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Criminal Litigation

FCPA Enforcement Actions Against the U.S. Entertainment Industry

By James Clare – March 30, 2011


White-collar and compliance practitioners have noted the increased enforcement of the Foreign Corrupt Practices Act (FCPA), 15 U.S.C. §§ 78dd-1, et seq. by the U.S. Department of Justice (DOJ) in the past decade. Recent years have seen a rise in the number of enforcement actions, a growth in the amount of the fines and disgorgements sought against individuals and corporations, and an increased willingness by the DOJ to take FCPA cases to trial. The latest trend in FCPA enforcement may be an expansion of these increased efforts into a previously untouched industry—entertainment. The recent conclusion of an FCPA enforcement action against a Hollywood couple presents a stark warning to an industry that was not traditionally on the FCPA’s radar.


Background
The FCPA is the main weapon for combating corrupt business practices by American companies and individuals operating abroad. The statute primarily prohibits the bribery of foreign officials for the purpose of corruptly influencing those officials or securing improper advantages. The statute further requires companies to follow accurate bookkeeping methods and to establish internal accounting controls. These requirements were enacted in the wake of the U.S. Securities and Exchange Commission’s investigations during the mid-1970s into the bribery of foreign officials, politicians, and parties by premier U.S. corporations. For many years afterwards, the aerospace company Lockheed was held up as one of the most noteworthy corporations that had engaged in such practices, as it had paid foreign officials to promote its products.


Thirty years later, the global industrial leader Siemens AG likely has supplanted Lockheed, following its December 2008 agreement to pay $800 million in fines and disgorgement to settle worldwide FCPA charges. The Siemens settlement represents the largest FCPA settlement to date. When this staggering amount is paired with the prison sentences and hefty fines resulting from recent criminal and civil enforcement actions, the severe consequences for violating the FCPA become apparent. Additionally, Greg Andres, deputy assistant attorney general of the DOJ’s criminal division, stated before the Senate Judiciary Committee panel on November 30, 2010, that the DOJ was not going to implement an amnesty program for FCPA violators. With the stakes so high and with no likely amnesty, the specter of an FCPA enforcement action is not welcomed by any industry.


The Hollywood Enforcement Action
In this atmosphere of increased FCPA enforcement, the recent arrest, trial, and sentencing of two Hollywood producers/executives was closely watched because it presented the first expansion of FCPA prosecution into the entertainment industry. Following a two-and-a-half-week trial in the U.S. District Court for the Central District of California, husband-and-wife film producers/executives Gerald and Patricia Green of Los Angeles were found guilty on September 11, 2009, of bribing a Thai government official to obtain Bangkok International Film Festival contracts. Best known for producing films such as Salvador and Werner Herzog’s Rescue Dawn, Gerald and Patricia Green faced up to 30 and 24 years in prison, respectively, for violating the FCPA and money-laundering laws by paying $1.8 million in kickbacks to the then-governor of the Tourism Authority of Thailand. The governor steered contracts worth an estimated $14 million to the Greens, which let the Greens run the Bangkok International Film Festival and provide related services. The official and her daughter were charged in January 2009 for their connection to the scheme. See U.S. v. Juthamas Siriwan, et al., 09-CR-081.


Specifically, the Bangkok International Film Festival contracts let the Greens take over the film festival from 2003 to 2006. The Greens also obtained the ability to promote a tourism privilege card, develop a related website, provide public-relations consulting services, and engage in other lucrative services and promotions. The Greens’ efforts in Thailand were successful, providing both exposure and economic benefits to the Thai film industry. See U.S. v. Gerald Green, et al: Docket No. 08-CR-059 (Docket No. 323). By some accounts, including their own, the Greens transformed and revitalized the film festival, making it a centerpiece for Thai tourism and the Thai film industry.


In exchange for these film-festival contracts, the Greens kicked back between 10 to 20 percent of the contracts’ value to the official and her daughter. The kickbacks were channeled through the Greens’ businesses, some of which were fake or pass-through companies. The kickbacks to the official and her daughter were disguised as sales commissions or were moved to the official and her daughter through bank accounts in the United Kingdom, the Isle of Jersey, and Singapore.


The second superseding indictment charged the Greens with conspiracy to violate the FCPA and money-laundering laws, individual acts in violation of the FCPA, individual acts of violating money-laundering laws, obstruction of justice against Gerald Green, and falsely subscribing a tax return in connection with the bribes against Patricia Green. See U.S. v. Gerald Green, et al: Docket No. 08-CR-059 (Docket No. 159). The conspiracy and FCPA count each carried up to five years in prison, and each money-laundering count carried up to 20 years.


Following the two-and-a-half-week trial, the Greens were convicted of 19 of the counts, with one count of money laundering dismissed prior to the case going to the jury. Patricia Green was convicted of tax fraud, and the jury was hung on the obstruction charge against Gerald Green.


The Greens’ sentencing was delayed multiple times, owing in part to Gerald Green’s failing health and age. Despite the fact that any lengthy prison sentence would equal a life sentence for Gerald Green, the DOJ sought to maximize the Greens’ penalties. The DOJ emphasized Gerald Green’s role as the leader of the scheme and his alleged perjuring of himself throughout the trial. In response, the Greens sought leniency from the court due to (1) Gerald’s age and ill health and Patricia’s role in caring for him, and (2) the positive effect that the Greens’ involvement had on the Thai economy. See U.S. v. Gerald Green, et al: Docket No. 08-CR-059 (Docket Nos. 322, 323, 333, 342). To support the latter point, the Greens pointed to the film festival’s successes during their tenure and the positive economic impact the festival had on the people of Thailand.


Not Easy Being Green
On August 12, 2010, U.S. District Court Judge Gerald Wu sentenced the Greens to six months in prison, followed by six months of home confinement and two and a half years of probation. The sentence included an order to pay a possible $250,000 in restitution, an amount that could be reduced to $3,000 depending on whether the funds used to pay the bribes can be recovered. Significantly, Judge Wu took the economic benefit realized by Thailand from the Greens’ involvement in the film festival into account during their sentencing. Judge Wu seemed to be persuaded that the substantial economic benefits from the Greens’ involvement in the festival distinguished the Greens’ case from other FCPA cases where concrete harm was shown to have resulted from a defendant’s FCPA violations.


The DOJ’s Commitment to Enforcement
The Greens’ case has been closely watched by many outside of the usual FCPA circles for several reasons. As an initial matter, the Greens’ case showed the DOJ’s willingness to pursue another recent FCPA enforcement through to trial. The Greens’ trial followed closely on the heels of the trial of Frederic Bourke, the fashion-industry entrepreneur who was convicted on July 10, 2009, of conspiring to violate the FCPA, the Travel Act, and lying to the FBI in connection with his investment in and bid to control Azerbaijan’s state oil company. These two trials displayed the tremendous amount of resources the DOJ is willing to dedicate to combating the corrupt practices of U.S. businesses and individuals abroad. In the Greens’ prosecution, the DOJ noted how the FBI, the IRS, the Criminal Division’s Office of International Affairs, as well as the Department of Justice attaché and Intellectual Property Law Enforcement coordinator, participated in building the case presented by the U.S. Attorney’s Office. See .


An Unwelcome Close-Up
The Greens’ case also has been closely followed because of its significant status as the first high-profile FCPA enforcement action in the entertainment industry. The prosecution of two Hollywood producers for their involvement in an arts-focused endeavor abroad was a distinct departure from the stereotypical FCPA enforcement action, such as against a publicly traded energy company, military supplier, or manufacturer. Instead, the Greens’ prosecution presents the first of many possible investigations into an industry that (1) had been untouched by FCPA enforcement, and (2) had not been considered a likely candidate to receive the DOJ’s attention. In short, no one considered Hollywood to be one of the FCPA’s usual suspects.


For the entertainment industry, the Greens’ prosecution sounds a clear warning. While the DOJ had not previously prosecuted entertainment companies and individuals in the entertainment industry for their activities abroad, the course of the Greens’ case shows that the DOJ is willing to do so now. Consequently, Hollywood can no longer turn a blind eye, or put the lens cap back on, when faced with questionable industry practices that happen “on location” in foreign countries.


While the Greens’ activities did not take place in connection with the production of a film, but instead involved the promotion of films at a festival, the enforcement against them is not that far removed from the industry practices that could draw FCPA attention. If heightened FCPA enforcement is coming soon to Hollywood, production companies will not be able to condone or ignore practices such as making payments for expedited film permits, the use of a favorable shooting location, smoothing things over with local film crews, ensuring the safe transit of equipment, and preventing the many possible costly delays that can easily derail a project. Further, production companies cannot allow such payments to be hidden as petty cash or “operating” expenditures in a film’s budget under the FCPA’s accounting provisions.


As the Greens’ prosecution is the first enforcement action in the industry, it is unclear whether questionable “on location” payments will be prosecuted as FCPA violations or be tolerated as a type of “greasing” or “facilitative” payments under the statute. In this regard, the entertainment industry may have an advantage over the traditional targets of FCPA enforcement actions. Because these payments are done “for the sake of the project,” namely to ensure that a film gets shot, the payments are somewhat different from the archetypal bribe that is paid to secure an advantage over a competitor. Unlike paying an official as a part of competing with an industry rival in a foreign country, “on location” payments primarily serve to prevent problems that would hamper the production company’s own efforts to get a project completed. Though it is difficult to argue that there is no competitive advantage to getting a film shot on time and within budget, the negative effect of these payments on other production companies is far more attenuated than that of the typical FCPA bribe. This distinction may provide some assistance to the entertainment industry in the face of an FCPA prosecution, but it is no guarantee of a Hollywood happy ending.


Conclusion

The trial and conviction of the Greens stand as a warning to individuals and corporations in the entertainment industry that the DOJ can and will bring FCPA enforcement actions against them. While the Greens received punishments that were mild in comparison to what the DOJ sought, the leniency that they received does not diminish the importance of their case. Instead, the case serves as a warning of the high stakes involved in recent FCPA enforcements and the DOJ’s commitment to prosecuting them. The Greens’ prosecution also may signal a new expansion of FCPA enforcements into the previously untouched entertainment industry. Attorneys and compliance personnel connected with the entertainment industry must take note that their industry is not immune from enforcement of the FCPA. Consequently, questionable practices in foreign locations need to be acknowledged and reevaluated, and internal accounting procedures and compliance measures must be made to conform with the FCPA’s requirements. The alternative for individuals and corporations in the entertainment industry is to be cast in a starring role in the DOJ’s sequel to the case against the Greens.


Keywords: DOJ, Hollywood, Bangkock International Film Festival, Thailand


James Clare is an associate in the New York, New York, office of Hogan Lovells US LLP.


 
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