The Republic of Azerbaijan instituted a program in the mid-1990s to privatize its State-owned industries. Under that program, enterprises in certain industries, including oil and gas, telecommunications, and utilities, could only be privatized if the President of Azerbaijan issued a special decree. One of those enterprises, in the oil and gas industry, was SOCAR, the State Oil Company of the Azerbaijan Republic, which owned Azerbaijan's substantial and extremely valuable oil deposits.
Under the privatization program, the Azeri government issued free vouchers to all Azeri citizens, which allowed them to bid for shares of industries to be privatized. Privatization vouchers were freely tradable and were bought and sold, typically with U.S. currency. Foreigners could also participate in the privatization program, but only if they purchased government-issued "options" for each voucher they held. The Azeri government sold these options at an official price.
According to the allegations in the indictment, Beginning in or about the summer of 1997, Viktor Kozeny, a Czech national and a resident of The Bahamas, invested heavily in the Azeri privatization program through two companies he controlled, Oily Rock Group Ltd. ("Oily Rock") and Minaret Group Ltd. ("Minaret"). Specifically, Kozeny directed individuals working for him to purchase Azeri vouchers and options. Kozeny also recruited American individuals and institutions to invest in the privatization program. David Pinkerton was an employee of AIG responsible for initiating and supervising AIG's investment in Azeri privatization with Kozeny. Frederic Bourke invested in Oily Rock through Blueport International, Ltd., an investment vehicle in which Bourke was the principal shareholder. Bourke's family members also invested in Oily Rock. Collectively, Oily Rock, Minaret, Oily Rock shareholders and other co-investors are referred to as the "investment consortium."
It was further alleged that beginning in or about August 1997 and continuing until in or about 1999, Kozeny, Bourke, and Pinkerton, as well as co-conspirators Clayton Lewis, Hans Bodmer, Thomas Farrell, and others, both directly and indirectly paid bribes to Azeri government officials and/or their designees to induce the officials to allow the investment consortium headed by Kozeny to participate in privatization, to ensure the privatization of SOCAR and other valuable Azeri State assets, and to permit the investment consortium to acquire a controlling interest in SOCAR and other valuable Azeri State assets.
On May 12, 2005, the DOJ indicted Kozeny, Bourke, and Pinkerton on multiple counts of conspiracy to violate the FCPA, conspiracy to violate the Travel Act, conspiracy to commit money laundering, as well as substantive violations of the FCPA, violations of the Travel Act, money laundering, and making false statements. Bourke and Pinkerton successfully moved the court to dismiss several of the counts against them as untimely, a decision which was upheld by the Second Circuit Court of Appeals. Upon dismissal of those counts, the DOJ filed a Nolle Prosequi against Pinkerton, and the court dismissed all remaining charges against him. However, the court reinstated 3 counts against Bourke, having determined that the charges had in fact been filed within the statute of limitations. On July 10, 2009, Bourke was convicted on two of the three counts against him after trial: conspiracy to violate the FCPA and lying to FBI agents. On November 11, 2009, the court sentenced Bourke to one year and one day in prison plus three years of supervised release after his term in prison. The court also required Bourke to pay a fine of $1 million plus a mandatory special assessment of $200. Both the Supreme Court and a federal appellate court denied Bourke's request to review his 2009 conviction. Bourke began serving his one year prison sentence on May 10, 2013.
Kozeny remains a fugitive in the Bahamas after a Bahamian court refused to extradite him to the United States. Nevertheless, Kozeny served 19 months in pre-trial detention in a Bahamas prison.
