Schlumberger, the Wall Street Journal reported, paid a $500,000 signing bonus to an intermediary in Yemen. Are signing bonuses for agents illegal under the FCPA? We take a look.
Entries in Knowledge (52)
Frederick Bourke, the government says, didn't stumble into Viktor Kozeny's conspiracy to violate the FCPA by accident, as Bourke contends. He either knew the deal was tainted by bribery and ignored the facts, or deliberately avoided learning the truth.
During this season of Thanksgiving, the folks at Norway's Statoil ASA will be celebrating the end of the company's three-year deferred prosecution agreement -- and the Justice Department's public announcement about it here. In 2006, Statoil (which trades on the NYSE under the symbol STO) was charged with violating the anti-bribery and accounting provisions of the Foreign Corrupt Practices Act. It had paid more than $5 million through a middleman to an Iranian official for access to the South Pars natural gas field, one of the world’s largest. In settling with the DOJ, it agreed to pay a $10.5 million penalty and enter into the three-year deferred prosecution agreement. It also agreed with the SEC to pay $10.5 million in disgorgement and retain a monitor.
The case made waves in '06. Statoil's was the earliest criminal enforcement action against a foreign company. The financial penalties the DOJ and SEC imposed set that year's record for an FCPA case. And Statoil had already been punished in Norway for the bribery and fined about $3 million. The U.S. government evidently deemed that inadequate but, in an act of comity, allowed Statoil to deduct the Norwegian fine from the U.S. criminal penalty.
U.S. Attorney Prett Bharara got it right when he said yesterday: "This case shows that deferred prosecution agreements against corporations can work as an important middle ground between declining prosecution and obtaining the conviction of a corporation. The deferred prosecution agreement . . . helped restore the integrity of Statoil's operations and preserve its financial viability while at the same time ensuring that it improved what was obviously a failed compliance and anti-corruption program."
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Frederic Bourke and William Jefferson will be thankful to be out on bail pending their appeals. The DOJ may have put too much zeal into Bourke's prosecution, and may have botched part of Jefferson's trial. But both men will have second chances on appeal. Bourke to argue that he never intended to break the law, and that being a criminal in the United States still requires some mens rea. And Jefferson that he was convicted for private acts under a law governing public acts, that he never had a chance to confront the main witness against him -- the government's informant, that her relationship with an FBI agent working on his investigation was evidence the jury should have heard, that the "honest services" statute he was convicted under is too vague to understand, and that the jury's verdict on the conspiracy count should have been tossed.
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We're thankful, as always, for the rule of law. Our system of justice isn't perfect. It can't be. But as we said a few weeks ago, when it works as it should, the guilty are usually punished and the innocent usually go free. And that's a rare blessing at any time and place. We're thankful too for the freedom we and others have to praise the system when it works and criticize it when it doesn't.
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We're thankful so many people are at work right now trying to spread the rule of law around the world. People in governments, in NGOs, in universities and private institutions, and on their own. Wherever it goes, the rule of law helps people escape from fear and poverty.
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We're thankful for everyone who supported the FCPA Blog during the past year -- our readers, sponsors, contributors, fellow bloggers, and kibitzers. They all help keep us honest and cheerful.
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Finally, we give thanks for these words from Walden, written in 1854 by Henry David Thoreau, one of the most thankful and sanest Americans who ever lived:
At length the winter set in good earnest, just as I had finished plastering, and the wind began to howl around the house as if it had not had permission to do so till then. Night after night the geese came lumbering in the dark with a clangor and a whistling of wings, even after the ground was covered with snow, some to alight in Walden, and some flying low over the woods toward Fair Haven, bound for Mexico. . . . The snow had already covered the ground since the 25th of November, and surrounded me suddenly with the scenery of winter. I withdrew yet farther into my shell, and endeavored to keep a bright fire both within my house and within my breast.
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.
On the subject of Frederic Bourke -- the wealthy entrepreneur convicted in July of conspiring to violate the Foreign Corrupt Practices Act and lying to FBI agents -- we now know what issues his lawyers plan to raise on appeal. Most relate to what Bourke knew and intended -- his mens rea. In a recent pleading arguing for his release pending the appeal, his lawyers said:
[T]he issues Bourke intends to raise on appeal relate closely to each other and, in turn, to the critical disputed aspects of the case. A series of issues—the conscious avoidance instruction, the good faith instruction, the absence of an instruction on "willfully and corruptly," and the exclusion of the Dresner testimony, for example—bear directly on Bourke's mens rea, which was the central battleground at trial. The assessment of Bourke's mens rea, in turn, depends heavily on the weight given the testimony of Bodmer and Farrell. . . .The mens rea argument didn't work for Bourke in his motion for acquittal or a new trial (see here). Nor did it work for David Kay and Douglas Murphy in the Fifth Circuit or with the Supreme Court. See our posts here and here.
But it might work for Bourke on appeal. He's got deep pockets and good facts. And the timing is right. There are more questions these days about the criminalization of business mistakes and mere negligence. Under the influence of thoughtful commentators such as Ellen Podgor at the White Collar Crime Prof Blog and Tom Kirkendall at Houston's Clear Thinkers, more appellate justices must be wondering if the vague elements that are part of so many white-collar prosecutions are fair -- including the ever-more elusive mens rea element. Last month, the Supreme Court agreed to review whether the honest-services statute used to prosecute Jeffrey Skilling and Conrad Black (18 U.S.C. § 1346) is too vague to meet constitutional standards. If that's a signal of wider judicial discomfort with some of the push-the-envelope white-collar prosecutions, mens rea could be in play, and that could help Bourke.
His prosecution didn't include a substantive FCPA charge. Bourke was tried and convicted for conspiracy to violate the FCPA. On appeal, some of his arguments will probably relate exclusively to the conspiracy elements -- such as whether there needs to be an overt act. So he could still win on appeal without us learning anything new about the FCPA itself.
Bourke is scheduled to be sentenced on November 10, 2009. He faces up to ten years in prison.
View a copy of the October 16, 2009 Reply Memorandum in Support of Defendant Frederic Bourke, Jr.'s Motion For Release Pending Appeal here.
Read all our posts about the prosecution of Frederic Bourke here.
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.
Lawyers are trained to quibble and criminal defense lawyers do it best. After all, their job is to create reasonable doubt. So it's no surprise that when talking about the Foreign Corrupt Practices Act, they say it's complicated, technically challenging and obscure, poorly drafted and badly organized. But don't believe it. There's no evidence in the record that judges or juries have any trouble understanding the FCPA. Just the opposite.
Case in point: U.S. v. Gerald and Patricia Green. Judge George Wu's final jury instructions show just how simple the FCPA's antibribery provisions really are. His words are neat, clear and concise. All that's missing is the ambiguity lawyers like to talk about. (The instructions refer to "an instrumentality of interstate commerce," a pre-1998 holdover discussed here and here.)
Seeing Judge Wu's complete FCPA instructions should help dispel the idea that the law is shrouded in mystery. It's not. That's one reason why there hasn't been an acquittal in an FCPA trial since 1991. Juries get it. Which means anyone who's completed a typical compliance training program has no excuse for not understanding the FCPA.
Here's what Judge Wu said:
Foreign Corrupt Practices Act
One of the alleged objects of the conspiracy charged in Count One of the Indictment is a violation of the Foreign Corrupt Practices Act (henceforth "FCPA"). In addition, Counts Two through Ten charge both Defendants with nine separate FCPA violations. See paragraph 26 of the Indictment for a description of each of the FCPA counts.
A FCPA violation is described in 15 U.S.C. § 78dd-2(a) as follows:
It shall be unlawful for any domestic concern . . . or for any officer, director, employee, or agent of such domestic concern . . . , to make use of the mails or any means or instrumentality of interstate commerce corruptly 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--
(1) any foreign official [or]
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[(3) any person, while knowing that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly, to any foreign official . . .]
for purposes of -
(A)(i) influencing any act or decision of such foreign official in his official capacity, (ii) inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official, or (iii) securing any improper advantage; orin order to assist such domestic concern in obtaining or retaining business for or with, or directing business to, any person . . .
(B) inducing such foreign official to use his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality,
15 U.S.C. § 78dd-2(g) (2)(A) makes it a crime for a person to "willfully violate" Section 78dd-2.
Elements Of A FCPA Violation
To establish that a Defendant violated the FCPA, the Government must prove each of the following seven elements beyond a reasonable doubt:
First, that Defendant was a "domestic concern" or an officer, director, employee or agent of a domestic concern;A "domestic concern" means any individual who is a citizen or resident of the United States and / or any corporation, partnership or business entity which is organized under the laws of a State of the United States or which has its principal place of business in the United States.
Second, the Defendant made use of the mails or any means or instrumentality of interstate commerce;
Third, at which time the Defendant was acting "corruptly";
Fourth, when the Defendant authorized, offered to pay, or made a gift or payment of anything of value to a foreign official or to any person (knowing that all or a part of such gift or payment would be offered or given directly or indirectly to a foreign foreign official);
Fifth, for the purpose of (a) influencing any act or decision of such foreign official in his official capacity, (b) inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official, or (c) securing any improper advantage;
Sixth, the gift or payment was authorized or made to assist the domestic concern in obtaining or retaining business for or with (or directing business to) any person; and
Seventh, the Defendant acted willfully.
A "foreign official" means any officer or employee of a foreign government or any department, agency or instrumentality of the foreign government; or any person acting in an official capacity or on behalf of any such foreign government, department or agency.
The term "interstate commerce" means trade, commerce, transportation or communications among the several States of this country, or between any foreign country and any State, or between any State and any location outside of that State. The term also includes the use of a telephone or other interstate means of communication or any other interstate instrumentality, such as fax transmissions, e-mail correspondence and wire transfers of funds between persons in different States or countries.
An act is "corruptly" done if done voluntarily and intentionally, and with a bad purpose or evil motive of accomplishing either an unlawful end or result, or a lawful end or result but by some unlawful method or means. The term "corruptly" in FCPA is intended to connote that the offer, payment, or promise was intended to induce the recipient to misuse his or her official position.
A violation of the FCPA is "willful" if: 1) the Defendant's actions are intentional and not the result of an accident or mistake, and 2) the Defendant knows that his or her actions are in some way unlawful. As to the second point, the Defendant does not have to be aware of the existence of the FCPA itself, but the Defendant must have proceeded with the knowledge that he or she was doing a "bad" act under the general rules of law, doing an act with a bad purpose, or taken the action without any ground to believe that it was lawful.
Download a copy of the specific jury instructions in U.S. v. Green here.
Download a copy of the March 11, 2009 second superseding indictment in U.S. v. Green here.
View prior posts about the Greens here.
In late July, the SEC filed a settled enforcement action against Nature's Sunshine Products Inc. (NSP), its CEO Douglas Faggioli and its former CFO Craig D. Huff. The charges involved bribes by NSP's Brazilian subsidiary to customs officials and false accounting to conceal the payments. As we said here, the SEC's complaint alleged that Faggioli and Huff, in their capacities as control persons, violated the books and records and internal controls provisions of the securities laws in connection with the Brazilian bribes.
As control persons. What's that mean?
A nice explanation appears on law.com from Philip Urofsky, the editor-in-chief of the FCPA Digest. He said in an interview that NSP's officers, Faggioli and Huff, were charged individually under Section 20(a) of the Securities Exchange Act of 1934 as those "in control" of the Brazilian employees who paid the bribes. Urofsky said it's the first time control-person liability has been used in the FCPA context. He explained:
What [the SEC charges] allege is that the current CEO, who was at the time the COO, had overall responsibility for the international operations of the company, including the export of products to Brazil. And the people who would know about these issues were under his control, and that the former CEO had authority and responsibility for the internal controls and books and records. This is a departure from the former practice. It's consistent with Section 20A as it's used in private litigation, but I've never seen the SEC use it in an FCPA case.How significant is the appearance of control-person liability? Urofsky again:
It's an indication of the SEC's willingness to use all the tools at its disposal to hold individuals liable for acts within the corporation. Up until now, they usually would allege some knowledge, direct knowledge, and involvement of an individual. That is limiting because sometimes they don't have the evidence, don't have the last link. Also, in this case it's the CEO and CFO. But Section 20A has been used against a much wider variety of corporate officers and even directors in civil litigation. So there's potential where the directors are very active and involved in the operations of the company. In those circumstances, the SEC might very well look and see if there are facts to justify holding that person responsible.There's a lot more in the interview on law.com here.
We talked earlier about the "knowledge" element of an FCPA offense and the two kinds of "knowledge" the government can prove: What the defendant actually knows and what he or she should know under the circumstances. In Frederic Bourke's case, we guessed how Judge Scheindlin might have instructed the jury concerning "knowledge." Now we know, thanks to a generous reader who sent us her instructions.
Fifth Element – Knowledge of Payment to a Foreign OfficialThe complete Jury Charge in United States of America v. Frederic Bourke (United States District Court for the Southern District of New York, Case #: 1:05-cr-00518-SAS-2) can be downloaded here.
The fifth element of a violation of the FCPA is that the person knew that all or a portion of the payment or gift would be offered, given, or promised, directly or indirectly, to any foreign official.
A “foreign official” is: (1) an officer or employee of a foreign government; (2) any department, agency, or instrumentality of such foreign government; or (3) any person acting in an official capacity for or on behalf of such government or department, agency, or instrumentality.
An “instrumentality” of a foreign government includes government-owned or government-controlled companies.
The FCPA provides that a person’s state of mind is “knowing” with respect to conduct, a circumstance, or a result if:
i. such person is aware that such person is engaging in such conduct, that such circumstance exists, or that such result is substantially certain to occur; or
ii. such person has a firm belief that such circumstance exists or that such result is substantially certain to occur.
When knowledge of the existence of a particular fact is an element of the offense, such knowledge may be established if a person is aware of a high probability of its existence and consciously and intentionally avoided confirming that fact. Knowledge may be proven in this manner if, but only if, the person suspects the fact, realized its high probability, but refrained from obtaining the final confirmation because he wanted to be able to deny knowledge.
On the other hand, knowledge is not established in this manner if the person merely failed to learn the fact through negligence or if the person actually believed that the transaction was legal.
It also bears noting that while a finding that the person was aware of the high probability of the existence of a fact is enough to prove that this person possessed knowledge, it is not sufficient in order to determine that the person acted “willfully” or “corruptly,” which is a separate and distinct element of the offense.
Read all our posts about U.S. v. Kozeny et al and the prosecution of Frederic Bourke here.
With the Halliburton / KBR settlement in mind, we asked readers last week (here) to help us understand how decisions are made to charge companies or individuals under the Foreign Corrupt Practices Act with violations of the antibribery provisions -- criminally or civilly. The best responses, we said, would earn both our gratitude and a copy of Bribery Abroad. We're sending a copy today to David P. Burns (left). His comments are below, and they're great.
Burns (Boston College '91, Columbia Law '95) is a partner in the D.C. office of Gibson, Dunn & Crutcher, where he has a white-collar criminal defense practice. From 2000 to 2005, he was an Assistant United States Attorney in the Southern District of New York, earning in 2004 the DOJ's Director's Award for superior performance. He works with the FCPA -- helping clients handle internal and government investigations, dealing with the DOJ and SEC, developing and running compliance programs -- and on securities and accounting fraud, criminal antitrust violations, government procurement fraud and public corruption investigations. His full bio is here.
Here's what he told us:
Dear FCPA Blog,
In your Waters So Deep post, you raised two separate questions regarding the distinction between civil and criminal charges under the FCPA's anti-bribery provisions: (1) Is there any difference in the elements required for a civil versus a criminal violation of the anti-bribery provisions; and (2) In the KBR / Halliburton case, why did the SEC charge Halliburton and KBR Inc. with civil anti-bribery violations, while the DOJ charged only Kellogg Brown and Root LLC?
1. Civil versus Criminal Anti-bribery Violation
According to the statute, the elements necessary for a criminal violation of the anti-bribery provisions are identical to those required for a civil violation, except where the defendant is a natural person. Where the defendant is a natural person, in order for criminal liability to attach, the government must additionally prove that the defendant acted "willfully." See 15 U.S.C. § 78ff(c); 15 U.S.C. § 78dd-2(g). Of course, the level of proof required to establish a criminal violation (beyond a reasonable doubt) versus a civil violation (by a preponderance of the evidence) also is different.
2. Why DOJ Charged Kellogg Brown & Root but not Halliburton
The SEC did not charge Halliburton with civil anti-bribery violations. Rather, the SEC charged only KBR Inc. with anti-bribery violations; it charged Halliburton solely with books-and-records and internal controls violations. The DOJ charged Kellogg Brown & Root LLC with anti-bribery violations and made no books-and-records or internal controls charges.
Why did neither the SEC nor the DOJ charge Halliburton with anti-bribery violations? There are at least two possible answers. First, the charges likely were the result of intense negotiations between the companies and the SEC and DOJ, and the result may have been something that all parties agreed to live with. The DOJ, for example, frequently exercises its prosecutorial discretion to charge only those entities most directly responsible for the FCPA violation at issue. See, for example, Schnitzer Steel (SSI Korea charged), Flowserve Corporation (Flowserve Pompes charged), and Fiat S.p.A. (Iveco, CNH Italia, and CNH France charged).
Second, it is possible that the SEC and DOJ did not believe they had evidence that Halliburton acted "corruptly," an element required for both civil and criminal applications of the anti-bribery provisions. (Note that "corruptly" is a separate element from "willfully" which, as described above, applies only to criminal violations of the anti-bribery provisions by natural persons.) The SEC's complaint states that although Halliburton was aware of KBR's use of United Kingdom and Japanese "agents" in relation to the Nigerian joint venture, KBR officials "did not tell the Halliburton officials that the UK Agent would use the money to pay bribes" (SEC Complaint at 10). With regard to the Japanese agent, the SEC alleged that "senior KBR officials…effectively hid the true nature of the relationship" (SEC Complaint at 11).
FCPA legislative history and courts have defined "corruptly" to mean acting with an evil purpose and with an intent to influence a foreign official to misuse his official position. See, e.g., Stichting v. Schreiber, 327 F.3d 173 (2d Cir. 2003); United States v. Kay, 513 F.3d 432 (5th Cir. 2007). Without knowledge that bribes were being paid by its subsidiary, Halliburton could not have "corruptly" authorized the payments.
David P. Burns
Gibson, Dunn & Crutcher LLP (Washington, D.C)