U.S. Announces Charges in Massive Scheme to Bribe
Senior Government Officials in the Republic of
Azerbaijan
U.S. Newswire
10/6/2005
To: National Desk
Contact: Herbert Hadad, Megan Gaffney, Heather Tasker,
Bridget Kelly, 212-637-2600, all of the U.S.
Attorney’s Office
WASHINGTON, Oct. 6 /U.S. Newswire/ — Following is a
release from the U.S. Department of Justice:
MICHAEL J. GARCIA, the United States Attorney for the
Southern District of New York, ALICE S. FISHER,
Assistant Attorney General in Charge of the Criminal
Division, and MARK J. MERSHON, the Assistant Director
In Charge of the New York Field Office of the FBI,
announced that VIKTOR KOZENY, FREDERIC BOURKE, JR. and
DAVID PINKERTON have been indicted by a federal grand
jury in Manhattan for allegedly participating in a
massive scheme to bribe senior government officials in
Azerbaijan to ensure that those officials would
privatize the State Oil Company of the Azerbaijan
Republic (“SOCAR”) and allow KOZENY, BOURKE,
PINKERTON, and others to share in the anticipated
profits arising from that privatization. Each of the
defendants is charged with conspiracy to violate the
Foreign Corrupt Practices Act (“FCPA”), which makes it
a crime to offer to pay, or to pay, foreign government
officials in order to obtain or retain business. The
defendants are also charged with related crimes,
including money laundering.
KOZENY was arrested yesterday by law enforcement
authorities in The Bahamas, where he resides, pursuant
to a provisional arrest request made by the U.S.
government. He will appear today before Bahamian
court. The U.S. government intends to make a formal
request for KOZENY’s extradition under the Extradition
Treaty Between the Government of the United States of
America and the Government of the Commonwealth of The
Bahamas.
BOURKE and PINKERTON, meanwhile, voluntarily
surrendered to the FBI’s offices in Manhattan this
morning and are scheduled to be arraigned today in
front of United States District Judge RICHARD C. CASEY
at 1 pm.
Mr. GARCIA, Ms. FISHER, and Mr. MERSHON also announced
that three other individuals, THOMAS FARRELL, CLAYTON
LEWIS and HANS BODMER, previously pleaded guilty in
connection with their participation in this bribery
scheme.
Background
According to the twenty-seven count Indictment
unsealed today (the “Indictment”), VIKTOR KOZENY
controlled two companies, Oily Rock Ltd. (“Oily Rock”)
and Minaret Ltd. (“Minaret”), which participated in a
privatization program in Azerbaijan. Under that
privatization program, Azeri citizens could use free
government-issued vouchers to bid for shares of
state-owned industries that were to be privatized.
Privatization vouchers were bearer instruments that
were freely tradable, and they typically were bought
and sold using United States currency. Foreigners
could also participate in Azerbaijan’s privatization
program and own vouchers, but only if they purchased a
government-issued “option” for each voucher they held.
The Indictment alleges that beginning in July 1997,
KOZENY directed others to purchase vouchers and
options on behalf of Oily Rock and Minaret. According
to the Indictment, these vouchers and options were
purchased using millions of dollars of cash that was
flown into Azerbaijan on KOZENY’s private jet and on
planes he chartered.
The Indictment further alleges that various
individuals and institutions invested together with
KOZENY in privatization vouchers and options. Among
the individual investors was FREDERIC BOURKE, JR., who
made two investments in Oily Rock totaling
approximately $8 million, on behalf of himself and
family members and friends. The institutional
investors included American International Group
(“AIG”), which invested approximately $15 million
under a co-investment agreement with Oily Rock and
Minaret. DAVID PINKERTON, a Managing Director of AIG
in charge of AIG’s private equity group, was
responsible for supervising AIG’s investment in Azeri
privatization. In addition to AIG, other institutional
investors in this privatization venture included the
Wall Street hedge fund Omega Advisors, Inc. (“Omega”)
and its affiliated investment fund Pharos Capital
Management, L.P. (“Pharos”), which together purchased
approximately $151 million in vouchers and options.
The Indictment alleges that KOZENY and the individual
and institutional investors (collectively, “the
investment consortium”) made their investments with
the intent to acquire a controlling interest in SOCAR
upon its anticipated privatization. The Indictment
further alleges that, beginning in August 1997 and
continuing until 1999, KOZENY, BOURKE, PINKERTON, and
others paid or caused to be paid millions of dollars
worth of bribes to Azeri government officials to
ensure that the investment consortium would gain a
controlling interest in SOCAR and be able to reap huge
profits from its ultimate resale in the market.
The Bribery Scheme
The Indictment charges that KOZENY, acting on his own
behalf and as an agent of BOURKE, PINKERTON, and other
members of the investment consortium, made a series of
corrupt payments and promises to pay to a senior
official of the Government of Azerbaijan (the “Senior
Azeri Official”); a senior official of SOCAR (the
“SOCAR Official”); and two senior officials of the
State Property Committee or “SPC” (the “SPC
Officials”), the agency that was responsible for
administering the privatization program. Collectively,
the four officials alleged to have been bribed are
referred to as the “Azeri Officials.”
According to the Indictment, the corrupt promises and
payments to the Azeri Officials took a number of
forms. For example, in August 1997, KOZENY is alleged
to have promised to transfer to the Azeri Officials
two-thirds of the vouchers and options Oily Rock
purchased, and to give the Azeri Officials two-thirds
of all of the profits arising from the investment
consortium’s participation in SOCAR’s privatization.
In return for this “two- thirds transfer,” the
Indictment alleges that the Azeri Officials agreed to
permit the investment consortium to acquire a
controlling interest in SOCAR upon its privatization.
In addition to this “two-thirds transfer,” the
Indictment alleges that in June 1998, Oily Rock’s
shareholders approved an increase in Oily Rock’s
authorized share capital from $150 million to $450
million, and that the additional $300 million worth of
Oily Rock shares was transferred to one or more of the
Azeri Officials as a further bribe payment.
The Indictment further charges that a number of other
bribes were paid to the Azeri Officials. KOZENY and
others acting under his direction allegedly paid more
than $11 million in total to the Azeri Officials in
May and June 1998, of which approximately $6.9 million
was wire transferred to accounts held for the benefit
of certain of the Azeri Officials and their family
members, and millions of additional dollars in cash
were hand- delivered to one of the SPC Officials in
his government office.
KOZENY is also alleged to have arranged for a
representative of the London jeweler Asprey & Garrard
to travel to Azerbaijan in May 1998 to deliver several
gifts of jewelry and other luxury items to the SPC
Officials, who in turn selected the gifts to present
to the Senior Azeri Official on his birthday.
According to the Indictment, the total value of these
gifts was more than $600,000, which Minaret paid.
KOZENY and BOURKE are also charged with arranging for
both of the SPC Officials to travel to New York City
on different occasions in 1998 to receive medical
treatment, for which Oily Rock and Minaret paid.
KOZENY, through Oily Rock and Minaret, also paid for
the SPC Officials’ hotel, meal and other expenses on
these trips, as well as shopping expenses for one of
the SPC Officials at a high-end department store in
the New York area.
The Charges in the Indictment
The Indictment contains a total of twenty-seven
counts. All three defendants are charged with
conspiracy to violate the FCPA and the Travel Act. As
stated above, the FCPA makes it illegal to offer to
pay or to pay money or anything of value to a foreign
government official to obtain or retain business. The
Travel Act makes it illegal to travel or use the mails
or other interstate facilities to carry on certain
unlawful activity, including violations of the FCPA’s
anti-bribery provisions.
The Indictment also contains twelve separate counts of
violations of the FCPA, of which KOZENY is charged in
all twelve, BOURKE in five, and PINKERTON in one.
There are also seven counts of violations of the
Travel Act, of which KOZENY is charged in six, and
BOURKE and PINKERTON in one count each.
Each of the defendants is further charged with money
laundering conspiracy, based on wire transfers of
millions of dollars to purchase Azeri vouchers and
options, which in turn promoted violations of the
FCPA. There are also four separate substantive money
laundering violations, of which KOZENY is charged in
all four, BOURKE in two, and PINKERTON in one.
BOURKE and PINKERTON are also each charged with making
false statements in interviews with the FBI. The false
statement charge against BOURKE alleges that, in an
interview conducted in April and May 2002, he falsely
stated that he was not aware that KOZENY had made
payments to the Azeri Officials, when BOURKE knew that
KOZENY had paid bribes to those officials. The false
statements count against PINKERTON alleges that, in an
interview conducted in February and March 2002, he
falsely claimed that he was not aware that the Senior
Azeri Official had a financial interest in KOZENY’s
investment in Azeri privatization, when PINKERTON knew
that the Senior Azeri Official had such a financial
interest.
The conspiracy to violate the FCPA and Travel Act
count, the substantive counts of violations of the
FCPA and the Travel Act, and the false statements
counts each carry a maximum penalty of five years in
prison and a maximum fine of $250,000 or twice the
gross gain or loss resulting from the alleged
violations. The money laundering conspiracy and
substantive counts each carry a maximum penalty of 20
years in prison and a maximum fine of $500,000 or
twice the value of the laundered funds. Finally, the
Indictment contains a Forfeiture Allegation seeking
the forfeiture by the defendants of $174 million that
was involved in the charged money laundering offenses.
KOZENY, 42, resides in Lyford Cay, The Bahamas.
BOURKE, 59, resides in Greenwich, Connecticut.
PINKERTON, 44, resides in Bernardsville, New Jersey.
Mr. GARCIA praised the investigative efforts of the
FBI, and he said the investigation is continuing.
Mr. GARCIA added, “Corrupt payments to foreign
officials, such as the ones charged in this
Indictment, are a global threat to democratic
institutions and fair competition. We will vigorously
prosecute those who make illegal payments to corrupt
foreign officials.”
Ms. FISHER stated, “Representatives of American
businesses overseas cannot be allowed to bribe their
way into lucrative contracts or illegally purchase the
favor of foreign government officials. Business
conducted abroad must be done with honesty and
integrity. Those who violate U.S. law in their
financial dealings, here or in other countries, will
face serious consequences.”
Announcement Concerning Related Cases
As stated above, THOMAS FARRELL, CLAYTON LEWIS and
HANS BODMER have pleaded guilty in connection with
their participation in this bribery scheme. FARRELL,
who directed voucher purchases for Oily Rock, pleaded
guilty before United States District Judge RICHARD M.
BERMAN on March 10, 2003 to two-counts charging him
with conspiracy to violate the FCPA and violating the
FCPA.
LEWIS, who was a principal of Omega and Pharos and who
oversaw Omega’s and Pharos’s investments with Oily
Rock and Minaret, pleaded guilty before United States
District Judge NAOMI REICE BUCHWALD on February 10,
2004 to the same two charges.
Finally, BODMER, a Swiss lawyer who represented Oily
Rock, Minaret, Omega and other investors in connection
with their investments in Azeri privatization, pleaded
guilty before United States Magistrate Judge FRANK
MAAS on October 8, 2004 to a charge of money
laundering conspiracy.
The case against KOZENY, BOURKE and PINKERTON and the
related cases against FARRELL, LEWIS and BODMER are
being handled jointly by the United States Attorney’s
Office for the Southern District of New York and the
Fraud Section of the United States Department of
Justice. Assistant United States Attorney JONATHAN S.
ABERNETHY, Fraud Section Deputy Chief MARK F.
MENDELSOHN, and Fraud Section Assistant Chief
ROBERTSON PARK are in charge of the prosecution.
The charges contained in the Indictment are merely
accusations, and the defendants are presumed innocent
unless and until proven guilty.
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© 2005 U.S. Newswire 202-347-2770/