Frederic Bourke is taking video testimony from a critically ill friend that may help prove Bourke was an innocent victim of a massive investment fraud perpetrated by Viktor Kozeny. Bourke, 62, goes on trial June 1 for violating the Foreign Corrupt Practices Act. He’s accused of helping the Czech-born Kozeny bribe officials in Azerbaijan in a failed attempt to take over the state oil company, Socar. Bourke faces up to 35 years in prison on FCPA charges, money laundering and lying to federal investigators.
In late March, the federal court in New York City granted Bourke’s request to take video testimony from Harry Demetriou, a British citizen who’s been living in Miami. Demetriou has advanced bladder cancer. After five years of chemotherapy and surgeries, Bourke said his friend now plans to stop all treatment and “let the cancer run its course.” Rule 15(a) of the Federal Rules of Criminal Procedure allows a party to depose witnesses to preserve testimony for trial because of exceptional circumstances. “Mr. Demetriou offers significant exculpatory evidence and is unavailable to appear at trial,” Bourke said. The government didn’t oppose his request.
Demetriou invested $500,000 in 1998 in Blueport, Inc., the company Bourke set up to handle investments by his family and friends in the Azeri deal. The court pleading said, “Mr. Demetriou suffered the same financial fate as Mr. Bourke — he lost his entire investment.” Bourke invested $8 million with Kozeny.
Bourke and Kozeny were indicted under the FCPA in 2005. Kozeny, 45, has been a fugitive living in the Bahamas for ten years. He’s fighting extradition to the U.S. and is also wanted by authorities in the Czech Republic, where he’s accused of stripping Czech pensions funds of $1.1 billion.
According to Bourke’s court filing, Demetriou was at several meetings in 1998 that included Bourke, Kozeny and others the government says were involved in the plot to bribe Azeri officials. He also attended meetings for investors before and after Bourke learned about Kozeny’s alleged illegal actions. Bourke said, “Mr. Demetriou was aware of and in some instances personally involved in Mr. Bourke’s efforts to draw attention to and expose Mr. Kozeny’s wrongdoing.”
Bourke has maintained that he invested with Kozeny only after lawyers advised him the deal didn’t violate any laws. But soon after investing, he said he suspected illegal behavior and became a whistleblower. His lawyers said he traveled to Azerbaijan to warn then-President Heydar Aliyev about the scheme. He later testified before a New York grand jury “as a victim of Kozeny’s fraud.” New York state prosecutors charged Kozeny with fraud for keeping $182 million of his investors’ money.
In August 2008, a Washington, D.C.-based non-profit watchdog group that defends whistleblowers, the Government Accountability Project, said Kozeny’s scheme in Azerbaijan came to light “in 1999, when U.S. investor and whistleblower Frederic Bourke came forward and exposed the fact that at least one major investor had been defrauded.” Bloomberg reported (here) that Bourke provided documents and funding to GAP.
Last month, Bloomberg’s David Glovin reported (here) that Bourke plans to challenge key parts of the government’s case. Prosecutors said the scheme to bribe Azeri leaders involved giving them vouchers Azeri citizens could use to participate in privatizations. With $350 million from his investors, Kozeny was supposed to buy enough vouchers to gain control over Socar if it was privatized. U.S. prosecutors allege Kozeny and Bourke gave some of the vouchers to Azeri officials.
But according to documents Glovin saw before the judge sealed them, Bourke will argue that most of the vouchers can be accounted for. They’re now in the hands of Gerald O’Shaughnessy, another Kozeny investor who lives in Wichita, Kansas. O’Shaughnessy hasn’t been charged in the case. “The documents tell of O’Shaughnessy’s years-long quest to recover the $350 million he and other investors gave Kozeny to buy vouchers,” Glovin’s story said. O’Shaughnessy gained control of about three-quarters of the outstanding vouchers by 2003. “He then sought to force the Azeris to buy them for $350 million so investors could recover their lost stakes, the documents show.”
In a pretrial hearing last September, Bourke argued that any payments to Azeri officials didn’t violate the FCPA. He said that under Azeri law, once he reported the payments to the country’s president, they weren’t punishable there. Therefore, he argued, he was protected by the FCPA’s local-law affirmative defense. It provides that a payment to a foreign official is permitted if it was “lawful under the written laws and regulations of the foreign official’s” country. 15 U.S.C. §§ 78dd-1(c)(1), 78dd-2(c)(1) and 78dd-3(c)(1).
But the trial judge ruled against Bourke. Judge Shira Scheindlin said Azerbaijan’s law relieving a bribe payer from criminal liability if the bribe is properly reported doesn’t make the payment lawful when it was paid. Instead, she ruled, reporting the bribe erases the stain of criminality retroactively. While a person cannot be guilty of violating the FCPA if the payment was lawful under the foreign law, she said, there’s no immunity merely because a person couldn’t be prosecuted in the foreign country due to a technicality (see our post here).
Download Frederic Bourke’s Motion to Take Video Deposition of Witness for Trial Preservation filed March 26, 2009 here.
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Coming Events. Kevin Abikoff and Gregory Williams, partners at Hughes Hubbard & Reed LLP, will chair a BNA Briefing on the FCPA. It’s happening Tuesday, April 21, from 8:00 AM to noon, at 1801 S. Bell Street, Arlington, Virginia. The panel includes Helen Garlick, former assistant director of the U.K.’s Serious Fraud Office and now senior director of investigations in London for Nardello & Co. She was recently featured on Frontline: Black Money.