* First time U.S. used big undercover sting against bribery
* Two trials ended with hung juries
* Three defendants were acquitted, three pleaded guilty
By Jeremy Pelofsky
WASHINGTON, Feb 21 (Reuters) - The Obama administration dropped a major bribery prosecution that had been part of a crackdown on corruption after suffering several court setbacks in the case involving military equipment sales.
At a hearing on Tuesday, District Judge Richard Leon granted a motion by federal prosecutors to dismiss the charges against 16 defendants rounded up in a sting operation to root out corruption using the Foreign Corrupt Practices Act (FCPA), which makes it illegal to try to bribe officials of foreign governments.
Just over two years ago the Justice Department swooped in at a gun show in Las Vegas to arrest 21 executives - and one more in Miami - on charges that they tried to bribe a supposed African defense minister and his representatives by padding their bids to supply military equipment to his country.
In reality, the defense minister and his representatives were FBI agents who were part of the first large-scale undercover operation related to the U.S. anti-bribery law.
The executives were told they were bidding to equip the military of Gabon and that they would have to add a 20 percent “commission” to price quotes - with the extra money to be split between the purported defense minister and others.
The group, which included a former Secret Service agent and a Smith & Wesson Holding Co executive, were charged with violating U.S. anti-bribery laws, conspiracy to violate anti-bribery laws and conspiracy to commit money laundering.
In dismissing the case, Leon described it as the “end of a long and sad chapter in the annals of white collar” prosecutions and added that he hoped it was a “true learning experience” for prosecutors and the FBI. Despite the sharp words, he did praise them for the “courage to do the right thing.”
One of the accused, Marc Morales who worked at a Georgia company that sold military equipment, told reporters after the court hearing that he lost his job after being charged but was “just happy” to have the case dismissed.
Over the last two years since the arrests, the Justice Department’s case has fallen apart because prosecutors were unable to convince two juries during lengthy trials that what the defendants did was in fact illegal.
Of the 22 charged, three have been acquitted, three pleaded guilty at earlier stages of the case and the remaining 16 were awaiting trial or re-trial. It was not immediately clear whether those who pleaded guilty would seek to have their pleas voided and Leon said he would hold a hearing on that issue.
Explaining the reasons for dismissing the charges, prosecutors cited the hung juries, rulings limiting what evidence could be used at trial and the “substantial governmental resources, as well as judicial, defense and jury resources” needed to continue the case.
The decision came after a review by the head of the criminal division, Lanny Breuer, and the U.S. Attorney for the District of Columbia Ronald Machen.
Cracking down on bribery and corruption in business contracts has been a big priority for the Justice Department under the Obama administration. Most cases have resulted in settlements or plea agreements, with large penalties, rather than trials.
Since 2009, when President Barack Obama took office, there have been more than 40 guilty pleas, deferred or non-prosecution agreements and more than $2 billion in criminal penalties.
The Justice Department marshalled major resources to pursue the undercover case over 2-1/2 years, using an informant caught on unrelated bribery charges, 250 FBI agents and executing search warrants in the United States and Britain.
One expert on the FCPA law said the setbacks the Justice Department encountered could embolden others to fight charges in the future rather than going down the more usual path of entering settlements or plea agreements.
“I think this could result in more individuals, who of course have their liberty on the line, but also more companies feeling that they can fight these cases successfully,” said Alexandra Wrage, president of TRACE, which helps companies comply with anti-bribery laws.
The decision by the Justice Department, coupled with a handful of other setbacks, could also raise more questions about the anti-bribery law that the business-friendly Chamber of Commerce has lobbied to have amended to provide more clarity.
U.S. corporations sent a letter to law enforcement officials on Tuesday, asking the government to explain what it considers a bribe of a foreign official.
The Justice Department has avoided efforts to amend the 1970s-era law, but last year pledged to provide greater guidance. One case in Texas was dismissed by a judge before it went to a jury and a federal judge in California threw out a conviction in another bribery case.
“I think any time the Department of Justice fails to achieve what is considered perfect success in a case, people will use that as an opportunity to seek whatever advantage they can,” said Paul Pelletier, who was a senior official in the Justice Department’s fraud section and now at the Mintz Levin law firm.
Justice Department spokeswoman Laura Sweeney said the department would continue to vigorously investigate and prosecute acts of foreign bribery covered by the FCPA law.
The case is USA v. Goncalves et al, in U.S. District Court for the District of Columbia, No. 09-cr-335.