Business Crimes Hotline

New York

Former KPMG Partner Indicted

Robert Pfaff, a partner at KPMG LLP from 1993 to August 1997, was charged in a two-count indictment with conspiracy to defraud the IRS and 'conspiring to defraud a company located in Saipan ' of the right to the honest services of its employees, by sharing tax shelter fee income with officers of that company who failed to disclose those secret payments to the Saipan Company's Board of Directors.' United States v. Robert Pfaff, No. 08 Cr. 239 (Mar. 18, 2008 S.D.N.Y.) (Indictment). Prosecutors allege that Pfaff and others illegally assisted in a scheme to create overseas tax shelters that allowed wealthy individuals to avoid billions of dollars in tax liabilities. The government also filed a civil forfeiture action for $1.84 million in fees that Pfaff allegedly earned in connection with establishing the tax shelters. Pfaff and others allegedly funneled the fees they earned from the tax shelters to banks in the Philippines, where an unnamed co-conspirator would then distribute the proceeds back to Pfaff and others.

Last year, U.S. District Judge Lewis A. Kaplan dismissed 13 individual defendants from a criminal case brought against former KPMG executives after finding that the government violated their right to counsel. The government has appealed that ruling. Pfaff's case, brought as a new indictment, was assigned to Judge Richard M. Berman.

Pennsylvania

Alcoa Sued for Alleged Bribery in Bahrain

Aluminum Bahrain BSC ('Alba') filed a civil suit in the Western District of Pennsylvania against Alcoa Inc, claiming that Alcoa overcharged Alba during the course of a 15-year conspiracy that included fraud and bribery. Alba, a long-time raw materials supplier to Alcoa, claims that Alcoa used overcharges to bribe Bahraini officials to obtain additional supply contracts. Alba claims that more than $2 billion in payments were moved from Bahrain to shell companies in Singapore, Switzerland, and the Isle of Guernsey. Those companies were allegedly controlled by Alcoa agent Victor Dahdaleh, who is also named as a defendant, along with William Rice, former Vice President of Marketing of Alcoa World Alumina.

The DOJ opened a criminal inquiry into the allegations against Alcoa and successfully intervened to stay proceedings in the civil case until it completes its criminal investigation. Aluminum Bahrain, B.S.C. v. Alcoa, Inc., et al., No. 08 Civ. 299 (W.D. Pa. Mar. 27, 2008) (Dkt. No. 21). Alcoa has agreed to cooperate with the DOJ investigation.

Business Crimes Hotline was written by Jason Hernandez, Associate Editor of this newsletter, and an associate with Kirkland & Ellis LLP, Washington, DC.

Colorado

Colorado Ballot Initiative Considers Unprecedented Criminal Liability for Corporate Executives

Colorado may decide next November whether to impose unprecedented criminal liability on corporate executives. Backing the proposal are several activists who suffered financial losses when Colorado-based Qwest Communications Inter-national was mired in an insider trading scandal. Former Qwest CEO Joseph P. Nacchio was recently granted a new trial after being convicted of 19 counts of insider trading. Under the ballot initiative, corporate executives who knew about corporate fraud but did nothing to stop it might be criminally and civilly liable for their inaction. Even those who were not involved in the fraud but merely failed to report their knowledge of it would not escape the proposed law's grasp. Under the proposal, any Colorado resident would have standing to sue the responsible executives. Any penalties or fines collected from the lawsuits would go to the state. The proposal's supporters must collect 76,000 signatures for it to be added to the state's November ballot. See Dan Frosch, 'Colorado Proposes Tough Law on Executive Accountability,' The New York Times, Apr. 1, 2008, at C3.

New York

Former KPMG Partner Indicted

Robert Pfaff, a partner at KPMG LLP from 1993 to August 1997, was charged in a two-count indictment with conspiracy to defraud the IRS and 'conspiring to defraud a company located in Saipan ' of the right to the honest services of its employees, by sharing tax shelter fee income with officers of that company who failed to disclose those secret payments to the Saipan Company's Board of Directors.' United States v. Robert Pfaff , No. 08 Cr. 239 (Mar. 18, 2008 S.D.N.Y.) (Indictment). Prosecutors allege that Pfaff and others illegally assisted in a scheme to create overseas tax shelters that allowed wealthy individuals to avoid billions of dollars in tax liabilities. The government also filed a civil forfeiture action for $1.84 million in fees that Pfaff allegedly earned in connection with establishing the tax shelters. Pfaff and others allegedly funneled the fees they earned from the tax shelters to banks in the Philippines, where an unnamed co-conspirator would then distribute the proceeds back to Pfaff and others.

Last year, U.S. District Judge Lewis A. Kaplan dismissed 13 individual defendants from a criminal case brought against former KPMG executives after finding that the government violated their right to counsel. The government has appealed that ruling. Pfaff's case, brought as a new indictment, was assigned to Judge Richard M. Berman.

Pennsylvania

Alcoa Sued for Alleged Bribery in Bahrain

Aluminum Bahrain BSC ('Alba') filed a civil suit in the Western District of Pennsylvania against Alcoa Inc, claiming that Alcoa overcharged Alba during the course of a 15-year conspiracy that included fraud and bribery. Alba, a long-time raw materials supplier to Alcoa, claims that Alcoa used overcharges to bribe Bahraini officials to obtain additional supply contracts. Alba claims that more than $2 billion in payments were moved from Bahrain to shell companies in Singapore, Switzerland, and the Isle of Guernsey. Those companies were allegedly controlled by Alcoa agent Victor Dahdaleh, who is also named as a defendant, along with William Rice, former Vice President of Marketing of Alcoa World Alumina.

The DOJ opened a criminal inquiry into the allegations against Alcoa and successfully intervened to stay proceedings in the civil case until it completes its criminal investigation. Aluminum Bahrain, B.S.C. v. Alcoa, Inc., et al., No. 08 Civ. 299 (W.D. Pa. Mar. 27, 2008) (Dkt. No. 21). Alcoa has agreed to cooperate with the DOJ investigation.

Business Crimes Hotline was written by Jason Hernandez, Associate Editor of this newsletter, and an associate with Kirkland & Ellis LLP, Washington, DC.