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The U.S. government’s indictment charging four former executives of a California company with bribing officials in other countries established a sufficient connection to a state crime to pursue violations of the U.S. Travel Act, a federal judge ruled in tentative order upholding a portion of the indictment. While not final, the Aug. 12 ruling was the second rejection of a motion to dismiss brought by defendants in the case, former executives of Control Components Inc., a control valve manufacturer in the nuclear, oil and gas and power generation industries based in Rancho Santa Margarita, Calif. The government alleged that the executives caused Control Components to pay $4.9 million in bribes and supply lavish vacations in Disneyland and Las Vegas to officials at companies in overseas countries including China, Korea, Malaysia and the United Arab Emirates, in order to get business from 2003 through 2007. The indictment brought 16 counts, most of them under the Foreign Corrupt Practices Act. On June 13, four of the defendants moved to dismiss four related counts brought under the U.S. Travel Act, passed in 1961 to curb organized crime; that law forbids individuals from traveling in interstate or foreign commerce to commit an unlawful activity. The government had asserted that the defendants violated the Travel Act by engaging in commercial bribery — a crime under California’s Penal Code 641.3 — of employees of private companies in China and Russia. The defendants maintained that California’s commercial bribery law had never been used for acts that occurred overseas. They also maintained that the U.S. Supreme Court’s 2010 decision in Morrison v. National Australia Bank, which limited the use of U.S. securities laws in cases involving foreign exchanges, prevented federal prosecutors from using the Travel Act “extraterritorially” — for alleged crimes that occurred overseas. “This case is controlled by Morrison because in both cases a crime is alleged in connection with a specific harm — in Morrison it was fraud on a securities exchange, here it is fraud on a corporate employer,” the defendants wrote. “In both cases the specific harm necessarily occurred overseas.” U.S. District Judge James Selna, in his tentative order, rejected that assertion. He said the alleged crime was completed in the United States, not in a foreign country. He agreed with federal prosecutors, who maintained in their July 18 opposition paper that a “significant portion of the four defendants’ acts in furtherance of the conspiracy occurred either in the United States or through communications with individuals in the United States.” “All of the elements under the Travel Act were allegedly satisfied in California even if the target of Defendants’ commercial bribery scheme was overseas,” Selna wrote. “The fact that some of the wired payments were made from Sweden to China or Sweden to Latvia is of no consequence because Defendants, acting in California, presumably used some instrumentality in interstate or foreign commerce to set those payments in motion.” In his first ruling on a motion to dismiss in the case, Selna found on May 18 that a jury, not a judge, should decide whether someone is a foreign official. The defendants had moved to dismiss 10 counts in the indictment, arguing that the officials who received the alleged bribes, many of whom worked for state-owned corporations, were not “foreign officials” as defined under the FCPA. The more recent motion was brought by Stuart Carson, the former chief executive officer; Hong “Rose” Carson, former manager and director of sales in China and Taiwan; Paul Cosgrove, former executive vice president and head of the sales department; and David Edmonds, former vice president of the customer service department. Three of the counts at issue charged Cosgrove and Edmonds with violations of the Travel Act. The fourth count charged all the defendants with conspiring to violate the Travel Act and the FCPA. Calls were not returned by Cosgrove’s attorney, Kenneth Miller, a partner at San Clemente, Calif.-based Bienert, Miller & Katzman; Stuart Carson’s attorney, Nicola Hanna, a partner in the Irvine, Calif., office of Gibson, Dunn & Crutcher; and Rose Carson’s lawyer, Kimberly Dunne, a partner in the Los Angeles office of Sidley Austin. A lawyer for Edmonds, David Wiechert of the Law Office of David W. Wiechert in San Clemente, referred calls to Miller. Department of Justice spokeswoman Laura Sweeney declined to comment. The case is scheduled to go to trial on June 5, 2012. Amanda Bronstad can be contacted at [email protected].

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