wmlro.com: US sales director bribed UK MoD official

Leo Winston Smith, 73, of Chula Vista, Calif., pleaded guilty before Judge Andrew J. Guilford in U.S. District Court in Santa Ana, Calif.

The two-count information charging him with conspiracy to breach the Foreign Corrupt Practices Act ( FCPA) in connection with the payment of bribes for the benefit of a UK-MOD official in exchange for obtaining and retaining lucrative contracts for PCI, and with corruptly obstructing and impeding the due administration of the internal revenue laws.

The UK-MOD official pleaded guilty in the United Kingdom to accepting more than USD300,000 in bribes from PCI and was sentenced to two years in prison.

Documents filed at Court show that PCI was a private company headquartered in Santa Ana that manufactured air separation units (ASUs), nitrogen concentration trolleys (NCTs) and other equipment for defense departments throughout the world. ASUs and NCTs generate oxygen and nitrogen in remote, extreme and confined locations for aircraft support and military hospitals. As director of sales and marketing, Smith’s main responsibility was to obtain business from and negotiate contracts with various domestic and international clients, including the U.K. Royal Air Force.

According to the plea agreement, Smith, along with the president of PCI, created a sham marketing agreement between PCI and a relative of the UK-MOD official to facilitate the payment of bribes. According to the plea agreement, more than USD70,000 in bribe payments was made using this arrangement. Smith admitted that in return for the payments, PCI obtained UK-MOD contracts. In addition, Smith admitted that he under-reported income on his 2003 tax return and that he failed to file a 2003 tax return for his company, Design Smith Inc.

“Bribery cannot be viewed as standard operating procedure when representatives from U.S. companies seek contracts abroad,” said Assistant Attorney General for the Criminal Division Lanny A. Breuer. “As demonstrated by this case, the Department will hold accountable corporate representatives who solicit and make bribe payments to foreign government officials.”

“Over the decades, U.S. businesses have been credited with many advancements in the global market; the fostering of corrupt business relationships is not one of them,” said Salvador Hernandez, Assistant Director in Charge of the FBI in Los Angeles. “This activity not only gives unfair competitive advantage to the company involved, it casts a shadow on the thousands of American businesses that operate legitimately abroad. The FBI, with its partners, will continue to actively search for—and counter—these corrupting influences.”

“U.S. companies, as well as their officers, directors, and agents who engage in illegal activity for their financial benefit, will be held accountable,” said Eileen C. Mayer, Chief of Internal Revenue Service - Criminal Investigation (IRS-CI). “We are steadfast in our determination to combat domestic and international tax fraud, corruption and money laundering, and will continue our efforts to ensure the integrity of our tax system worldwide.”

An evidentiary hearing related to sentencing is scheduled for Dec. 15, 2009. Smith is scheduled to be sentenced on Dec. 18, 2009. Smith faces a maximum penalty of eight years in prison.

In 2003, after the conduct alleged in court documents occurred, PCI was acquired by a group of investors and re-named Pacific Consolidated Industries LLC (PCI LLC). PCI LLC referred the matter to the Department of Justice and cooperated in the government’s investigation.

On May 8, 2008, Martin Eric Self, a U.S. citizen and a partial owner and former president of PCI, pleaded guilty to a two-count information charging him with breaching the FCPA in connection with the illicit payment of more than USD70,000 in bribes for the benefit of the UK-MOD official in exchange for obtaining and retaining lucrative contracts for PCI. He was sentenced on November 17, 2008, to two years' probation.

Martin Hale, who managed contracts for the RAF was convicted of receiving cash and taking benefits in kind including flights, hotel rooms and a cruise over a four year period from 1999 to 2003. He pleaded guilty to nine counts of receiving a bribe. He laundered the money through his stepson's bank account and bought property in Spain and England. He was convicted in April 2007, aged 58, and sentenced to two years in jail, a term which has now expired. It was alleged that Hale's part was to release to PCI confidential information that enabled them to produce bids that outclassed competitors.

The corruption came to light when PCI was taken over by a group of investors who discovered a network of illegal payments. They reported it to the US Department of Justice who informed the Ministry of Defence.

Hale's wife and stepson were acquitted of money laundering charges.