In granting a government motion to dismiss a high-profile foreign bribery case, U.S. District Judge Richard J. Leon said he hopes the failed prosecution will serve as a lesson to the Justice Department.

“This appears to be the end of a long and sad journey in the annals of white collar prosecutions,” Leon said, reading from a prepared statement during a short hearing Tuesday in federal court in Washington, D.C. “I, for one, hope that this very long and, I suspect, very expensive ordeal will be a true learning experience for the department and the FBI as they regroup to prosecute FCPA cases against individuals.”

The government’s motion to dismiss ^[1] affected 16 defendants arrested in January 2010 and charged with violating the Foreign Corrupt Practices Act, which prohibits payments to foreign officials to win business. The defendants — all military and law enforcement products brokers — were accused of agreeing to pay a total of $1.5 million in kickbacks to the minister of defense of Gabon in exchange for equipment contracts. The deal was an FBI sting and no actual Gabonese officials were involved.

In the motion to dismiss filed earlier today, prosecutors cited a series of mistrials and acquittals as well as “[t]he impact of certain evidentiary and other legal rulings in the first two trials and the implications of those rulings for future trials.” They pointed specifically to “Rule 404(b) and other knowledge and intent evidence the government proposed to introduce.” (See here ^[2] for Just Anti-Corruption’s analysis of the excluded intent evidence and how it may have changed the case).

Leon applauded their decision to abort. “I’m happy to see and I applaud the department for having the willpower and courage of its convictions to face up to its limitations in this case,” Leon said. Justice Department Fraud Section senior trial attorney Joey Lipton had said at a hearing earlier this month that Assistant Attorney General Lanny Breuer and U.S. Attorney Ronald Machen of the District of Columbia were weighing whether to move forward with prosecutions.

Marc Morales, a second-round defendant who was facing retrial prior to the dismissal, said his legal ordeal has taught him an important lesson. “Be more conscious of your character than your reputation,” he said. “Reputation is what people think you care, character is what you are.” Morales said he does not intend to return to the military products industry. Prior to his arrest, he worked for ammunition company Allied Defense Group Inc. and ran his own company, Allied Trading, with co-defendant John Gregory Godsey. Godsey was acquitted by the jury last month.

David Krakoff, of BuckleySandler LLP, who represented second-round defendant John Mushriqui, called the experience a “two-year nightmare.” Mushriqui and his sister Jeana Mushriqui were also facing retrial.

“It’s really hard to take on the government, but when you believe in your innocence and fight for your freedom, these cases can be won,” he said in a statement. “Ultimately, the system worked for John Mushriqui.  John can start the rest of his life today with his good name intact.”

“The Gabon sting was an abomination that did not reflect the values or practices of the Department of Justice and the FBI,” Robert Andalman of Loeb & Loeb LLP, who represented former Smith & Wesson Holding Corporation executive Amaro Goncalves, said after the dismissal. Goncalves was scheduled to be tried later this month.  ”We echo Judge Leon’s appreciation for what had to be a tough decision for the government today. They did the right thing.”

Despite Leon’s hopes that the case will be a lesson to federal prosecutors, observers cautioned against comparing the sting case to other FCPA cases.

“The importance of the decision is probably being exaggerated because FCPA trials are so rare and because this was the DOJ’s most extensive use of traditional law enforcement methods,” Alexandra Wrage of Trace International Inc. said. “While this may encourage a handful of companies with strong cases to push back, I don’t think this is a great watershed moment for the FCPA.   More than anything, I think it’s the defense bar enjoying a moment of Schadenfreude.“

Leon in today’s hearing also questioned Lipton about the status of three men — Jonathan Spiller, Daniel Alvirez and Haim Geri — who had previously pleaded guilty. Lipton said the Justice Department is working on scheduling a hearing for those defendants “to give them an opportunity to be heard on this issue.” He noted that Alvirez had also pleaded guilty to “other real world charges.”

All three men pleaded guilty to a charge of conspiracy to violate the FCPA, a count Leon threw out in the second trial, saying prosecutors had failed to present sufficient evidence of a conspiracy to send the charge to a jury.

“I expressed more than my fair share of concerns on the record regarding how this case was investigated and prosecuted,” Leon said in today’s hearing, noting both the “very, very aggressive conspiracy” charge and the government’s handling of informant Richard Bistrong.

Bistrong, a former arms industry executive at Armor Holdings Inc., now part of BAE Systems plc., began cooperating with the FBI after pleading guilty to bribing United Nations officials. His relationship with FBI agents, illustrated in vulgar text messages and emails, became the subject of close scrutiny by defense attorneys seeking to paint the investigation as mismanaged and unprofessional. Bistrong will be sentenced by Leon in the upcoming months.

Leon finished reading his prepared statement today by praising defense attorneys. “I would be remiss if I did not comment on the tireless and spirited efforts of the defense counsel,” he said.”Their hard work and effective advocacy is a testament to how strong the white collar defense bar is.”

In 2010, Criminal Division chief Lanny Breuer held a pen and pad briefing session for reporters ^[3] to announce the arrests — a sign of the importance the department placed both on the case and its public relations value. The arrests were covered by national media, including the New York Times.

The case was one of the first to use undercover tactics, including using a wired informant to record conversations with the defendants, to pursue FCPA defendants.

But prosecutors failed to win convictions in the courtroom. A first trial of four defendants last summer ended with the jury unable to reach a verdict ^[4]. In a second trial of another batch of defendants that began last September, one defendant was acquitted when Leon dismissed the conspiracy charge ^[5] in the case, and two more men were cleared ^[6] by the jury. Leon then declared a mistrial ^[7] for the remaining three defendants when jurors declared themselves deadlocked.

^{[8] [9] [10] [11]}