The U.S. Department of Justice (“DOJ”) recently indicted Dmitrij Harder, a Russian national based in Pennsylvania, USA, for violation of the Foreign Corrupt Practices Act (“FCPA”) and the Travel Act in connection with Harder’s international consulting business.
The indictment arises out of two consulting transactions involving Harder’s efforts to obtain financing for two clients from the London-based European Bank for Reconstruction and Development (“EBRD”). The EBRD was a multilateral development finance organization, and one of its leading bankers was a FCPA “foreign official” with authority to influence the approval and terms of the financing. Harder received multi-million dollar “success fees” from his clients, and subsequently funneled certain “consulting” services amounts to the sister of the foreign official as payment for her alleged consulting services. The DOJ, however, alleged that the sister did not actually provide any consulting services for Harder or his companies, and that the payments to the banker’s sister were essentially bribes in violation of the FCPA
International brokers and consultants should be familiar with the Foreign Corrupt Practices Act and should learn to recognize red flags when dealing with transactions covered by the FCPA. Here are a few red flags from the Harder indictment:
(1) Harder’s consulting business was relatively small compared to the sophistication and amount of financing at issue. Harder operated through Chestnut Consulting Group, Inc. and Chestnut Consulting Group, Co., Pennsylvania and Delaware companies, respectively. While the Indictment does not provide financial data for the Chestnut companies, the financing that Harder obtained for his clients was significant. The first client obtained $85M in equity investment plus a 90M Euro senior loan, and the second client obtained $40M in equity investment plus a $60M convertible loan, both significant amounts.
(2) There was a geographic disconnect between Harder’s clients (based in Russia and United Kingdom), the location of Harder’s consulting business (Pennsylvania), and the location of the EBRD (London). While there may be logical and good faith reasons for distant relationships, consultants should ensure that relationships are not based on an ability to influence a foreign official’s decisions.
(3) Harder’s consulting business did not have a proven track record as a financial advisor. Lack of experience in a specific area or the disproportionality between the sophistication of a transaction and the service provider’s experience could be seen as a FCPA red flag.
(4) Harder and the EBRD banker had known each other for several years at the time of the alleged bribes. A FCPA compliance program would normally identify this as a red flag, although not necessarily a FCPA violation, and a fact that should be carefully analyzed and followed through prior to entering into any transaction.
(5) Harder hired the EBRD banker’s sister to provide consulting services and paid her millions of dollars for alleged consulting services. This is another red flag that would normally be identified in a FCPA compliance program. A compliance program would identify persons, entities, and situations that should be avoided or closely monitored.
If you are a broker or consultant who works with foreign officials, even if remotely, you should consider implementing a FCPA compliance program that recognizes FCPA red flags in the conduct of your business. The FCPA is a broad and evolving statute that carries civil and criminal penalties for violations. For more information about the FCPA click here.
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