Monday, June 30, 2014

Two Contractors Plead And Are Sentenced to Federal Prison For Paying Kickbacks For Construction Contracts

L.A. Times photo
Kickbacks exist in other industries other than healthcare and can result in federal and state charges. For corporations, it can be charged embezzlement where the person receiving the kickback is obtaining a corporate benefit. If there is a federal or state contract, then it is a violation of federal or state laws. There are also tax implications for the person receiving the kickback (unreported income) and for the person or company paying the kickback if it is written off (improper deduction).  There can also be money structuring or money laundering charges.

A recent case involved defense construction contracts. On June 27, 2014, the presidents of two San Diego contracting firms were sentenced to federal prison terms after pleading guilty to bribing a civilian employee of the Department of Defense to get construction and service contracts worth millions of dollars at Camp Pendleton. Hugo Hernandez Alonso, 50, of Chula Vista was sentenced to a year in prison and fined almost $127,000. Bayani Yabut Abueg Jr., 51, of San Diego was sentenced to six months in prison and fined $366,140. They plead to violating the antikickback statute (41 U.S.C. Sections 8701, 8702, and 8707 and its predecessor) and conspiracy to violate it (18 U.S.C. Section 371). Both plead and appeared to have cooperated which resulted in lower sentences.

In a separate case, that civilian employee, Natividad (Nate) Lara Cervantes, who was the supervisor for construction and service contracts in the inspection branch of the department has plead guilty and will be sentenced later this year. The Los Angeles Times reported on this case in an article.

Mr. Abueg appears to have cooperated in an FBI sting operation since Mr. Cervantes was arrested by the FBI in 2013 after receiving an envelope with $10,000, a down payment of a promised $40,000 bribe from Mr. Abueg. This explains his lower sentence (6 months). This is fairly typical in federal criminal cases where plea agreements are the norm and cooperation allows more flexible and lenient sentencing.

The kickbacks (or bribes as the government would call them) stretch back from 2008 to 2011, with Mr. Cervantes receiving thousands of dollars in cash and remodeling work on his San Diego condominium, according to court documents. Mr. Abueg also demanded kickbacks from subcontractors totaling $539,000 and to cover the cost of the kickbacks, the value of the work done by the subcontractors was inflated. Other subcontractors were required to do discounted work at the homes of Abueg and his relatives as well as Cervantes’ home.

In industries, I have had clients tell me how they will not get business if they do not pay kickbacks. The unfortunate consequence of the payment of kickbacks can be criminal charges. There are cases where clients have paid kickbacks in the past, and then the decision has been made on the advice of counsel to cease payments in order to start the statute of limitations running and to minimize the risk of future charges. In this case, the federal government waited to charge until they were able to catch Mr. Cervantes in the act of receiving the cash payments.

If your company has engaged in kickback arrangements, even creative ones to get around the anti-kickback statutes, it is better to evaluate the law, seek representation and cease the conduct before it comes to the attention of the government. Having a strategy for damage control can be useful and even if there is reduced business it is far better than having a criminal case which completely destroys an entire business and can result in loss of liberty.

Posted by Tracy Green, Esq.
Phone: 213-233-2260


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