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Civil litigation leads to criminal investigation for casino

A current legal battle between a multi-billion dollar Las Vegas casino company and a Japanese billionaire who financed the business 12 years ago also involves The Foreign Corrupt Practices Act, a 1977 law that makes it a crime for U.S. companies or executives to bribe foreign officials for business advantage.

In addition to the civil dispute filed in Nevada, both the casino and the investor could face fines and criminal charges if the federal investigation uncovers illegal business dealings. According to the complaint, the Japanese investor and his companies acted in violation of the law by providing $110,000 in gifts and cash to Philippine gaming regulators with potential benefits of $5,000 to South Korean officials during visits to the casino.

The Las Vegas gaming industry is expanding internationally and there is a concern regarding foreign entanglements. Executives must be aware that what is a business custom in one country could result in criminal liability under U.S. federal law. It is likely that foreign investors will want to take note of The Foreign Corrupt Practices Act since the average fine in 2011 for a violation of this law is nearly $25 million.

Attorneys for the casino sued the Japanese billionaire in Nevada state court alleging a breach of fiduciary duty. This breach is tied to the potential violation of U.S. anti-corruption law that could leave the casino open to criminal liability. In response to the possible violation, the casino invoked a rule allowing it to eject stockholders or directors who could be found unsuitable, including the billionaire.

The investor filed a counter-lawsuit claiming that the case should be moved to federal court because "the issues raised on the face of the complaint involve the resolution of a substantial federal question." It is reported that the litigation is arising out of a longer boardroom dispute, both sides claiming suspicious activity.

This case raises specific issues for U.S. businesses in markets where there is little or no separation between government and industry. It also raises concerns for U.S. companies seeking to conduct business in markets where there's little or no separation between government and industry, particularly in Asian countries.

Reuters, "Corporate intelligence firms follow U.S. graft probes to Asia," Aruna Viswanatha and Farah Master, March 13, 2012.

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