Inside the Justice Department’s Probe of Telecom Bribes in Haiti
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- Investigative Journalism -
March 17, 2010 (FinancialWire) (Via “The Komisar Scoop”) (By Lucy Komisar) -- When the devastating earthquake hit Haiti in January, IDT Corp. (NYSE: IDT) (NYSE: IDT/C), the New Jersey-based global phone company, moved fast to help. It announced it was setting up calling stations at hotels and other sites so Haitians could use its Internet calling-service to reach family and friends around the world. It cut rates on its U.S. prepaid calling-card to 2 cents a minute to Haiti (at least for 12 days), donated 4,000 $2-prepaid calling-cards to Haitian community groups in New York and Florida, and said it would give some proceeds from prepaid calls to Haitian Red Cross relief.
Such a warm, fuzzy response from a U.S. corporation often wins plaudits, though, of course, IDT has a business interest in the impoverished island. In 2005, in its latest publicly available figures, the company reported $4 million in profits from $17 million in revenues for routing calls there.
But judging by court records and other documents, IDT probably does not want too many people looking too deeply at how it’s conducted business in Haiti. A once-secret contract backs up testimony from an insider that IDT got knock-down prices for calling minutes to Haiti by bribing officials of Télécommunications d’Haïti (Haiti Teleco), the government phone company.
A just-unsealed Justice Department legal filing suggests that the department is laying the groundwork to go after IDT for violating the Foreign Corrupt Practices Act. IDT spokesperson William Ulrey said, “IDT has no comment on the material you sent to us. The Company has disclosed relevant developments with regard to these matters in its public filings.”
A big part of IDT’s business is selling long distance services and prepaid phone cards, which requires it to make deals with countries for the cost of completing U.S. calls. The company, based in Newark, N.J., has $1.2 billion in revenues and is the fourth-largest international carrier in the United States in terms of outgoing traffic.
In May 2004, D. Michael Jewett, in charge of IDT’s Caribbean division, alleged in a lawsuit filed in U.S. district court in New Jersey that bribes had been paid to get a sweetheart deal with Haiti Teleco, cutting the price IDT had to pay for long-distance minutes so it could undercut its competitors. Jewett, now 51, alleged that Jack Lerer, IDT executive vice president for international business development, had gone to Haiti in August 2003 and met President Jean-Bertrand Aristide to work out the accord. Jewett said Lerer told him that IDT would deposit its payments in an account set up for Aristide under the name Mont Salem in the offshore Turks and Caicos Islands. (In his court deposition, Lerer did not deny this assertion.) At the time, IDT’s CEO was James Courter, former six-term Republican congressman from New Jersey.
Jewett said that he was fired after seven months on the job for not going along with the scam; he filed a suit in 2004 for unlawful dismissal. The suit has lingered ever since in a New Jersey federal court, handed off to a shifting series of seven magistrates and district court judges in what might be a case study in how the federal justice system shouldn’t work. The court initially sealed Jewett’s complaint, and his lawyer had to go to the Court of Appeals to force a judge to order “discovery,” the pre-trial process of each side getting documents and information from the other.
Informed of the suit by Jewett, Peter Clark, a nationally prominent corporate fraud investigator who was leading Justice’s Foreign Corrupt Practices Act investigations, told me he came up from Washington to Newark to question him. An SEC official was also present. There were a few other meetings with Jewett, then nothing, according to Jewett’s attorney, William Perniciaro.
After Jewett’s complaint, IDT said in an SEC 10K filing October 14, 2004 that its audit committee had found no evidence of improper payments. The committee’s investigation was carried out in the summer of 2004 by an outside lawyer, Alice Fisher, who in 2005 would go on to head the Bush Administration Justice Department criminal division.
In 2005, the post-Aristide Haitian government filed a RICO (Racketeer Influenced and Corrupt Organization Act) civil complaint in Florida against Aristide and alleged co-conspirators it charged in the Teleco case and with other misdeeds.
Cited for their alleged roles in the Teleco bribery scheme were Alphonse Inevil and Jean René Duperval, former top Teleco officials, Adrian Corr, who ran Mont Salem, and Fred Beliard, a Florida businessman and part owner of a Haitian cable TV station in Miami. (Winston & Strawn, which represented Haiti in this case, said it was dropped before the complaint was served, so the accused did not file answers. Corr says he has never acted for Aristide nor set up any shell companies to siphon money for him.)
The suit said that records of Haiti Teleco—which it then controlled—showed that while IDT paid 9 cents a minute to the shell company, Mont Salem, 3 cents was kicked back to Mont Salem’s secret owner. Here’s how this worked: Payments to complete calls are paid to the country receiving the calls. FCC rules at the time required all U.S. telecoms to pay the same best rate publicly agreed to by Haiti Teleco–which then was 23 cents a minute. Their charges to customers were on top of that.
Paying Haiti Teleco only 9 cents, IDT could charge cut-rate prices and undercut companies that had to pay the full tariff; it got the customers. IDT and its Haitian cronies were making out like bandits, according to the RICO plaintiffs. In six months, from February to April 2004, IDT paid $302,588 in kickbacks, the suit alleged.
The Haiti lawsuit, with the advantage of Teleco documents, said that in September 2004, IDT sent Teleco a proposed agreement under which it would formally terminate any agency arrangement with Mont Salem effective retroactively from May 2004 and would agree not to allow any agent acting on its behalf to make or receive payments in violation of the U.S. Foreign Corrupt Practices Act.
Federal Communications Commission (FCC) records show that IDT’s August 2004 rate to Haiti went up to 18 cents a minute, when the country implemented that price for all carriers. IDT could therefore claim it “withdrew” from any possible unlawful conduct by May or at least August.
The Haiti suit also charged several Florida companies with making corrupt Teleco deals. But before it could put its documents into evidence, Haiti dropped its court action, blaming lack of funds.
In 2007, after IDT had for three years ignored FCC rules to file its Haiti contract, the agency ordered it to do so and fined it $1.3 million, reduced to $400,000 in a consent decree. When IDT raised an objection to making its contract public, the FCC let it get away with that until 2008.
Now that the contract has been released, it’s obvious why IDT wanted the contract kept secret. The smoking-gun page said that IDT payments would go to Mont Salem, not Haiti Teleco. The contract also said that IDT’s payments to Haiti to complete calls to that country would be 9 cents at a time when the required standard was 23 cents.
The Haiti civil suit said that Jean René Duperval, 43, then Haiti Teleco’s director of international relations, had falsified the books to say that Mont Salem was the carrier dealing with Teleco, not IDT. His signature was on the IDT-Teleco contract ordering payments to Mont Salem.
From the Jewett and Haiti suits, the evidence was out about these suspicious arrangements. Did the Justice Department take note? IDT has indicated in its annual SEC filings every year since 2004 when the Jewett case was filed that it is cooperating with ongoing Justice and SEC investigations. And recent events in a federal court in Miami suggest a Justice Department strategy. It appears to be tracking the facts in Haiti’s civil suit and using some co-conspirators to turn on others.
The Haiti government suit had accused three Florida companies, as well as IDT and several other out-of-state firms, of paying bribes to cited members of “the Aristide Group.” In 2008, the Justice Department filed a sealed request to suspend the five-year statute of limitations in a Miami case involving the Florida companies.
The application for the order—which was unsealed last month—noted that “the investigation to date has revealed that Terra Telecommunications, Inc., Uniplex Technologies, Inc., and Cinergy Telecommunications, Inc., its employees and intermediaries, and others may have violated United States criminal laws by engaging in a scheme involving the payment of bribes to officials of Telecommunications D’Haiti (“Haiti Telecom”), the national telephone company of Haiti.” The key is “and others.” The government won the order, which was also sealed.
Two lower-level participants in the Florida bribery conspiracy pleaded guilty last April. The U.S. Attorney in Miami in December brought indictments against five other individuals for participating in what it termed a $1.6-million bribe scheme, charging those facilitating the bribes with violating the Foreign Corrupt Practices Act, and all of them with money-laundering.
Among those indicted was Duperval, who has not pleaded to the charge because he does not yet have permanent counsel and therefore has not been arraigned. He was extradited from Haiti and is now free in the United States on a $400,000 bond and wearing a global positioning satellite system (NYSE:GPS) electronic ankle bracelet.
His predecessor at Haiti Teleco, Robert Antoine, 61, was also extradited and indicted. According to the Justice Department, U.S. government evidence shows that the two, who have residences in Florida, participated in a conspiracy that involved using a Florida shell company run by Duperval’s sister, so they could launder and reinvest the Teleco bribery profits. The sister, Marguerite Grandison, 40, of Miramar, FL, was also indicted.
The penalty for violating the Foreign Corrupt Practices Act is up to five years in prison; for money laundering, it’s up to 20 years.
As it continues its IDT investigation, the Justice Department might like to know who got the kickbacks that transited Mont Salem. Did Aristide? They might get that information from Duperval. It is common for the department to offer defendants plea bargains if they cooperate in investigations.
Duperval could worry that the United States has requested Mont Salem records from the Turks and Caicos Islands. In August, the U.K. took over daily management of the islands, a British Overseas Territory, after evidence of widespread corruption by local officials. The U.K. might be more amenable to American petitions for information about shell-company owners than the previous governors.
More serious, Robert Antoine will plead guilty on March 12th, according to his lawyer Dennis Kainen, who said the plea agreement will include a deal with the prosecutors. Antoine’s bribery deal with the Florida companies was passed on to Duperval, his successor, and it is expected that Antoine will provide the details.
Duperval is in a precarious position. G. Robert Blakey, professor of criminal law at the Notre Dame Law School and drafter of the federal RICO statute, said, “The only thing they can do now is flip witnesses. The way they flip witnesses is to say, ‘You’re going to jail for 20 years. Testify and it may be five.’ ” He could talk about IDT and Aristide.
The second factor that points to a prosecution of IDT is the suspension of the statute of limitations. Based on IDT paying the normal Haiti tariff beginning in August 2004, the statute of limitations might extend until only August 2009. Blakey said, “Is it logical that if they did get an extension it also applies to their investigation of Duperval in connection with IDT? Yes, it properly falls within ‘others.’ ” Or, he said, the government could have asked for a sealed order of suspension in New Jersey. Or IDT could have consented. He explained, “Since they’re cooperating, maybe they agreed to suspend it. Typically that’s done, because you want to talk the government out of indicting you.”
That could explain why IDT could acknowledge in a filing with the SEC for the fiscal year ending in July 2009 that the Justice Department and SEC were still investigating the 2004 charges that IDT had paid kickbacks for its Teleco contract.
Additional confirmation that the probe continues is a Dec. 29, 2009 letter I received from the Justice Department denying a FOIA request for documents related to the Jewett-IDT inquiry on grounds that “these records relate to open and on-going law enforcement proceedings,” and that their release could reveal the nature and scope of the government’s evidence and interfere with the case.
The continuing investigation may be what led the company in September 2009 to amend its bylaws to pay directors’ and officers’ costs of attorneys, fines, and settlements in criminal cases even if they are convicted, as long as they acted in good faith in the interests of the corporation. “A golden parachute to jail,” quipped a lawyer I consulted. The company’s former CEO, James Courter, and former CFO could theoretically face charges under the Sarbanes-Oxley Act, if they knowingly signed false statements that they knew of no material event that could result in financial liability to the company.
This is a precedent-setting case. The Justice Department is using the Foreign Corrupt Practices Act (which deals only with bribe-givers) not only to charge companies and individuals doing business in the United States, but, for the first time, to go after foreign officials who received bribe money and laundered it.
IDT’s officials and their lawyers are probably checking the Florida case docket anxiously for the latest information. So, very probably, is Jean-Bertrand Aristide.
Source: Courtesy of “The Komisar Scoop” (http://thekomisarscoop.com/2010/03/idts-voodoo-economics-inside-the-justice-department%e2%80%99s-probe-of-telecom-bribes-in-haiti/)
Lucy Komisar is an investigative journalist who writes about the offshore bank and corporate secrecy system. Her articles are posted at “The Komisar Scoop” web site (http://thekomisarscoop.com/). Readers are invited to receive “The Komisar Scoop” directly, via Ms. Komisar’s direct email opt-in system (http://thekomisarscoop.com/mailman/listinfo/subscribers_thekomisarscoop.com).
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