Two related foreign-bribery enforcement actions by the U.S. Department of Justice in the last three weeks involve a jurisdiction not widely recognized as posing a corruption risk: the Federated States of Micronesia (FSM). First, on January 22, the owner of a Hawaii-based engineering and consulting company, Frank James Lyon, pleaded guilty in the U.S. District Court for the District of Hawaii to a one-count information, charging him with conspiracy to violate the anti-bribery provisions of the Foreign Corrupt Practices Act and to commit federal program fraud.
Second, on February 11, Master Halbert, a Micronesian citizen and a government official in the FSM Department of Transportation, was arrested in Honolulu, on the basis of a criminal complaint filed in the District of Hawaii that charged him with one count of conspiracy to commit money laundering. Halbert, who administered FSM’s aviation programs, including the management of its airports, allegedly participated in a money-laundering scheme involving bribes made to corruptly secure engineering and project management contracts from the FSM government.
The complaint alleges that between 2006 and 2016, Lyon’s company
paid bribes to FSM officials, including Halbert, to obtain and retain contracts with the FSM government valued at nearly $8 million. According to the complaint, Lyon entered into an agreement with Halbert to bribe Halbert in exchange for Halbert’s assistance in securing contracts for Lyon and his company. Lyon and Halbert allegedly agreed that these bribes would be transported from the United States to FSM.
Halbert is scheduled for a preliminary hearing on February 22, and Lyon for sentencing on May 13.
Note: This case provides a useful reminder that bribery and corruption risks do not arise only in more populous jurisdictions, or countries with global reputations for corruption. The FSM is not even included in Transparency International’s Corruption Perceptions Index, and the TRACE International Bribery Risk Matrix for 2018 rates the FSM as only 90th of 200 jurisdictions worldwide.
Even qualitative assessments of the FSM do not identify it as a hotbed of corruption. The 2014 Freedom House report on the FSM noted that “[o]fficial corruption is a problem and a major source of public discontent,” and the State Department’s 2016 Human Rights Report for Micronesia said that “some officials reportedly engaged in corrupt practices with impunity” and that “[t]here were numerous anecdotal reports of corruption.” Nonetheless, as this case indicates, corruption can happen anywhere, and companies with operations in multiple countries should – consistent with a risk-based approach to their anti-bribery and corruption programs – bear that in mind as they update their risk assessments and internal controls.
Dipping Through Geometries 