Burton Wiand Quoted In Restitution Claims


Labelled by DOJ as complicit, PetroEcuador faces struggle for bribery restitution

By Kelly Swanson   06 February 2019


PetroEcuador, Ecuador’s state-controlled oil company, is seeking to claw back some of the illicit funds laundered from a bribery scheme, sparking debate over whether the company is a victim or a perpetrator.

In related criminal cases against former financial adviser Jose Larrea and Ecuadorian citizen Juan Andrés Baquerizo Escobar, PetroEcuador has in the last few months filed motions for restitution for losses it suffered from a bribery and money-laundering scheme the defendants participated in. In filings with a federal court in Florida, PetroEcuador has described itself as “the principal corporate victim” of the scheme.

The scheme occurred between 2012 and 2016 when PetroEcuador officials, at least some of whom were taking kickbacks, entered into over 400 contracts with different service providers to work on a repair project for the Esmeralda refinery. The Ecuadorian government initially set aside $180 million for the project, but later estimated that it spent over $2.2 billion on the project.

Despite the billions spent on the project, the refinery is still in need of repairs worth $400 million, according to Ecuadorian press reports.

Now, PetroEcuador is seeking to get back some of those funds through the money seized in the US from the Department of Justice’s corruption probe. But, as Morrison & Foerster noted in a recent client alert, “PetroEcuador likely faces an uphill battle.”

What is PetroEcuador a victim of?

In November, Larrea was sentenced to 27 months in prison for his role in laundering $1 million in proceeds from the PetroEcuador bribery scheme by purchasing Miami real estate. At the time of Larrea’s sentencing, PetroEcuador hired Squire Patton Boggs to claim victim status in the case. Larrea pleaded guilty to one count of conspiracy to commit money-laundering in September.

According to his plea agreement, Larrea admitted to wiring over $1 million from his personal US bank account to several other US accounts to further the scheme. He also admitted that he created false and backdated documents on behalf of GalileoEnergy, one of the companies that bribed PetroEcuador officials for contracts.

Then in early January, PetroEcuador made a similar restitution filing in a case against Juan Andrés Baquerizo Escobar, who also pleaded guilty to charges of conspiracy to commit money-laundering in September.

According to his plea agreement, Baquerizo created shell companies and foreign bank accounts to assist former PetroEcuador official Arturo Escobar Dominguez in receiving bribes for contracts.

The only defendant in the case specifically charged with bribery in the US is Frank Chatburn. He has pleaded not guilty to Foreign Corrupt Practices Act charges and is set to face trial in February. PetroEcuador has not made a filing for restitution in Chatburn’s case.

At issue, is what exactly PetroEcuador is a victim of. The DOJ claims that in Larrea’s case, PetroEcuador is not a victim because Larrea entered the scheme after the bribery was already committed.

“Any harm purportedly suffered by PetroEcuador from overpriced agreements, bid rigging, or deprivation of the honest services of its employees occurred in 2016 or earlier, whereas defendant Larrea’s offense involved subsequent concealment of bribe proceeds in 2017 and 2018,” prosecutors wrote.

In Baquerizo’s case the DOJ makes a similar argument. The DOJ argues that PetroEcuador suffered losses as a result of overpriced contracts. “These alleged harms would have been caused by PetroEcuador’s own employees and are not the crime for which defendant Baquerizo was convicted,” prosecutors wrote.

PetroEcuador, however, argues that it is entitled to restitution because the bribery scheme would have failed had individuals such as Larrea and Baquerizo not laundered the proceeds on behalf of government officials.

Notably, for reasons that are unclear, PetroEcuador has not filed for restitution in the criminal cases brought by the DOJ against two of its former officials: Arturo Escobar Dominguez and Marcelo Reyes Lopez. Last summer, Escobar was sentenced to four-and-a-half years and Reyes for four years in prison for money laundering violations tied to allegations they took bribes.

James Koukios, a partner at Morrison & Foerster, said it is unclear why PetroEcuador did not file for restitution in the cases against its former officials. He speculated that it could have been that the company did not want to get involved in a case against its own officials. PetroEcuador may also have not been aware of the charges to file for restitution in time, or it could be waiting to file for restitution against the officials in Ecuador, Koukios speculated.

Counsel to PetroEcuador did not respond to a question about why the company hasn’t filed for restitution in cases against its government officials.

PetroEcuador is complicit in scheme, DOJ says

In the DOJ’s motion in opposition to PetroEcuador’s filing for restitution, the department does not tread lightly.

“PetroEcuador extensively participated in the bribery and money laundering schemes, and thus it is precluded from being recognized as a victim,” prosecutors wrote.

As proof that PetroEcuador was complicit in the scheme, prosecutors said they have witnesses who will testify “that the bribery scheme was not only perpetrated by senior executives at PetroEcuador but that corruption was pervasive throughout the organization from the board of directors to low level employees.”

Ecuadorian media reports back up the DOJ’s assertion that the corruption within PetroEcuador reached all levels of the company.

“It saddens me because it was a perfectly established and reinforced structure of corruption,” the former general manager of PetroEcuador Carlos Tejada said last March. Tejada said that corruption reached the company “at all levels, high, medium and low.” He resigned from the position in July after only serving for eight months.

DOJ adopts contradictory approaches in Fifa and PetroEcuador cases

PetroEcuador fought back, arguing that the DOJ’s position that PetroEcuador was somehow complicit in the scheme “is simply wrong as a matter of law and logic,” according to court filings.

“The idea that EP PetroEcuador could and did conspire to bribe its own employees and launder their illegal proceeds to its own detriment is not supported by the facts of the case, applicable law, or the entire logic of these secret and corrupt schemes,” Rebekah Poston, counsel to PetroEcuador, argued.

Additionally, PetroEcuador argued that the DOJ’s position on restitution in another corruption case concerning world soccer governing body Fifa is completely at odds with its stance in the PetroEcuador case.

In late 2017, the DOJ secured at trial the convictions of two former Fifa executives accused of taking bribes in exchange for awarding media and marketing rights for soccer tournaments. As the pair were due to be sentenced, several soccer organisations – Fifa, Conmebol and Concacaf – that employed them sought restitution to cover losses they had suffered as a result.

During the trial, the DOJ argued that “nearly every Conmebol official, including federation presidents as well as Conmebol’s president and treasurer” was involved in the bribery scheme. But when one of the defendants in the case, José Maria Marin, argued that Fifa, Concacaf and Conmebol were co-conspirators and had no right to restitution, the DOJ stood up for the organisations.

“[T]he organizations are by definition victims of the defendants’ theft of honest services and cannot be considered to have defrauded themselves,” the DOJ said according to court filings.

In November last year, a federal judge in Brooklyn ultimately awarded the three organisations just a tiny fraction of the restitution they had sought.

Poston declined to comment as the restitution case is ongoing.

“The DOJ has an obligation to support the victims”

PetroEcuador’s case for restitution was called “a likely uphill battle” by Morrison & Foerster because it is similar to the failed attempt for restitution by Instituto Costarricense de Electricidad (ICE) in 2011.

PetroEcuador’s restitution filing in Larrea’s case is being handled by the same judge in ICE’s unsuccessful attempt, Judge Marcia Cooke in the federal court in Miami.

ICE filed for restitution in a 2011 bribery case against telecommunications giant Alcatel-Lucent SA. In 2010, Alcatel-Lucent agreed to pay $137 million to the Justice Department to settle charges that it had violated the FCPA in multiple countries, including Costa Rica, for bribes paid to foreign officials to secure contracts.

The DOJ argued that ICE should not be considered a victim because it had conspired with the bribe takers to create the conditions for corruption.

ICE’s counsel Burton Wiand at Guerra King fought back saying at the time: “Neither the [DOJ] nor the SEC sought to gather or verify any facts from ICE nor make inquiry with respect to the damages that the company had suffered.”  Wiand added that there was no proof that ICE benefited from the scheme.

The Justice Department argued that ICE had not substantiated its claim to damages and, regardless, was complicit in the corruption it now seeks to profit from.

Ultimately, Judge Cooke denied restitution to ICE because she said that ICE was a co-conspirator in the bribery scheme.

Wiand explained in an interview this week with GIR Just-Anti Corruption that he believed that the DOJ did not want the restitution filings to delay the pending settlement with Alcatel.

“The DOJ had already cut its deal with Alcatel, and there wasn’t any room for restitution as they would have had to go back and redo the entire settlement,” Wiand explained.

Wiand questioned whether in the ICE and PetroEcuador cases the department is adequately serving its duty to help the victims of foreign bribery.

“The DOJ has an obligation to support the victims, and in these types of cases they don’t want to do that,” Wiand said.

A status conference discussing PetroEcuador’s restitution claim is scheduled for 20 March.

Just Anti-Corruption