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FCPA Blog Daily News

Entries in Business Nexus Element (12)

Monday
Aug242015

How to hire a princeling: Six rules anyone can follow

Last week BNY Mellon agreed to pay the SEC $14.8 million to settle charges that it violated the Foreign Corrupt Practices Act by awarding student internships to kids of officials connected with a sovereign wealth fund in the Middle East.

Click to read more ...

Thursday
Apr232015

Did Bill Clinton violate the Foreign Corrupt Practices Act?

Image courtesy of the Clinton FoundationIn 2005, former president Bill Clinton traveled to Kazakhstan to meet with its leader, Nursultan Nazarbayev. Clinton flew to Almaty with the Canadian mining financier Frank Giustra on Giustra's private jet, the New York Times reported Thursday. Giustra was there to secure rights to Kazakhstan's rich uranium deposits.

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Friday
Jan242014

Did Dennis Rodman violate the FCPA?

Among the more than $10,000 in gifts Dennis Rodman delivered to North Korea dictator Kim Jong Un in Pyongyang this month were "hundreds of dollars’ worth of Irish Jameson whiskey, European crystal, an Italian suit, a fur coat, and an English Mulberry handbag for Kim’s wife, Ri Sol-ju," the Daily Beast said Friday.

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Thursday
Sep122013

Cameo Corruption, Part IV: Intent and the Inherent License to Produce a Film

This is the fourth of five posts looking at Hollywood’s practice of giving film cameos to politicians and how this practice would play in an FCPA context.

Click to read more ...

Wednesday
Sep112013

Cameo Corruption, Part III: Meeting the Business Purpose Test Automatically

As we’ve seen in Part I and Part II of this series, a political cameo is valuable enough to operate as a bribe, but does Hollywood really need to worry about the practice exposing it to FCPA liability?

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Tuesday
Sep102013

Cameo Corruption, Part II: Valuating a Film Role

In the first post of this series, I talked about the possibility that political cameos, if used abroad, might serve as an alternative method of corruption. It makes sense to begin the inquiry by valuating a cameo. After all, if a brief appearance on screen isn’t worth much, then it’s unlikely to induce a foreign official to abuse her discretion.

Click to read more ...

Tuesday
Dec042012

A compliance lesson from middle school

The seventh grade shop teacher said, 'Always cut the wood on the way side of the line. That protects against mistakes. You can shorten a board, but you can never make it longer.'

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Wednesday
May092012

Facilitation: A Jury Question

Payments to government employees in exchange for the performance of a non-discretionary function such as issuance of a license or a permit occur far more often than bribes to government officials in exchange for assistance in winning a government contract.

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Thursday
Nov122009

Frederic Bourke's Big Bet

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.

Wednesday
Oct072009

Keeping Courts Clean

Compliance programs don't always (or even usually) cover how overseas counsel are hired, supervised and paid. But they should. A year ago, the Supreme Court denied cert in U.S. v. Kay, leaving in place the Justice Department's expansive view of the FCPA's business nexus element (the meaning of "assist in obtaining or retaining business"). That cleared the way for prosecutors to target bribes to foreign judges and court workers in all kinds of foreign cases.

We liked what Larry Buterman had to say earlier this week about FCPA enforcement actions in the U.N. oil for food cases (here). And we noticed he co-wrote an article in September about overseas judicial corruption. So we asked his advice. Here -- in his own words -- is what he told us:
________

As American and other companies subject to the FCPA expand into foreign markets, they become increasingly susceptible to the risk of foreign litigation. The reality is that in many countries, payments to judges and judicial officials are standard litigation practices. Organizations must recognize that foreign judges and judicial officials are "foreign officials" for purposes of the FCPA -- especially given the broad interpretation the U.S. government has adopted for that term.

Thus, organizations must be vigilant to ensure that all those who litigate on their behalves in foreign countries do not make any payments to judges and judicial officials.

The U.S. government has already shown its willingness to expand the reach of the FCPA in order to root out all types of foreign corruption. The FCPA appears to be the most promising legal tool at its disposal to combat bribery in foreign courts. Given the prevalence of judicial corruption overseas, it may only be a matter of time before the DOJ's prosecutors turn their attention to the problem.

Common sense dictates that foreign local counsel be treated by companies the same way they treat any suppliers, agents or distributors with respect to the FCPA.
_________

A copy of "Foreign Judicial Corruption and Liability for Local Counsel," co-authored by Howard B. Epstein and Lawrence E. Buterman and originally published in the New York Law Journal (September 9, 2009) can be downloaded here.

View our series about judicial corruption here.
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Sunday
Sep282008

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 http://www.sec.gov/litigation/admin/34-44784.htm; 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 http://www.gov/litigation/admin/34-49390.htm.

(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 http://Monsanto.mediaroom.com/index.php?s=43&item=278.

(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 scotusblog.com here.

View our prior post about Kay here.

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Sunday
Sep212008

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 scotusblog.com.

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 http://www.sec.gov/litigation/admin/ 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 http://www.sec.gov/litigation/admin /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 http://www.sec.gov/news/press/2007/2007-201.htm.

4 In the Matter of Baker Hughes Inc., SEC Admin. Proceeding File No. 3-10572, Cease & Desist Order (Sept. 12, 2001), available at http://www.sec.gov/litigation/admin/34-44784.htm; 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 http://www.gov/litigation/admin/34-49390.htm.

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 http://Monsanto.mediaroom.com/index.php?s=43&item=278.

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.

.