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U.S. v. Stuart Carson, et al.

 
:
Control Components Inc. - Carson, Hong a/k/a Rose Carson
:
DOJ Criminal
:
April 8, 2009
:
U.S. v. Stuart Carson, et al.
:
U.S. v. Carson, et al., No. 09-77 (C.D. Ca. 2009)
:
In addition to FCPA violations, Carson was indicted for conspiracy to violate the Travel Act by using interstate and foreign commerce to facilitate commercial bribery, an unlawful act under California Penal Code Section 641.3. Thus, the DOJ is prosecuting Carson for conspiracy to bribe employees of foreign private companies as well as foreign government officials.

The Court denied the defendants' motion to dismiss Counts 1-10 because it found that an "instrumentality" as specified by the FCPA can include state-owned enterprises, and therefore payments to employees of state-owned enterprises can constitute payments to foreign officials in violation of the FCPA.
:
Manufacturing/Engineering
:
China
:
2003; 2004; 2005; 2006; 2007
:
Employees of various state-owned companies
:
Hong Carson, former Director of Sales for China and Taiwan for Control Components Inc. ("CCI"), a California based valve manufacturing company, is one of six defendants indicted for alleged involvement in a corruption scheme involving approximately 236 payments in over 30 countries totaling approximately $6.85 million. From 2003 to 2007, these payments included $4.9 million to officers and employees of state-owned companies and $1.95 million to officers and employees of private companies. According to the indictment, these corrupt payments resulted in approximately $46.5 million in profits for Carson's employer.

The indictment lists CCI's state-owned customers who received corrupt payments as including but not limited to: Jiangsu Nuclear Power Corporation ("JNPC") (China), Guohua Electronic Power (China), China Petroleum Materials and Equipment Corporation ("CPMEC"), PetroChina, Dongfang Electric Corporation (China), Chuna National Offshore Oil Corporation ("CNOOC"), Korea Hydro and Nuclear Power ("KHNP"), Petronas (Malaysia), and National Petroleum Construction Company ("NPCC") (United Arab Emirates).

The indictment alleges that Carson participated in CCI's "friend-in-camp ('FIC') sales model" by cultivating "special relationships" with employees of state-owned and private companies to win business through gifts of money, vacations, lavish entertainment, and tuition payments. Personally, Carson is indicted for her alleged role in making approximately $1 million in payments to employees of public entities and $43,000 in payments to private companies. Additionally, Carson is indicted for intentionally destroying documents by flushing them down a toilet to prevent their discovery during a 2007 internal audit.

Among the overt acts Carson allegedly undertook in furtherance of a conspiracy to violate the FCPA are causing CCI to:
- Wire $100,000 to a UBS Swiss bank account for the purpose of making a corrupt payment to an official with JNPC;
- Wire $15,000 to a Bank of China account for a PetroChina official to influence the award of a natural gas project;
- Make a $2,000 cash payment at the Los Angeles airport and wire $222,712 to bank accounts in China for CPMEC officials for the purpose of securing business;
- Wire $58,500 to a Hang Seng Bank account in China to make a corrupt payment to a CNOOC official;
- Wire $125,447 to an HSBC account in China to pay a Dongfang official in exchange for award of a project; and
- Wire $36,146 to a Mellon Bank account in Pennsylvania for the purpose of paying the tuition of a Guohua Electric Power official's son in exchange for business.

Based on five alleged payments, Carson was also indicted on five counts of bribery under the FCPA. Following the related pleas entered by CCI employees Morlok and Covino in early 2009, the South Korean government announced plans to expand a probe of KHNP kickbacks for CCI contracts.

Defendants filed a petition for a writ of mandamus from the Ninth Circuit regarding their ability to compel the government to produce documents in the possession of a cooperating witness. The court denied a request to stay the case pending that petition.

On May 18, 2011, the Court denied the defendants' motion to dismiss Counts 1-10 which argued that the definition of "foreign official" in the FCPA did not include the employees of state-owned companies. The Court found that the question of whether a state-owned enterprise qualifies as an instrumentality is a question of fact. Furthermore, the court found that an "instrumentality" can include state-owned enterprises, and therefore payments to an employee of state-owned enterprises can constitute payments to a “foreign official” in violation of the FCPA.

On June 13, 2011, the defendants filed a motion to dismiss the Travel Act counts (1, 11, 12, and 14) because the indictment fails to allege violations under the Travel Act, the statute is unconstitutionally vague, and the presumption against extraterritoriality prohibits application of the Travel Act to activities occurring abroad.

On April 16, 2012, Carson and his wife, Hong "Rose" Carson, each pleaded guilty to separate one-count superseding informations charging them with making a corrupt payment to a foreign government official in violation of the FCPA. Stuart Carson was sentenced to four months imprisonment and ordered to pay a fine of $20,000. Hong Carson was sentenced to three years probation and ordered to pay a fine of $20,000.

Meanwhile, Flavio Ricotti pleaded guilty on April 28, 2011. On March 18, 2013, Ricotti was sentenced to time served (11 months previously spent in U.S. custody) and a $100 special assessment but no fine. Cosgrove pleaded guilty on May 29, 2012, and on September 14, 2012 was sentenced to 13 months home confinement and a $20,000 fine. Edmonds pleaded guilty on June 15, 2012, and on December 17, 2012, was sentenced to 4 months in prison followed by 4 months home confinement, with a $20,000 fine.
:
Anti-bribery (Domestic Concern), Conspiracy - Anti-Bribery
:
Conspiracy - Travel Act, Destruction of Records
:
Plea
:
20,000
:
0
:
Agent of Domestic Concern
:
Country Sales, Senior Sales
:
U.S.
:
Contract Procurement/Retention
:
Not stated.
:
Cash, Entertainment, Gifts, Meals, Scholarship/Education, Travel, Wire/check
:
Direct, Sales Agent/Consultant
:
1,000,000
:
China, Switzerland, United States
:
China, Switzerland, United States
:
foreign official
:
No
:
China, South Korea