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« China's Corruption Goes Mainstream | Main | Hey, Size Matters »

Feds: Widespread Corruption Is No Defense

Paul Cosgrove and David Edmonds are preparing for trial next month in federal court in California. They face counts for conspiracy to violate the FCPA and the Travel Act, and substantive violations of those statutes.

Most of their one-time co-defendants from Control Components Inc. have pleaded guilty, most lately Stuart Carson and his wife, Hong 'Rose' Carson.

Cosgrove was CCI’s director of worldwide sales, and Edmonds was its vice president of worldwide customer service.

Among the pretrial scrambling is an argument about jury instructions. Cosgrove and Edmonds want an instruction about 'industry practices' in some of the countries where CCI did business. And they want to introduce evidence about corruption in those countries, including China.

But the DOJ is arguing that evidence of pervasive corruption isn't relevant to their guilt or innocence.

*     *     *

Here's part of the government's motion to exclude certain testimony in advance of the trial. The motion is scheduled to be heard on May 21. The trial is set for June 26, 2012.


. . . Defendants’ jury instructions and their expert witness disclosures suggest that defendants may attempt a defense based upon custom or industry practice. Defendants have proposed a jury instruction that says “[e]ach of CCI’s sales practices, including its cultivation of customers through presentations and customer events; its use of third-party representatives and consultants to secure business; and its payment of commissions to representatives and consultants, were well-established practices in the industry.”

They have also disclosed that they intend to call an expert witness to testify “about Chinese business practices, including the role of third parties and trading companies, in commercial transactions.” Without accepting the merits of any claim about the ubiquity of bribery or corrupt business practices in China or any other country involved in this case, evidence that a practice is widespread or well-established is not sufficient to make an illegal act into a legal one.

Neither custom nor the widespread nature of an illegal act is a defense to a criminal charge. “Custom, involving criminality, cannot justify a criminal act.” Smith v. United States, 188 F.2d 969, 970 (9th Cir. 1951). Similarly, the fact that other companies may have engaged in similar conduct is irrelevant. Industry practice does not excuse criminal behavior;  The Third Circuit has noted, “[e]ven a universal industry practice may still be fraudulent.” Newton v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 135 F.3d 266, 274 (3d Cir. 1998).

Courts have long held that evidence that a practice is customary does not excuse criminal conduct. In Burnett v. United States, a United States Army officer was convicted of conversion of services and labor for causing two United States employees to construct furniture for his personal use and benefit. 222 F.2d 426, 427 (6th Cir. 1955). The defendant argued that it was an Army custom for United States employees to make furniture for Army officers. Id. The Sixth Circuit rejected this argument, stating that “[n]o custom is a justifiable defense for violation of the criminal code of the United States.” Id.

Likewise, in United States v. Brookshire, the defendant, without authorization, transferred $30,000 of funds from the bank where he was employed to another bank which was not an authorized depository for the other bank. 514 F.2d 786, 787-88 (10th Cir. 1975). The defendant transferred the funds in order to secure his personal loan. Id. The defendant was convicted of misapplication of bank funds. Id. at 788. The defendant argued such transactions were common by bankers, because interbank loans typically received lower rates. Id. A defense witness testified that such transactions were “normal and customary” in the banking industry. Id. The Tenth Circuit however, was not convinced and stated that “custom and usage involving criminality do not defeat a prosecution for violation of a federal criminal statute.” Id. at 789 (citing Burnett, 222 F.2d at 427; Smith, 188 F.2d at 970).

In the FCPA context, the Fifth Circuit has rejected a claim that the widespread nature of a practice can create a defense. In United States v. Kay, the defendants, executives at American Rice, paid Haitian officials to reduce duties and taxes on the company’s rice, and were convicted of violating the FCPA. 513 F.3d 432, 439 (5th Cir. 2007). The defendants claimed they did not receive fair notice that such conduct was illegal under the FCPA. Id. at 440. The Fifth Circuit acknowledged that such payments to Haitian officials were widespread among importers conducting business in Haiti, but concluded “[t]he fact that other companies were guilty of similar bribery during the 1990's does not excuse [the company’s] actions; multiple violations of a law do not make those violations legal or create vagueness in the law.” Id. at 442.

Here, as in Kay, defendants’ proposed jury instructions and their expert disclosures suggest the possibility that they will argue that bribery is so widespread in one or more of the countries involved in the indictment that one does not expect to receive criminal sanctions for such actions. The pervasiveness of corrupt conduct is not a defense; accordingly, efforts by defendants to introduce such a defense through expert testimony
or otherwise should be precluded.

Even if a claimed industry custom or practice had some minimal relevance, any probative value would be substantially outweighed by the risk that such evidence would mislead the jury and result in undue delay and waste of time. It should therefore be excluded under Fed. R. Evid. 403 . . . .

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