Former Ecuadorean judge testifies to bribery in Chevron case

1 of 3. Former Ecuadorean judge Alberto Guerra Bastida (L) leaves the federal court in New York October 22, 2013.

Credit: Reuters/Eric Thayer

By Bernard Vaughan

NEW YORK | Wed Oct 23, 2013 6:05pm EDT

NEW YORK (Reuters) - A former Ecuadorean judge testified on Wednesday that he ghost-wrote rulings for a judge who ordered Chevron Corp to pay $19 billion to villagers whose land had been polluted by oil exploration.

The former judge testified at a trial in New York in which Chevron accuses U.S. lawyer Steven Donziger of bribing the Ecuadorean judges to win the award for the villagers.

Donziger has denied bribing the officials.

On the witness stand on Wednesday, the former judge, Alberto Guerra, said he met in 2009 with Donziger and other representatives of the villagers at Honey & Honey, a restaurant in Quito.

Guerra said another lawyer representing the villagers had already agreed to pay him $1,000 a month to ghost-write court orders for the presiding judge, Nicolas Zambrano. Zambrano, who was also being paid, agreed to expedite the case and limit procedural avenues by which Chevron could delay it, Guerra said.

Donziger was fully aware of the arrangement, Guerra said.

"Mr. Donziger thanked me for the work that I was going to do," Guerra said of the restaurant meeting.

Randy Mastro, a lawyer for Chevron, asked Guerra if he understood he was violating Ecuadorean law by agreeing to ghost-write Zambrano's orders.

"It hurts me to say so, but yes," Guerra, wearing a gray suit, said calmly through an interpreter.

Guerra testified that Zambrano would typically give him court documents on Friday afternoons, often outside a Quito airport. Guerra would study them and prepare court orders over the weekend before delivering them to Zambrano on Sunday afternoons, he said.

Zambrano is also expected to testify in the trial.

Once Guerra started ghost-writing in the case, another lawyer for the villagers would periodically meet Guerra on a Quito street corner to deliver a blank envelope filled with $1,000, denominated in $20 and $50 bills, Guerra said.

The U.S. dollar is Ecuador's official currency.

Some payments were also made directly into his savings account, Guerra said.

Guerra is a key witness for Chevron, which is seeking to discredit the $19 billion award.

Chevron wants U.S. District Judge Lewis Kaplan, who is presiding over the trial without a jury, to prevent Donziger and villagers he represents from collecting the award in U.S. courts or from profiting from it in any way.

The award stemmed from environmental contamination between 1964 and 1992 at an oil field in northeastern Ecuador operated by Texaco, which Chevron bought in 2001. Chevron says Texaco cleaned up its share of waste before turning the field over to state-owned Petroecuador.

But in 2011, Zambrano awarded $18 billion to people from the Lago Agrio area, which was affected by the pollution. The court subsequently increased the award to $19 billion to cover fees.

Mastro asked Guerra to identify Donziger in the courtroom.

Guerra said Donziger was the person who had just smiled, before describing the dark suit Donziger was wearing. "He knows me. He has seen me. We've been together."

Donziger's lawyers are expected to cross-examine Guerra on Thursday.

They have questioned Guerra's credibility, saying Chevron is paying him for his testimony. In January, Chevron said it relocated Guerra's family to ensure his safety and paid him $38,000 for the costs of providing his evidence. Chevron also confirmed that it agreed to pay Guerra's family $10,000 per month for living expenses and $2,000 for housing.

Guerra, who had presided over the Ecuadorean case before Zambrano, also testified that he and Zambrano initially offered a similar proposal to Chevron.

"Judge Zambrano and I obviously believed that Chevron was in quite a better financial situation than the plaintiffs," Guerra told Mastro.

A lawyer for Chevron said he would relay the offer, which was rebuffed weeks later in a telephone call, Guerra said. The lawyer said that "under no circumstances would Chevron agree to any sort of agreement," Guerra said.

Zambrano, Guerra said, was "discouraged, dispirited," before soliciting Donziger's team.

The case is Chevron Corp v. Steven Donziger et al, U.S. District Court for the Southern District of New York, No. 11-0691.

(Reporting by Bernard Vaughan; Editing by Marguerita Choy and Steve Orlofsky)

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Second Danone unit probes bribery allegations in China

By Adam Jourdan

SHANGHAI | Wed Sep 25, 2013 5:11am EDT

SHANGHAI (Reuters) - Danone SA's advanced medical nutrition unit Nutricia has started an internal investigation after a Chinese newspaper published a report alleging it had bribed more than 100 doctors in Beijing to boost sales, the company said on Wednesday.

It was the third time in two weeks that a division of French food group Danone has had to respond to accusations of bribery by Chinese media, after its infant milk formula group Dumex was twice the subject of bribery allegations reported by China's state television.

China is a magnet for foreign milk powder makers, with a $12.4 billion market that is expected to double by 2017. But foreign firms are under scrutiny after recent media reports alleging corrupt sales practices in the industry. Authorities last month also fined a group of mostly foreign milk powder producers $110 million for price fixing.

Nutricia, which makes Karicare milk formula, bribed doctors at 14 hospitals in the Chinese capital with kickbacks, gifts, funded-travel and complementary show tickets between 2010 and 2013, the 21st Century Business Herald said on Wednesday, citing an unnamed whistleblower who claimed to be a student doctor.

The whistleblower had 52 documents detailing payments from Nutricia, the largest portion of which were to Beijing Aerospace General Hospital and Xuanwu Hospital Capital Medical University, according to the paper.

Nutricia had paid a sum of 300,000 yuan ($49,000) to a dozen doctors at the two hospitals over a three-year period, it said.

"We only saw the report this morning, so we've only just started an internal investigation into the matter," Zhao Qinghua, a spokeswoman for Nutricia in China, told Reuters.

"At the moment we still don't know the details... We need to wait to see the outcome of the investigation before we can make our next plans."

The two hospitals at the center of the allegations did not immediately respond to telephone queries about the report.

Corruption in China's pharmaceutical industry remains widespread, fuelled in part by low base salaries for doctors at the country's 13,500 public hospitals.

The 21st Century Business Herald said the documents also showed that sales representatives had made bribes through more unusual means, such as cleaning doctors' fish tanks and organizing strawberry picking trips for staff.

SALES THREAT?

In the milk powder sector, hospitals are an important sales and marketing channel because a recommendation from medical staff can help persuade new parents to choose a particular brand, which they often stick with, industry insiders said.

Milk powder firms typically spend close to 5 percent of their revenue "opening" medical sales channels, a separate recent report in the 21st Century Business Herald said, citing a China-based former employee at a foreign milk powder brand.

International guidelines used in China say doctors should promote breastfeeding unless there are medical reasons not to.

Recent salvos against international milk powder companies - allegations of widespread corruption, pricing probes and strong official reaction to a food scare at New Zealand dairy producer Fonterra Co-operative Group Ltd - suggest global formula makers may face a more competitive playing field, analysts said.

A statement from China's health ministry last week said it would crack down on hospital sales tactics and punish staff who accepted bribes.

This could result in a slowdown of sales and marketing activity in hospitals for infant formula and hit sales performance, said Katherine Wang, chief China life sciences advisor for law firm Ropes & Gray.

Recent investigations into bribery in the pharmaceutical sector have hit sales operations and dented revenues for Chinese and international drug firms.

"I think (the corruption probes) will definitely create a sense of threat and also probably prevent regular interaction between the healthcare services providers and sales reps of the infant formula manufacturers," said Shanghai-based Wang.

"Because of the public oversight and the government scrutiny, I suspect within the infant formula manufacturers there's going to be an enhanced wave of internal compliance control investigations and audits."

Whistleblowers have made a beeline for the 21st Century Business Herald, with the paper publishing allegations against drugmakers Eli Lilly and Co, Novartis AG and Sanofi SA. The newspaper has declined an interview request from Reuters on why whistleblowers keep speaking to it.

In Wednesday's report, it said that under the direction of the Ministry of Supervision, Beijing and other cities had set up teams to look into the recent spate of anonymous whistleblowing, and would check the authenticity of the latest allegations against Nutricia.

(Reporting by Adam Jourdan; additional reporting by Shanghai Newsroom; Editing by Alex Richardson)

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Cybersecurity, Bribery Top Topics in SEC Filings

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Cybersecurity, Bribery Top Topics in SEC Filings

References to both cybersecurity and antibribery risks in regulatory filings by public companies have increased in the past year, according to a new analysis from business-intelligence firm Intelligize.

The "Managing Risk Better in 2013" white paper, released on Thursday, compares those disclosures filed with the Securities and Exchange Commission between January and June of 2013 to those filed in the second half of 2012.

References to cybersecurity concerns—increasingly a top focus of regulators and lawmakers—numbered more than 800 so far this year, a 106 percent increase compared to the preceding six-month period.

When breaking out the filings by industry, Intelligize noted more references to cybersecurity as a risk factor in disclosures by the telecommunications industry than in any other. Telecom companies accounted for 21 percent of cybersecurity references in SEC filings, followed by computer and online services (19 percent), consumer products (15 percent), and financial services (12 percent).

Cybersecurity mentions also appeared among real estate and business services companies (12 percent), manufacturing and construction firms (5 percent), and natural resources and food outfits (5 percent).

The range of companies bringing up cybersecurity in their SEC filings shows that “it’s much broader now as a discussion topic, and it’s something on the minds of executives across industries,” says Gurinder Sangha, the CEO of Intelligize, which provides analytics and tracking services for regulatory filings. The firm’s clients include one-third of Dow Jones Industrial Average components, according to Sangha.

U.S. companies have come under pressure from the SEC to disclose their cybersecurity risks, as the agency has issued guidance and sent individual comment letters to corporations on the subject. Analyzing the discussion topics within filings can be educational for companies, Sangha tells CorpCounsel.com, “but it also leads to internal discussions on how a company's peers are addressing and tackling similar, challenging issues.”

In an example of a recent 10-Q filing cited in the white paper, “Central Hudson Gas & Electric Corporation disclosed that it had recently experienced a cyberattack in which confidential customer information may have been exposed to an unauthorized third party.”

The company said it initiated an investigation into the attack, alerted customers and regulatory agencies, and also “offered free credit monitoring services to customers who may have been impacted,” according to the paper.

References to the Foreign Corrupt Practices Act (FCPA), which prohibits U.S.-listed companies from paying bribes to win business overseas, have also spiked this year. According to the Intelligize paper, “there have been over 2,000 references to the FCPA in companies’ SEC filings in the past six months. This represents a 33 percent increase compared to FCPA references in the previous six-month period.”

Just last month the French oil and gas company Total S.A. agreed to settle charges of FCPA violations with U.S. regulators to the tune of $398 million. In another FCPA matter involving Ralph Lauren Corporation and Argentine officials, the SEC “chose not to charge the company because it promptly and fully reported violations on its own initiatives, just two weeks after learning of the bribes,” the paper notes. Ralph Lauren paid disgorgement and fines totaling about $1.5 million.

Additionally, the paper highlights discussions by companies of corporate taxes and offshore holdings—a topic that’s generated controversy for Apple Inc. and is being debated in Congress. “In order to avoid association with tax avoidance, many companies have taken the initiative to disclose information about tax repatriation in their SEC reports,” according to Intelligize.

Both Hewlett-Packard and Google have discussed repatriation of cash reserves in recent filings.

HP, for example, acknowledged that it held substantial amounts of cash overseas and that it retains “favorable tax rates associated with certain earnings from HP’s operations in lower-tax jurisdictions throughout the world,” according to the paper, which quotes HP’s filing directly.

For its part, Google said in a March disclosure that out of the company’s $50.1 billion in cash and securities, $31.1 billion is held by foreign subsidiaries.

“Google stated that it intended to keep these funds outside of the U.S. rather than repatriate them to fund U.S. operations,” the paper says. “Using Intelligize’s SEC Checker, it has been found that many other companies use similar language of retaining cash in overseas jurisdictions in order to ‘satisfy liquidity requirements.’ ”

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