DOJ charges 10 with fraud in global air freight kickback scheme
Related: <a href="https:&#x2F;&#x2F;www.bloomberg.com&#x2F;opinion&#x2F;articles&#x2F;2023-04-13&#x2F;twitter-gets-into-the-stock-business" rel="nofollow">https:&#x2F;&#x2F;www.bloomberg.com&#x2F;opinion&#x2F;articles&#x2F;2023-04-13&#x2F;twitte...</a><p>Bribes<p>A running theme of this column, which is never legal advice, is that if you are going to do bribes you should try to be businesslike about your bribes, instead of being cutesy. Like if you send your colleague a text message saying “our ‘friend’ expects one million ‘chickens’ for his ‘help’ with this ‘contract,’” that’s gonna look really bad to the jury at your inevitable criminal trial. But if you send a professionally formatted invoice saying, like, “Consulting charges: 80 hours @ $1,250 per hour plus 45 basis point success fee on $200 million contract = $1,000,000 to be paid by ACH transfer to General Consulting Services LLC,” you might still get arrested, but at trial you can say “no that was for consulting, very standard, nothing wrong with that.”<p>Yesterday US prosecutors brought bribery charges against 10 people “in connection with a massive scheme to defraud Polar Air Cargo Worldwide, Inc. (‘Polar’), a leading cargo airline, of tens of millions of dollars” with bribes. Polar is a cargo airline — a joint venture of DHL and Atlas Air — that sold cargo space to shippers, and if you wanted cargo space on Polar you allegedly had to pay (1) Polar the rates that it charged you plus (2) some bribes to the Polar executives who were selling you the space.<p>The executives included Polar’s chief operating officer, its vice president of marketing, its vice president of operations and its senior director of customer service. “In general,” says the indictment, “the Executive Defendants often had the ability to propose vendors, to advocate on behalf of certain vendors or customers, and to exercise significant influence over both Polar&#x27;s selection of vendors and the rates offered to its customers.” They were the people selling space on Polar’s planes, and so they could set the rates for that space — and the rates they set, allegedly, included both a payment to Polar and a payment to themselves.<p>But it was all businesslike. From the indictment:<p>&gt; To conceal the kickbacks and conflicted ownership interests from Polar, and thereby to continue the fraud scheme, [they] often directed the kickbacks and ownership distributions be paid to limited liability companies with non-descript names that were, in fact, controlled by the Executive Defendants....<p>&gt; From in or about 2009 through in or about July 2021, Polar contracted with freight forwarders to sell available cargo space on behalf of downstream shipping customers, who, in turn, paid freight forwarders to secure cargo space and coordinate logistics. ... These kickbacks were typically calculated based on how many kilograms of cargo the freight forwarders had shipped with Polar during a particular period. At no point before the discovery of the fraud in or about July 2021 were the kickbacks from freight forwarders known to Polar.<p>“At no point … were the kickbacks from freight forwarders known to Polar” is a weird sentence. Polar is not a person; it has no consciousness. The kickbacks were not known to Polar’s owners, I assume, or perhaps to its chief executive officer. But they were known to its chief operating officer, because he was allegedly receiving them. This was not some rogue salesperson taking bribes; this was a big chunk of the executive team.<p>And so there is an amazing civil lawsuit filed late last year by one of the customers, Cargo On Demand Inc., against Polar, complaining that Polar charged it bribes. Cargo On Demand’s point was, look, if Polar’s salespeople and senior managers told it to pay these fees as part of the price of cargo, it had to pay those fees. From the complaint:<p>&gt; COD entered into the [Blokced Space Agreement] with Polar primarily because Polar’s rates on the specific air routes relevant to COD’s customers were typically lower than the rates quoted to COD by any other airlines providing service on the same routes.&gt; However, in order to actually utilize its cargo space allotment, COD was advised by members of Polar Management that it was required to also pay Polar (via Polar Management), and certain third-party consulting companies connected to Polar, additional “consulting fees” separate and apart from the BSA.<p>&gt; These consulting fees were charged beginning at the inception of COD’s relationship with Polar in 2014. …<p>&gt; The consulting fees were calculated based on the monthly tonnage for all goods that COD shipped with Polar. The amount of the fee typically varied between $0.25-$0.50 per kilo of tonnage, in addition to the agreed BSA rates.<p>&gt; The consulting fee requirement was articulated to COD by multiple members of Polar Management (which included, without limitation, the company’s Chief Operating Officer and multiple vice presidents and directors) over the course of seven years. …<p>&gt; COD was advised and instructed by Polar Management that these additional “consulting fees” were part of Polar’s regular way of doing business with all customers that had annual BSA contracts with Polar.<p>&gt; To COD, such fees seemed akin to a hotel “resort fee”. In other words, a mandatory fee that is not included (or not prominently included) in the quoted rate, yet mandatorily charged at either a flat amount or percentage basis in the final bill.<p>Also analogous to a resort fee, the “consulting fee” allowed Polar to generate additional cargo revenue by giving the appearance of offering lower rates in comparison to competitors than if Polar had quoted the full (i.e. all costs and fees included) cost.<p>That is, Polar could advertise low rates, but then tacked on an extra fee for bribes. The complaint includes as an exhibit an email from Polar’s vice president of marketing to the owner of Cargo On Demand, saying “bro here is the updated sheet — pls use this for distribution” and attaching an eight-page spreadsheet listing dozens of Polar flights, how much cargo Cargo On Demand had on each flight, and how much bribe it owed for each one. “As directed, COD then made the specified payments for that month via ACH wire transfer.”<p>The numbers are in the tens or hundreds of dollars per flight, and the entire alleged bribe invoice is for $41,291.93, to be distributed among the nondescriptly-named entities of several Polar executives. The indictment says that Cargo On Demand paid a total of about $1.6 million of kickbacks to Polar executives from 2016 through 2021, and if you just wrote a check for $1.6 million of bribes that would look bad. But sending monthly ACH transfers for detailed invoices measured in pennies per kilogram just looks like business.<p>Of course they got arrested anyway; I must emphasize that nothing here is legal advice. Also the owner of Cargo On Demand was himself indicted, for paying the bribes, which seems a bit harsh. He was dealing with a company, and all the senior executives he dealt with told him that he had to pay these fees! He thought they were a resort fee!