In Carson Case, DOJ Agrees 'Foreign Official' Knowledge Is Required

Does a defendant need to know a bribe taker is a 'foreign official' to be guilty of an FCPA offense?

According to the DOJ, the answer is 'yes.'

The question came up this month in U.S. v. Carson et al.

Prosecutors and the defendants have been trying to work out jury instructions for the trial, set to start in June next year.

In May, the defendants lost a motion to dismiss the FCPA counts against them based on the definition of 'foreign official.' They claimed employees of state-owned enterprises aren't covered by the FCPA. The court disagreed.

But this month the arguments about 'foreign officials' resurfaced. This time in the discussion about jury instructions. Judge James V. Selna asked both parties to consider whether an element of an FCPA offense is a defendant's knowledge that the individual allegedly taking a bribe is a 'foreign official.'

The DOJ and the Carson defendants have both answered 'yes.'

They haven't agreed yet on the final language for the jury instructions.

The trial is set to begin on June 5, 2012. The defendants -- Stuart Carson, Hong Carson, Paul Cosgrove, David Edmonds, Flavio Ricotti, and Han Yong Kim -- are facing FCPA and Travel Act-related charges.

They're accused of bribing employees at state-owned companies in Korea, China, the UAE, and Malaysia.

The case is US v. Carson et al, U.S. District Court, Central District of California, Southern Division - Santa Ana, Case #: 8:09-cr-00077-JVS-1.

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Here's part of the government's latest brief, filed Monday:

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At the hearing on September 6, 2011, the government requested an opportunity to submit further briefing on the following hypothetical question posed by the Court:

THE COURT: I want to get the business, and I’m going to pay you $50,000. I want you to misuse your position. I may or may not know that you’re a government official. But assume the record establishes that the person is a foreign official and that the conduct solicited, whether he knows it or not, is misuse of an official position. He intended to make the bribe, and his conduct brought about misuse of an official position. Must he know that? Must he know that the individual is in fact a government official?

The Court subsequently ordered the government to submit its brief no later than September 20, 2011, with any defense response to be filed no later than October 4, 2011. On September 21, 2011, the parties filed a stipulation stating, in part, as follows:

Since the hearing, counsel for the government and counsel for the Defendants have discussed the issue raised by the Court. Those discussions have yielded what appears to be at least some consensus that the answer to the questions posed by the Court is “yes.” Accordingly, the parties have exchanged proposed jury instructions to reflect the resolution of this issue. The parties expect that their discussions will result in a joint proposed jury instruction on the elements of a substantive offense under the FCPA. If those discussions do not result in a joint proposed jury instruction, the parties expect that additional submissions will be limited to their respective proposed instructions, and any legal argument explaining how their respective instructions in fact differ.

On September 22, 2011, the Court issued an Order resetting the briefing schedule, with the government’s brief due on September 26, 2011, and the defendants’ brief due on October 10, 2011. The parties have continued to exchange proposed instructions over the course of the past week but have been unable to reach agreement on certain language in elements 4 and 5 of the instruction.

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Download the government's September 26, 2011 supplemental brief regarding jury instructions; memorandum of points and authorities here.

Judge Denies Travel Act Challenge

The Travel Act challenge mounted by the Carson defendants has failed.

On Friday, Judge Selna ruled against them and in favor of the DOJ.

Mike Koehler's report is here.

With defeats on the Travel Act and earlier on the FCPA's definition of foreign official, nothing now stands between the Carson defendants and their trial, scheduled to start in June next year.

We asked in a prior post if the Carson defendants might plead if they lost the Travel Act challenge.

Download a copy of Judge James Selna's Tentative Order Denying Defendants’ Motion to Dismiss Counts 1, 11, 12, and 14 of the Indictment here.

Call For Scholarship: The Travel Act

We've talked about the Carson case and the defendants' challenge to the Travel Act counts.

Extraterritoriality, jurisdiction, and due process (in other words, the threshold questions) are at issue.

Before the Carson briefs were in, a reader asked us about Travel Act jurisdiction over foreign issuers. We did some research and came up with very little. And we weren't alone.

The only non-judicial source the government cited was the Travel Act's legislative history. The Carson defendants' used the legislative history, and also the Ninth Circuit Model Criminal Jury Instructions, a book about jury instructions, and a chapter from the Corporate Counsel’s Guide to Doing Business in China.

In the Corporate Counsel's Guide, Patrick Norton wrote:

Because of the Travel Act’s domestic focus, one commentator observed: The validity of [Travel Act] charges [for foreign commercial bribery] may be questioned. The legislative histories of the FCPA and the Travel Act show no evidence that Congress intended to make foreign commercial bribes a federal crime; indeed, quite the opposite. The legislative histories of many state bribery statutes similarly fail to disclose any intention to reach bribery in other countries that has, at best, a limited nexus to the state. Travel Act charges predicated on bribery laws of those states thus require overlooking the intentions of both Congress and the state legislature. In the half century that the Travel Act has been in effect, moreover, only one federal court has upheld criminal charges for foreign commercial bribery under that Travel Act, and that court’s decision is a doubtful precedent.

In our search, we went back to 1983 for a law review article that included a discussion about the Travel Act (58 Notre Dame L. Rev. 1027).

But between Norton's work and the 1983 piece, there was a big gap.

A good time for some fresh thinking about the Travel Act will be after the trial court's ruling on the Carson defendants' motion to dismiss.

Download the defendants' motion and memorandum here.

We linked the government's reply in our post here.

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Here are excerpts from the 1983 article in the Notre Dame Law Review:

 . . . . . The Interstate and Foreign Travel in Aid of Racketeering Enterprises Act, more commonly known as the Travel Act, was enacted in 1961. It was part of Attorney General Robert Kennedy's fight against organized crime and racketeering but its use has expanded.

"Broadly stated, the Travel Act makes it a federal offense to travel interstate, or to use any interstate facilities, with intent to: (1) distribute the proceeds of any unlawful activity; (2) commit a violent crime in furtherance of any unlawful activity; or (3) promote or facilitate any unlawful activity. The Act defines 'unlawful activity' to include any business enterprise involving gambling, illegal liquor, narcotics, or prostitution offenses, as well as conduct involving extortion, bribery or arson.

"The Travel Act reaches anyone who: (1) travels in or uses a facility of interstate commerce with intent to promote or facilitate unlawful activity; and (2) who thereafter actually performs or attempts to perform an act in furtherance of those activities.

"The use of an interstate facility or means of interstate travel to promote an unlawful activity provides federal courts with jurisdiction over crimes which would otherwise require local prosecution. Travel Act liability can attach even though a defendant does not reasonably foresee that he will be engaged in interstate activity. Likewise, a defendant may be convicted under the Travel Act without proof that he knowingly caused interstate travel or use of an interstate facility.

"The Travel Act, however, does require that the defendant use an interstate means, intending to promote or carry on an unlawful activity."

The Travel Act has withstood constitutional challenges under the tenth amendment (state powers) and fifth amendment (due process, based on arguments that the law is vague and ambiguous).

"Some defendants have also asserted that the Act infringes upon first amendment freedoms. They have argued that, by regulating the use of interstate communication facilities, the Travel Act abridges freedom of speech. Courts have consistently upheld the Travel Act in face of these assertions, since the first amendment does not protect unlawful speech."

Carson Case Tests The Travel Act

A hearing on Friday this week might influence whether the DOJ will keep using Travel Act counts in FCPA-related prosecutions.

The Carson defendants are charged under both the FCPA and the Travel Act.

The Travel Act (18 U.S. C. §1952) prohibits traveling between states or using an interstate facility in aid of any crime, and carries a 5-year prison sentence for most offenses. The underlying crime doesn't have to be a federal offense, such as an FCPA violation. Traveling around or using the mails to violate a state law can also trigger a Travel Act violation.

For their Travel Act counts, the Carson defendants are accused of violating California's anti-bribery law (California Penal Code section 641.3). It bans corrupt payments anywhere of more than $1,000 between any two persons, including private commercial parties.

The government alleged the Carson defendants paid bribes overseas to foreign officials and private parties -- both prohibited, the government said, under California law. (The FCPA only reaches bribes to foreign officials.)

In a motion to dismiss the Travel Act counts, the Carson defendants argued:

First, that the Travel Act doesn't apply extraterritoriality -- that is, to conduct outside the United States.

Second, their alleged conduct doesn't violate California's commercial bribery statute.

Third, the Travel Act and the California commercial bribery statute are unconstitutionally vague and violate due process because the defendants had no fair notice that the laws would reach the alleged conduct.

And fourth, the Travel Act counts fail to allege an essential element – namely, an act following the travel or use of interstate facilities in furtherance of the promotion of California commercial bribery.

The government's reply addressed each point the defendants raised.

The DOJ has been using Travel Act counts more often in FCPA prosecutions. This is apparently the first test of the statute in an FCPA-related case.

Download the government's brief in opposition to the defendants' motion to dismiss here.

Are Stuart And Rose Carson Planning To Plead?

There could be a lot of reasons for the latest order in the Carson case.

Stuart and Rose Carson asked for new conditions of release. The married couple had secured their million dollar appearance bonds with two homes -- one in California and the other in Florida. This month, the married couple asked the judge to cut their bonds in half and remove the encumbrance on the Florida home.

The prosecutors agreed and the judge signed the order.

Why did the Carsons ask? And why did the government agree? 

We don't know.

But in Florida, there's an unlimited homestead exemption. That means houses aren't subject to forced sale, either before or after death. It's the ultimate protection against creditors -- the best in the nation.

In May, the Carsons' lost their motion to dismiss the case against them based on the definition of 'foreign official.'

They're accused of bribing employees at state-owned companies in Korea, China, the UAE, and Malaysia.

They have another motion to dismiss that's pending. It argues that the Travel Act is unconstitutional and didn't apply to their conduct. (We'll discuss that motion in another post.)

After that, their jury trial on FCPA and Travel Act charges is set to open on June 5, 2012.

The Carsons are presumed innocent, of course. But their former employer CCI and a couple of ex-colleagues, Mario Covino and Richard Morlok, pleaded guilty in the case more than two years ago. Evidence and testimony against the Carsons will come from them.

As we've said, the odds are always against FCPA defendants. So if the Carsons lose their latest motion to dismiss, will they be ready to cut a plea deal with the DOJ?

And is their use of the Florida homestead exemption advance planning -- protection against claims and civil litigation that might follow a guilty plea?

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Download a copy of the stipulation and proposed order to amend pretrial conditions of release for Stuart and Hong 'Rose' Carson here.