Thursday, December 18, 2014

Plea in Corporate Corruption Case with Tax Charge (12/18/14)

The FBI Press issued a press release titled Former Bechtel Executive Pleads Guilty in Connection with a $5.2 Million Kickback Scheme (12/4/14), here.  The case is principally a nontax case, but in the excerpts below, I highlight the tax charge:
The former Principal Vice President of Bechtel Corporation and General Manager of the Power Generation Engineering and Services Company (PGESCo) pleaded guilty today in connection with a $5.2 million kickback scheme intended to manipulate the competitive bidding process for state-run power contracts in Egypt. 
* * * * 
In his plea agreement, Elgawhary admitted that, from 1996 to 2011, he was assigned by Bechtel – a U.S. corporation engaged in engineering, construction and project management – to be the general manager at PGESCo, a joint venture between Bechtel and Egypt’s state-owned and state-controlled electricity company (EEHC). PGESCo assisted EEHC in identifying possible subcontractors, soliciting bids and awarding contracts to perform power projects for EEHC. Elgawhary admitted to accepting a total of $5.2 million from three power companies, which they paid to secure a competitive and unfair advantage in the bidding process. According to court documents, the power companies and their consultants paid more than $5.2 million in kickback payments into various off-shore bank accounts under the control of Elgawhary, including various Swiss bank accounts. 
As Elgawhary admitted in his plea agreement, he attempted to conceal the kickback scheme by routing the payments through various off-shore bank accounts, including Swiss bank accounts, under his control. Elgawhary also sent various documents and “Representation Letters” to Bechtel executives and members of the PGESCo Board of Directors in Maryland, falsely certifying that he had no knowledge of any fraud or suspected fraud at PGESCo, and that there were no violations or possible violations of law or regulations that should have been considered for disclosure in PGESCo’s financial statements. Elgawhary also admitted that, in further attempt to conceal the scheme, he made misrepresentations to counsel for Bechtel when he was interviewed in April 2011. 
Elgawhary also admitted to conspiring to launder the proceeds of the scheme and to obstructing and impeding the administration of U.S. tax laws by falsely claiming that he maintained only one foreign bank account, denying that he received any income from a foreign bank account, and failing to report any of the kickback payments as income for the tax years 2008 through 2011. 
* * * * 
The case is being investigated by the FBI’s Baltimore Division and IRS-CI’s Washington D.C. Field Office. Significant assistance was provided by the Criminal Division’s Office of International Affairs, and law enforcement counterparts in Switzerland, Germany, Italy, Saudi Arabia and Cyprus. 
I previously reported on the charges in Corporate Corruption Case Charged With Swiss Bank Accounts to Hide the Loot (Federal Tax Crimes Blog 2/10/14), here.  As I noted there, it is not clear why the charges did not cover FBAR violations, but, of course, the Government has a veritable smörgåsbord of charges that it can make in this type of fact pattern.  More charges will not have a great effect on sentencing or on the message sent from the prosecution and conviction and would likely be viewed as piling on.  Note also that the tax perjury charge apparently did not indicate that there was a pending investigation that was the object of the obstruction.  See Sixth Circuit Holds that § 7212(a)'s Omnibus Clause Requires Knowledge of a Pending Proceeding / Action and Intent to Obstruct (Federal Tax Crimes Blog 12/13/14), here.

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