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FCPA Blog Daily News


In Search Of The Level Playing Field

The Foreign Corrupt Practices Act was last amended ten years ago. The "International Anti-Bribery and Fair Competition Act of 1998" was intended to make the FCPA consistent with the OECD Convention -- formally titled the Organization for Economic Cooperation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

The OECD Convention itself resulted from a 10-year initiative by the United States. In 1988, Congress told the White House to help U.S. companies compete by encouraging trading partners to pass laws similar to the FCPA. The OECD members -- consisting then of 33 countries with the most significant economies -- signed the Convention in Paris in December 1997. It went to the U.S. Senate six months later.

The 1998 Amendments implemented the OECD Convention and made five conforming changes to the FCPA:

First, payments made to secure "any improper advantage" -- language used in the OECD Convention -- were added to the FCPA's prohibitions.

Second, the FCPA's coverage was extended to include all foreign persons who commit an act in furtherance of a foreign bribe while in the United States.

Third, the FCPA's definition of foreign officials was expanded to include employees and representatives of public international organizations.

Fourth, jurisdiction was extended over the acts of U.S. businesses and nationals involved in illegal payments that take place wholly outside the United States.

And fifth, the distinction was eliminated between U.S. nationals and non-U.S. nationals, making all employees or agents of U.S. businesses subject to both civil and criminal penalties under the FCPA.

When President Clinton signed the 1998 Amendments (S. 2375) into law, his message about the search for the elusive level playing field was clear:
. . . Since the enactment in 1977 of the Foreign Corrupt Practices Act, U.S. businesses have faced criminal penalties if they engaged in business-related bribery of foreign public officials. Foreign competitors, however, did not have similar restrictions and could engage in this corrupt activity without fear of penalty. . . . As a result, U.S. companies have had to compete on an uneven playing field, resulting in losses of international contracts estimated at $30 billion per year.

The OECD Convention - - which represents the culmination of many years of sustained diplomatic effort - - is designed to change all that. Under the Convention, our major competitors will be obligated to criminalize the bribery of foreign public officials in international business transactions. . . . The United States intends to work diligently, through the monitoring-process to be established under the OECD, to ensure that the Convention is widely ratified and fully implemented. We will continue our leadership in the international fight against corruption. . . .

Ten years later, how well are the 1998 Amendments working? Non-U.S. companies and individuals are being prosecuted under the FCPA. And despite some disappointments, there are encouraging signs from Europe and Asia, where countries are prosecuting their companies and citizens for overseas public bribery. The level playing field is still a work in progress, but at least there's progress to measure.

View the DOJ's 1998 Amendments site here.



A Rare (Or Medium-Rare) Opportunity

Review Procedure Release No. 81-02 from December 11, 1981 may be a Cold War relic, but it's still relevant to the FCPA. It answers the question: How do you introduce new products to potential government customers in foreign countries without violating the Foreign Corrupt Practices Act? That's what Iowa Beef Packers, Inc. wanted to know when it knocked on the Justice Department's door in those early days of the FCPA.

The Packers, we'll call them, had a plan to promote sales of USA beef to the government of the Soviet Union. To whet the Bear's appetite, the idea was to send samples to officials at the Soviet Ministry of Foreign Trade, the government agency responsible for meat procurement. The samples (cuts unspecified) would amount to about 700 pounds, worth less than $2,000 in 1981, with no single sample package worth more than $250. The giveaways, the Packers said, could help them land sales to the the Soviet government of at least 40,000 pounds.

The Packers represented to the DOJ that the steaks were strictly for inspection, testing and sampling, and to make the Soviet officials aware of the quality of USA beef. The treats weren't intended for the officials' individual use, according to the Packers, but in their capacity as representatives of the agency responsible for buying beef. It's unclear how the meat would be kept off the officials' backyard barbies, but the Packers weren't worried. Anyway, the arrangement was transparent. The Packers said they'd informed the Soviet government about the goodies heading for the Ministry of Foreign Trade, a disclosure the folks at the Ministry couldn't have welcomed.

The DOJ liked what it herd (sorry, what it heard), and gave the thumbs up. "Based on all the facts and circumstances as represented by the requestor, the Department does not presently intend to take an enforcement action with respect to the furnishing of sample products as proposed by the requesting party."

The USSR is gone and the ex-Ministry-of-Foreign-Trade-officials-turned-oligarchs may now prefer Kobe Beef to USDA Prime. But Review Procedure Release No. 81-02 still has a lesson for companies wanting to send product samples to potential foreign government customers. Target the right agency, keep the amounts small, make sure (somehow) the products are intended for evaluation and testing and not for individual use, and be transparent in the host country. It may also help if your product goes well with potatoes -- baked, boiled, broiled or roasted.

View Review Procedure Release No. 81-02 (December 11, 1981) here.



Kay Day At The Court's Conference

I have a question for anyone on the FCPA blog, a reader wrote ten days ago: Are there any known cases where an individual was prosecuted allegedly for bribing a foreign official where the "donor" did not ask for anything from the foreign official and where he received nothing?

Can there be a crime without criminal intent? We assume the question is sincere and not a send up related to the Kay case. The petition for cert in Kay is on the docket of the Justice's opening conference today for the Supreme Court's October 2008 term. Part of the defendants - appellants' argument is that bribes to reduce company taxes aren't paid to "assist in obtaining or retaining business," and therefore don't satisfy the FCPA's business nexus element.

Pushing their argument further, the U.S. Chamber of Commerce says in its amicus brief that the Fifth Circuit's decisions in Kay have obliterated the business nexus element, exposing U.S. executives to potential prosecution for nearly any contact with a foreign official. That argument sounds like the question posed by our reader -- Have there been any FCPA prosecutions based on donations to a foreign official where there was no quid pro quo?

The Fifth Circuit itself says in Kay that an FCPA offense requires a corrupt intent. The elements, it says, are (1) to willfully (2) make use of the mails or any means or instrumentality of interstate commerce (3) to corruptly (4) in furtherance of an offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value to (5) any foreign official (6) for purposes of either influencing any act or decision of such foreign official in his official capacity or inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official or securing any improper advantage (7) in order to assist in obtaining or retaining business for or with, or directing business to, any person. See the Fifth Circuit's Opinion in U.S. v. Kay (October 24, 2007) here.

And while the U.S. Chamber of Commerce warns that the government's view of "obtaining or retaining business" is so broad and vague that it could mean anything or nothing, the cases it cites don't say that. Instead they show that the government has taken action not only against bribes related directly to obtaining or retaining business but also against bribes paid for a quid pro quo intended to produce an indirect commercial advantage. The list below from the amicus brief is annotated with links to our posts where available or with original citations:

(1) Government inspection reports and laboratory certifications. See SEC v. Delta & Pine Land Co. at our post here.

(2) Reductions in annual employment tax obligations. See In the Matter of Bristow Group Inc. at our post here.

(3) Reductions in general tax obligations. In the Matter of Baker Hughes Inc., SEC Admin. Proceeding File No. 3-10572, Cease & Desist Order (Sept. 12, 2001), available at; SEC v. KPMG Siddharta Siddharta & Harsono, No. H-01-3105 (S.D. Tex. filed Sept. 11, 2001); SEC v. Mattson, No. H-01-3106 (S.D. Tex. filed Sept. 11, 2001).

(4) Refunds on previous tax payments. SEC v. Triton Energy Corp., No. 97-cv-00401-RMU (D.D.C. filed Feb. 27, 1997).

(5) Customs clearance for goods or equipment that were improperly or illegally imported. In the Matter of BJ Servs. Co., SEC Admin. Proceeding File No. 3-11427, Cease & Desist Order (Mar. 10, 2004), available at

(6) Customs clearance for goods delayed due to the failure to post bonds with sufficient funds to cover duties and tariffs. United States v. Vetco Gray Controls Inc., No. 07-cr-004 (S.D. Tex. filed Jan. 5, 2007).

(7) Encourage the repeal or amendment of national regulations limiting foreign investments. SEC v. BellSouth Corp., No. 02-cv-00113-ODE (N.D. Ga. filed Jan. 15, 2002).

(8) Repeal of a government decree requiring an environmental impact study to be conducted. See News Release, Monsanto Announces Settlements With DOJ and SEC Related to Indonesia (Jan. 6, 2005), available at

(9) Expedited government registration certifications required by law to produce, warehouse, or market products in the country. See SEC v. Dow Chem. Co., No. 07-cv-336 (D.D.C. filed Feb. 12, 2007).

(10) Beneficial changes to laws and regulations relating to land development. United States v. Halford, No. 01-cr-00221-SOW-1 (W.D. Mo. filed Aug. 3, 2001); United States v. Reitz, No. 01-cr-00222-SOW-1 (W.D. Mo. filed Aug. 3, 2001); United States v. King, No. 01-cr-0190-DW (W.D. Mo. filed June 27, 2001).

The United States Attorneys' Manual hasn't been changed since the Fifth Circuit's opinions in Kay. It says there is no criminal violation without a corrupt intent.
Under the FCPA, the person making or authorizing the payment must have a corrupt intent. The payment must be intended to induce the recipient to misuse his official position to direct business wrongfully to the payer or to any other person. The FCPA prohibits any corrupt payment intended to influence any act or decision of a foreign official in his or her official capacity, to induce the official to do or omit to do any act in violation of his or her lawful duty, to obtain any improper advantage, or to induce a foreign official improperly to use his or her influence with other government officials or agencies to affect or influence any act or decision. Where such intent is present, the FCPA prohibits paying, offering, promising to pay (or authorizing to pay or offer) money or anything of value. The FCPA does not require that a corrupt act succeed in its purpose. The offer or promise of a corrupt payment can constitute a violation of the statute.
See Title 9, Criminal Resource Manual §1018 “Prohibited Foreign Corrupt Practices” (November 2000), available here.

If there is an example of an antibribery prosecution based on a "donation" without a quid pro quo, the Chamber of Commerce would have headlined it. Nothing would better support its argument that U.S. executives should be fearful of criminal prosecution under the FCPA for conduct that is either innocent or at least not expressly prohibited by the statute.

The business nexus element of an offense has been broadened through aggressive enforcement. In the government's view, bribes to foreign officials intended to assist a company to obtain or retain business by giving it an unfair commercial advantage are consistent with the words and history of the statute and fair game for punishment. And so far, at least, there hasn't been a criminal prosecution based on bribes to foreign officials -- or, as our reader puts it, based on donations -- where nothing was asked for or given in return.

The Kay petition for certiorari and all cert-stage briefs including the U.S. Chamber of Commerce's amicus brief are available at here.

View our prior post about Kay here.



Dear FCPA Blog . . . .

What a week for mail! Just this morning, for example, we learned we'd won the Spanish Lottery. The €850,000 prize that's waiting for us would put a lot of gas in the tank, even at today's prices. Then we remembered we've never bought a ticket for the Spanish Lottery. Too bad.

We also heard from Dr. James Calu. He heads the senate committee on foreign contract awards and payments in Abuja, Nigeria. He's holding an $18.5 million contract overpayment and needs our urgent help to deal with it. Imagine our luck.

The miraculously named Dr. Godwill Okeke, Nigeria's pay master general (nice work if you can get it), wrote to say his country's president had ordered a payment to our bank account of all outstanding sums owed to us. We're thankful for the word of Godwill, although the same message from our actual paymaster would have been truly heaven-sent.

Augustin Egona was very kind, too, offering to help us out of a jam we didn't know we were in. "Following your inability to meet the necessary financial obligations which are mandatory for the release of your funds, the presidency in its magnanimity has approved $2.6 m through ATM swift Debite card." We don't hold any Debite cards, although they sound tasty enough.

And let's see. How about a 100% risk-free business opportunity from Fabric & Textile Trading Company, London UK? We can't disclose the company's sensitive information. But it seems they'd like us to handle some overseas payments, for which we'll reap a 15% commission. Judging by the number of zeroes they've mentioned, it's big money. Mr. Brian James, the company's director of trading, says "this is a permanent job for anyone who is interested in earning extra income without stress." Yup, that's us.

We wonder if the aforementioned Brian James is related to William James? The latter also wrote, saying, "I have a business worth $10m, I want you to assist me with investment, Reply me back." Will do.

And finally this week, we heard from Jim Harry Esq. Jim says he's a legal practitioner with Harry McCullagh & Co. Surprisingly, a firm by that name has a one-page website, although its address is not in London, as our correspondent Jim Harry says, but in Cork, Ireland. Anyway, London Jim says he found our profile very interesting. And on that basis he'd like us to handle a transfer of £12,800,000.00. We're glad we made such a good impression on Jim.

Well, that's some of this week's mail. While none of it mentions the Foreign Corrupt Practices Act -- and all of it asks for our banking details -- it reminds us again why the FCPA matters.

Enjoy the weekend.



Rocket Scientist Arrested Under FCPA

The U.S. Department of Justice reported the arrest in Virginia on Wednesday of a physicist accused of bribing Chinese government officials in exchange for contracts to supply space-launch technology that he illegally exported to China.

The DOJ said Shu Quan-Sheng, 68, a native of China, naturalized U.S. citizen, and PhD physicist, was arrested in Newport News by FBI agents. Shu controls AMAC International, a high-tech company based in Newport News with an office in Beijing. He appeared in U.S. District Court for the Eastern District of Virginia, Norfolk Division.

Shu has been charged with bribing and attempting to bribe a foreign government official in violation of the Foreign Corrupt Practices Act. He's also charged with violating the Arms Export Control Act by unlawfully exporting a defense service and a defense article to foreign persons without prior approval. He faces up to 10 years in prison for each violation of the Arms Export Control Act, and five years in prison for violating the FCPA.

The complaint alleges that Shu offered bribes to government officials in the PRC’s 101st Research Institute to induce the award of a $4 million contract for a hydrogen liquefier to a French company that Shu and AMAC represented. The 101 Institute, as it's known, is part of the China Academy of Launch Vehicle Technology. The French company received the contract in January 2007 and was obligated to pay Shu a success fee of ten to fifteen percent.

According to the complaint, beginning around January 2003, Shu worked with several PRC government entities involved in the development of a space launch facility on China's Hainan Island. The facility is designed to house liquid-propelled heavy payload launch vehicles to send space stations and satellites into orbit, as well as provide support for manned space flight and future lunar missions.

The DOJ says the liquefier contract was the first of perhaps five projects by AMAC and the French company related to ground-based support for launch vehicles at the new Hainan Island facility. According to the DOJ, Shu provided technical expertise and purchasing assistance for components critical to the use of liquefied hydrogen -- including cryogenic pumps, valves, transfer lines and refrigeration equipment. He was also instrumental in arranging for PRC officials to visit various European space launch facilities and hydrogen production / storage facilities.

The DOJ says Shu lacked "the required licenses or written approvals with respect to brokering, export of defense articles, or proposals to provide defense services to the PRC."

Shu was investigated by the FBI, with assistance from U.S. Immigration and Customs Enforcement, and the U.S. Department of Commerce, Office of Export Enforcement. The Counterespionage Section of the Justice Department’s National Security Division also assisted.

Shu's arrest is similar in many ways to arrests earlier this month of U.S. citizens Nam Nguyen, Joseph Lukas, Kim Nguyen, and An Nguyen, along with their Philadelphia-based company, Nexus Technologies (see our post here). They were charged with one count of conspiracy to violate the Foreign Corrupt Practices Act and four substantive counts of violating the FCPA. They're accused of paying bribes to officials at Vietnam’s Ministries of Transport, Industry and Public Safety to secure contracts to supply high-tech items -- including third-party underwater mapping and bomb containment equipment, helicopter parts, chemical detectors, satellite communication parts and air tracking systems. That case, which doesn't yet involve charges under U.S. export laws, was also investigated by both the FBI and the U.S. Department of Commerce, Office of Export Enforcement.

Shu's company, AMAC, describes itself on its website as "a high tech company operating at the cutting edge of technology." The site says because of its accomplishments "in Research & Development of Superconducting RF Power Technologies, Magnetic Levitation and Cryogenics in space, AMAC has been awarded more than $2,000,000 of innovative research grants from the US Department of Energy (DOE) and National Aeronautics & Space Administration (NASA)."

In September 2002, according to its website, AMAC, in cooperation with the Virginia Economic Development Partnership, the U.S. Department of Commerce, and the Small Business Development Center of Hampton Roads, hosted a workshop "for Virginia's business owners interested in exporting to China."

Charges in a criminal complaint, as the DOJ says, are mere allegations and defendants are presumed innocent unless and until proven guilty in a court of law.

View the DOJ's Sept. 24, 2008 release here.



French Citizen Jailed For FCPA Offenses

Former Alcatel executive Christian Sapsizian, 62, has been sentenced to 30 months in prison, three years of supervised release, and forfeiture of $261,500 for bribing employees of the state-owned telecommunications authority in Costa Rica. Sapsizian had pleaded guilty in June 2007 to two counts of violating the Foreign Corrupt Practices Act. Under his guilty plea, he faced a maximum sentence of 10 years in prison, a $250,000 fine, and $330,000 in forfeiture.

Sapsizian, a French citizen, was a 20-year Alcatel employee and served as the company's deputy vice president for Latin America. In August 2001, Alcatel received a $149 million cellular network contract from Costa Rica's El Instituto Costarricense de Electricidad (ICE). Sapsizian had promised to pay an ICE board member and other officials up to 2 percent of the value of the contract. Before being fired in 2004, he caused Alcatel to wire $14 million in “commission” payments to a consultant, who then transferred $2.5 million to the ICE official.

Sapsizian admitted to conspiring with Edgar Valverde Acosta, a citizen of Costa Rica who was Alcatel’s senior country officer there, to arrange the bribes. Acosta was indicted with Sapsizian and on June 14, 2007, the federal court in Miami transferred him to fugitive status.

Alcatel learned in October 2004 that Costa Rican authorities were investigating payments from its consultants to government officials, political parties, and officials of ICE. The company's internal investigation led to the firing of employees and consultants who were involved and its self-disclosure to the U.S. Justice Department and the Securities and Exchange Commission. Until late 2006, when it merged with Lucent, Alcatel was a French company with American depositary receipts traded on the New York Stock Exchange. It's now called Alcatel-Lucent.

The Justice Department said an ongoing investigation is being conducted by the FBI and Immigration and Customs Enforcement. It also said it received help from Costa Rican and French law enforcement authorities.

View the DOJ's September 23, 2008 release here.



The Supremes And The FCPA

Questions about ambiguity in the Foreign Corrupt Practices Act have been around since its inception. See, for example, our post Looking Again At U.S. v. Kay (November 7, 2007). The Supreme Court will answer those questions soon, either by granting review of Kay and deciding what "obtaining or retaining business" means, or by refusing to take the case and allowing the government to continue its "expansive enforcement" of the law. Here's what's happening.

David Kay and Douglas Murphy were sentenced in 2005 to 37 and 63 months in prison respectively for violating the FCPA. They bribed Haitian officials in order to reduce their company's taxes. The Fifth Circuit denied their final request for a rehearing in January 2008, and in April they petitioned the U.S. Supreme Court for review. Kay v. United States (Docket: 07-1281) is on the docket of the Justice's opening conference on September 29, 2008 for the Court's October 2008 term. The petition for certiorari and all cert-stage briefs are available at

Kay and Murphy are arguing, among other things, that the only bribes outlawed by the FCPA are those intended to assist in obtaining or retaining business. That's the so-called "business nexus" element of an offense. And, they say, the bribes they paid to reduce taxes don't fit within the business nexus element at all.

They're supported by the U.S. Chamber of Commerce -- "the world’s largest business federation." It hopes the Supreme Court will hear the case and use it to draw new limits around FCPA enforcement. The Kay case, the Chamber says, has obliterated the business nexus element. Because of that, it says, American executives are now exposed to "expansive enforcement" of the FCPA that threatens them "with prison for conduct not criminalized by the plain language of the statute."

To illustrate the government's expansive approach, the Chamber's amicus brief includes a unique list of FCPA enforcement actions. These are cases based on bribes paid to foreign officials for something other than a direct award of work. We show footnotes from the brief in square brackets.

In the wake of Kay, there have been numerous FCPA actions predicated in part or in whole on payments made to reduce or avoid regulatory burdens, and many additional cases remain under investigation. Among others, the DOJ and SEC have entered into resolutions with companies alleged to have paid bribes to obtain

(1) government inspection reports and laboratory certifications;[2]

(2) reductions in annual employment tax obligations;[3]

(3) reductions in general tax obligations;[4]

(4) refunds on previous tax payments;[5]

(5) customs clearance for goods or equipment that were improperly or illegally imported;[6]

(6) customs clearance for goods delayed due to the failure to post bonds with sufficient funds to cover duties and tariffs;[7]

(7) encourage the repeal or amendment of national regulations limiting foreign investments;[8]

(8) repeal of a government decree requiring an environmental impact study to be conducted;[9]

(9) expedited government registration certifications required by law to produce, warehouse, or market products in the country;[10] and

(10) beneficial changes to laws and regulations relating to land development.[11]

Additional ongoing investigations implicate payments to bribe tax, customs and administrative officials to obtain (1) reduced tax obligations; (2) importation of construction equipment in violation of customs regulations; (3) customs clearance for goods and equipment; (4) immigration and tax benefits; and (5) a beneficial tax audit.

2 See SEC v. Delta & Pine Land Co., No. 07-cv-01352 (D.D.C. filed July 25, 2007); In the Matter of Delta & Pine Land Co., SEC Admin. Proceeding File No. 3-12712, Cease & Desist Order at 3 (July 26, 2007), available at 2007/34-56138.pdf

3 In the Matter of Bristow Group Inc., SEC Admin. Proceeding File No. 3-12833, Cease & Desist Order at 3 (Sept. 26, 2007), available at /2007/34-5633.pdf; Press Release, SEC Institutes Settled Enforcement Action Against Bristow Group for Improper Payment to Nigerian Gov’t Officials and Other Violations (Sept. 26, 2007), available at

4 In the Matter of Baker Hughes Inc., SEC Admin. Proceeding File No. 3-10572, Cease & Desist Order (Sept. 12, 2001), available at; SEC v. KPMG Siddharta Siddharta & Harsono, No. H-01-3105 (S.D. Tex. filed Sept. 11, 2001); SEC v. Mattson, No. H-01-3106 (S.D. Tex. filed Sept. 11, 2001).

5 SEC v. Triton Energy Corp., No. 97-cv-00401-RMU (D.D.C. filed Feb. 27, 1997).

6 In the Matter of BJ Servs. Co., SEC Admin. Proceeding File No. 3-11427, Cease & Desist Order (Mar. 10, 2004), available at

7 United States v. Vetco Gray Controls Inc., No. 07-cr-004 (S.D. Tex. filed Jan. 5, 2007).

8 SEC v. BellSouth Corp., No. 02-cv-00113-ODE (N.D. Ga. filed Jan. 15, 2002). It is worth noting that the Senate originally proposed language that would have prohibited payments made for the purpose of “obtaining or retaining business … or directing business to, any person or influencing legislation or regulations of [the foreign] government.” S. 305, 95th Cong. § 103 (1977) (emphasis added). This language was ultimately rejected in favor of the current statute.

9 See News Release, Monsanto Announces Settlements With DOJ and SEC Related to Indonesia (Jan. 6, 2005), available at

10 See SEC v. Dow Chem. Co., No. 07-cv-336 (D.D.C. filed Feb. 12, 2007).

11 United States v. Halford, No. 01-cr-00221-SOW-1 (W.D. Mo. filed Aug. 3, 2001); United States v. Reitz, No. 01-cr-00222-SOW-1 (W.D. Mo. filed Aug. 3, 2001); United States v. King, No. 01-cr-0190-DW (W.D. Mo. filed June 27, 2001).

What does the government say? That in the context of the entire statute, the language is not ambiguous. "The business nexus element requires that a bribe to a foreign official be made 'in order to assist [the company] in obtaining or retaining business for or with * * * any person.' 15 U.S.C. 78dd-1(a)(1). The word 'business' is ordinarily understood to mean a 'commercial or mercantile activity customarily engaged in as a means of livelihood.' Webster’s Third New International Dictionary of the English Language 302 (1993). Thus, the statutory language does not restrict the FCPA’s coverage to the award or renewal of contracts, but more broadly reaches actions that assist in obtaining or retaining business. Moreover, the FCPA carves out an exception from its prohibition for payments for 'routine governmental action.' 15 U.S.C. 78dd-1(b); see also 15 U.S.C. 78dd-1(f )(3) (defining 'routine governmental action'). That exception would be superfluous if the statute were limited in the manner that [Kay and Murphy] propose."

Kay and Murphy reply this way:

Though the Government's reading is consistent with one broad dictionary definition of "business", the court of appeals correctly recognized that other common and narrower definitions of "busi­ness" render petitioners' conduct perfectly lawful: "[T]he word business can be defined at any point along a continuum from a 'volume of trade,' to 'the purchase and sale of goods in an attempt to make a profit,' to 'an assignment' or a 'project.'" (quoting Webster's Encyclopedic Unabridged Dic­tionary 201 (1989)). The spectrum of potential mean­ings thus runs from a person who hopes to "improve his business" in terms of seeking to better his general economic performance to one who hopes to "receive the business" of a customer in terms of obtaining a particular relationship or contract. Notably, the lim­iting phrase, "for or with . . . any person" (15 U.S.C. § 78dd-1(a)(1)(B)) favors the latter interpretation. The statutory text is accordingly ambiguous.

The Fifth Circuit's choice of the broadest, govern­ment-favoring interpretation of "business" produced a startlingly sweeping interpretation of this frequently employed provision of federal criminal law—one that criminalizes all payments intended to have any posi­tive effect on the company. Under that broad theory, the court of appeals was able to conclude that, be­cause "[a]voiding or lowering taxes reduces operating costs and thus increases profit margins, thereby free­ing up funds that the business is otherwise legally obligated to expend", such conduct "assist[s] . . . in obtaining or retaining business" within the meaning of the FCPA. The Government accordingly urges that criminal liability attaches whenever "the resulting savings benefit the com­pany's existing business." The problem is that "[t]he same can be said about virtually any con­tact with a foreign official that somehow—and no matter how indirectly—enables the company to take some action that reduces costs or otherwise benefits it."

(footnotes omitted)

For those interested in the history of the case, it dates back to Kay and Murphy's indictment in 2001 for bribes they paid in Haiti in the late 1990s. At trial, the district court dismissed the indictment, agreeing that the FCPA's language of “obtaining or retaining business” didn't cover payments to reduce taxes or customs duties. In 2004, the Fifth Circuit Court of Appeals reversed, holding that the payments might fall within the FCPA's prohibitions by giving companies a commercial advantage. It remanded the case for the trial court to decide if there was sufficient evidence that the bribes could satisfy the business nexus element.

In 2005, a jury convicted Kay and Murphy. They appealed again to the Fifth Circuit, this time also arguing that the mens rea element of an FCPA offense was missing from their indictments. In October 2007, the Fifth Circuit affirmed their convictions. They filed a petition for rehearing en banc, which was denied in January 2008. With appeals to the Fifth Circuit exhausted, in April they petitioned the Supreme Court for review.



The Tally, Part 2

Following yesterday's post, several readers suggested that we mention any other FCPA-related cases, appeals, sentencings and enforcement actions during the past year involving individuals. It's a good idea, and our thanks go out to Marc and our other correspondents.


Our post Kozeny's Co-Defendant Wins Appeal (September 1, 2008) discusses Victor Kozeny, Frederic Bourke and David Pinkerton. They were indicted in May 2005 under the FCPA over an alleged plan to bribe officials from Azerbaijan. In June 2007 the trial court dismissed the charges, saying the government failed to indict within the FCPA's five-year statute of limitations. In October 2007, the Bahamas Supreme Court refused to order Kozeny's return to the U.S. to face trial. Pinkerton was dropped from the U.S. case in July 2008 after the government withdrew all charges against him. The Second Circuit then affirmed Bourke's dismissal because of the statute of limitations.

# # #

On May 15, 2008, Jason Edward Steph consented to entry of a permanent injunction with the SEC with a possible civil penalty to be determined. Gerald Jansen, another former Willbros executive in Nigeria, received a permanent injunction and a civil fine of $30,000, while Lloyd Biggers, a former Willbros employee in Nigeria, received a permanent injunction. Our post Willbros Resolves FCPA Offenses (May 15, 2008) said, "Also named in the SEC's complaint were Gerald Jansen, a former administrative supervisor in Nigeria; Lloyd Biggers, a former employee in Nigeria; and Carlos Galvez, a former accounting employee in Bolivia. The allegations included a scheme to pay $300,000 to officials of an Ecuadorean state-owned oil and gas company and to avoid paying taxes in Bolivia."

# # #

On January 10, 2008, the United States Court of Appeals for the Fifth Circuit denied a petition for rehearing en banc from David Kay and Douglas Murphy. The former executives of American Rice, Inc., were indicted under the FCPA in 2002 for bribing Haitian officials. The U.S. District Court in Houston dismissed the indictments, finding that the FCPA did not apply to their conduct -- i.e., paying bribes to reduce their company's taxes. In 2004, the Fifth Circuit held that the bribes alleged in the indictment could fall within the scope of the FCPA and remanded. At trial, Kay and Murphy were convicted of violating the FCPA. Kay was sentenced to 37 months in prison and Murphy to 63 months. They appealed, and in October 2007 the Fifth Circuit affirmed their convictions. They then filed a petition for rehearing en banc, which the Fifth Circuit denied. See our post U.S. v. Kay: Once More To The Courts (February 28, 2008).

On April 9, 2008, Kay and Murphy filed a petition for cert with the U.S. Supreme Court (available at here). They're arguing among other things that the text, structure, and legislative history of the FCPA are all ambiguous with respect to the criminalization of the type of payments involved in the case. Therefore, they should have the benefit of the rule of lenity -- i.e., that any ambiguity in the FCPA should be construed against the government and in favor of the accused.

On May 12, 2008, two amicus briefs were filed in the case on behalf of the U.S. Chamber of Commerce and the National Association of Criminal Defense Lawyers. They're available from here.

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On October 1, 2007, Oscar Wyatt Jr., 83, pleaded guilty to one count of conspiracy to commit wire fraud in connection with the U.N. oil-for-food program. The U.S. Government accused him of paying millions in illegal surcharges directly to Iraqi officials in return for oil allocations from 2000 to 2002. He faces 18 to 24 months in prison under a plea agreement and will forfeit $11 million. He founded and ran Coastal Corporation, which he sold to El Paso Corporation in 2001. Though he wasn't charged under the FCPA, in February 2007, El Paso settled FCPA allegations related to illegal surcharges it paid to Iraqi officials under the oil-for-food program. See our post Oscar Wyatt, Founder Of Coastal Corporation, Pleads Guilty To Iraq Bribes (October 2, 2007).

# # #

On September 28, 2007, Steven Head, the former president of Titan Corporation’s Africa business, was sentenced to six months’ in prison, three years’ supervised release, and a fine of $5,000. He pleaded guilty in June 2006 to one count of falsifying a financial document. He was originally charged with paying $3.5 million in bribes to foreign officials in Benin. Titan pleaded guilty in March 2005 to violating the FCPA and aiding and abetting the filing of a false tax return.



What's The Tally?

The Justice Department says it plans to prosecute more individuals under the Foreign Corrupt Practices Act -- and send them to jail. We looked through our posts to see how men and women fared over the past year. Below are excerpts from posts dealing with those who've been criminally charged or sentenced under the FCPA, or settled enforcement actions with the SEC, or both, during the past twelve months. The titles link to the original posts.

More Individuals Indicted For FCPA Violations (September 8, 2008)

The Justice Department said it arrested four people last week on charges that they and their company bribed Vietnamese officials in exchange for contracts to supply equipment and technology to government agencies in Vietnam.

The DOJ said U.S. citizens Nam Nguyen, 52, of Houston; Joseph Lukas, 59, of Smithville, N.J.; Kim Nguyen, 39, of Philadelphia; and An Nguyen, 32, of Philadelphia were arrested after they, along with Nexus Technologies Inc., were indicted on Sept. 4, 2008, by a federal grand jury in Philadelphia on one count of conspiracy to violate the Foreign Corrupt Practices Act and four substantive counts of violating the FCPA.

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Ex-KBR Boss Pleads Guilty (September 4, 2008)

The Justice Department said today that Albert “Jack” Stanley, 65, a former chairman and CEO of KBR, the global engineering and construction firm based in Houston, pleaded guilty to a two-count criminal information charging him with conspiracy to violate the Foreign Corrupt Practices Act and conspiracy to commit mail and wire fraud. He appeared in U.S. District Court in his hometown of Houston before U.S. District Judge Keith P. Ellison. . . .

Under the plea deal accepted by the court, Stanley faces seven years in prison and a restitution payment of $10.8 million.

# # #

Former Execs Avoid Hard Time (September 3, 2008)

Two former telecommunications executives who admitted bribing employees of state-owned companies in Africa and concealing the payments have avoided prison in exchange for their cooperation in an ongoing FBI investigation.

The Justice Department said yesterday that Roger Michael Young, 48, of Washington, D.C., a former managing director of ITXC Corporation, has been sentenced to five years probation, including three months home confinement, three months in a community confinement center, and a $7,000 fine. He pleaded guilty in July 2007 to violating the Foreign Corrupt Practices Act and the Travel Act.

Former ITXC Vice President Steven J. Ott, 49, of Princeton, N.J., who also pleaded guilty, was sentenced in July this year to five years probation, including six months in a community confinement center and six months home confinement. He was fined $10,000.

A third defendant in the case, Yaw Osei Amoako, 55, of Hillsborough, N.J., pleaded guilty in September 2006. He was sentenced in August 2007 to 18 months in prison followed by two years of supervised release, and a $7,500 fine.

# # #

FCPA Guilty Plea For Bribing UK Official (May 9, 2008)

A former co-owner and executive of California-based Pacific Consolidated Industries (PCI) pleaded guilty yesterday to violating the Foreign Corrupt Practices Act. Martin Eric Self, 51, of Orange, California pleaded guilty to a two-count information charging him with violating the FCPA by paying more than $70,000 in bribes to a U.K. Ministry of Defence official. The bribes were intended to secure equipment contracts with the U.K. Royal Air Force. . . .

Self is scheduled to be sentenced in federal court on September 29, 2008. Although he faces a maximum sentence of five years in prison per count, his plea agreement contemplates a prison term of eight months, subject to the court's final determination at sentencing.

# # #

Former ITXC Execs Settle Civil FCPA Charges (May 8, 2008)

The Securities and Exchange Commission said that on April 18, 2008 it settled civil proceedings under the Foreign Corrupt Practices Act against Steven J. Ott, Roger Michael Young, and Yaw Osei Amoako. The SEC charged the former executives of ITXC Corp. with violating the antibribery and books and records provisions of the FCPA by bribing senior officials of government-owned telephone companies in Nigeria, Rwanda and Senegal, and concealing and falsely reporting the illegal payments.

In settling the SEC's civil enforcement action, Ott, Young and Amoako each consented to the entry of a final judgment that permanently enjoins them from violating Sections 30A and 13(b)(5) of the Securities Exchange Act of 1934, Rule 13b2-1 thereunder, and from aiding and abetting violations of Exchange Act Section 13(b)(2)(A) and, with respect to Ott and Young, violations of Exchange Act Section 13(b)(2)(B). Amoako also must pay $188,453 in disgorgement and prejudgment interest. He took kickbacks for some of the bribes he paid to the foreign officials.

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Ex-World Bank Manager Sentenced For FCPA Offense (April 28, 2008)

The Justice Department has announced the April 22, 2008 sentencing of former World Bank employee, Ramendra Basu. The Indian national and U.S. permanent resident received 15 months in prison for conspiring to award World Bank contracts to consultants in exchange for kickbacks and for helping a contractor bribe a foreign official in violation of the Foreign Corrupt Practices Act. In addition to the 15- month prison term, Basu was sentenced to two years supervised release and 50 hours of community service. U.S. v. Basu, (Cr. No. 02-475) D.D.C., November 2002.

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That's Entertainment? (December 19, 2007)

Wow! It's not often -- never, in fact -- that we can talk about the LA movie scene and tap Variety as one of our sources. But here it is. The Department of Justice just announced that a Los Angeles film executive and his wife were arrested on allegations of making corrupt payments to a Thai government official in order to obtain lucrative contracts to run an international film festival in Bangkok, in violation of the Foreign Corrupt Practices Act.

Gerald Green, 75, and his wife Patricia Green, 52, both of Los Angeles, were arrested on a criminal complaint filed on Dec. 7, 2007, in federal court in Los Angeles and unsealed today. The complaint alleges that the Greens conspired to pay more than $1.7 million in bribes for the benefit of a government official with the Tourism Authority of Thailand (TAT) in order to obtain the film festival contract and other contracts with the TAT worth more than $10 million.

[The Greens are awaiting trial.]

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Schnitzer's Former Boss Settles FCPA Charges (December 14, 2007)

The former chairman and ceo of Schnitzer Steel Industries, Inc. resolved charges on December 13, 2007 brought by the Securities and Exchange Commission under the U.S. Foreign Corrupt Practices Act. Robert W. Philip, 60, of Portland, Oregon, will pay about $250,000 to settle charges that he violated the antibribery, books and records and internal controls provisions of the FCPA (Section 30A of the Securities Exchange Act of 1934 [15 U.S.C. § 78dd-1], Section13(b)(2)(A) [15 U.S.C. § 78m(b)(2)(A)], and Section 13(b)(2)(B) [15 U.S.C. § 78m(b)(2)(B)]). He served as Schnitzer's president beginning in 1991, as its chief executive officer from 2002, and as chairman from 2004. He left the company in May 2005.

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Another Former Willbros Executive Pleads Guilty (November 6, 2007)

Jason Edward Steph, 37, who once served as general manager of on-shore operations for a subsidiary of Willbros Group Inc., entered into a plea agreement with the U.S. Department of Justice on November 5, 2007. He pleaded guilty to conspiring to bribe officials of the government of Nigeria with more than $6 million -- in violation of the U.S. Foreign Corrupt Practices Act. Steph, of Sunset, Texas, was indicted on July 19, 2007. He now faces five years in prison and a $250,000 fine. . . .

Steph also said that in February and March of 2005 he, former Willbros executive Jim Bob Brown, and others arranged for the payment of approximately $1.8 million in cash to government officials in Nigeria. Brown pleaded guilty to a similar charge on Sept. 14, 2006. Steph and Brown are cooperating with the government’s ongoing investigation . . . .

[Steph and Brown are awaiting sentencing.]

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Syncor's Founder Settles FCPA Charges With The SEC (October 1, 2007)

Monty Fu, the founder of Syncor International Corp., agreed with the Securities and Exchange Commission on September 27, 2007 to resolve U.S. Foreign Corrupt Practices Act charges by consenting to a permanent injunction against FCPA books-and-records violations and agreeing to pay a $75,000 civil penalty. Fu was Syncor's CEO from 1985 to 1989 and board chairman from 1985 to November 6, 2002, when he went on paid leave until he resigned in December 2002.

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A.T. Kearney's Former India President Violated The FCPA (September 26, 2007)

The U.S. Securities and Exchange Commission announced on September 25, 2007 two settled enforcement actions based on violations of the books and records provisions of the Foreign Corrupt Practices Act. The actions involved the founder and former president of A.T. Kearney Ltd's India business, Chandramowli Srinivasan, and Kearney's former parent company, Electronic Data Systems Corp. . . .

For violating Sections 13(b)(5) and 30A of the Securities Exchange Act of 1934, Srinivasan paid a civil penalty of $70,000.



The FCPA Isn't Fun And Games

Mark Mendelsohn -- the Justice Department official responsible for criminal prosecutions under the Foreign Corrupt Practices Act -- has left no doubt that the government is targeting individuals. Here's what he told an audience at an American Bar Association panel discussion in Washington, D.C. last week:

The number of individual prosecutions has risen – and that’s not an accident. That is quite intentional on the part of the Department. It is our view that to have a credible deterrent effect, people have to go to jail. People have to be prosecuted where appropriate. This is a federal crime. This is not fun and games.
Mendelsohn is the Deputy Chief of the Fraud Section at the DOJ's Criminal Division. He was quoted in the Sept. 16, 2008 edition of the Corporate Crime Reporter.

How much is enforcement increasing? During the past five years, the DOJ has investigated more overseas public bribery cases than in the prior 20 years. In 2007, the DOJ launched 16 prosecutions, double the number from 2006. What about 2008? There are 84 FCPA investigations pending. Press reports indicate the DOJ has a dozen prosecutors assigned to FCPA cases. They're supported by a team of FBI agents willing to use wire-taps and other surveillance techniques to catch offenders.

Executives still weighing the chances of getting caught should listen to this: "Problems in a faraway country," Medelsohn said, "are more likely to be learned by us – sitting here in Washington – than ever before. People in Bangladesh can e-mail me directly with an allegation that a company in Bangladesh is paying bribes to a government official there. Information about our work is now known around the world. The media is paying a great deal of attention to corruption issues. There is a lot more English language media reporting around the world. It’s more difficult to hide. . . .”

Mendelsohn also said new ways to resolve cases -- including non-prosecution agreements, deferred prosecution agreements, and corporate compliance monitors -- are tools that give companies an incentive to investigate, self-disclose and take corrective actions on their own. He didn't say so, but companies trying to settle with the DOJ are likely to cough up individuals responsible for the illegal behavior.

And hiding evidence abroad probably won't work. “Another factor," Mendelsohn said, "is that we have been increasingly effective in gathering evidence overseas through treaties as well as informal arrangements with law enforcement in other countries. That has made our work easier. Foreign law enforcement authorities are beginning to investigate and prosecute their own cases. That has had a positive effect on our efforts.”

Thanks to the excellent Corporate Crime Reporter for this and other recent stories about FCPA enforcement.



No Foreign Official, No FCPA Offense

CW (who knows a lot about the Foreign Corrupt Practices Act) asked a great question. Can a payment directly to a foreign government intended to influence decisions in favor of the donor violate the FCPA? Surprisingly, the answer is no.

An FCPA offense requires a corrupt payment to a "foreign official." The law defines "foreign official" as a human being but not a government entity.

The term “foreign official” means any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization.
CW's question came up in FCPA Opinion Procedure Release No. 97-02 (November 5, 1997). The requestor was a U.S.-based utility developing a plant in an Asian country. There was no primary school in the plant's vicinity and the requestor planned to donate $100,000 to help build one. The donation would go directly to the government entity responsible for constructing the school.

Before releasing any money, the U.S. utility required written assurance from the foreign government that the funds would be used solely to build the school. The government also guaranteed that land for the school would be available, along with other funding needed to build and operate it.

According to the Department of Justice, because the "requestor's donation would go directly to a government entity -- and not to any foreign government official -- the provisions of the FCPA do not appear to apply to this prospective transaction."

Then there's DOJ Opinion Procedure Release No. 06-01 (October 16, 2006). A Delaware corporation headquartered in Switzerland wanted to contribute $25,000 to an African country's regional customs department or ministry of finance. The money would fund incentive awards to local customs officials. The program was intended to improve enforcement relating to seizures of counterfeit products bearing the trademarks of the requestor and its competitors.

Among other controls, the customs department or central government would pay the incentive awards directly to local customs officials and the requestor would have no say in identifying recipients. On that basis, the DOJ said it wouldn't take enforcement action against the requestor for the $25,000 donation.

In both cases, however, it was up to the requestor to make sure the donations were consistent with local law. Payments to foreign governments that aren't FCPA offenses (because no "foreign official" is involved) may still violate local anti-bribery laws.



Oiling The Wheels Of Government

We somehow remained cheerful this week, despite the gloomy news from Fenway and Tom Brady's knee injury. Knees, by the way, seem oddly under-designed, unless their real purpose is to keep us humble.

Bob Lanier was a knee-injury pioneer during St. Bonaventure's only trip to the Final Four in 1971. Pavel Bure, Serena Williams and David Beckham have followed suit and bounced back. Gov. Arnold Schwarzenegger went gimpy for a while, as did Faith Hill and even Lil' Romeo. Hot-yoga impresario Bikram Choudhury rehabbed injured knees along the way -- his and thousands of others. Pierce Brosnan, a Hollywood James Bond, and Bond-girl Michelle Yeoh, have both been hobbled. When Nicole Kidman hurt her right knee filming Moulin Rouge, insurance companies had to pay $3 million for delays. Tiger Woods' knee has probably cost the PGA Tour about a billion eyeballs so far.

And staying with the subject of human frailties, the scandal du jour isn't an overseas bribery story. It's a spectacular made-in-the-USA compliance failure. We're talking about the fun folks at Uncle Sam's Minerals Management Service (MMS). Among other things, they run the government's royalty-in-kind program, collecting oil and gas as payment for drilling on federally-owned offshore lands. Last year MMS' cash flow was around $11 billion. But cash wasn't the only thing flowing freely.

According to a series of reports by the Interior Department's inspector general (available here), some MMS employees in Denver "frequently consumed alcohol at industry functions, had used cocaine and marijuana, and had sexual relations with oil and gas company representatives." Nineteen of the employees between 2002 and 2006 -- about a third of the program's total staff -- "socialized with and had received a wide array of gifts from oil and gas companies with whom the employees were conducting official business."

Two MMSers accepted dinners, tickets to shows, and golfing trips "on at least 135 occasions from four major oil and gas companies with whom they were doing business," the report said. It named gift-giving companies as Chevron, Shell, Gary-Williams Energy and Hess. Eight people in the royalty-in-kind program accepted golf, ski and paintball outings, meals and drinks, tickets to a Toby Keith concert, a Colorado Rockies baseball game, and a Houston Texans football game (we liked it better when the team was called the Houston Oilers).

An AFP story quoted Congressman Nick Rahall of West Virginia, the Democratic chairman of the House Natural Resources Committee, as saying the report "reads like a script from a television miniseries -- and one that cannot air during family viewing time."

The New York Times said the MMS staffers "did not view socializing with oil company representatives and taking gifts as inappropriate because they said they needed to be part of the marketing culture in order to market the program’s oil and gas." That's right. It's a tough job, but someone's got to do it.

The inspector general's recommended reforms include an explicit prohibition against accepting gifts or gratuities from industry sources, regardless of value; a robust training program with written certification by employees that they know and understand the ethics requirements by which they are bound; and a beefed-up MMS Ethics Office. And yes, random drug testing.

Former MMS official Jimmy W. Mayberry pleaded guilty to a felony conflict-of-interest charge in August and faces up to five years in prison and a $250,000 fine. The DOJ has declined to prosecute two others, which irked the inspector general. Most of the implicated MMS officials, he says, "escaped potential administrative action by departing from federal service, with the usual celebratory send-offs that allegedly highlighted the impeccable service these individuals had given to the Federal Government. Our reports belie this notion."

Enjoy the weekend.