Sir Allen And The FCPA

Since hearing about Allen Stanford’s cozy relationships with certain Caribbean leaders, we’ve wondered if he’ll eventually face criminal charges under the Foreign Corrupt Practices Act. Neither bribery nor the FCPA have been mentioned yet in connection with Stanford. But here’s what’s been reported, so far, in the New York Times and elsewhere.

Because of the SEC’s suspicions, the FBI helped gather evidence about Stanford’s business practices. The investigation led to the SEC’s February 16 civil complaint. It alleged that Stanford’s representations about his bank’s certificates of deposit were false and misleading. It wasn’t true, the SEC charged, that the funds were managed by at least 20 professionals and invested in safe, liquid assets. The truth, instead, was that the money went wherever Stanford himself and a couple of close associates directed, including into risky real estate and private equity deals. And at least $8 billion can’t be accounted for.

Stanford, 58, is a U.S. citizen (from Texas) and therefore an FCPA “domestic concern.” He has to comply with the antibribery provisions. (Before the recent headlines, we always thought he was British or maybe South African; he calls himself “Sir Allen,” sports a small mustache, wears crested blazers, and is crazy about international cricket.)

About Stanford’s cozy relationships with foreign leaders — the tightest, it appears, was with the rulers of Antigua, population 85,000. He resettled his offshore bank there after it was booted off neighboring Montserrat in 1996 for unspecified reasons. His closeness to Antigua’s former prime minister, Lester Bird, led to him being “knighted” by the tiny country’s government a few years ago. On the Stanford website, he signs the chairman’s letter as “Sir Allen Stanford.” A note on the homepage says, “Stanford Financial Group and other Stanford entities are currently controlled and managed by a receiver.”

In the late 1990s, the New York Times said, Prime Minister Bird appointed Stanford to Antigua’s banking advisory board. The appointment created a blatant conflict of interest. The advisory board regulated the banks on Antigua, including those owned by Stanford. What’s more, the Times said, “The [advisory board] project was paid for by the Antiguan government by money either lent or granted by Mr. Stanford.”

Could those loans or grants have violated the FCPA? Not likely. A payment to a foreign government — even a payment intended to influence decisions in favor of the donor — cannot violate the FCPA. An FCPA antibribery offense requires a corrupt payment to a foreign official — that is, to a human being. See §§ 78dd-1(a), 78dd-2(a). See also the DOJ’s FCPA Opinion Procedure Release No. 97-02 (November 5, 1997) discussed in our post here. The DOJ said, because the “requestor’s donation would go directly to a government entity — and not to any foreign government official — the provisions of the FCPA do not appear to apply to this prospective transaction.”

In its civil complaint, the SEC alleged no facts about overseas corruption; the complaint focused on misrepresentations related to the certificates of deposit and unregistered investment-adviser activity by Stanford’s companies. And we’ve seen no reports of credible evidence about illegal payments to foreign officials by Stanford or on his behalf. That doesn’t mean evidence won’t surface, however. In a couple of other recent cases, when the FBI was called in to investigate foreign business practices unrelated to FCPA concerns, it also discovered evidence of antibribery violations.

That’s apparently what happened, for example, to Shu Quan-Sheng, the Virginia-based rocket scientist. The naturalized U.S. citizen sold defense-related goods and services to China without first obtaining U.S. export licenses or State Department approvals. During its export-related investigation, the FBI learned Shu was bribing Chinese government officials to buy his products. Shu pleaded guilty in November 2008 to violating the Arms Export Control Act and the FCPA. And in September last year, four U.S. citizens and their Philadelphia-based company, Nexus Technologies, were charged under the Foreign Corrupt Practices Act with bribing government officials in Vietnam. The FBI may have been investigating the defendants’ alleged sales of sensitive equipment to Vietnamese government agencies when it discovered the potential FCPA offenses.

Stanford hasn’t been charged by U.S. authorities with any criminal acts. The SEC’s complaint is a civil enforcement action and, as mentioned, is limited to securities law issues. The New York Times pointed out, though, that he and his organization were big donors to U.S. politicians and courted them with favors and perks. “Mr. Stanford,” the Times said, “also wooed lawmakers and their staff with plane rides and ‘fact-finding’ trips to vacation destinations. Many were paid for by the Inter-American Economic Council, a nonprofit organization that he supported.”

Similar donations, gifts and favors to foreign officials might violate the Foreign Corrupt Practices Act. The law prohibits giving or promising to give, directly or indirectly, anything of value — including cash, gifts and perks — to a foreign official for the purpose of obtaining or retaining business. There are three narrow exceptions in the FCPA — for facilitating payments, promotional expenses, and payments legal under the written laws of the host country. The Justice Department and the courts, however, view the FCPA’s “obtaining or retaining business” prohibitions expansively, and take a narrow view of the limited exceptions.

So is this an FCPA story? Not yet. But it’s one to watch.

The SEC’s Feb. 17, 2009 press release is here. With the press release are links to the SEC’s Litigation Release No. 20901 (February 17, 2009) in Securities and Exchange Commission v. Stanford International Bank, et al., Case No. 3-09CV0298-L (N.D.TX.) (here), the SEC’s civil complaint (here), the SEC’s memorandum of law (here), and information for Stanford customers concerning the federal court’s order freezing assets and appointing a receiver over property of Stanford and his companies (here).
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