Tuesday, September 21, 2010

The 30% Commission, The Dream Seeker, The Ferrari Spyder, and Consulting Fees for Mom

According to its website (see here) Mexico's Comision Federal de Electricidad ("CFE") "is a decentralized government agency, duly incorporated and which controls its own assets."

Does that make CFE's Sub-Director of Generation and Director of Operations "foreign officials" under the FCPA?

According to the DOJ, apparently so, as it alleges in this recent indictment against Enrique Faustino Aguilar Noriega and Angela Maria Gomez Aguilar. See here for the DOJ release.

According to the indictment, "Comision Federal de Electricidad ('CFE') was an electric utility company owned by Mexico. During the time period relevant to this Indictment, CFE was responsibile for supplying electricity to all of Mexico othern than Mexico City. CFE contracted with Mexican and foreign companies for goods and services to help supply electricity services to its customers."

"Company LM" according to the indictment, (a company identified as Lindsey Manufacturing in media reports - see here see here for more about Lindsey Manufacturing), is a "privately held company incorporated in California and headquartered in Azusa, California. According to the indictment, LM "manufactured emergency restoration systems and other equipment used by electrical utility companies" including "state-owned utilities, including CFE" "one of LM's most significant customers." According to the indictment, LM "conducted business in a number of foreign markets through sales representatives."

According to the indictment, "Grupo Internacional De Asesores S.A. ('Grupo') was a company incorporated in Panama and headquartered in Mexico" with a "brokerage account in Houston, Texas at Global Financial Services, Inc." The indictment alleges that "Grupo's purported business was to provide sales representation services for companies like LM that had business with CFE" and that "Grupo was LM's sales representative in Mexico and received a percentage of the revenue LM received from its contracts with CFE." According to the indictment, Grupo was an "agent of a domestic concern" under the FCPA.

According to the indictment, Enrique Aguilar, a lawful permanent resident of the U.S. "was a Director of Grupo and was hired by LM to obtain contracts from CFE" and a "an agent of a domestic concern" under the FCPA.

According to the indictment, Angela Aguilar, a citizen of Mexico, "served as an Officer and a Director of Grupo" and "managed Grupo's finances" and was "the sole signatory on Grupo's Global Financial brokerage account."

According to the indcitment, Enrique Aguilar, together with President KL (an individual identified as the President of LM), Vice President SL (an individual identified as the Vice President and Chief Financial Officer of LM), LM and others conspired to make improper payments to "foreign officials" to assist Aguilar, Grupo, President KL, Vice President SL, LM, and others in obtaining and retaining business in violation of the FCPA.

The indictment alleges that Aquilar offered to become LM's "sales representative in Mexico in exchange for a thirty percent commission on all of the goods and services" LM sold to CFE and that President KL and Vice President SL "would agree to pay" Aquilar "a thirty percent commission into Grupo's brokerage account at Global Financial, even though it was significantly higher than the commission LM paid to its previous sales representative in Mexico" knowing that Aquilar "had a close personal relationship with Official 1 and would use all or a portion of the thirty percent commission to pay Official 1 and others bribes in exchange for CFE awarding LM contracts."

Among other things, the indictment alleges that: (i) Grupo's Global Financial brokerage account was used to "pay the credit card bills for Official 1's American Express credit card 'in full every month, until further notice'"; (ii) Aquilar "aided Official 1 in purchasing an 82 foot yacht named the Dream Seeker for $1,800,010 ...;" (iii) Aquilar caused wire transfers to Official 2's female and male relatives for "payment for professional services advice" and Official 2's mother and brother for a "consulting fee;" and (iv) Aquilar caused the "issuance of a check to Ferrari of Beverly Hills from Grupo's Financial brokerage account for approximately $297,500 to purchase a 2005 Ferrari Spyder for Official 1."

Who are Official 1 and 2?

According to the indictment:

"Official 1 was a Mexican citizen who held a senior level position at CFE. Official 1 became the Sub-Director of Generation for CFE in 2002 and the Director of Operations in 2007. Official 1's position at CFE made him a 'foreign official' as that term is defined in the FCPA ..."

"Official 2 was a Mexican citizen who also held a senior level position at CFE. Official 2 was the Director of Operations at CFE until that position was taken over by Official 1 in 2007. Official 2's position at CFE made him a 'foreign official' as that term is defined in the FCPA ..."

[For more on Official 1 and CFE - see David Luhnow, "U.S. Probe Leads to Mexico Chief," Wall Street Journal (August 24, 2010)]

According to the indictment, Angela Aguilar assisted or otherwise caused many of the above referenced payments to be made.

Based on the above core conduct, Enrique Aquilar was charged in a seven-count indictment with conspiracy to violate the FCPA, FCPA violations, money laundering conspiracy and money laundering. Angela Aquilar was charged with money laundering conspiracy and money laundering.

As noted in the DOJ's release "an indictment is merely an accusation, and defendants are presumed innocent until and unless proven guilty beyond a reasonable doubt."

Michael Zweiback (here), a former DOJ prosecutor currently with Seyfarth Shaw LLP, represents both Enrique and Angela Aquilar. He stated: "we intend to vigorously defend the charges and expect the Aguiliar's to be found not guilty."

With Lindsey Manufacturing and certain of its top executives implicated in the alleged conduct, it is likely that the above core allegations will be repeated in future enforcement actions.


The Aquilar indictments continue a DOJ trend of holding agents, sales representatives etc. accountable for allegedly participating in bribery schemes. (See this prior post for other such enforcement actions).


Does CFE ring a bell?

It should because this alleged "state-owned utility company" is at the center of the enforcement actions against John Jospeh O'Shea (see here and here) and Fernando Maya Basurto (see here).

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