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. 

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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. 

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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.

Foreign Corrupt Practices Act ("FCPA") Crimes and Tax Crimes (8/4/11)

The Foreign Corrupt Practices Act (commonly referred to as "FCPA") is much in vogue these days. Tax crimes often accompany FCPA violations. (See e.g., my prior blog The Giffen Plea -- The Cost of Justice (8/18/10)). Readers of this blog might appreciate reading Morgan R. Hirst and Elizabeth H. Jenkins, Adding Insult to Injury: Tax Consequences of FCPA Violations, 131 Tax Notes 1073 (June 6, 2011).  The authors discuss, inter alia, the Giffen case.

The Giffen Plea -- The Cost of Justice (8/18/10)

James H. Giffen, the target of an extensive FCPA investigation and indictment (including two superseders), recently resolved at least criminal woes -- at least some of them -- through a plea agreement. I write on that plea agreement because the plea is to a tax count and it raises some interesting issues. The plea agreement and the information with the count of conviction pursuant to the plea are here and here. First I will just provide a summary of the plea agreement and then raise the issues that interest me.

Giffen pleads to the one information count charging "willfully failing to supply information regarding foreign bank accounts, in violation of Title 26, United States Code, Section 7203" for the year 1996. The reference is to the foreign account question on Schedule B of the 1996 return. Section 7203 is a misdemeanor with a maximum incarceration period of one year and, according to the plea agreement, a maximum fine of $25,000. Giffen waives the statute of limitations for the charge to which he pleads. That statute of limitations expired normally six years after the date he filed the return (approximately March 27, 1997, according to the information).