The FCPA Blog

Photo by Steve PunterBy Thomas Fox

The U.K. Bribery Bill, introduced in March 2009, is still on track to pass out of Parliament before the upcoming general election, expected to be in June. The Bribery Bill is a major shift in the U.K.'s overseas anti-corruption regime -- and it goes even further than the FCPA.

Because so many U.S. companies have offices or operations in the U.K., or employ U.K. citizens in their world-wide operations, this legislation exposes them to new risks of prosecution.

Unlike the FCPA, the Bribery Bill has no exception for facilitation payments. It creates strict liability for the failure of a corporate official to prevent bribery, prohibits bribery not just of government officials but also private citizens, and has criminal penalties of up to 10 years prison per offense (not 5 years as under the FCPA).

The Conservative Party tried to introduce amendments that would have allowed facilitation payments "reasonable in amount," "customary in the situation," or the "only reasonable alternative in the situation." Blogger Alan Holroyd reported that Clair Ward, the Parliamentary Under-Secretary of State for Justice, blasted the idea, saying the exceptions (which died in the debate) would have "driven a coach and horses through the policy objectives of the bill."

There's one affirmative defense for "adequate procedures." The defense would allow a corporation to put forward credible evidence that it had adequate procedures (i.e., an effective compliance program) in place to prevent its people from committing bribery offences. The Secretary of State for Justice will be required to publish guidance on "adequate procedures" when the Bill becomes law. And the Government has signaled that it will work with the U.K. business community to develop compliance standards.

Thomas Fox is an attorney in Houston, Texas, specializing in FCPA compliance, risk management and international transactions. He can be reached at tfox@tfoxlaw.com

More information about the Bribery Bill can be found here.

Judge William K. Sessions III, chief judge for the federal district of Vermont since July 2002. He chairs the six-member United States Sentencing Commission. Under proposed amendments to the federal sentencing guidelines, corporations could get a break on fines and other penalties for white collar crimes committed by top executives. To benefit, the companies would have to show that their compliance officer had direct access to the board of directors, their compliance program detected the criminal activity, and the company quickly self-disclosed it to the feds.

Will fine-tuning the sentencing guidelines help companies? Not likely. Writing in the Wall Street Journal's law blog, Amir Efrati said: "Given that judges don’t often oversee prosecutions of major companies, we’re not exactly sure how many big cases the change would effect in the future. Still, many smaller companies face prosecution all the time." (Not a single corporate defendant, big or small, has fought Foreign Corrupt Practices Act charges in court for the past two decades.)

The problem isn't the sentence a company might receive. It's the conviction itself -- best illustrated by Arthur Andersen's demise after a 2002 conviction (later overturned) and the loss of 85,000 jobs. Not only are the consequences disastrous, the risk of conviction at trial is nearly one hundred percent. The legal doctrine of respondeat superior makes corporations vicariously liable for crimes committed by employees at any level acting within the scope of their employment, even for actions in direct violation of company policy. With respondeat superior as a legal weapon, prosecutors can't lose. 

The U.S. Sentencing Commission itself said so in its May 2004 release:

Criminal liability can attach to an organization whenever an employee of the organization commits an act within the apparent scope of his or her employment, even if the employee acted directly contrary to company policy and instructions. An entire organization, despite its best efforts to prevent wrongdoing in its ranks, can still be held criminally liable for any of its employees’ illegal actions.

Because respondeat superior leaves companies defenseless, their only choice when threatened with prosecution is to cop a plea. That gives the DOJ and other enforcement agencies enormous power to force settlements on their corporate targets.

Using the sentencing guidelines to encourage corporate compliance is important. But it doesn't help targeted companies that are forced to choose between settlement and death. What's the fix? As many have suggested, instead of imposing strict liability, let companies at (or before) trial show they tried to prevent the criminal activity. If they can prove they had an effective compliance program, drop the prosecution and chase culpable employees instead.

The U.S. Sentencing Commission will hold a public hearing on March 18 and will vote on the proposed amendments in April.

Download a copy of the 76-page Proposed Amendments to the Sentencing Guidelines (January 21, 2010) here.

There was an outstanding post last week over at the White Collar Crime Prof Blog (here). It was written by Matthew Reinhard, left, a litigator and FCPA practitioner based in the District of Columbia. Like us, he thinks Frederic Bourke's chances on appeal are pretty good. In the post, he talked about the mens rea element at the center of Bourke's trial. That issue culminated in Judge Scheindlin's "conscious avoidance" instruction to the jury, followed by post-trial comments from jury members indicating they didn't grasp the judge's meaning. The jury foreman was quoted in the New York Law Journal as saying about Bourke: "We thought he knew and he definitely should have known."

Hey, Reinhard said, that's not "conscious avoidance." He explained:

The Government did not create the "conscious avoidance" standard out of whole cloth. Indeed, it is defined within the FCPA’s broader knowledge standard, which states that "when knowledge of the existence of a particular circumstance is required for an offense, such knowledge is established if a person is aware of a high probability of the existence of such circumstance, unless he actually believes the circumstance does not exist." 15 U.S.C. §　78dd-1(f)(2)(B) (2004) (emphasis added). When the government indicated its intention to travel on this standard, Judge Scheindlin appropriately ruled that to prevail on such a theory the Government would need to prove that Bourke decided not to learn a key fact, not that he was merely negligent in failing to learn it. To a lay-person (and perhaps even to many lawyers) that may seem like a tough distinction to make, but it is also the bright line that separates civil liability from criminal activity.

We let Matt know how much we liked his post. And we asked if he thought any other issues on appeal might work for Bourke. He said:

Judge Scheindlin issued a series of important rulings surrounding the "local law" defense contained in the FCPA. The court rejected Bourke's argument that the payments were permissible under local Azeri law because they were the product of extortion, concluding that the initial payments were not lawful, only that the Azeri law in question allowed a person to avoid prosecution for payments obtained through extortion. The court concluded that the affirmative defense was not available to Bourke where, as here, local prosecution was avoided due to a "technicality" or a local law that otherwise relieved a person of criminal liability. It will be interesting to see if Bourke's lawyers press this issue further on appeal.

Jury verdicts, Matt wrote, are notoriously difficult to overturn. But we're letting ourselves be a little excited at the prospect, however slim, that in a year or so the influential Second Circuit might make new white-collar criminal law in an FCPA-related case. 

While we're watching the teletype (left) for news about William Jefferson's sentencing Friday morning (see our post here), let's talk about Mr. Bourke. He was sentenced Tuesday to a year and a day in jail and fined a million dollars for conspiring to violate the FCPA and lying to FBI agents. People in the courtroom said when he was convicted, Bourke was shocked. So apparently he never expected the jury to find him guilty. But when he was sentenced, he was happy and relieved. So he must have been expecting a lot worse. And that probably means the DOJ never offered him a deal with so little jail time.

Why was Bourke shocked by the verdict? Because he had good facts and good law and good lawyers. He didn't pay any bribes himself; he was one of Viktor Kozeny's victims; he'd blown the whistle on Kozeny's fraud and testified to a state grand jury that indicted Kozeny; he thought he'd have the local law defense (he didn't; Judge Scheindlin ruled against it); George Mitchell was his friend, co-investor and character witness; he had smart, active lawyers, and so on. So let's face it. As a defendant, Bourke had a lot going for him. That's why he was shocked by the verdict.

But should he have been? We don't think so. Defendants haven't done well with juries in FCPA-related cases. There hasn't been a full acquittal -- Mr. Jefferson's split decision notwithstanding -- since 1991. Why? For two main reasons.

Before we get to reason number one, we acknowledge that there are lots of legal arguments you can raise about the words of the FCPA -- about the business nexus element, the meaning of "foreign official," and others. And those are good arguments on paper. But judges haven't wanted to hear much about them. In the Kay and Murphy case, for example, the Fifth Circuit even warned against defendants who try "splitting hairs" (they were talking about the meaning of "obtaining or retaining business"). So that's reason number one why defendants don't do well in court. Judges don't welcome a lot of legal argument about the FCPA. Bourke's trial also illustrated the point. Judge Scheindlin didn't allow the local law defense. That surprised us and it dented Bourke's chances of acquittal.

Reason number two: Juries hate graft. That's what we said when the Greens were convicted in September. There's no other conclusion to draw from the trial record in FCPA-related prosecutions stretching back eighteen years. We'll say it again: FCPA cases are about bribes to corrupt foreign officials. They're about sophisticated and often wealthy people looking for shortcuts, hoping to subvert foreign governments for personal or corporate gain. Wheeling and dealing in exotic places. Flashing cash and pulling strings. That's how the prosecutors tell it and juries lap it up. So even if the government's evidence isn't rock solid on all the elements of an FCPA offense, the jury will still get the picture that people who should know better stepped over the line. And they'll convict.

Coming back to Bourke, we'd have to say he took a big risk going to trial, even though he had a lot going for him. But he was fortunate. Judge Scheindlin was on the bench. She said he was at least partly a victim so she gave him a break on the jail time. That's how justice should work (and why no one is sorry the federal sentencing guidelines aren't compulsory anymore).

One more thing. Bourke still has an appeal to the Second Circuit. Defendants who plea bargain can't appeal but those who go to trial can. That's a reason to go to trial, although it can't be nice to sit in a jail cell hoping your appeal will work (they rarely do). Still, Bourke's chances with the Second Circuit aren't too bad.

Our conclusion: If the government never offered Bourke less than a year in prison as part of a plea deal, he came out ahead by going to trial. And he may do even better after his appeal. But his decision to go to trial in the first place was against the odds. And he ended up lucky.

Frederic Bourke's attempt to overturn his conviction and obtain a new trial has failed. He was found guilty in July of conspiring to violate the Foreign Corrupt Practices Act under 18 U.S.C. § 371 and making false statements in violation of 18 U.S.C. § 1001. He faces up to five years in prison for each count. Sentencing is now scheduled for November 10 (see our post here).

In his motion for acquittal or a new trial, Bourke argued, among other things, that the jury instructions were wrong in a number of ways, including the mens rea element, the local law defense, a good-faith defense, and his possible conviction based on negligent acts.

During his trial, prosecutors said Bourke had "stuck his head in the sand." The jury thought so too. As the foreman said after the verdict: "It was Kozeny, it was Azerbaijan, it was a foreign country. We thought [Bourke] knew [about the bribery] and definitely could have known. He’s an investor. It’s his job to know.”

In his post-trial motion, Bourke argued that Judge Shira Scheindlin made a mistake by allowing the jury to convict him of conspiracy if all he did was stick his head in the sand. She issued an instruction on the theory of conscious avoidance even though the government's evidence of his actual knowledge was thin, Bourke said. That created a strong possibility the jury was mislead into believing it could convict him simply because he had "not tried hard enough to learn the truth."

But Judge Scheindlin said her instruction was correct. In fact the jury could convict him if he stuck his head in the sand to avoid knowing facts he should have known. The test was not Bourke's actual knowledge of Kozeny's bribes, but his efforts to avoid acquiring that actual knowledge. "The conscious avoidance doctrine provides that a defendant's knowledge of a fact required to prove the defendant's guilt may be found when the jury is persuaded that the defendant consciously avoided learning that fact while aware of high probability of its existence," she said, quoting United States v. Svoboda, 347 F.3d 471, 477 (2d Cir. 2003).

She explained further why there's no head-in-the-sand defense under the FCPA's antibribery provisions, or a conspiracy charge based on that part of the FCPA:

"In addition, the FCPA explicitly permits a finding of knowledge on a conscious avoidance theory. It provides that '[w]hen knowledge of the existence of a particular circumstance is required for an offense, such knowledge is established if a person is aware of a high probability of the existence of such circumstance, unless the person actually believes that such circumstance does not exist.' 15 U.S.C. § 78dd-2(h)(3)(B). Because the defendant must be found to possess the same intent as that required for the substantive offense, the conscious avoidance instruction was particularly appropriate in this case."

Bourke's lawyers plan to appeal his conviction.

Download a copy of Judge Shira A. Scheindlin's October 13, 2009 opinion and order in U.S. v. Victor Kozeny and Frederic Bourke, Jr. (United States District Court for the Southern District of New York, Case No.: 05-Cr 518) here.

Download the complete jury charge in U.S. v. Victor Kozeny and Frederic Bourke, Jr. here.

Read all our posts about the prosecution of Frederic Bourke here.
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