Two recent cases in Missouri and New York make clear that the Department of Justice continues to investigate and aggressively prosecute not only public corruption cases involving kickbacks but commercial kickback cases as well. The FCPA gets so much play that we sometimes forget that commercial bribery is alive and well here in the United States. U-S-A! U-S-A!
Generally speaking, commercial bribery occurs when someone at a company deals corruptly with prospective commercial partners. The prospective partner is hoping to gain an advantage over their competitors and are willing to pay to do so. In the classic case—exemplified in New York indictment described below—the prospective supplier pays someone who is in charge of purchasing to ensure that the company buys that supplier’s goods and not a competitor’s goods. Commercial bribery is illegal in most states; the feds simply charge mail and wire fraud.
The victim in these cases is the company that employs the person who accepted the bribe. The company may receive inferior supplies because the supplier was not chosen based on merit, or the company may unknowingly pay a higher price to “cover the cost” of the bribe.
So, let’s see how this plays out in real life.
A $4.8 Million Alleged Kickback Scheme in Missouri
In the Missouri case, a former vice president of Alberici Constructors, Inc., Clone Jefferson Oliver, was indicted for a kickback scheme in which the company is alleged to have lost at least $4.8 million. Also indicted was Kenneth Marc Simmons, who ran a business that supplied materials to Alberici.
According to the indictment, Oliver was the project manager for Alberici’s $23 million construction of a water treatment plan in Arlington, Virginia. The government accuses Oliver of submitting inflated invoices and false charges to Alberici, based on supplies ordered from Simmons. When Simmons’ company received the inflated payments, Simmons allegedly would keep part of the payment for himself and then pay a portion to Oliver as a kickback.
The indictment also alleges a more sophisticated scheme. The government claims that Oliver set up a company called Advanced Construction Services. This company had the same initials as another supplier on the water treatment project, American Construction Services. Oliver allegedly convinced American Construction Services to inflate its invoices. When Alberici paid the inflated invoices, American Construction Services would send a portion to Simmons’ company. The indictment alleges that Simmons would then forward some of the money to Oliver. Alberici allegedly lost approximately $1.7 million through this scheme.
Both Simmons and Oliver are charged with five counts of mail and wire fraud. Oliver is also charged with money laundering. In addition, the government filed civil forfeiture cases against two real properties that were supposedly bought with the proceeds of the kickback scheme. Following court orders allowing tracing of assets, the government also seized two boats, two Sea Doo water crafts, a Mercedes, a diamond ring, and proceeds from the sale of two Harley Davidson motorcycles.
A $7 Million Alleged Kickback Scheme in New York
A commercial bribery case in New York was on an even larger scale. Carl Fiorentino is the former president of a company called TigerDirect. TigerDirect’s parent company is Systemax, a publicly traded corporation in New York. TigerDirect sells brand-name computers as well as its own line of computers. Systemax reported $3.5 billion in net sales in 2010.
According to the indictment, Fiorentino accepted over $7 million in bribes to steer approximately $230 million in business from TigerDirect to the companies that paid the bribes to him. Fiorentino was in charge of choosing suppliers to provide computer components to TigerDirect. He allegedly entered into an agreement in 2003 with a Taiwanese company to ensure that TigerDirect would purchase supplies from that company. In return, the indictment alleges, Fiorentino received $6.5 million in bribes. He also allegedly accepted $570,000 in bribes from a California company that also wanted to supply components to TigerDirect.
The company offered a brief comment on the indictment, and one portion suggests the company’s internal processes assisted in uncovering the alleged fraud:
The criminal indictment relates solely to the action of Fiorentino, has no impact on the Company or its management and follows the Company’s 2011 internal whistleblower investigation that resulted in the termination of, among others, Carl Fiorentino’s employment with Systemax. The internal investigation was conducted by the Company’s independent Audit Committee of the Board of Directors, with the assistance of independent counsel.
Fiorentino was arrested and a search warrant executed on his $8 million house in Florida (supposedly bought with the proceeds of the kickbacks), so it’s possible the government viewed him as a flight risk or were concerned that he would destroy evidence of the alleged crime. He was charged with mail and wire fraud, conspiracy to commit mail and wire fraud and conspiracy to commit money laundering. The money laundering charge was likely tacked on because the kickbacks were allegedly concealed through a “complex web of wire transfers and shell companies.”