Pursuit of former Texaco lawyer described in Chevron trial by Roger Parloff @FortuneMagazine October 21, 2013, 3:17 PM EST E-mail Tweet Facebook Google Plus Linkedin Share icons FORTUNE — Chevron’s (CVX) first witness at its civil racketeering trial against Steven Donziger, which started last Tuesday, was Ricardo Reis Veiga. As will be the case with almost all the witnesses in this bench trial — i.e., a trial before a judge, as opposed to a jury — the party calling the witness submits his direct testimony in written form, as a sworn narrative, and only the cross-examination and redirect occur live in the courtroom. Most federal judges follow this practice in Manhattan, to maximize efficiency, though it is maddening to spectators, to whom the direct does not become available until after the cross has already begun. Veiga provided basic background for the case, but Chevron also offered Veiga’s personal story as a dramatic and, it hopes Judge Kaplan will find, appalling example of the lengths to which Donziger went to “extort” money from Chevron — a key building block, or “predicate act,” in its RICO accusations. MORE: Chevron’s RICO trial against Donziger begins A Brazilian-born lawyer, Veiga headed Texaco’s windup activities when the company was pulling out of Ecuador in the early 1990s. In 1990 Texaco turned over operational control of its drilling joint venture in eastern Ecuador to the venture’s majority equity partner, PetroEcuador, which is Ecuador’s state-owned oil company. In 1992 Texaco relinquished its minority stake in that venture and ceased all involvement in that country. (PetroEcuador — and, hence, the Ecuadorian government — had held a 62.5% stake in the joint venture since 1976. When one factors in the array of taxes Ecuador imposed on Texaco during those years, the government’s take from the venture’s profits was considerably higher than 62.5%.) Veiga led Texaco’s efforts to settle its potential environmental liabilities in Ecuador. He reached a formal settlement with the Ecuadorian government in 1995, which called for Texaco to remediate a list of well sites representing a percentage of the total commensurate to its minority ownership stake in the concession. The remaining sites were left as the responsibility of the Ecuadorian government to clean up. Texaco’s remediations, which cost $40 million, then took place over a period of three years, with Ecuadorian government officials inspecting and periodically signing off on the propriety of the work performed as it was completed. Some 52 of these interim approvals, known as actas, were signed. When the last one was executed in 1998, the Republic of Ecuador formally released Texaco from all further environmental liability. During this period Texaco also reached separate settlements with the four affected municipalities of the concession region. The release, of course, later became a bone of contention. Though Veiga did not go into this in his testimony, the release arguably bars entirely the environmental lawsuit the Amazon Defense Front and Donziger filed in Lago Agrio in 2003 — the one that led to the $19 billion judgment — because that suit seeks exactly the same sort of “collective” environmental relief that, at the time of the 1998 settlement, only the Ecuadorian government was empowered to seek or embark upon. (The Lago Agrio suit is based on a 1999 Ecuadorian law, passed the year after the release was signed, which purports to give individual Ecuadorians the right to sue retroactively for collective environmental relief. Last month an international arbitration tribunal, set up under a bilateral investment treaty between the U.S. and Ecuador, issued a ruling for Chevron that strongly suggested that the 1998 release did bar the Lago Agrio action, though the tribunal stopped short of making a definitively determination.) MORE: Secret witnesses in Chevron’s RICO trial raise constitutional concerns In 2001, when Chevron acquired Texaco, Veiga stayed with the merged company, and became Chevron’s inhouse lawyer in charge of day-to-day oversight of the Lago Agrio suit. That same year Ecuador’s Comptroller General looked into whether the remediation and been properly performed and the release properly issued, but took no action. In April 2003, a month before the Lago Agrio suit was filed, Veiga learned that Ecuador’s Comptroller General had issued a report on the remediation. That October, the Comptroller General asked the Prosecutor General to consider bringing criminal charges against Veiga and a second Chevron inhouse lawyer, Rodrigo Pérez Pallares. That office began an inquiry in May 2004, but in October 2006 it recommended dismissal, finding no “civil or administrative liability . . . nor evidence of any criminal liability for any crime whatsoever.” In September 2006, March 2007, and then, again, in June 2007, various prosecutors asked for court permission to terminate the investigation, but the courts in question never signed off on their requests. Meanwhile, Rafael Correa, a staunch supporter of the Lago Agrio case, had become president in January 2007. In March, his top legal advisor met with leaders of the Amazon Defense Front in a gathering that was, incredibly, filmed by a film crew Donziger had invited to make a documentary about their case. The film, by Joseph Berlinger, was eventually released under the name Crude. That outtake — and hundreds of others — are now plaintiff’s exhibits in the case. During the meeting the people present discuss the litigation “and strategize how best to nullify the settlement and release and circumvent the otherwise applicable statute of limitations on re-asserting the criminal charges against” Veiga and Pérez Pallares, according to Veiga’s testimony. The following month Correa issued a press release calling upon the prosecutor general to “allow a criminal case to be heard” against the Petroecuador officers involved in approving the 1998 release. Later that same day, in another Crude outtake, Donziger can be seen having a telephone conversation in which he says, “Perhaps it’s time to call for the head of Pérez Pallares . . . given what the President said.” MORE: Chevron v. Donziger: A framework for analysis Two days later Correa delivered a radio address, now also in evidence, in which he attacked Chevron and Texaco’s Ecuadorian lawyers and called upon the prosecutor general to bring criminal actions against “those corrupt, homeland-sellers [vendepatrias] who despite the fact that the contamination was in plain sight said that everything was remediated.” Chevron has introduced dozens of additional exhibits in this vein, including videotapes, emails, and entries in Donziger’s journal, which Veiga cites in his direct. In March 2008 a prosecutor who had previously recommended dismissal of the investigation ordered it reopened, and April 2010 formal criminal charges were finally brought against both Chevron inhouse attorneys. Based on pretrial submissions, Judge Kaplan has already found that this evidence creates at least probable cause in his mind to believe that Donziger and his Amazon Defense Front confederates instigated the criminal charges against Veiga and Pérez Pallares to extort a settlement from Chevron in the Lago Agrio case. In fact, Judge Kaplan has also found that the circumstances surrounding the dropping of charges against the two men, which occurred in June 2011, were also suspicious, reinforcing the notion that the charges were brought primarily to gain leverage in Lago Agrio case. Specifically, Judge Kaplan observed last February, in a ruling on another topic, that “the reopening of the prosecution [of Veiga and Perez Pallares] appears to have backfired.” He was alluding to the fact that by the time the formal charges issued, American judges around the country, including Kaplan himself, were hearing various auxiliary lawsuits Chevron had filed, known as Section 1782 actions, seeking to obtain evidence from Donziger’s American experts and consultants that would expose their and Donziger’s role in secretly ghostwriting a key damages report in the Lago Agrio case that had supposedly been written by an independent court-appointed global expert, Richard Cabrera. The pendency of criminal charges in Ecuador against two Chevron inhouse lawyers was incentivizing the U.S. judges, including Kaplan, to grant the broadest conceivable discovery to Chevron and its indicted officers and to do so as expeditiously as possible — the two worst conceivable outcomes for Donziger and his Amazon Defense Front confederates. In January 2011, when the U.S. Court of Appeals for the Second Circuit upheld Judge Kaplan’s broad grants of discovery, it expressly noted that “the severity of the consequences imposed by [Judge Kaplan] in this case are justified almost entirely by the urgency of [Veiga’s and Pérez Pallares’] need for the discovery in light of impending criminal proceedings in Ecuador.” The very same day that the Second Circuit ruled, attorneys for the Lago Agrio Plaintiffs (LAPs) in these Section 1782 suits (that is, attorneys resisting Chevron’s discovery suits and representing the interests of the Amazon Defense Front and Donziger) informed a different appeals court that an upcoming hearing in the Veiga and Pérez Pallares cases had been postponed indefinitely. The Ecuadorian government then dropped the criminal charges without explanation the following June. “[The government] reopened long-closed criminal accusations against former [Texaco] lawyers at the LAPs’ instance,” Kaplan wrote in February. “And then abandoned the case when that served the LAPs’ interests.” Still, the Veiga and Pallares prosecutions are among the many subjects at this trial that will be dealt with in a dissatisfyingly incomplete and compartmentalized way. Originally, Chevron in its complaint characterized the men’s prosecutions as “bogus,” meaning unwarranted. Such an allegation, though, would open the door to allowing the RICO defendants to try to show that the criminal cases were justified. That, in turn, would end up forcing Kaplan to, in effect, try the two aborted criminal cases in their entirety as a subcomponent of the RICO case. In an effort to avoid that necessity and trim the case to manageable proportions, Kaplan has refused to go down that path. Instead, he has decided to exclude from evidence the underlying question of whether the charges against Veiga and Pérez Pallares were “bogus.” Thus, whether they might really have done something wrong and whether the 1998 releases might really have been infected by any kind of fraud appear to be issues that are out of the case. Kaplan is proceeding, instead, on the following analogy, as he explained in court last week: In an extortion case, if a defendant tries to blackmail his victim into giving him money by threatening to expose the fact that, say, the victim has had an affair, the fact that the victim may have, in fact, had an affair is no defense. You’re not supposed to use the threat of exposing the victim’s wrongdoing as a crowbar to extract money from him. It’s a pragmatic ruling by Kaplan, and walks a fine line. It might possibly pass legal muster, but it’s not entirely satisfying.