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Entries in Knowledge (52)

Thursday
Sep172009

We Get It

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:
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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]

* * * * * *
[(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; or

(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,

in order to assist such domestic concern in obtaining or retaining business for or with, or directing business to, any person . . .

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;

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 "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.

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.
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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.
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Sunday
Aug232009

FCPA Liability Keeps Growing

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.
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Sunday
Jul192009

Back To Bourke

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.


She said:
Fifth Element – Knowledge of Payment to a Foreign Official

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.

The 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.

Read all our posts about U.S. v. Kozeny et al and the prosecution of Frederic Bourke here.
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