The Pirate of Prague, Foreign Corruption and You

CSO - An important trial under the Foreign Corrupt Practices Act ended with a guilty verdict in a Manhattan federal courtroom this month, providing a powerful reminder of the importance of conducting thorough reviews of foreign business partners and investments.

Background: The 'Pirate of Prague' and Suitcases Stuffed with Cash

A federal jury convicted Frederic Bourke, founder of handbag maker Dooney & Bourke, of conspiring to bribe government leaders in Azerbaijan in a 1998 oil deal, in violation of the Foreign Corrupt Practices Act (FCPA). Bourke invested-and lost-$8 million with a Czech expatriate, Viktor Kozeny, in a bid to buy SOCAR, the state oil company. Dubbed the "Pirate of Prague" by Fortune magazine, Kozney remains a fugitive, avoiding extradition while claiming the FCPA does not apply to him.

Prosecutors charged that Bourke made his investment, knowing that Kozeny gave Azeri public officials millions in cash and a secret two-thirds interest in the deal. Bourke's defense was that he invested only after his lawyers deemed the deal legal. He later even traveled to alert Azeri officials of the scheme. But prosecutors rebutted this defense with evidence of Bourke's knowledge, including his own recorded rhetorical question: "Do you think business is done at arm's length in this part of the world?" Jurors also heard weeks of riveting testimony involving suitcases stuffed with cash and details of secretive walks in a park to discuss the deal.

Also see: Business Risk of Fraud, Corruption Up Amid Economic Crisis

Prosecutors argued that Bourke consciously avoided learning about the bribes by not asking questions about the deal terms, and "sticking his head in the sand" to avoid learning if his partner paid bribes to government officials. The court's instructions on willful blindness permitted conviction if jurors found Bourke knew or took steps to avoid learning of payments to Azeri officials. Jurors had to determine if Bourke "deliberately closed his eyes" to what otherwise would have been obvious to him.

The Verdict: 'It's His Job to Know'

In finding Bourke guilty, jurors emphasized the importance of the court's "head in the sand" instructions. The foreperson summarized the rationale of his verdict, stating "[i]t was Kozeny, it was Azerbaijan, it was a foreign country. We thought he knew and definitely could have known. He's an investor. It's his job to know." Another juror, recalling a timeline used by prosecutors during closing argument, said there were too many "red flags" for Bourke not to have known. Another felt bad for Bourke, but emphasized that he had put himself in a "bad situation." A unanimous guilty verdict on the conspiracy to violate the FCPA resulted.

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