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A Classic Criminal Investigation: Unraveling PDVSA Corruption

The Justice Department has been criticized on numerous occasions about its approach to criminal investigations and prosecutions.  In a recent decision, the chief judge in the Eastern District of New York criticized DOJ for “outsourcing” criminal investigations to outside counsel who conduct internal investigations under DOJ review.  I have long predicted that courts would eventually impose criminal procedural protections in the context of criminal internal investigations.  This trend is likely to continue.

In stark contrast to this trend, the Justice Department’s ongoing investigation and prosecution of individuals connected to PDVSA corruption is a traditional enterprise-focused prosecution being lead by DOJ’s FCPA Section, the US Attorneys and the FBI in Houston, Miami and New York.    Through steady and aggressive prosecutions, DOJ is building a large and successful dismantling of PDVSA’s historical corrupt regime. 

Each case represents another brick in the overall focus on PDVSA corruption.  DOJ is prosecuting individuals, flipping some of the defendants and then going after additional defendants.  Each prosecution presents new opportunities to flip defendants, and then to build additional prosecutions.

To date, the Justice Department has charged 21 individuals, 15 of whom have pleaded guilty. 

Haddad & Veroes Case

Recently, DOJ announced two significant prosecutions.  In the first, two businessmen pleaded guilty in federal court in Miami to paying bribes to a former Venezuela government minister and another official at Corpoelec in exchange for $60 million in contracts.

Luis Alberto Haddad and Jesus Ramon Veroes, each plead guilty to one count of conspiracy to violate the FCPA.  The two defendants also agreed to forfeit $5.5 million.

DOJ also announced the indictment of the two Venezuelan officials who collected the bribes from Haddad and Veroes.  Luis Alfredo Motta was the minister of Corpoelec, the state-owned electricity company, and Eustiquio Lugo Gomez, the procurement director at Corpoelec, were charged in an eight-count indictment with seven counts of money laundering and one count of money laundering conspiracy.  Motta and Gomez were both added to OFAC’s SDN list.

Testino & Citgo Case

Jose Manuel Gonzalez Testino pleaded guilty in federal court in Houston to one count of conspiracy to violate the FCPA, one count of violating the FCPA and one count of failing to report foreign bank accounts.  Testino was arrested in July 2018 at Miami International Airport. 

Testino admitted to bribing four officials at Citgo Petroleum  Corporation, based on Houston, which is owned by PDVSA.  Testino  bribed Citgo officials to win energy and logistics contracts and receive payment faster than other PDVSA vendors.  Testino and a co-conspirator paid Cesar Rincon-Godoy, a Citgo general manger, at least $629,000 in bribes.  DOJ charged Rincon-Godoy with money laundering offenses. 

Testino also admitted bribing Alfonso Gravina Munoz, an official at another Houston-based PDVSA logistic subsidiary.  Munoz has been cooperating with DOJ in the PDVSA investigation after pleading guilty to obstruction, money laundering conspiracy and making false statements in his federal income tax return. 

Rincon and Munoz provided Testino with inside information concerning PDVSA procurement processes and took steps to direct PDVSA contracts to Testino’s companies and give them specific advantages.

Testino also admitted to making bribe payments to several PDVSA officials employed by Citgo, which is primarily a refiner, transporters and marketer of petroleum products.  Citgo also procured goods and services for PDVSA through its Special Projects group.  Testino bribed at least four Citgo officials in exchange for assistance in contract bids, disclosure of confidential information and concealment of Testino’s real interests in multiple companies involved in bidding panels for PDVSA projects.

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