40 Years Of FCPA – The Strange Case That Started It All

By Burton Wiand

Law360, New York (December 1, 2017) – – Leading up to the 40th anniversary of the Foreign Corrupt Practices Act on Dec. 19, this Expert Analysis series features reflections from attorneys who have played a role in the evolution of FCPA enforcement, defense and compliance.

U.S. Securities and Exchange Commission v. Page Airways[1] was an SEC enforcement action that arose and was resolved under most unusual circumstances. Through a private investigation, the staff uncovered some of the most detailed and specific acts of intentional corruption of the SEC’s “foreign payments” and Foreign Corrupt Practices Act enforcement activities. After a long period of investigation, the commission filed a case against Page Airways and several of its officers that included fascinating allegations of international corruption and intrigue. In April of 1978, after a long period of litigation, the matter was settled under circumstances that I am sure are unique to the SEC’s history of enforcement efforts.

I was fortunate to work with the Division of Enforcement in Washington, D.C., for a little over 13 years, beginning in the summer of 1971. My initial cases involved fraudulent sales of orange grove investment contracts, pump and dump schemes (yes, in 1972) and fraudulent stock offerings. In the early 1970s, the Division of Enforcement began to direct significant focus and enforcement activities, particularly in Washington, toward widespread corporate corruption of public companies. These cases became known as “foreign payments” cases. Ironically, I believe the program arose not from foreign corruption, but out of the Watergate revelations where it was learned that major U.S. corporations were delivering large amounts of cash to the Committee for the Re-Election of the President. Obvious questions were raised as to how major U.S. corporations were able to contribute large amounts of cash to Richard Nixon’s campaign. Questions relating to where these funds came from, how they were recorded in the company’s books, how these illegal contributions and other disbursements were authorized, and who was responsible for these activities, were glaring. Early inquiries revealed massive slush funds, massive diversions of cash from public corporations, and organized activities of top management of our country’s largest corporations to conduct these corrupt activities and conceal them. Inquiry into these matters promptly led to the slush funds, bag men, etc. for domestic payments and also revealed that the corporation’s funds were being diverted from corporate coffers for a wide-spread and varied array of domestic and foreign corruption. These early investigative efforts also revealed that, on a regular basis, corporate records were being falsified as to these transactions, and public companies’ accountants were being deceived.

As these revelations unfolded, Stanley Sporkin and many in the Division of Enforcement were outraged by the level of domestic and international corruption that began to unfold. At his direction, the Division of Enforcement began to bring cases against company after company based on what, at times, were strained theories that alleged material misstatements in company filings and proxy statements and accused these companies of anti-fraud violations. There was a strong reaction to these cases as their underlying basis did not fit neatly within traditional theories of “materiality.” The traditional mathematical formulas used to determine materiality, did not fit a few million dollars of corrupt payments by a corporation with billions of dollars of revenues and assets. The Enforcement Division focused on “qualitative materiality” and the undisclosed misdeeds of management in order to pursue these cases. The remedies that were sought were just, right and necessary, but the legal path to these results was not well defined.

As the Division of Enforcement’s investigations pressed forward, the number of cases multiplied and because the corrupt conduct by American corporations was so pervasive, it was obvious that the numbers of violators was a large one. This circumstance led to a “Voluntary Disclosure” program instituted by the Commission, designed to resolve potential enforcement cases, and allow the management of a broad law enforcement problem.

The commission made corporate America aware that if companies had corruption problems, then voluntary disclosure of these problems, establishing an independent investigation of potential corporate misconduct and reporting the matters to the Division of Enforcement would likely result in the division forgoing formal enforcement action. As part of this program, companies were required to have independent investigators create reports of the company’s conduct that would then be reviewed by the staff of the Division of Enforcement and, in general, if appropriate disclosures had been made and the investigations were complete, the matters were closed. Once this program was under way, the line at the commission’s door grew long and the newspapers reported on an almost daily basis striking disclosures of corrupt conduct.

By the time this program was in full swing, I had become a branch chief in the Enforcement Division, supervising a branch of 10 to 12 professionals. All of these professionals were working at least part of the time on foreign payment investigations and voluntary disclosures. Another task that most everyone also contributed to was providing testimony and statistical information collected for Congress as part of efforts to develop legislative answers to the widespread domestic and international corruption. The answer, of course, was the FCPA that was enacted in 1977.

In the mid-1970s one of my group’s investigations was of Grumman Corp., a major producer of military hardware. These products included the F-14 “Tom Cat” fighter jets and the E-2C “Hawkeye” surveillance aircraft, among many other aircraft and military products.

Grumman Corp. also produced at that time Gulfstream II executive aircraft through a subsidiary located in Savannah, Georgia. The Gulfstream II executive aircraft was the premier executive aircraft available and was widely sought after by large corporations and foreign governments for transportation of their senior executives and officials. The aircraft was almost without competition. It was the “Cadillac” of executive jets. During the course of the Grumman investigation, it was revealed that Grumman had paid large commissions in connection with massive sales of F-14 aircraft spare parts and support equipment to the government of Iran. Huge payments were committed to “agents” in order to facilitate these transactions. Another major portion of the Grumman Corp. case involved payments made to Japanese government officials as part of sales efforts of E-2C “Hawkeye” surveillance aircraft to the government of Japan. These massive transactions were the primary focus of the Grumman Corp. case that brought by the commission and resolved with Grumman in 1978.[2] However, another portion of the case was far more intriguing.

In sales of Gulfstream II aircraft internationally, Grumman Corp. established a relationship with Page Airways Inc., a small public company with fixed-base operations in Rochester, New York, and elsewhere. The company also sold new and used aircraft. As the Grumman onion was peeled, it revealed sale after sale through Page Airways of Gulfstream II aircrafts were made through corrupt payments.

While the commission’s investigation revealed a continuous and repeated series of international corrupt transactions by Page Airways, the company itself and its officers seemed an odd crew to be directing the sales of executive aircraft internationally, almost solely through corrupt transactions. The principal executives of Page Airways, James Wilmot and his brother, Gerald Wilmot, were both successful businessmen in various different business activities. They were nationally well-respected, philanthropic, and very much involved in public life. James Wilmot was the chairman of the Democratic Party’s national fundraising efforts during the time that the sales transactions occurred. No one in the company had any history of the illegal or corrupt business activities. Yet, the evidence of their activities in this regard was clear and beyond question.

In April of 1978, the commission instituted a civil injunctive action in the U.S. District Court for the District of Columbia.[3] The case charged Page Airways, James Wilmot, Gerald Wilmot and four other executives of the company with participating in a broad range of corrupt transactions over a six-year period. The case not only gave specific detail of bribery transactions throughout the world, but also specified specific false reporting of the transactions in Page Airways books and records, as well as the deception of the company’s accountants, and the Ex-IM Bank.[4] [5]

Among these activities was the sale of a Gulfstream II aircraft to Malaysia State of Sabah. In connection with the transaction, $900,000 was paid to two Hong Kong companies that were controlled by Datuk Harris. At the time the transactions were instituted, Harris was the minister of industrial development of Sabah and later was the state’s chief minister.

The company sold two Gulfstreams, one new and one used, to the Ivory Coast and paid hundreds of thousands of dollars in connection with those transactions to an entity that was controlled by the Ivory Coast ambassador of the United States in Washington, D.C.

In connection with the sale of a Gulfstream to the country of Gabon, hundreds of thousands of dollars were also paid to Albert Bongo, president of the country. These funds were delivered in cash in a briefcase to French military personnel who acted as Bongo’s body guards and advisers. The payment was recorded as a discount.

For the sale of four Gulfstream II aircrafts to Saudi Arabian International Airlines, 10 percent of the transaction price was added on to the transaction and then was transferred to third-party entities in the Middle East. Page Airways and personnel were unable to describe or document the purpose or the beneficiaries of these large transactions.

In a sale of a Gulfstream II to Morocco, Page Airways, individuals were deceived into thinking they were paying hundreds of thousands of dollars to a well-known Middle Eastern political figure who had been seven times prime minister of Lebanon. However, while the Page Airways salesman believed they were making payments to facilitate the transaction, in reality an individual who was introduced to them as the Lebanese politician was an imposter, and the actual purpose and destination of the payment remains unknown.

One of the most curious transactions was the relationship between Page Airways and Uganda. The relationship involved sales of a Gulfstream II to Uganda and an L-130 to Uganda. Significant payments were made to “agents.” In addition, when the L-130 was delivered to Uganda, it contained a silver Cadillac Eldorado convertible and a western style gun belt with two pearl handled Colt 45-caliber revolvers for Idi Amin. Uganda was sold an L-130 (civilian version) rather than a C-130 because it was illegal to sell the military version of the plane to Uganda. Once the plane was received from the manufacturer, it was flown to a remote airbase in Florida where the airplane was converted to the military version prior to delivery to Uganda. Page also provided ground support and maintenance for the L-130 and arranged for pilots and support personnel for Uganda’s Gulfstream II. These latter support activities were never recorded in the books and records of Page Airways and were conducted as an off-the-books business activity. Part of the support, maintenance and ground service activities for the L-130 and the Gulfstream II was provided through personnel supplied by Page Airways who were in part Israeli intelligence agents.[6]

Most of this information was detailed in the commission’s complaint. After it was filed, it was strenuously litigated by Page Airways. The case was transferred to Rochester, New York, from Washington, D.C., and discovery began in earnest. One of the defense lawyers for the Page team, Michael Madigan, had the idea to ask the commission whether or not we had any contact with the CIA. In addition, subpoenas were sent to the CIA requesting documentation relating to Page Airways’ activities. The discovery directed at the commission was intended as a “graymail defense.” While only a very, very limited amount of innocuous information had been provided to the staff of the commission relating to Page, it was difficult to get a position from the CIA as to whether or not this information should be produced. The CIA was also apparently concerned with respect to the subpoenas that it had received and did not want to comply with subpoenas.

Thus, after two years of litigation, the Division of Enforcement was approached by the CIA, which indicated that the case should be settled with Page Airways.[7] Brief negotiations occurred with Page Airways after this intervention from the CIA, and a settlement was reached whereby the company consented to an injunction regarding filing violations and the books and records portions of the FCPA. All of the individual officers and directors of Page Airways were dismissed as defendants in the action. In addition to the injunctive relief against the company, the settlement required a monitor to assure the appropriate recording of the transactions in Page Airways books and records and appropriate disclosures. The last line of the litigation release stated that in connection with the resolution of the “Commission and Page Airways had considered concerns raised by another agency of the United States government with respect to the national interest.”[8] This last line of the litigation release itself was a subject of negotiation with the CIA, which believed that it was important to say the national interest rather than the national security interest because if the latter term had have been used, it would have indicated that the CIA was involved.[9]

After the case was brought to a conclusion, Robert LaFramenta, the senior commission lawyer who was responsible for the case along with me, spent hours discussing possibilities of what the involvement of CIA was with Page Airways. Transactions well could have been used to coopt the recipients of the corrupt payments or to curry favors with those leaders. Funds involved with Saudi Arabia transactions seemed to have just disappeared. They could well have been used to fund covert activities of the CIA or of persons acting on its behalf, and finally the transactions with Idi Amin clearly provided an intelligence foothold in Uganda that was valuable. It didn’t seem curious to us at all that the raid on Entebbe by Israeli forces was carried out by a very well-informed military.

After the case was brought to a conclusion, Robert LaFramenta, the senior commission lawyer who was responsible for the case along with me, spent hours discussing possibilities of what the involvement of CIA was with Page Airways. Transactions well could have been used to coopt the recipients of the corrupt payments or to curry favors with those leaders. Funds involved with Saudi Arabia transactions seemed to have just disappeared. They could well have been used to fund covert activities of the CIA or of persons acting on its behalf, and finally the transactions with Idi Amin clearly provided an intelligence foothold in Uganda that was valuable. It didn’t seem curious to us at all that the raid on Entebbe by Israeli forces was carried out by a very well-informed military.

While much of the foregoing as to the involvement of the CIA in Page Airways’ activities is speculation, the conclusion was easily reached that Page Airways’ activities were at least in part conducted in conjunction with CIA intelligence activities. When the case came to conclusion in the manner that it did, it was very disappointing for Bob LaFramenta and me. We had envisioned the trial of a precedent-setting enforcement action that would have defined FCPA enforcement standards at an early stage. Rather the intervention of the CIA led to a conclusion that I am sure is unique in the commission’s history. The settlement of the case from an enforcement view is well described by the words of cartoonist Walt Kelly’s Pogo: “We have met the enemy and he is us.”

Burton W. Wiand is a shareholder at Guerra King PA in Tampa, Florida.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] Sec. and Exch. Comm’n v. Page Airways, Inc., 464 F. Supp. 461 (D.D.C. 1978).
[2] Sec. and Exch. Comm’n v. Grumman Corp. and Gulfstream Am. Corp., Litig. Release No. 8635 (Jan. 4, 1979).
[3] Sec. and Exch. Comm’n v. Page Airways, Inc., et al. No. 78.0656 (D.D.C. 1978).
[4] Id.
[5] Sec. and Exch. Comm’n v. Page Airways, Inc., et al., Litig. Release No. 8372 (Apr. 13, 1978).
[6] Murray Waas, The C.I.A. and Page Airways, The Case of the Flying Spies, The Nation, Feb. 20, 1982, at 193.
[7] Jerry Landauer, SEC Seen Dropping Foreign Payoff Case Against Page Airways at CIA’s Request, Wall St. J., Apr. 8, 1980, at 8.
[8] Page Airways, Litig. Release No. 8372.
[9] Landauer, supra note iv.

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