FTSE 100
Dow Jones

Monday, 27 February 2012

A conspiracy of one

Christopher Tappin, a 65 year old businessman, has lost his two-year battle and landed in Houston last night on a plane from Heathrow. He will appear in court in El Paso on Monday and could face up to 35 years in jail if convicted of selling batteries for Hawk missiles to Iran, according to the newspapers.

Well the newspapers haven't quite got that one right, because it isn't illegal for a UK citizen residing and operating in the UK to sell equipment to Iran, unless he is restricted from doing so by UK laws. Which he wasn't. And in any event no equipment was ever sold to any one.

The grounds for his extradition were:

(i) conspiracy to export the batteries,
(ii) attempting to export, and aiding and abetting the attempted export of, the batteries, and
(iii) conspiring to conduct illegal financial transactions in transferring funds to pay for the batteries.

A fairly detailed description of the charges are found in the High Court decision approving the extradition request.

Now I have little sympathy for Mr Tappin reading the judgement it is clear that his intention was to sell batteries to Iran, but it seems to me that this is another example of the US authorities overstepping the mark when it comes to prosecuting businessmen when the business becomes political.

Readers may remember the Enron Nigerian barge case, where 4 Merrill Lynch bankers went to jail. At the 2004 trial, prosecutors alleged that Enron’s sale of an interest in three power-producing barges, located off the coast of Nigeria, to Merrill was a sham that allowed the energy company to illegally book a profit, although it was in fact a fairly straight forward off balance sheet sale and leaseback widely undertaken by companies reporting under US GAAP.

But that was only half the issue.  The basis for the prosecution was that the Merrill Lynch bankers were committing a fraud by depriving their employer of their "honest services", whatever that means, because in this particular case nobody argued that either Merrill Lynch or Enron lost out on the deal.  The prosecutors certainly didn't argue that Enron or Enron shareholders lost out, and unsurprisingly, when things had settled down a bit, the Merrill Lynch bankers won their appeal, not because they hadn't done the things of which they were accused, but because what they had done wasn't actually a crime. The Houston prosecutor tried to twist the law to create criminal offences where there was none.

Now let us look at Mr Tappin's case.  I think it is beyond doubt that Mr Tappin and his partner a Mr Gibson thought that they could procure batteries for Hawk missiles for their Iranian customer despite US export controls, but that in itself is not a crime, even in the US.  There has to be an actual conspiracy, otherwise all you have is two people outside US pondering possibilities.

So Mr Gibson set off for the US to look for a potential seller (see the decision referenced above for details) and came across Mercury Global Enterprises, a US company that said they could help out.  What they didn't make clear at the time was that they were in fact a front company for US Customs, but as soon as Mr Gibson told them what he was up to, they cuffed him and but for a minor misunderstanding in the 18th century Mr Gibson would now be turning Queen's Evidence.  As it was he agreed to help the US Customs catch his partner.

Now bear in mind that at this point Mr Tappin hadn't had anything to do with the US. Gibson gave the US authorities emails between Tappin and him detailing the negotiations for the purchase of Hawk Missile batteries and other licensable technology, and the problems of ordering the batteries in the United States. Gibson told the authorities that he was to purchase the batteries and the appellant was to arrange the shipping.

So at this point, having not actually done anything, Tappin is actually acting on his own.  Gibson and Mercury pretend to set up all the arrangements for the export, but actually they are not really doing anything of the sort.

Even when Gibson contacted and visited the US exporter, there is nothing more than a potential business transaction that the US exporter could choose to decline. Indeed, such enquiries are frequently made because suppliers may know of alternative sources of supply or uncontrolled but compatible parts. But when an exporter decides to accept the business US legislation places the onus for compliance with the export rules on the exporter not on the foreign importer. If the exporter has any doubts about whether the exports might be controlled, they are under an obligation to submit an export licence application to US Customs. In situations where the final destination is in doubt, the exporter will usually ask for written confirmation from the end-user.

This is where the story becomes somewhat troubling:

  • If Gibson and Mercury were both acting for US Customs and had no intention to export any batteries, who was conspiring with Tappin? The idea that Tappin was a party to a conspiracy to export goods is a little preposterous, when all the evidence suggests that his relationship with the exporter was as a purchaser of goods and the exporter was, as far as Tappin was aware, ignorant of the final destination. If the conspiracy was to procure a third party to commit a fraud, then Tappin was in a conspiracy of one, which under UK law would mean that there was no conspiracy. If the conspiracy was a conspiracy between US Customs and Tappin, then we have the ridiculous assertion that US Customs was trying to defraud itself. If the conspiracy was between Tappin and Gibson, then the conspiracy was broken before anything happened.
  • If Mercury was in fact an agency of US Customs, how can it be a party to a conspiracy to defraud US Customs?  US Customs not only knew the facts but were the main party to the fraud on themselves. Tappin may have supplied incorrect information to Mercury (not to US Customs), but it was the obligation of the exporter to establish whether these were controlled exports. 
  • If Mercury was made aware by Mr Gibson that goods were ultimately destined for Iran, they should have either raised the issue with Tappin, declined the business or filed an application for an export licence. The fact that they did none of these, despite being aware of the likely destination implies criminality on the part of the customs agents themselves.

The fact that a US government agency is prepared to break its own rules to perpetrate a fraud on itself to substantiate a charge of a conspiracy to defraud itself has to be one of the most convoluted legal arguments for criminality that I have ever seen, but after the Nigerian Barge case and the US conviction of UK bankers depriving their UK employer of their honest services, I fail to be surprised by the US criminal justice system.  

No comments: