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Entries in American Rice (5)


The Feds Should Take A Meeting

Husband-and-wife movie producers Gerald and Patricia Green are now on trial in LA for violating the Foreign Corrupt Practices Act. Prosecutors allege they paid more than $1.8 million in bribes to Juthamas Siriwan, a former governor of the Tourism Authority of Thailand, in return for $14 million in contracts to stage the Bangkok Film Festival. They're also charged with conspiracy, money laundering, obstruction, and filing false tax returns. He's 76, she's 54, and they're now facing up to five years in prison for each FCPA charge, up to 10 years for each tax count, and up to 20 years for the money-laundering and obstruction charges.

Theirs is the third FCPA-related trial this year. In July, Frederick Bourke of the Dooney & Bourke handbag company was convicted by a jury in Manhattan of conspiracy to violate the FCPA. A month later, William Jefferson, the former nine-term congressman from Louisiana, was found guilty on a similar charge (among 10 others) in Alexandria, Virginia.

We don't know how many currently-serving U.S. Attorneys or Assistant U.S. Attorneys had seen an FCPA trial before this year. But the number could be zero or close to it. So going into the recent trials, prosecutors didn't have a lot of courtroom-tested resources to draw from. That might explain why the government's proposed jury instructions on the FCPA counts in the Greens' case are copied verbatim from Judge Shira Scheindlin's instructions in Frederic Bourke's trial. There's one problem though. Those instructions contained some errors.

The most glaring mistake concerns the "interstate commerce" element of an FCPA offense. That instruction, as they'd say in Hollywood, is just so 1997. As Prof Mike Koehler explained on his blog,
The [Bourke] instructions say (on pg. 24) that a "domestic concern" (as Bourke is under FCPA-speak) "must have intended to make use of the mails or a means or instrumentality of interstate commerce" in order to violate the FCPA. This is the so-called "territorial" jurisdictional provision found at 78dd-2. However, the 1998 amendments to the FCPA expanded the jurisdictional reach of the FCPA, as applied to "domestic concerns," by adding an alternative "nationality" jurisdictional provision found at 78dd-2(i) which removes the interstate commerce / U.S. territorial nexus requirements. Thus, a "domestic concern" can be charged and found liable for a substantive FCPA violation even if the prohibited activity took place entirely outside of the U.S. The jury instruction that the "domestic concern" "must have intended to make use of the mails or a means or instrumentality of interstate commerce" is thus just plain wrong.
Another problem in the Bourke instructions and repeated by the government's requested instructions in U.S. v. Green concerns the definition of "foreign official." The instructions depart from the text of the FCPA by inserting a reference to "an instrumentality" where it shouldn't be. True, the word "instrumentality" pops up all over the FCPA, but not in the place in the statute's definition of a "foreign official" where the instructions put it. The government has gone one instrumentality too far.

How serious are the errors? Not very. In Bourke's trial, the anachronistic "interstate commerce" element probably hurt the government's case but not Bourke's defense. Prosecutors had to present evidence that wasn't really needed to prove his FCPA-related violation -- i.e., Bourke's use of an instrumentality (that word again) of interstate commerce while offering or making a corrupt payment to a foreign official. And the reference to "instrumentality" in the description of a foreign official is a bit confusing but not a big deal -- probably harmless error. Still, the government might want to have a quick huddle and check its notes.

The jury instructions from United States v. Bourke, S1 05 Cr. 418 (SAS) (S. D. N. Y.) can be downloaded here.

The government's proposed jury instructions in United States v. Green (United States District Court for the Central District of California, Case #: 08-59(B) - GW) can be downloaded here.

Read all our posts about U.S. v. Green here.

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More from Hollywood: A couple of years ago, LA Times reporter Glenn F. Bunting wrote a great story (here) about the budget for the movie "Sahara." The information he extracted from documents filed in a court case included this:
"Courtesy payments," "gratuities" and "local bribes" totaling $237,386 were passed out on locations in Morocco to expedite filming. A $40,688 payment to stop a river improvement project and $23,250 for "Political/Mayoral support" . . .
Since that story appeared, lawyers and pundits have wondered when the FCPA hammer would fall on Hollywood's overseas "community relations" practices. Could the Greens' case be the first of many?

* * *
New Addresses: The wrageblog has a fascinating post (here) about prison assignments in white-collar criminal cases. Here's what it says about two convicted FCPA defendants who started serving their time this year:
Douglas Murphy of American Rice, sentenced to 63 months after his FCPA conviction, is serving his sentence at the Federal Correctional Institution in El Reno, a medium security facility. However, David Kay, who was tried with Murphy, is serving his 37 month sentence at Texarkana, a low security facility.


Case Closed For Kay And Murphy

The U.S. Supreme Court will not review the Fifth Circuit's decisions in U.S. v. Kay, the Justices said yesterday. The Foreign Corrupt Practices Act convictions of David Kay and Douglas Murphy cannot be further appealed and the two must now serve their prison sentences -- 37 months for Kay and 63 months for Murphy.

The former executives of American Rice, Inc. were found guilty in 2005 of bribing Haitian officials in order to reduce their company's taxes. They argued all along that the FCPA didn't apply to bribes to reduce taxes, or that if it applied, the "obtaining or retaining" language in the law (the business nexus element) is so ambiguous that enforcement in their case would be unfair. The Justice's denied the petition for certiorari after a review at their Sept. 29, 2008 docket conference.

The lower court's view of the FCPA, left undisturbed by the Supreme Court, is important for at least a few reasons:

First, the Fifth Circuit said any payments to foreign officials that might assist in obtaining or retaining business by lowering the costs of operations can fall within the FCPA.

Second, the Fifth Circuit emphatically did not think enforcing the statute against Kay and Murphy would be unfair, even if the business nexus element is a bit ambiguous. "A man of common intelligence," it ruled, "would have understood that . . . in bribing foreign officials, [Kay and Murphy were] treading close to a reasonably-defined line of illegality. . . . Defendants took this risk, and splitting hairs . . . does not allow them to argue successfully that the FCPA’s standards were vague."

And third, the court said the government can satisfy the "knowing" element of an FCPA offense by showing merely that the defendants understood that their actions were illegal. No specific knowledge about the FCPA and its prohibitions is required.

Denial of cert is terrible news for Kay and Murphy and a personal tragedy for them. For the rest of us, it means the Justice Department's so-called "expansive enforcement" of the FCPA will continue. Compliance programs need to be expansive as well, aimed not just at bribes intended to help land business directly from foreign governments but extending also to any overseas public bribery that might create a commercial advantage. That includes payments to reduce taxes or speed up refunds, jump customs queues, obtain favorable product inspections, manipulate business registrations, alter rates or delivery times of national carriers, reduce utility costs, and enhance property usage -- to name just a few.

View the U.S. Supreme Court's Oct. 6, 2008 Orders List here.

View our prior posts about U.S. v. Kay here.



U.S. v. Kay: Once More To The Courts

On January 10, 2008, the United States Court of Appeals for the Fifth Circuit denied a petition for rehearing en banc from David Kay and Douglas Murphy. Kay and Murphy, executives of American Rice, Inc., were indicted in 2002 for bribing Haitian officials in violation of the Foreign Corrupt Practices Act. The U.S. District Court in Houston dismissed the indictments, finding that the FCPA did not apply to their conduct -- i.e., paying bribes to reduce their company's taxes.

In 2004, the U.S. Court of Appeals held that the bribes alleged in the indictment could fall within the scope of the FCPA and remanded. At trial, Kay and Murphy were convicted of violating the FCPA. Kay was sentenced to 37 months in prison and Murphy to 63 months. They appealed, and in October 2007 the Fifth Circuit affirmed their convictions. They then filed a petition for rehearing en banc, which the Fifth Circuit denied. Their convictions now stand.

Kay and Murphy argued in their petition for rehearing that the trial court gave incorrect jury instructions. The question before the en banc panel (Higginbotham, Barksdale and Clement) was whether an FCPA conviction must be supported by evidence that the defendants knew about the existence and prohibitions of the FCPA, or whether they could be convicted on the basis of their general knowledge that their actions violated U.S. law?

The Fifth Circuit said no specific knowledge about the FCPA is needed to support a conviction under the statute. All that the government needs to prove to satisfy the "knowing" element of an FCPA offense is that the defendants understood that their actions were illegal. Thus a general jury instruction that does not require specific knowledge about the FCPA was adequate with respect to the "knowing" element of the FCPA charges. On that basis -- and after reviewing some of the arguments about the evidence adduced at the trial -- the appellate court denied Kay and Murphy's petition for a rehearing.

The Fifth Circuit said:

"The jury instructions on corrupt intent, looking to the instructions as a whole and the closing arguments of counsel, show that the jury did not believe that Defendants could be convicted if they did not know that they were doing something unlawful. The jury's question to the judge confirms this, indicating that the jury was unsure of whether Defendants knew that they were violating the FCPA specifically, not the law in general. The jury asked, 'Can lack of knowledge of the FCPA be considered an accident or mistake?'

"The defense understandably focuses on the differences underlying the gradations of intent and suggests that the opinion has offered the instruction here as satisfying both general intent and specific intent. To be clear, we return to first principles. That is, this case was tried on the basis that the Government had to prove that the Defendants knew that their actions violated the law, although they did not need to prove that they were aware of the specific provisions of the FCPA. Set in the context of trial, including the closing arguments of counsel, there was no uncertainty in the instructions regarding the Government's burden to prove that Defendants knew that their conduct was illegal. [Kay's lawyer] argued forcefully and eloquently that his client could never have known the detail of the FCPA. The Government, while responding that they need not prove the specifics of the FCPA, made clear that it had to prove that Defendants knew that their conduct was illegal."

View prior posts about David Kay and Douglas Murphy here.

View United States v. Kay, Nos. 05-20604 (5th. Cir., 2008) in the Public Library of Law (registration required) here.


Looking Again At U.S. v. Kay

David Kay and Douglas Murphy bet their freedom on a high-risk and untested FCPA defense. Kay, the former vice president of American Rice, Inc. (ARI), and Murphy, the former president, never denied bribing officials in Haiti to reduce the company's tax burden. Their primary defense -- after being charged with 12 counts of violating the Foreign Corrupt Practices Act -- rested on the argument that the law's excessive ambiguity renders it void and unenforceable. Bribes to reduce foreign taxes, they said, cannot violate the FCPA because such payments aren't intended to "obtain or retain business." But even if the law is meant to ban tax-related bribes, the argument goes, it's so poorly drafted that a reasonable person wouldn't understand it. That's a failure to give fair notice, and thus a denial of due process, leaving the law unenforceable.

Their defense had some history. When the FCPA was still new -- and intensely unpopular -- it was commonly criticized for being ambiguous and unclear. Although most FCPA lawyers thought the statute would hold up in court, some lawyers and clients believed the void-for-vagueness defense might just work. So when in 2002 the U.S. Federal District Court in Houston agreed with Kay and Murphy and dismissed all their FCPA charges, it looked like the defense was vindicated after all. But that wasn't the end of the story.

In its second review of the case, the U.S. Court of Appeals for the Fifth Circuit last month debunked the idea that the law is vague. How? By letting the simple words of the statute speak for themselves. The FCPA makes it a crime, the court said, to (1) “willfully;” (2) “make use of the mails or any means or instrumentality of interstate commerce;” (3) “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 such [corporation] in obtaining or retaining business for or with, or directing business to, any person.”

Then the court delivered the coup de grace to the void-for-vagueness defense -- and fired a personal rebuke at Kay and Murphy: "A man of common intelligence would have understood that ARI, in bribing foreign officials, was treading close to a reasonably-defined line of illegality. As the Supreme Court in Boyce held, 'no more than a reasonable degree of certainty can be demanded [in a criminal statute]. Nor is it unfair to require that one who deliberately goes perilously close to an area of proscribed conduct shall take the risk that he may cross the line.' Defendants took this risk, and splitting hairs as to the illegality of one type of action under the business nexus test does not allow them to argue successfully that the FCPA’s standards were vague."

The lesson: hairsplitters beware -- the FCPA means what is says. David Kay was sentenced to 37 months in prison and Douglas Murphy to 63 months. There's nothing ambiguous or vague in that tragic outcome.

View the Fifth Circuit's October 24, 2007 Opinion Here.


FCPA Convictions Upheld Against Kay And Murphy

They Paid Bribes to Reduce Taxes in Haiti; The FCPA Gave Them Fair Warning, the Court says

The United States Court of Appeals for the Fifth Circuit affirmed on October 24, 2007 the criminal convictions of David Kay and Douglas Murphy for violating the antibribery provisions of the U.S. Foreign Corrupt Practices Act (15 U.S.C. §§ 78dd-1, 78-dd-2). Kay was formerly vice president and Murphy president of American Rice, Inc. (ARI), a Houston-based rice exporter. In 1999, ARI's board learned through an internal investigation that Kay and Murphy had paid bribes to reduce duties and taxes in Haiti -- which was “business as usual” there during the 1990’s. ARI’s directors self-reported the bribery to U.S. government regulators. ARI was not charged but Kay and Murphy were eventually indicted on twelve counts of violating the FCPA.

In their 2002 trial, the district court dismissed the indictments, concluding that “payments to foreign government officials made for the purpose of reducing customs duties and taxes [do not] fall under the scope of ‘obtaining or retaining business’ pursuant to the text of the FCPA.” The government appealed and the Fifth Circuit reversed. It said that “in diametric opposition to the district court . . . [,] bribes paid to foreign officials in consideration for unlawful evasion of customs duties and sales taxes could fall within the purview of the FCPA’s proscription,” but “[i]t still must be shown that the bribery was intended to produce an effect - here, through tax savings - that would ‘assist in obtaining or retaining business.’” The case was then sent back to the district court to determine, among other things, whether further prosecution would deny Kay and Murphy due process for want of fair warning.

Back in the district court in Houston, Kay and Murphy failed in their motion to dismiss for lack of fair warning. A jury then found them guilty on all counts. Kay was sentenced to 37 months in prison and Murphy to 63 months. They appealed on several grounds, including lack of fair warning. They argued that the ambiguity in the FCPA -- which does not expressly say that payments to lower taxes are related to "obtaining or retaining buisness" -- renders the statute void for vagueness.

The Fifth Circuit disagreed. It said in its 56-page opinion: "All [elements of the FCPA] are phrased in terms that are reasonably clear so as to allow the common interpreter to understand their meaning. Defendants have, rather than showing vagueness, raised a technical interpretive question as to the exact meaning of 'obtaining or retaining' business. Whether 'obtaining or retaining' business covers the general activities that an entity undertakes to ensure continued success of a business or Defendants’ more limited definition of contractual business is an ambiguity but not one that rises to the level of vagueness and unfair notice. . . .

"Although ARI did not make corrupt payments to guarantee one particular contract’s success," the Fifth Circuit said, "ARI ensured, through bribery, that it could continue to sell its rice without having to pay the full tax and customs duties demanded of it. Trial testimony indicates that ARI believed these payments were necessary to compete with other companies that paid lower or no taxes on similar imports – in other words, in order to retain business in Haiti, the company took measures to keep up with competitors. The fact that other companies were guilty of similar bribery during the 1990’s does not excuse ARI’s actions; multiple violations of a law do not make those violations legal or create vagueness in the law."

View the Fifth Circuit's October 24, 2007 Opinion Here.

View the Fifth Circuit's February 4, 2004 Opinion Here.