The United States Department of Justice (“DOJ”) announced on December 20, 2010, that it had obtained an indictment against Jorge Granados and Manuel Caceres, the former Chief Executive Officer and Vice President of Business Development respectively for Miami-based telecommunications company Latin Node Inc. (“LatiNode”) for allegedly paying over $500,000 in bribes to government officials in Honduras.[1] These indictments are the latest example of the DOJ’s interest and willingness to prosecute individuals who played active roles in alleged bribery schemes in violation of the Foreign Corrupt Practices Act (the “FCPA”) while also pursuing enforcement actions against the companies themselves.

The Bribery Scheme

The 19-count indictment against Granados and Caceres alleges criminal violations of the FCPA and money-laundering statutes. According to the indictment, Granados and Caceres provided over $500,000 in bribes to Honduran government officials while employed at LatiNode, a wholesale telecommunications company providing services using internet protocol technology throughout the world, including Honduras. In December 2005, LatiNode was awarded an “interconnection agreement” with Empresa Hondurena de Telecomunicaciones (“Hondutel”), a state-owned telecommunications authority in Honduras. Under the terms of the agreement, LatiNode paid Hondutel a fee in exchange for the use of Hondutel’s telecommunications lines to establish long-distance telephone services between Honduras and the United States.

Upon learning that the friend of a high-ranking government official had been made a manager of Hondutel, Caceres allegedly informed Granados that they would need to bribe the Hondutel management to retain the contract and obtain a fee reduction. The indictment alleges that Caceres, Granados and other unnamed LatiNode executives secretly agreed to bribe the manager, along with a senior attorney for Hondutel and a minister of the Honduran government who sat on the Hondutel Board of Directors. According to the indictment, from September 2006 through June 2007, Granados and Caceres paid over $500,000 in bribes to these officials. It is believed that the defendants laundered the money through several LatiNode subsidiaries in Guatemala and accounts in Honduras controlled by government officials.

Due Diligence Uncovers the Bribery

In early 2007, Florida-based eLandia International, Inc. acquired LatiNode for $26.8 million. According to the indictment, Granados and Caceres effectively concealed the bribery payments during the due diligence process leading up to the acquisition. For example, it is alleged that Granados asked Caceres to formalize the rate reduction agreements with the Honduran officials, and both men asked the Honduran government officials to sign “consulting contracts” that disguised their true relationship with LatiNode.

Following the acquisition, eLandia discovered these and other bribes and immediately self-disclosed the violations to the DOJ and Securities and Exchange Commission (“SEC”). On April 7, 2009, LatiNode pleaded guilty to one count of violating the FCPA’s anti-bribery provisions, and agreed to pay a $2 million fine.[2] eLandia was not charged in connection with the DOJ investigation. As part of the plea agreement, LatiNode agreed to cooperate with any further investigations by law enforcement agencies.[3]

Conclusion

On November 30, 2010, the Senate Committee on the Judiciary, Subcommittee on Crime and Drugs, held a hearing entitled “Examining Enforcement of the Foreign Corrupt Practices Act." Senator Arlen Specter (D-PA), the chairman of the subcommittee, expressed concern regarding the lack of significant prosecutions of individuals who are responsible for FCPA violations. Senator Specter noted that although the companies and their shareholders are penalized for FCPA violations, the individual criminal actors are not prosecuted. Greg Andres, Deputy Assistant Attorney General of the DOJ’s Criminal Division, responding by describing the prosecution of individuals as “a cornerstone of the [FCPA] enforcement program.”

Granados and Caceres face up to five years in prison on the charge of conspiracy to commit violations of the FCPA, up to five years in prison on each of the substantive FCPA counts, and up to twenty years on the money laundering count, in addition to fines and the criminal forfeiture sought by the government. These indictments reflect the DOJ’s continued effort to respond to recent Congressional criticism about the lack of individual prosecutions in FCPA cases. In many cases, the documents and information provided to the government during the course of an FCPA investigation may provide sufficient evidence of individual wrongdoing to pursue prosecutions against individuals, especially where, as here, a plea agreement requires the company to cooperate with subsequent investigations. 

This article was prepared by Richard C. Smith (rcsmith@fulbright.com or 202 662 4795), John E. Kelly (jkelly@fulbright.com or 202 662 0256) and Josh Foster (jfoster@fulbright.com or 212 318 3282) from Fulbright’s White Collar Crime Practice Group and FCPA and International Anti-Corruption Practice Group.

Fulbright’s White Collar Crime Practice Group

Fulbright’s White Collar Crime Practice Group is experienced in the management of complex federal and state civil and criminal litigation on behalf of U.S. companies, including Fortune 500 corporations, their officers and directors, international corporations and entities, and individuals. Fulbright’s White Collar Crime Practice Group also is experienced in the practice of preventative counseling and compliance programs. From a strategic perspective, this is important for reducing the risk of civil and criminal litigation. Our representation includes all phases of governmental investigations and criminal and civil litigation.

[1] DOJ Press Release, Former Senior Executives of Latin Node Inc. Charged with Bribing Honduran Officials and Money Laundering (December 20, 2010), available at http://www.justice.gov/opa/pr/2010/December/10-crm-1463.html.
[2] Criminal Plea Agreement, United States v. Latin Node, Inc., Case No. 09-20239, available at http://www.justice.gov/criminal/fraud/fcpa/cases/litton-applied/04-03-09latinnode-plea-agree.pdf.
[3] Id. at 3-4.