Prosecutors Bring AML, FCPA and Travel Act Charges against Former DAP Executives
On April 14, 2014, the Department of Justice (the "DOJ") announced the indictment of two former executives of defunct broker-dealer Direct Access Partners LLC ("DAP") on charges of conspiracy, money laundering, and violations of the Foreign Corrupt Practice Act (the "FCPA") and the Travel Act. Benito Chinea, cofounder and former chief executive officer, and Joseph DeMeneses, former managing partner for global strategy, are alleged to have paid kickbacks to a high-ranking official at state-owned Banco de Desarrollo Económico y Social de Venezuela ("BANDES"), in exchange for directing the bank's bond-trading business to DAP. DeMeneses also was charged with conspiracy to obstruct justice for instructing subordinates to delete emails describing the scheme to avoid discovery by examiners.
At the same time, the Securities and Exchange Commission (the "SEC") announced a civil enforcement action against the two individuals in a second amended complaint.
The scheme is alleged to have involved payments to Maria de los Angeles Gónzalez, a vice president of finance at BANDES, to direct business to DAP's Global Markets Group which executed fixed income trades for customers in foreign sovereign debt. The arrangement led to DAP earning more than $60 million in markups and markdowns from BANDES between 2009 and 2010. From this amount, up to $5 million in kickbacks were paid to Gónzalez via offshore accounts in Switzerland and through intermediaries described as "foreign finders."
Last year, Gónzalez and three additional DAP employees charged with devising the scheme were indicted on similar charges and pled guilty. DAP filed for bankruptcy protection in July 2013. The arrangement between the individuals and Gónzalez, which allegedly dates back to 2008, was discovered during the course of a routine SEC broker-dealer examination of DAP conducted in late 2010.
See: Proposed Second Amended Complaint; 2013 Amended Complaint; 2013 Complaint.
See: DOJ-SDNY Press Release; Criminal Indictment; SEC Press Release; SEC Second Amended Complaint.
Commentary
These charges further illustrate the aggressive posture taken by the DOJ and the SEC against both firms and individuals in the financial services industry. Coupling FCPA with money-laundering violations allows the DOJ to pursue bribe recipients as well as payers, since "foreign officials" cannot be charged under the FCPA. For the individuals, each money-laundering count carries a prison sentence of up to twenty years versus five years for each FCPA bribery count. For corporations, money-laundering charges can lead to the forfeiture of any assets tainted by laundered funds. Use of the Travel Act, which criminalizes "traveling in interstate or foreign commerce" to further any unlawful activity, provides prosecutors with the ability to pursue activity that does not on its face violate federal law (cf. commercial bribery). Expect that this level of scrutiny of the financial services industry and this kind of aggressive charging will continue. Financial institutions are strongly advised to consider not only FCPA, but also money-laundering and Travel Act controls as part of a comprehensive compliance program.