Covino, Mario; Morlok, Richard; Carson, Stuart; Carson, Hong (a/k/a Rose); Cosgrove, Paul; Ricotti, Flavio; Kim, Han Yong; Control Components, Inc.
In addition to FCPA violations, Edmonds was indicted for conspiracy to violate and direct violation of 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 Edmunds for bribery of 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.
China, Malaysia, South Korea
2003; 2004; 2005; 2006; 2007
Employees of various state-owned companies
David Edmonds, former Vice President of Worldwide Customer Service 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 Edmonds' 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 Edmonds 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, and lavish entertainment. Personally, Edmonds is indicted for his alleged role in making approximately $430,000 in payments to employees of public entities and $220,000 in payments to private companies. Furthermore, Edmonds allegedly created false invoices and spreadsheets to diguise corrupt payments as legitimate.
Among the overt acts Edmonds allegedly undertook in furtherance of a conspiracy to violate the FCPA are causing CCI to:
- Wire $75,137 to an Industrial Bank account in Korea for the purpose of making corrupt payments to KHNP officials;
- Wire $125,447 to an HSBC account in China for the purpose of making a corrrupt payment to a Dongfang official; and
- Wire $98,000 to an RHB Bank in Malaysia for the purpose of making a corrupt payment to a Petronas official.
Based on three alleged payments, Edmonds was also indicted on three counts of bribery under the FCPA. In addition, he was indicted under two counts of violating the Travel Act. 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 June 15, 2012, Edmonds pleaded guilty, and on December 17, 2012, was sentenced to 4 months in prison followed by 4 months home confinement, with a $20,000 fine. His co-defendant Cosgrove pleaded guilty on May 29, 2012 and was sentenced on September 14, 2012 to 13 months home confinement and a $20,000 fine.
Meanwhile, 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. Co-defendant Flavio Ricotti pleaded guilty on April 28, 2011, and on March 18, 2013, he was sentenced to time served (11 months previously spent in U.S. custody) and a $100 special assessment but not fine.