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Dirty Diamonds And The FCPA

We've all heard of the people who call 911 to report that their cocaine's just been stolen. Well, something similar happened here -- under terrible circumstances.

The case in federal bankruptcy court in the Southern District of New York is called In re Mark Allen Kalisch. The docket includes a complaint filed by Kalisch, the debtor, against a creditor called Maple Trade Finance Corporation. Kalisch said that Maple Trade loaned him money for a diamond mining venture in Brazil. He also said everyone in the deal, including Maple Trade, knew it was illegal under the Foreign Corrupt Practices Act. Therefore, Kalisch argued, Maple Trade shouldn't be entitled to demand repayment of the loan.

Maple Trade, however, answered that Kalisch also knew the diamond venture was illegal. He therefore had "unclean hands and is not entitled to any equitable relief." The amount of the loan was $600,000, with another $500,000 trade guarantee, all secured by Kalisch's New York apartment.

In December 2008, the bankruptcy court granted judgment for Maple Trade. But in January 2009, Kalisch appealed to the U.S. District Court for the Southern District of New York. The appeal is still pending.

Here's what happened. The mine was within Brazil's Cinta Larga Indian Reservation. So the diamonds would have to be smuggled away from the reservation and out of Brazil. The plot for the diamond-mining venture (or "business plan," as Kalisch called it) identified as a "silent partner" a government official in Brazil, and it involved bribery.

But in March 2004, before the diamonds could be moved, the Brazilian government arrested 14 people in the scheme, including the local "silent partner" and several agents from the Bureau of Indian Affairs. The police shut down the mine and the diamonds disappeared. Then, within a month, real tragedy struck.

There was a massacre at the reservation. The Indians killed 29 miners -- with "bows and arrows, spears and guns," because the miners were taking diamonds without permission. A Frontline story about the illegal trade and the massacre is here.

No word yet whether the Justice Department will investigate possible FCPA and other offenses by the complainant Kalisch and the lender Maple Trade. But stand by.

Download a copy of the complaint in In re Mark Allen Kalisch (consolidated with In re Mayra Diaz Kalisch) here.

Our thanks to the 2009 FCPA Digest for listing the case in its Parallel Litigation section, at page 361.
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Full post as published by The FCPA Blog on April 29, 2009 (boomark / email).