever Imposed on a Defense Company in the FCPA
Arena
F. Successor Liability Means That Comprehensive Due Diligence Is Critical
G. Operating in Certain Countries Presents Heightened Risks
H. Defense Offset Transactions Can Lead to FCPA Liability
I. Dealings with Commercial Customers Must Also be Scrutinized: The Case of
State-Owned Airlines
J. Emerging Risks for Satellite Communications Companies
K. Statutes Often Linked with FCPA Charges
L. Derivative Civil Litigation Related to the FCPA
V. Best Practices for the Industry..........................................14
VI. FCPA Reform Initiatives..............................................................15
VII. Latham & Watkins’ Industry Experience and
Expertise.........................................................................................16
VIII. Chart of Industry Enforcement Actions..........................17

Latham & Watkins | Understanding FCPA Enforcement Trends in Aerospace & Defense 1
I. INTRODUCTION
All companies conducting business abroad should be concerned about compliance with
the Foreign Corrupt Practices Act (FCPA or the Act). Companies in certain industries
— like the aerospace and defense industry—due to the heavily regulated nature of the
industry and the level of interaction with foreign governments, are even more vulnerable
to FCPA liability than others. Legislative history from 1977 indicates that congressional
concern over reports of questionable payments made by aerospace companies was one
impetus for the Act’s passage. According to Trace International, aerospace and defense
industry members have accounted for approximately twelve percent of the world’s
anticorruption enforcement actions since 1977, second only to the extractive industries
like oil and mining.
FCPA enforcement across all industries has sky-rocketed in recent years. In 2009, the
Department of Justice (DOJ) and Securities and Exchange Commission (SEC) initiated
a total of 40 FCPA enforcement proceedings. That figure nearly doubled in 2010 to 74
enforcement actions, fell slightly in 2011 to approximately 50, and decreased even more
in 2012 to just over 20 actions. But, the 2012 downtick should not prompt companies
to relax their compliance. All signs, including DOJ and SEC’s recent publication of the
FCPA Resource Guide (Resource Guide), suggest that US authorities will continue to
vigorously enforce the FCPA in the coming years.
US authorities are not alone in their efforts to crackdown on corruption. Other countries,
most notably the United Kingdom, are also stepping up their anticorruption efforts and
focusing on the aerospace and defense industry. The UK Bribery Act 2010 (UKBA) is
potentially more burdensome for global companies to comply with than the FCPA. Unlike
the FCPA, the UKBA reaches bribery in both the public and private sectors and punishes
companies for failing to prevent bribery. This means that a company, UK or otherwise,
could be held liable under the UKBA if a person associated with the company commits
bribery, even if the person has no connection with the United Kingdom and the bribe
activity occurred outside of the United Kingdom.
The potential exposure for multinational companies and their executives is significant.
Companies in all industries must appreciate the compliance risks and take steps to
minimize their vulnerabilities. Utilizing the enforcement agencies’ recent pronouncements
in the Resource Guide as a launching mechanism, this article provides a background
primer on key aspects of the FCPA and UKBA and highlights recent trends and case
studies that have impacted companies in the aerospace and defense industry. Through
our industry group platform, Latham & Watkins LLP is uniquely positioned to deploy
resources around the world to assist our industry clients as they tackle the challenges of
assessing and minimizing their anticorruption risks.
II. A BRIEF INTRODUCTION TO THE FCPA
The FCPA criminalizes corrupt payments to foreign government officials for the purpose
of obtaining or retaining business. The Act’s anti-bribery provisions prohibit the use of
the mail or any instrumentality of interstate commerce in furtherance of a corrupt offer,
payment, promise to pay, or authorization to pay money to any foreign official for the
purpose of influencing the official in his or her official capacity, inducing the official to
violate his or her lawful duty, or securing an improper business advantage. The Act’s
coverage is vast. It applies to improper payments made anywhere in the world and
covers illegal payments made not only by company employees, but also by subsidiaries,
joint venture partners, and third-party agents. Companies and senior executives can
be held responsible for payments made by their employees and agents, even if they
did not have actual knowledge of the corrupt nature of the payments. This means
that executives cannot shield themselves from FCPA liability simply by ignoring or
disregarding the suspicious actions of their employees and agents.

2 Latham & Watkins | Understanding FCPA Enforcement Trends in Aerospace & Defense
DOJ’s concept of “foreign official” under the FCPA is equally expansive. It covers not
only officers and employees of foreign governments, but also anyone acting in an official
capacity for or on behalf of a government department, agency, or “instrumentality thereof,”
which can include employees of state-owned and state-controlled companies. Courts that
have examined this issue in recent years have held that whether a particular entity is an
“instrumentality” under the FCPA requires a fact-specific analysis of the entity’s ownership,
control, status, and function. Jury instructions often include a non-exhaustive list of factors
that a jury should consider, including the foreign state’s extent of ownership and degree
of control over the entity; the circumstances surrounding the entity’s creation; the purpose
of the entity’s activities; and the level of financial support by the foreign state. Although
no factor is dispositive, DOJ and SEC guidance suggests that an entity is unlikely to be
considered an instrumentality if a government does not own or control a majority of its
shares.
The FCPA also contains accounting provisions that work hand-in-hand with its anti-bribery
provisions. The accounting rules, known as the books and records provisions, require
companies to maintain books and records in reasonable detail to accurately account for
and report all transactions and dispositions of their assets. This mandate is not limited
to transactions within the United States or with foreign government officials. It applies to
all financial dealings of all US and foreign companies that are required to file reports or
register their securities with SEC. So broad is the reach of the FCPA’s books and records
provisions that a US parent company can be held liable for its foreign subsidiary’s failure
to keep accurate books and records where, for example, the subsidiary’s financials are
ultimately consolidated with the parent’s financial statements.
DOJ and SEC jointly enforce the FCPA. Corporations are subject to criminal fines of up
to $2 million per anti-bribery violation. Under the Alternative Fines Act, which authorizes
fines up to twice the benefit the defendant sought to gain by making the corrupt payments,
actual fines can be even higher. Individual executives are also subject to criminal penalties
of up to $100,000 in fines and five years in prison. Violations of the accounting provisions
can subject corporations to a fine of up to $25 million. On the civil side, companies and
individuals face fines of $16,000 per anti-bribery violation. Under the civil forfeiture statute,
which can also be used in the criminal context, defendants may be required to forfeit any
assets derived from proceeds traceable to an FCPA violation or a conspiracy to violate the
FCPA.
The collateral consequences of FCPA enforcement actions can be more burdensome than
the massive fines. The enforcement agencies have utilized the appointment of outside
monitors more frequently in recent years. According to the Resource Guide, DOJ and
SEC consider the following factors when determining whether a monitor is appropriate:
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(1) seriousness of the offense; (2) duration of the misconduct; (3) pervasiveness of the
misconduct (including whether it cuts across geographic or product lines); (4) nature and
size of the company; (5) quality of the company’s compliance program at the time of the
misconduct; and (6) subsequent remediation efforts.
Generally, the monitor agreements require companies to grant their monitors very broad
access to their employees, policies, systems, and documents, and the monitors may
be required to provide periodic reports to the government. Under its February 2010
plea agreement with DOJ stemming from charges that it made illegal bribe payments
to obtain government contracts, BAE Systems (BAES) agreed to engage an outside
corporate monitor for three years. DOJ permitted BAES to choose its own monitor, but
DOJ retained complete discretion to accept or reject BAES’s proposed candidates. For
many companies, the loss of autonomy over their compliance systems is one of the most
troubling consequences of settling FCPA charges.
The government can impose other non-monetary sanctions, including prohibiting
transactions with the government and barring companies from obtaining export licenses.
For defense contractors, debarment from government contracting or the loss of export
privileges could effectively put them out of business.
FCPA enforcement has been at an all-time high in recent years. From 2004 to 2010, the
number of FCPA enforcement actions initiated by DOJ and SEC increased almost fifteen
fold — from five to 74. The penalties have increased dramatically as well. In 2010, US
and foreign companies paid a record $1.8 billion in FCPA-related financial penalties.
The ten costliest FCPA-related settlements have all occurred since 2008, and eight of
the ten have occurred since 2010. Although enforcement fell slightly in 2011 and 2012,
it will undoubtedly pick up again due in part to a recent move by Congress to increase
the incentives for whistleblowers to report FCPA violations to SEC. The Dodd-Frank
Wall Street Reform and Consumer Protection Act, signed into law by President Obama
on July 21, 2010, includes a “whistleblower bounty” provision that provides monetary
benefits for whistleblowers who report securities law violations to SEC. Whistleblowers
who provide information that leads SEC to a successful enforcement action or settlement
can receive between 10 and 30 percent of the amount of the settlement that exceeds $1
million. The whistleblower bounty provision, coupled with the aggressive enforcement
appetite of US law enforcement, will undoubtedly lead to more FCPA investigations and
enforcement actions in the coming years.

III. THE INTERNATIONAL COMPLIANCE LANDSCAPE
A. The UK Bribery Act
The UKBA, which entered into force on July 1, 2011, is even broader, in terms of scope and
territorial reach, than the FCPA. The UKBA contains two general offenses: active bribery,
meaning offering, promising, or giving a bribe; and passive bribery, or requesting, agreeing to
receive, or accepting a bribe. Thus, unlike the FCPA, which only targets bribe-givers, the UKBA
punishes both sides of the bribe transaction. Under the UKBA, a bribery offense occurs when
a person offers, promises, or gives a financial or other advantage to another person with the
intent to induce that person or another to improperly perform a relevant function or activity. A
“relevant function or activity” is defined to include anything connected with a business, trade,
or profession, with minor exceptions. This expansive definition highlights the second major
distinction between the UKBA and the FCPA — unlike the FCPA, which prohibits bribery of
foreign government officials, the UKBA targets all bribery, including bribery that is entirely within
the private sector.
Arguably, Section 7 of the UKBA is its most expansive provision. Section 7 creates a new form
of corporate liability for failing to prevent bribery. There is only one defense to the charge of
failure to prevent bribery — that an organization had “adequate procedures” in place to prevent
bribery. The UK Ministry of Justice issued guidance that lays out six factors the UK authorities
will consider when deciding whether a commercial organization has implemented adequate
procedures to prevent bribery: whether (1) proportionate procedures are in place to prevent
bribery; (2) top-level management is committed to preventing bribery; (3) risk assessments
are performed and documented on a periodic basis; (4) due diligence is conducted prior to
entering into business relationships with third parties; (5) anti-bribery policies are embedded and
understood through communication and training; and (6) anti-bribery procedures are monitored
and reviewed as needed.
The UKBA’s territorial coverage is extensive. The UKBA governs all acts that take place within
the United Kingdom, regardless of where the organization or individual who committed the act
is based. In addition, the UKBA’s anti-bribery provisions apply to acts committed outside the
United Kingdom if the actor had a “close connection” to the United Kingdom. For individuals,
this means a person who is a British national or resident; for companies, this means a body
incorporated in the United Kingdom or a Scottish partnership. Section 7, the failure to prevent
bribery offense, applies even more generally to all companies “carrying on business, or part
of a business” in the United Kingdom. This means that a non-UK company that bribes a
private non-UK citizen to retain business that is entirely unconnected with the United Kingdom
could theoretically fall under the jurisdiction of the UKBA if it carries on business in the United
Kingdom. Because the threshold for “carrying on business” is low, all global companies with
some presence in the United Kingdom must take steps to implement adequate procedures to
prevent bribery in order to minimize their UKBA exposure.
B. Enforcement in BRIC Countries
Other countries have become increasingly active in their anticorruption efforts. To date, 40
countries have ratified the Organization for Economic Cooperation and Development’s (OECD)
Anti-Bribery Convention, which entered into force in 1999. By signing onto the Convention,
countries pledge to enact national legislation to criminalize the bribery of foreign government
officials. In addition, in the span of just a few months, some of the world’s most powerful
emerging nations passed laws criminalizing foreign bribery. Effective May 2011, China amended
its criminal code to make paying bribes to foreign government officials a crime. China amended
Article 164 of the Chinese Criminal Law, which previously prohibited commercial bribery, to add
a prohibition against giving property to any foreign public official or official of an international
public organization “for the purpose of seeking illegitimate commercial benefits.” The amended
law does not contain any affirmative defense or exceptions, and applies to all Chinese citizens,
wherever located, and to all companies organized under Chinese law.

Also in May 2011, the Russian President signed into law a measure that imposes criminal
sanctions on companies and individuals who make corrupt payments to foreign public
officials. The Russian law, like the UKBA, also criminalizes the receipt of corrupt payments.
Under Russia’s law, wrongdoers can be fined up to 100 times the amount of the bribe (not
to exceed 500 million rubles, or about $18 million), and can be jailed for up to 12 years. Also
in 2011, Indian lawmakers introduced anticorruption legislation. However, India’s Parliament
has thus far failed to pass the legislation. Finally, in 2012 the Brazilian Congress considered
proposed legislation that would prohibit bribery of foreign public officials and substantially
strengthen Brazil’s anticorruption efforts. However, the bill’s progress stalled in late 2012, in
part due to a lobbying campaign against the bill by the business community.
IV. RECENT ENFORCEMENT ACTIONS AGAINST COMPANIES IN THE
AEROSPACE AND DEFENSE INDUSTRY: TRENDS AND CASE
STUDIES
Aerospace and defense companies are particularly vulnerable to FCPA exposure for
a number of reasons. For instance, companies in the industry often serve government
end-customers, and are therefore in constant contact with foreign government officials.
Additionally, aerospace and defense companies regularly hire agents and foreign
consultants to handle their on-the-ground transactions with host country officials. The
industry is also heavily regulated, resulting in greater scrutiny by numerous government
agencies. It is imperative that companies and individuals working in the aerospace and
defense industry are aware of recent enforcement actions brought against industry players
and understand how they fit into broader FCPA trends. In addition to the case studies
discussed below, other industry companies have disclosed in public filings that they are
currently under investigation for potential FCPA violations.
A. The Use of Third-Party Agents May Be the Single Riskiest Practice
Recent enforcement actions and numerous FCPA advisory opinions underscore the risks
associated with the use of third-party sales agents, a common practice in the aerospace and
defense industry. More than half of the industry enforcement actions discussed in this article
involve bribes paid by third-party agents. Similarly, at least three of the 58 FCPA advisory
opinions issued by DOJ since DOJ instituted the opinion procedure release process in
1980 relate to the use of third parties by aerospace and defense companies. According
to the 2012 FCPA Resource Guide, Congress anticipated the use of third-party agents
in bribery schemes, and thereby defined the term “knowing” to prevent the “head-in-the-
sand” problem. This means that companies and their employees cannot avoid liability by
purposefully inserting agents between themselves and foreign officials and then arguing that
they did not know that their agents paid bribes.
In Opinion Procedure Release 82-03, a US company seeking to do business with the
Yugoslav government department charged with obtaining property and services for the
Yugoslav military requested an advisory opinion seeking guidance on whether it could retain
a subunit of the government department to perform duties on its behalf that would typically
be handled by a commercial sales agent. A Yugoslav law obligating the requesting company
to pay a certain percentage of the total contract price to the government department
necessitated this unique third-party arrangement. The requesting company assured DOJ
that there was no expectation that any individual government official would personally
benefit from the proposed agency agreement. DOJ concluded that, based on the facts
presented, it did not intend to bring an enforcement action against the requestor. Opinion
Procedure Releases 93-02 involved a similar situation in which a US company sought to
pay a commission to a government-owned business that had the exclusive right to buy and
sell all defense equipment for a foreign country’s armed forces. DOJ again issued no action
comfort.

A US company engaged in the manufacture and sale of commercial and military aircraft
equipment requested Opinion Procedure Release 96-02. The US company wished to renew
an existing exclusive sales representative agreement with a foreign state-owned enterprise.
The requestor emphasized that the sales representative was in no position to influence the
procurement decisions of the requestor’s potential customers, and the representative itself
warranted that it was in full compliance with the FCPA. Based on these and other factors, DOJ
issued no action comfort.
In July 2011, Armor Holdings Inc., a manufacturer of vehicle armor systems, security products,
and protective equipment used primarily by military and law enforcement personnel, agreed to
pay $10.29 million to DOJ and $5.69 million in civil penalties and disgorgement to SEC to settle
charges related to illegal payments made by a subsidiary of the company through a third-party
sales agent. Between 2001 and 2006, the subsidiary made more than $200,000 in commission
payments to the agent with knowledge that the agent was passing on a portion of the payments
to a United Nations (UN) official to induce the official to provide confidential, non-public bid
information to Armor Holdings. Under the FCPA, payments to public international organizations
like the UN are treated in the same manner as payments to foreign government officials. As a
result of the illegal scheme, Armor Holdings received $6 million in UN body armor contracts.
Armor Holdings also admitted that it had falsely recorded its commission payments to the agent
in its financial records in violation of the FCPA’s books and records provisions.
In addition to pursuing Armor Holdings, DOJ also prosecuted a senior company executive for his
role in several illicit payment schemes involving the company’s assets. DOJ alleged that Richard
Bistrong, Vice President for International Sales for a subsidiary of Armor Holdings, conspired
to make and conceal $4.4 million in illegal payments to third-party agents in order to obtain
contracts in the Netherlands, Nigeria, and Iraq. Bistrong pleaded guilty to the charges against
him and agreed to assist DOJ as a critical informant in the “shot show” investigation, which
would become the largest FCPA investigation in history. In 2012, Bistrong was sentenced to
18 months in prison followed by 36 months of probation. These actions demonstrate the critical
importance of vetting and continuously monitoring the acts of third-party agents to ensure that
they are complying with the FCPA and other applicable anticorruption laws.
B. US Authorities Are Aggressively Targeting Industry Executives
Richard Bistrong was not the only industry executive targeted by US (and international)
enforcement authorities in recent years. Indeed, last month, the CEO of a major Italian defense
company was arrested on Italian anti-corruption charges. As the actions discussed below
make clear, investigating and prosecuting individual corporate executives and punishing them
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Nam Nguyen,
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US Prison Sentences for Industry Executives
Sentence (in
months)

with lengthy prison sentences have become cornerstones of DOJ’s FCPA enforcement
strategy. Notwithstanding the former Italian Prime Minister’s recent statement following
the arrest of a defense company CEO for bribing foreign officials that “Bribery exists. It’s
pointless to ignore reality. Paying a briber abroad is a matter of necessity,” companies
should not view fines imposed for violating the FCPA as just another cost of doing
business.
In 2007 and 2008, DOJ and SEC brought FCPA cases against more than 30 individuals.
In 2009 alone, DOJ and SEC charged more than 40 individuals with FCPA violations.
The number fell by more than half in 2010, increased slightly in 2011 to 24, and fell again
in 2012 to less than ten individuals. The threat of substantial jail time has been realized
in several recent high-profile cases. In 2008, Albert “Jack” Stanley of Kellogg, Brown &
Root, Inc. was sentenced to seven years in jail for his role in overseeing and participating
in a scheme to bribe Nigerian government officials to obtain lucrative government
contracts. In 2011, a Florida judge sentenced Joel Esquenazi, the former President of
a telecommunications company, to 15 years in prison for his role in bribing officials of a
state-owned telecommunications company in Haiti.
Aerospace and defense industry executives are not immune to imprisonment. In
November 2008, a physicist from Virginia pleaded guilty to a three-count criminal
indictment alleging violations of the FCPA and the Arms Export Control Act. Shu Quan-
Sheng, a US citizen and native of China, was the President, Secretary, and Treasurer
of AMAC International, a high-tech company based in Virginia that performed research
under government grants. According to the criminal information, Shu made illegal
payments to three Chinese government officials on behalf of AMAC and a French
company for whom he was acting as an agent in order to induce the officials to award a
contract for the development of a liquid hydrogen tank system to the French company.
Throughout 2006, Shu offered payments to the officials totaling approximately $189,000.
In 2007, the China Academy of Launch Vehicle Technology awarded the $4 million
contract for the hydrogen liquefier project to the French company that Shu represented. In
April 2009, Shu was sentenced to 51 months in prison.
SEC has also targeted industry executives. In May 2009, SEC filed a settled enforcement
action against Thomas Wurzel, the former President of ACL Technologies Inc., a former
subsidiary of Maryland-based aerospace and defense company United Industrial
Corporation (UIC). The SEC complaint alleged that Wurzel authorized illegal payments
to a third-party agent in Egypt, knowing or consciously disregarding the high probability
that the agent would pass on the payments to Egyptian Air Force officials in order to
obtain business for the company. As a result of these illicit payments, UIC received a
$5.3 million contract. Wurzel consented to the charges without admitting or denying the
allegations and paid a $35,000 civil penalty. SEC also pursued UIC, alleging that UIC’s
legal department approved the retention of the Egyptian agent without any documented
due diligence and did not require the agent to sign a written agreement warranting that he
would comply with the FCPA. More generally, SEC concluded that the company lacked
meaningful controls to prevent or detect illicit payments to its agents. UIC agreed to pay
approximately $340,000 in disgorgement and prejudgment interest to settle the charges.
C. The First Large-Scale Undercover Investigation in FCPA History
Targeted Defense Industry Executives
DOJ targeted 22 defense industry executives in the first major use of undercover law
enforcement tactics in the history of the FCPA. The two-year investigation, known as
the “shot show” investigation, involved the use of undercover agents and informants
and culminated in a coordinated sting operation. On January 18, 2010, DOJ arrested 22
executives of military and police equipment firms for violating the FCPA — the largest-ever
FCPA indictment. 21 of the arrests took place in Las Vegas during the annual SHOT Show
Convention, a trade show for professionals in the hunting and law enforcement industries.

FBI agents posing as representatives of the Gabonese Ministry of Defense approached
the various defendants and offered them a $15 million contract to outfit Gabon’s national
guard. According to the charging documents, the defendants agreed to pay a 20 percent
commission to a sales agent who they believed represented the Minister of Defense of
Gabon and would funnel the payments to the Minister. Richard Bistrong, the previously
discussed Armor Holdings Vice President, assisted the FBI in its investigation. Dubbed
as “Individual 1” in the shot show indictment, Bistrong agreed to work as an informant
for the government and used his industry connections to act as the primary intermediary
between the undercover government agents and the shot show defendants. Bistrong
and the undercover agents met with each of the indicted executives under either audio or
video surveillance to arrange the deals.
Despite the groundbreaking investigative tactics, the ultimate results of the shot show
case were not as DOJ had hoped. Originally, three of the shot show defendants pleaded
guilty to the charges against them. The remaining defendants were scheduled to be tried
in four separate trials. A federal judge dealt the government its first major setback in July
2011 when the judge declared a mistrial after a jury could not reach a verdict following
six days of deliberations and a three-week trial against the first group of defendants.
The government received another blow in January 2012 when the second trial involving
six of the defendants resulted in the acquittal of two of the defendants and a mistrial for
the remaining four following a hung jury. Finally, on February 21, 2012, Judge Richard
Leon granted DOJ’s motion to dismiss all the charges against the remaining sixteen
defendants. The court would later grant DOJ’s motion to dismiss the indictments against
the three defendants who had earlier pleaded guilty. DOJ cited the outcome of the first
two trials, the impact of evidentiary and legal rulings on future trials, and the enormous
resources required to try future cases, as the reasons for the dismissal.
D. FCPA Enforcement in the Aerospace and Defense Industry Could Have
National Security Implications
Unlike the UKBA, the FCPA’s anti-bribery provisions do not expressly exempt bribes paid
for national security reasons. However, the Act provides some indications that the so-
called “public authority defense” may be successfully used to mount a defense against
FCPA charges. Although the FCPA’s anti-bribery provisions do not contain a national
security exemption, the FCPA’s books and records provisions do. Under the Act, the duty
to maintain accurate books and records does not apply to acts with regard to “matters
concerning the national security of the United States,” provided that the acts are based
on a “specific, written directive” of a head of a federal department or agency that has the
Presidential authority to issue such a directive.
Notably, the UKBA provides an express exemption for corrupt payments that are
“necessary” for the “proper exercise of any function” of an intelligence service or
armed forces. This defense may be applicable to aerospace and defense companies,
particularly those providing civilian assistance to foreign militaries operating in countries
like Iraq and Afghanistan.
In 2003, DOJ charged James Giffen, the then-head of the Mercator Corporation,
with violating the FCPA. DOJ indicted Giffen on 65 counts, alleging that he made
approximately $80 million in corrupt payments to senior government officials of
Kazakhstan related to oil transactions. In his defense, Giffen argued that he made the
payments under the control and with the knowledge of several US government agencies,
including the CIA. Giffen’s assertion of the public authority defense resulted in years of
sealed pre-trial proceedings in accordance with the Classified Information Procedures
Act (CIPA).
Congress enacted CIPA in 1980 to prevent the use of “graymail,” meaning a threat
to release classified information in open court in order to pressure the government
not to prosecute. CIPA’s goal is to balance a criminal defendant’s right to present a

robust defense with the government’s duty to protect classified information. Under
CIPA, a trial judge can conduct in camera reviews of classified information and rule on
its admissibility before it is introduced in court. Giffen battled with the government for
years about whether he could request the production of classified information from the
CIA and other government agencies that he alleged would support his public authority
defense. Although many of the details of the Giffen proceedings remain under seal,
it is now evident that Giffen’s assertion of the public authority defense was largely
successful. In 2010, following seven years of litigation, Giffen pleaded guilty to one
count of a misdemeanor tax violation and received no punishment. In fact, the trial judge
thanked him for being an important source of information for the United States during the
Cold War.
E. The United States and the United Kingdom Worked Together to Obtain
the Largest Criminal Penalty Ever Imposed on a Defense Company in
the FCPA Arena
The multi-jurisdictional investigation and prosecution of BAES, Europe’s largest defense
contractor, led to one of the largest fines ever imposed against a company related to
anticorruption violations. In February 2010, BAES agreed to pay $400 million to DOJ
related to charges that the company knowingly made false statements to various
US government agencies regarding payments made by third-party agents to secure
government contacts in multiple countries. BAES admitted that it regularly retained third-
party marketing advisors to assist with sales to foreign government customers without
conducting adequate due diligence or implementing the proper controls to monitor their
activities, and that it later took steps to conceal these payments from the US government.
The United Kingdom’s six-year investigation into BAES also culminated in February
2010. BAES agreed to pay £30 million in response to allegations that it engaged in
corruption in connection with contracts in several countries, including Tanzania, the
Czech Republic, and South Africa. Joint investigations by US law enforcement and the
Serious Fraud Office (SFO), which is responsible for enforcing the UKBA, will no doubt
increase as UK authorities begin to investigate and bring cases under the UKBA. It is
important to be aware of this trend because increased multi-jurisdictional cooperation
could impact the calculus of companies that are considering whether to disclose FCPA
violations to US law enforcement. The consideration of whether to voluntarily disclose
is already a difficult one; but, companies will now have to consider whether disclosing
wrongful conduct to the US authorities may also lead to a related investigation by the
United Kingdom or another jurisdiction.
F. Successor Liability Means That Comprehensive Due Diligence Is
Critical
Under the theory of successor liability, companies can be held liable for bribery activities
committed by their joint venture and merger partners, even if the violations occurred
before the joint venture or merger took place. It is therefore imperative that companies
contemplating a merger or joint venture conduct thorough due diligence prior to entering
into the relationship and post-acquisition auditing and monitoring as appropriate. In the
Resource Guide, DOJ and SEC indicate that they have declined to take action against
companies that voluntarily disclosed and remediated unlawful conduct in the merger and
acquisition context in a significant number of instances. DOJ and SEC generally only take
action against successor companies in cases of egregious and sustained violations or
where the successor company directly participated in the violations or failed to stop them
post-acquisition. The Resource Guide also makes clear that successor liability cannot
create liability where none existed before. This means that if a US company merges with
a foreign company that was not previously subject to the FCPA, the merger could not
create retroactive FCPA liability for the US company.

In the proposed merger between Titan Corporation and Lockheed Martin, FCPA violations
uncovered during pre-acquisition due diligence derailed the deal entirely. In 2003, Titan and
Lockheed Martin announced an agreement to complete a $1.83 billion merger by early 2004.
However, Lockheed Martin discovered in pre-closing due diligence that Titan had made
improper payments to consultants in Benin, East Asia, and Saudi Arabia. In Benin, for example,
Titan Wireless paid more than $2 million to the reelection campaign of Benin’s then-President
in exchange for receiving higher fees for its telecommunications contract. Titan recorded the
payments in its books as “customs exonerations.” The risks were so great for Lockheed Martin
that it initially dropped its offer price by $200 million and later abandoned the deal. In 2005,
Titan settled the criminal and civil charges and agreed to pay a fine of $28.5 million.
In another industry action, FCPA violations discovered during a post-acquisition audit led
to three individual prosecutions. In 2003, a group of private investors acquired Pacific
Consolidated Industries (PCI), a California-based company that manufactures Air Separation
Units and other military equipment. The buyers discovered several suspicious payments during
a post-acquisition audit and referred the matter to DOJ for investigation. DOJ found that PCI
executives had paid at least $300,000 in bribes to a UK Ministry of Defense official to obtain
defense contracts. In May 2008, Martin Eric Self, the former President and co-owner of PCI,
pleaded guilty to violating the FCPA for his role in the illegal scheme. The following year, Leo
Winston Smith, PCI’s former Director of Sales and Marketing, entered a guilty plea based
on the same activity. Smith was sentenced to six months in prison and six months of home
confinement, while Self received two years’ probation. Across the Atlantic, the United Kingdom
prosecuted Michael Hale, the UK Ministry of Defense official who admitted receiving nine bribe
payments from PCI, and sentenced him to two years in prison.
G. Operating in Certain Countries Presents Heightened Risks
Many aerospace and defense companies have expanded their global operations to reap the
benefits of doing business in developing economies — most notably China, but also places
such as Brazil, India, and Indonesia. Operating in China and other developing nations presents
unique anticorruption compliance risks. Our review of recent enforcement actions against
aerospace and defense industry members suggests that, in addition to China, FCPA actions
have been based on alleged bribery in countries throughout Africa, Asia, the Middle East, Latin
America, and Western Europe. In some developing nations, corruption is widespread and the
legal infrastructure needed to combat corruption is lacking. In addition, the fact that many large
companies in China and other developing nations are state-owned or state-controlled adds an
additional layer of complexity. The need for industry companies to obtain government permits,
licenses, or other approvals through processes that are often rife with corruption can also
exacerbate the FCPA risks associated with doing business in developing economies.
Location of Illegal Conduct in
Select US Aerospace & Defense
Industry Enforcement Actions
Europe
Africa
Middle East
Asia
Latin America

An FCPA enforcement action against a public company that develops and sells
computerized measurement devices and software for use in the aerospace industry
demonstrates the particular risks associated with doing business in China. In June 2008,
Faro Technologies Inc. agreed to pay $1.1 million in criminal penalties and $1.85 million
in disgorgement for bribe payments made in China. Beginning in 2003, Faro engaged
in direct sales in China through its Chinese subsidiary, Faro China. Between 2004 and
2005, Faro employees paid “referral fees” to employees of state-owned and controlled
entities in order to secure $4.9 million worth of contracts. Internal company emails
revealed that in 2005, Faro officials engaged in a scheme to route corrupt payments
through a shell company via a third party to attempt to conceal the illicit payments. Faro
also acknowledged violating the books and records provisions by falsely recording at least
$238,000 in corrupt payments. In addition to the substantial fines, DOJ also required Faro
to engage an independent corporate monitor for two years.
H. Defense Offset Transactions Can Lead to FCPA Liability
Almost all defense trading partners of the United States impose some sort of offset
requirement. Generally stated, an offset is a trade of an investment obligation that is
imposed on a defense contractor as a condition for entering into the main defense
procurement agreement. The Commerce Department’s Bureau of Industry and Security
reports that between 1993 and 2010, US companies entered into 763 offset agreements
with 47 countries valued at $78.08 billion. In 1995, DOJ issued an FCPA Advisory Opinion
in response to a joint request by two companies (Companies A and B) for guidance on
potential FCPA liability arising from deals related to offset obligations.
Company A acquired offset obligations through contracts with a foreign government. In the
country, offset obligations were handled by an Offset Office that was part of the Ministry
of Defense. Company B, owned by a US citizen, entered into an oral agreement with the
Offset Office to receive offset credits in exchange for establishing a new company (Newco)
in the country. The majority of the investors in Newco were to be foreign government
officials, though no Ministry of Defense officials would be included among the investors.
Company B was to receive offset credits from Newco by meeting certain program
milestones unrelated to Newco’s profitability or success. Under a management services
agreement, Company A would provide management services to Newco and would be paid
a fee based on Newco’s revenues and profit, and Company B would provide financing to
Newco. Company A would then compensate Company B out of its management fee.
In the opinion request, Company B certified that it had not paid any funds received from
Company A for the sale of offset credits to any investors in Newco or to any government
officials. Additionally, the shareholders of Newco, who included government officials, made
several certifications to DOJ, including that they would be passive investors only and that
they would recuse themselves from any government decisions related to Newco. Based on
these representations, DOJ assured the requestors that it would not bring an enforcement
action against Company A’s purchase of offset credits from Company B or the proposed
management services contract between Company A and Newco.
I. Dealings with Commercial Customers Must Also be Scrutinized: The
Case of State-Owned Airlines
Aerospace and defense companies cannot afford to focus their FCPA compliance efforts
only on government customers. According to media reports, in June 2011 the FBI briefed
various US agencies on a corruption inquiry into sales and maintenance contracts between
aerospace companies and state-owned airlines, whose employees qualify as foreign
officials under the FCPA. To offset the recent decline in the domestic market, aerospace
and defense companies have and will continue to pursue commercial opportunities in Asia,
the Middle East, and Europe. Before doing so, companies must determine whether the
airlines they are dealing with are state-owned or controlled entities.

In 2008, SEC settled an enforcement action against Con-way, Inc., a California-based
freight forwarder. Although not an aerospace or defense company, the case against Con-
way demonstrates the potential pitfalls of transacting with commercial airlines. SEC alleged
that between 2000 and 2003, Con-way made “hundreds of small payments” to employees
of fourteen state-owned airlines throughout Europe, Asia, and the Middle East in order
to induce airline officials to reserve space for and under-weigh its shipments to save on
shipping costs. Under the terms of the settlement, Con-way agreed to pay $300,000 in civil
penalties.
In 2012, the NORDAM Group, Inc., an aircraft maintenance, repair, and overhaul (MRO)
provider based in Oklahoma, entered into a non-prosecution agreement with DOJ. DOJ
alleged that NORDAM made $1.5 million in corrupt payments to employees of state-owned
airlines in China in order to gain MRO contracts from the airlines. In an attempt to hide
the bribe payments, employees of a NORDAM Singaporean affiliate entered into sales
representation agreements with fictitious companies and then used the money paid by
NORDAM under the supposed agreements to pay bribes. To resolve the charges, NORDAM
agreed to pay a $2 million criminal fine.
J. Emerging Risks for Satellite Communications Companies
The telecommunications industry is a related field that US law enforcement has
aggressively targeted in recent years. Like the aerospace and defense industry,
telecommunication companies are often forced to interact with foreign governments
to obtain the necessary licenses and permits to do business and typically sell their
products and services to state-owned customers. One clear area of overlap between
the two industries relates to satellite companies. Just last year, the UK SFO announced
that it was investigating a company owned by a European defense contractor, for
alleged bribe payments to win a contract with a Middle Eastern country to upgrade its
satellite and intranet systems. The Resource Guide utilizes enforcement actions in the
telecommunications industry to illustrate the government’s expansive interpretation of whom
is a “foreign official,” as well as to show how financing extravagant travel and entertainment
expenses for clients can lead to FCPA liability. Given the continued growth and reliance
upon satellite communications systems in the global economy, the potential anti-corruption
risks should be carefully assessed and appropriate compliance programs and internal
controls implemented.
K. Statutes Often Linked with FCPA Charges
DOJ has other tools in its prosecution arsenal that it uses in conjunction with the FCPA.
The overlapping enforcement of anticorruption and export controls is particularly relevant
to aerospace and defense companies. The Arms Export Control Act (AECA) and its
implementing regulations, the International Traffic in Arms Regulations (ITAR), regulate the
export of defense articles and services. The settlement that BAES entered into in early 2010
was based in part on false statements by BAES in its arms export licenses in violation of the
AECA and the ITAR. Likewise, Shu Quan-Sheng, the President, Secretary, and Treasurer
of AMAC International, was sentenced to 51 months in prison after pleading guilty to both
FCPA (discussed above) and AECA violations. DOJ alleged that Shu willfully exported
controlled military technical data to China.
In addition, DOJ has sporadically used the Travel Act, a 50-year-old statute passed
to combat organized crime and racketeering, in conjunction with the FCPA to reach
allegations of commercial bribery. In relevant part, the Travel Act makes it a crime to travel
between states or international boundaries or use interstate facilities with the intent to
carry on an unlawful activity, including bribery in violation of the laws of the state in which
it is committed. Essentially, the Travel Act federalizes state bribery statutes and allows
prosecutors to use the FCPA to go after bribery that is entirely within the private sector.

In a string of recent FCPA actions, the government alleged violations of the Travel Act in
conjunction with the FCPA based on violations of the state commercial bribery laws of
Alabama, New Jersey, and California.
DOJ’s prosecution of Nexus Technologies Inc., a Pennsylvania-based export company,
demonstrates the interaction between the Travel Act and the FCPA. From 1999 to
2008, Nexus and several company executives engaged in a conspiracy to pay bribes to
government officials from the Vietnamese Ministries of Transport, Industry, and Public
Safety. DOJ initially indicted the company and individual defendants in September 2008
on one count of conspiracy to violate the FCPA and four counts of violating the FCPA. In
October 2009, DOJ filed a superseding indictment to add numerous charges, including
conspiracy to violate the Travel Act and nine substantive counts of violating the Travel
Act. The company and the four executives eventually pleaded guilty to the charges in the
superseding indictment, and two of the executives were sentenced to significant prison
time. DOJ’s basis for Travel Act liability was that the defendants sent a series of wire
transfers from Philadelphia to Asia in violation of Pennsylvania’s state commercial bribery
statute. Similarly aggressive uses of the Travel Act in the future could result in a substantial
expansion of the activities targeted by authorities in FCPA cases.
DOJ has also charged industry members under 18 USC § 371 for conspiracy to commit
an offense against the United States, instead of charging for substantive violations of
the FCPA. In a 2012 criminal information against BizJet International, an MRO provider,
DOJ alleged that BizJet conspired with several company executives and others to use
instrumentalities of interstate commerce in furtherance of an offer, payment, promise to pay,
and authorization to give something of value to a foreign official for the purpose of securing
an improper advantage. The alleged purpose of the conspiracy was to obtain and retain
MRO service contracts with foreign government customers in Mexico and Panama. BizJet
agreed to pay $11.8 million under a deferred prosecution agreement to resolve the charges.
The FCPA Resource Guide suggests that law enforcement may charge defendants with
conspiracy to violate the FCPA if they cannot independently charge them with substantive
FCPA violations. In conspiracy cases, the United States asserts that it has jurisdiction over
all the conspirators, including foreign persons or companies, if at least one conspirator is an
issuer, a domestic concern, or commits an overt act within the United States.
The US government has also relied on money laundering, asset forfeiture, mail and wire
fraud, and tax statutes in connection with anticorruption enforcement actions. The potential
criminal penalties associated with money laundering statutes provide powerful incentives for
individuals to cooperate with the government.
L. Derivative Civil Litigation Related to the FCPA
Increasingly, civil litigation has resulted attendant to, or in the wake of, government
investigations of alleged FCPA violations. Although the FCPA does not create a private right
of action, shareholders have filed a substantial number of shareholder derivative suits and
securities claims in relation to anticorruptiton charges, including against companies in the
aerospace and defense industry. Because there is no private right of action under the FCPA,
shareholders sue under other causes of action, including securities laws, common law
fraud, RICO, or breach of fiduciary duties.
In 2010, a federal appeals court affirmed the dismissal of a 2007 shareholder derivative
suit against BAES related to bribery allegations. Shareholders of the City of Harper
Woods Michigan Employee’s Retirement System, which owned 3,500 of BAES’s American
Depository Receipts, alleged that directors and executives of BAES breached their fiduciary
duties and wasted corporate assets based on BAES’s alleged bribe payment to a Saudi
prince to secure contracts for the sale of jet fighters and trainer aircraft. The US courts,
applying English law, held that shareholders of the pension fund lacked standing to sue
BAES.

Other derivative suits against industry members have been more successful. In addition to
the criminal and administrative proceedings initiated against Faro that were discussed above,
Faro faced a pair of shareholder lawsuits based on its alleged bribery conduct. In the first
case, Faro’s shareholders filed a class action lawsuit alleging that Faro had failed to disclose
information about its finances through alleged FCPA violations, and that it had benefited
from the inflated stock prices. Following an unsuccessful motion to dismiss, Faro agreed to
settle with the shareholders for approximately $7 million. In April 2009, Faro settled a second
shareholder derivative suit. The shareholders alleged that Faro’s officers and directors
breached their fiduciary duties by failing to adequately oversee the company’s internal
controls. Faro agreed to pay $400,000 in attorneys’ fees and implement certain corporate
governance procedures.
Similarly, in 2005, Titan settled a class action suit for more than $61 million. The complaint
alleged that Titan and certain of its officers violated Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934, as well as Rule 10b-5, based on material misrepresentations made
regarding Titan’s financial results during its merger negotiations with Lockheed Martin.
V. BEST PRACTICES FOR THE INDUSTRY
Companies in the industry must be aware of these FCPA enforcement trends and take
effective steps to minimize their exposure. Chapter 8 of the US Sentencing Guidelines,
which governs the sentencing of organizations, takes into account whether an organization
has an effective compliance and ethics program. According to the Resource Guide, the
adequacy of a company’s compliance program may influence how FCPA charges are
resolved (through a deferred prosecution agreement or non-prosecution agreement), the
length of the agreement, the penalty amount, and the need for a monitor. In order to assess
their risks, companies should conduct periodic FCPA risk assessments and program audits,
taking into account the countries where they do business, their internal controls weaknesses,
the degree of government oversight and their interactions with government officials, their
relationships with business partners and third-party representatives, and any other potential
red flags. DOJ and SEC have said that they would expect a financial services company to
implement different internal controls than a manufacturer because their risk profiles differ. As
part of risk assessments, companies may consider transaction testing in high risk markets.
Companies should carefully consider the results of risk assessments and audits, and revise
FCPA policies and procedures — as well as related policies on gifts, travel, entertainment,
political contributions, and facilitation payments — as necessary to further minimize
exposure.
In addition, companies should provide regular FCPA training to employees operating in
countries with significant corruption, as well as employees in sales, marketing, finance,
internal audit, and other relevant functions. Companies who regularly engage agents or
distributors may also consider providing FCPA training to their agents. Finally, as part of
a “red flag” review, companies should consider irregularities in their financial accounting
systems, including round dollar payments, duplicate payment amounts to the same vendor,
payments to third parties with vague descriptions of the services provided, invoices that lack
supporting documentation, and requests for payment in cash or to offshore bank accounts.
As recent industry enforcement actions demonstrate, the use of third-party representatives,
including local sales consultants, customs brokers, and subcontractors, can create enormous
FCPA compliance risks. To mitigate such risks, companies should conduct reasonable
due diligence on all potential third-party representatives before retaining them, require
representatives to sign written agreements that include anticorruption provisions, require
third parties to periodically certify their compliance with applicable anticorruption laws, and
continuously monitor their representatives’ activities. Similarly, companies should fully vet
proposed joint venture and merger partners early on in the life of the transaction. Companies
should even more closely scrutinize a proposed joint venture with a state-owned entity or

in a high-risk country, and structure the transaction in a way that allows the company an out
should its joint venture partner subsequently engage in questionable conduct. Lastly, the buy-
in and support of senior management and the board of directors is key. Senior management
must show strong and visible support for a company’s code of conduct and anticorruption
policies and procedures in order for its anticorruption program to be effective.
VI. FCPA REFORM INITIATIVES
In the past few years, numerous influential groups, from the American Bar Association (ABA)
to the US Chamber of Commerce (Chamber) to the US Congress, have considered and
advocated for FCPA reforms.
In an October 2010 report entitled “Restoring Balance: Proposed Amendments to the
Foreign Corrupt Practices Act,” the Chamber called on Congress to make several pro-
business amendments to the FCPA. The Chamber asserted that the FCPA has made
American businesses less competitive in relation to their foreign counterparts, citing a 1999
Congressional Research Service estimate that the FCPA’s anti-bribery provisions cost the
United States up to $1 billion per year in lost exports. The Chamber recommended the
following reforms to the Act: (1) clarify the definition of “foreign official;” (2) limit a company’s
liability for acts of its foreign subsidiaries and the prior acts of companies it acquires; (3)
allow for a compliance defense similar to the UKBA’s adequate procedures defense; and (4)
require a showing of willfulness to impose corporate criminal liability.
On October 29, 2011, the co-chair of the ABA’s Global Anti-Corruption Task Force presented
a resolution to members of the ABA’s Criminal Justice Section. The resolution called for
Congress to clarify certain of the Act’s ambiguous terms, including the term “instrumentality”
in the definition of foreign government official. Like the Chamber’s report, the resolution also
called on Congress to limit successor liability under the FCPA and to provide for some sort of
defense for companies with robust compliance programs.
In September 2011, George Soros’s Open Society Foundations published a strongly
worded report in favor of the FCPA, asserting that the Chamber’s proposed reforms “would
substantially undermine the possibility for successful enforcement of America’s anti-bribery
commitments” and “set back decades of progress in the global struggle against corruption.”
In addition, the report characterized the Chamber’s assertion of prosecutorial overreaching in
FCPA enforcement as a myth, noting that although the number of FCPA enforcement actions
has increased in recent years, the average fines obtained have remained stable and modest.
In the end, Congress must bring on any reforms. On June 14, 2011, the House Judiciary
Subcommittee on Crime, Terrorism and Homeland Security held a hearing to examine
proposals to reform the FCPA. The hearing focused on two primary reform proposals:
(1) adding a compliance defense; and (2) clarifying the definition of foreign official. The
Subcommittee did not come to any resolutions at the end of the hearing. In addition, the
Senate Committee on the Judiciary Subcommittee on Crime and Drugs held a hearing
on November 30, 2010 entitled “Examining Enforcement of the Foreign Corrupt Practices
Act.” Thus far, no legislation has been put forth to accomplish any of these FCPA reforms
(although some bills have been proposed that, for example, would establish a private right of
action).
In response to calls for reform and clarity, DOJ and SEC issued the FCPA Resource Guide
in November 2012. Although FCPA practitioners generally agree that the Guide did not
break any new ground, most also agree that it provides useful guidance for the business
community, compliance officers, and practitioners. The Resource Guide addresses a variety
of topics, including the definition of a foreign official, improper gifts, travel, and entertainment
expenses, and the hallmarks of an effective compliance program. The Resource Guide is
available online at http://www.justice.gov/criminal/fraud/fcpa/guidance/.

VII. LATHAM & WATKINS’ INDUSTRY EXPERIENCE AND EXPERTISE
Latham & Watkins has been advising major clients in the aerospace and defense
industry for decades and brings a deep knowledge and understanding of the business
and legal challenges faced by clients in the industry. We represent private companies
and government entities on a wide range of bet-the-company regulatory, transactional,
and litigation matters. Through our unique industry group platform, we are able to
effectively deploy the vast and diverse resources resident in our 31 offices across the
globe to address any legal needs our clients face.
Latham & Watkins offers clients in the aerospace and defense industry a full range
of legal services covering all aspects of a company’s needs, from structuring IPOs to
helping launch a business; to representing companies during mergers, acquisitions,
and financing deals to help grow a business; to counseling clients on a vast array of
regulatory issues to help preserve a strong business. Latham & Watkins attorneys have
counseled hundreds of clients on compliance, enforcement, and disclosure issues
arising under the FCPA and have conducted numerous internal investigations for both
US and foreign companies into potential violations of the FCPA. For more information
on the Aerospace, Defense & Government Services Industry Group, please e-mail
aerospacedefensegov@lw.com.

VIII. Chart of Industry Enforcement Actions
Case Country Allegations and Charges Outcome
US v. Titan (S.D. Cal. 2005)
SEC v. Titan Corporation
(D.D.C. 2005)
Date: 2005
Agency: DOJ and SEC
Benin DOJ and SEC charged Titan with violating
the FCPA’s anti-bribery and books and
records provisions.
These charges stemmed from allegations
that Titan paid over $2 million to the
reelection campaign of Benin’s President
in exchange for telecommunications
contracts.
Titan pleaded guilty and agreed to
pay $13 million in criminal penalties
and undergo compliance monitoring.
Titan settled with SEC and disgorged
$15 million in profits and pre-
judgment interest. SEC also imposed
a $13 million penalty that was
satisfied by the criminal fine.
US v. Martin Eric Self
(C.D. Cal. 2008)
US v. Leo Winston Smith
(C.D. Cal. 2007)
Date: 2007, 2008
Agency: DOJ
United Kingdom DOJ charged Self, the former President
and co-owner of PCI, and Smith, PCI’s
former Director of Sales and Marketing,
with violating the FCPA.
The charges stemmed from allegations
that the executives made bribe payments
of at least $300,000 to a UK Ministry
of Defense official to obtain defense
contracts.
Self pleaded guilty and received two
years probation.
Smith pleaded guilty and was
sentenced to six months in prison
and six months of home confinement.
In re Faro Technologies, Inc.
(Non-Prosecution Agreement,
2008)
In the Matter of Faro
Technologies, Inc.
(SEC Administrative
Proceeding, 2008)
Date: 2008
Agency: DOJ and SEC
China DOJ and SEC alleged that between 2004
and 2005, Faro employees paid “referral
fees” to employees of state-owned or
controlled entities in order to secure
$4.9 million worth of contracts. Faro also
violated the books and records provisions
by falsely recording at least $238,000 in
corrupt payments.
Faro entered into a non-prosecution
agreement and agreed to pay $1.1
million in criminal penalties.
Faro also settled with SEC, paying
$1.85 million in disgorgement and
agreeing to engage an independent
corporate monitor for two years.
US v. Shu Quan-Sheng
(E.D. Va. 2008)
Date: 2008
Agency: DOJ
China DOJ charged Shu with violating the Arms
Export Control Act and the FCPA’s anti-
bribery provisions.
DOJ alleged that Shu, a French
company’s agent in China, bribed Chinese
officials in an effort to win a contract for
the French company to develop a liquid
hydrogen tank system.
Shu pleaded guilty on all charges
and was sentenced to 51 months in
prison.
US v. Nguyen, et al.
(E.D. Pa. 2008)
Date: 2008
Agency: DOJ
Vietnam DOJ charged Nexus Technologies
and four employees with violating and
conspiracy to violate the FCPA’s anti-
bribery provisions and the Travel Act.
that the company and several executives
paid bribes to government officials from
the Vietnamese Ministries of Transport,
Industry, and Public Safety from 1999
to 2008. DOJ based the Travel Act
charges on a series of wire transfers
from Philadelphia to Asia in violation of
Pennsylvania’s state commercial bribery
statute.
All four executives pleaded guilty.
Nam Nguyen, the President and
owner, was sentenced to 16
months in prison, while his sibling,
An Nguyen, was sentenced to
nine months. A third sibling, Kim
Nguyen, was sentenced to two
years’ probation and ordered to pay
a $20,000 fine. Joseph Lukas was
sentenced to two years probation and
agreed to pay a $1,000 fine.
The company also pleaded guilty and
agreed to dissolve.

US v. Alvirez et. al.,
(D.D.C. 2009)
Date: 2009
Agency: DOJ
Gabon DOJ charged the 22 shot-show
defendants with conspiracy to violate
the FCPA’s anti-bribery provisions and
substantive counts of violating the anti-
bribery provisions.
that industry executives attempted to
bribe FBI agents posing as agents of the
Minister of Defense of Gabon.
Alvirez and two other defendants
entered into plea agreements
with DOJ in 2011. The remaining
defendants were scheduled to be
tried. The judge declared a mistrial
after the jury could not reach a
verdict in the trial against the first
group of defendants. Following the
second trial of six defendants, the
judge declared a mistrial as to four
defendants, while the remaining two
defendants were acquitted.
In 2012, Judge Richard Leon granted
DOJ’s motions to dismiss all charges
against the defendants, including
those who had previously pleaded
guilty.
In re United Industrial Corp.
(2009)
SEC v. Wurzel (D.D.C. 2009)
Date: 2009
Agency: SEC
Egypt SEC charged UIC with violating the
anti-bribery and books and records
provisions of the FCPA. SEC charged
Wurzel with aiding and abetting violations
of the FCPA’s anti-bribery, books and
records, and internal controls provisions
and violating the books and records
provisions.
SEC alleged that Wurzel, the president
of one of UIC’s subsidiaries, authorized
payments to an agent, and that he knew
those payments would be funneled as
bribes to the Egyptian Air Force. SEC also
alleged that UIC did not have adequate
internal controls in place to prevent illegal
payments.
UIC settled and agreed to pay
disgorgement and interest of
approximately $340,000.
Wurzel also settled, consenting to
a final judgment enjoining him from
future FCPA violations and ordering
him to pay $35,000.
US v. BAE Systems PLC
(D.D.C. 2010)
Date: 2010
Agency: DOJ
Czech Republic,
Hungary,
Saudi Arabia
DOJ charged BAES with conspiring to
defraud the United States by making false
statements about its FCPA compliance
and with violating the Arms Export Control
Act.
DOJ alleged that BAES knowingly
made false statements to various
US government agencies regarding
payments made by third-party agents to
secure government contracts for BAES.
BAES admitted that it regularly retained
marketing advisors without adequate due
diligence or controls over its advisors’
activities, and later took steps to conceal
payments to these marketing advisors
from the government.
BAES pleaded guilty to knowingly
and willfully making false statements
to the US government and agreed to
pay a $400 million fine and retain a
compliance monitor for three years.
BAES also reached an agreement
with the SFO and paid a £30 million
fine.

SEC v. Armor Holdings Inc.
(D.D.C. 2011)
In re Armor Holdings (2011)
US v. Bistrong (D.D.C. 2010)
Date: 2010, 2011
Agency: DOJ and SEC
Iraq,
Netherlands,
Nigeria
DOJ and SEC charged the company
with violating the FCPA’s anti-bribery and
books and records provisions.
DOJ charged Bistrong, Vice President
for International Sales, with conspiracy to
make corrupt payments to foreign officials,
falsify books and records, and export
controlled goods without authorization.
DOJ and SEC alleged that Armor
Holdings Inc. made corrupt payments
to U.N. officials in order to obtain U.N.
armor contracts. DOJ further alleged that
Bistrong conspired to make and conceal
payments to third-party agents in order to
help the company obtain contracts in Iraq,
the Netherlands, and Nigeria.
Armor Holdings entered into a
deferred prosecution agreement
with DOJ and agreed to pay $10.29
million in criminal penalties.
Armor Holdings also agreed to pay
$5.69 million in civil penalties and
disgorgement to SEC.
Bistrong pleaded guilty and was
sentenced to an 18-month prison
term and 36 months of probation.
US v. BizJet International Sales
and Support, Inc.
(N.D. Okla. 2012)
Date: 2012
Agency: DOJ
Mexico,
Panama
DOJ alleged that between 2004 and 2010,
BizJet authorized the payment of bribes
to Mexican and Panamanian government
officials to secure aircraft maintenance,
repair, and overhaul service contracts
from government agencies.
BizJet entered into a deferred
prosecution agreement with DOJ
and agreed to pay $11.8 million in
criminal fines and undertake remedial
measures.
BizJet’s indirect parent company,
Lufthansa Technik AG of Germany,
entered into a non-prosecution
agreement with DOJ that obliged it to
implement robust internal controls.
US v. NORDAM Group, Inc.
(N.D. Okla. 2012)
Date: 2012
Agency: DOJ
China DOJ alleged that NORDAM made $1.5
million in corrupt payments to employees
of Chinese state-owned airlines in order to
secure maintenance, repair, and overhaul
contracts.
NORDAM entered into a non-
prosecution agreement with DOJ and
agreed to pay a $2 million criminal
fine.

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liability partnerships conducting the practice in the United Kingdom, France, Italy and Singapore and an affiliated partnership conducting the practice in
Hong Kong and Japan. Latham Watkins practices in Saudi Arabia in association with the Law Office of Salman M. Al-Sudairi. Under New York’s Code of
Professional Responsibility, portions of this communication contain attorney advertising. In Qatar, Latham Watkins LLP is licensed by the Qatar Financial
Centre Authority. Prior results do not guarantee a similar outcome. Results depend upon a variety of factors unique to each representation. Please direct
all inquiries regarding our conduct under New York’s Disciplinary Rules to Latham Watkins LLP, 885 Third Avenue, New York, NY 10022-4834, Phone:
+1.212.906.1200. © Copyright 2013 Latham Watkins. All Rights Reserved.
Abu Dhabi
Al Sila Tower, Level 14
Sowwah Square
PO Box 106076
Abu Dhabi, United Arab
Emirates
Barcelona
Avenida Diagonal 477, 10th Floor
Barcelona 08036
Spain
Beijing
Unit 2318, China World Trade
Office 2
1 Jian Guo Men Wai Avenue
Beijing 100004
People’s Republic of China
Boston
John Hancock Tower, 20th Floor
200 Clarendon Street
Boston, MA 02116
USA
Brussels
Boulevard du Régent, 43-44
Brussels B-1000
Belgium
Chicago
233 South Wacker Drive
Suite 5800
Chicago, IL 60606
USA
Doha
Qatar Financial Centre Branch
Alfardan Office Tower Level 17,
West Bay, P.O. Box 23845
Doha, Qatar
Dubai
Dubai International
Financial Centre
Precinct Building 1, Level 3
P.O. Box 506698
Dubai, United Arab Emirates
Frankfurt
Reuterweg 20
60323 Frankfurt am Main
Germany
Hamburg
Warburgstrasse 50
20354 Hamburg
Germany
Hong Kong
18th Floor, One Exchange Square
8 Connaught Place, Central
Hong Kong
Houston
811 Main Street
Suite 3700
Houston, TX 77002
USA
London
99 Bishopsgate
London EC2M 3XF
United Kingdom
Los Angeles
355 South Grand Avenue
Los Angeles, CA 90071-1560
USA
Madrid
María de Molina 6, 4th Floor
Madrid 28006
Spain
Milan
Corso Matteotti, 22
Milano 20121
Italy
Moscow
Ul. Gasheka 6, Ducat III
Office 510
Moscow 125047
Russia
Munich
Maximilianstrasse 11
80539 Munich
Germany
New Jersey
One Newark Center, 16th Floor
Newark, NJ 07101-3174
USA
New York
885 Third Avenue
New York, NY 10022-4834
USA
Orange County
650 Town Center Drive
20th Floor
Costa Mesa, CA 92626-1925
USA
Paris
45, rue Saint-Dominique
Paris 75007
France
Riyadh*
Al-Tatweer Towers
7th Floor, Tower 1
King Fahad Highway
PO Box 17411
Riyadh 11484, Saudi Arabia
Rome
Via Piemonte 38, P5
Rome 00187
Italy
San Diego
600 West Broadway, Suite 1800
San Diego, CA 92101-3375
USA
San Francisco
505 Montgomery Street
Suite 2000
San Francisco, CA 94111-6538
USA
Shanghai
26th Floor, Two ifc,
8 Century Boulevard,
Shanghai 200120
People’s Republic of China
Silicon Valley
140 Scott Drive
Menlo Park, CA 94025
USA
Singapore
9 Raffles Place
#42-02 Republic Plaza
Singapore 048619
Tokyo
Marunouchi Building, 32nd Floor
2-4-1 Marunouchi, Chiyoda-ku
Tokyo 100-6332
Japan
Washington, DC
555 555 Eleventh Street, NW
Suite 1000
Washington, D.C. 20004-1304
USA
If you have any questions about this article, Understanding FCPA Enforcement Trends in the
Aerospace Defense Industry, please contact the authors: Barry Sabin at barry.sabin@lw.com /
+1.202.637.2263 or Jessica Thibodeau at jessica.thibodeau@lw.com / +1.202.637.1071.

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