[This post is part of a periodic series regarding "old" FCPA enforcement actions]
The first Foreign Corrupt Practices Act enforcement action to involve business conduct in Nigeria was a 1985 enforcement action against W.S. Kirkpatrick, Inc. (a privately held New Jersey avionics supply firm) and Harry Carpenter (Chairman and CEO of the company).
“On or about December 21, 1982 … W.S. Kirkpatrick, Inc. … used a means and instrumentality of interstate commerce, that is, a Western Union international telex from Fairfield, New Jersey, to New York, New York, to order Standard Chartered Bank of New York to pay $580,973 to the Bank of New York for the account of Bank of Commerce and Credit International in Luxembourg corruptly in furtherance of an offer, payment, promise to pay and authorization of the payment of money to: (a) a person, that is Benson ‘Tunde’ Akindale through two companies, Deriks and Los, Panamanian bearer share corporations, while having reason to believe that a portion of such money would be offered, given, or promised, directly or indirectly to foreign officials, Nigerian Air Force officers, the Party of Nigeria, the Minister of Nigeria and other government defense personnel for the purpose of influencing the acts and decisions of such foreign officials and others in their official capacity and inducing them to use their influence within the Government of Nigeria in order to obtain a contract for flight training equipment for W.S. Kirkpatrick, Inc.”
An offer of proof filed in Carpenter’s case contains the following additional information.
Carpenter learned of the opportunity to sell various equipment to the Nigerian Air Force and he “believed Kirkpatrick needed an agent in Nigeria to assist in negotiating and obtaining the contract.” “On recommendation of two British businessmen, Carpenter contracted a London solicitor, who in turn put him in touch with Benson ‘Tunde’ Akindele, a Nigerian national.” According to the offer of proof, “Akindele offered to assist Kirkpatrick by serving as its local agent in Nigeria. Carpenter negotiated an agreement with Akindele which provided that Kirkpatrick would pay a commission equal to twenty percent of the contracted price of [the equipment] to two Panamanian bearer share corporations, which were set up, and controlled by Akindele to receive payments from Kirkpatrick.”
W.S. Kirkpatrick Inc. pleaded guilty and was fined $75,000 (see here) and Carpenter pleaded guilty, was sentenced to three years probation and ordered to pay a $10,000 fine (see here). Noted white collar criminal defense attorney Theodore Wells (here) represented Carpenter.
See here for the DOJ’s release which notes that the contract at issue was worth $10.8 million.
After the DOJ enforcement action, Environmental Tectonics Corporation (“ETC” – an unsuccessful bidder for certain of the Nigerian contracts which first brought the problematic conduct to the attention of the Nigerian Air Force and the U.S. Embassy) brought a civil action against W.S. Kirkpatrick, Carpenter, Akindele and others seeking damages under the Racketeer Influenced and Corrupt Organizations Act, the Robinson-Patman Act and the New Jersey Anti-Racketeering Act.
The defendants moved to dismiss the complaint on the ground that the action was barred by the act of state doctrine. The district court granted the motion and concluded that the act of state doctrine applies “if the inquiry presented for judicial determination includes the motivation of a sovereign act which would result in embarrassment to the sovereign or constitute interference in the conduct of foreign policy of the United States.” See 659 F.Supp. 1381. The court held that ETC’s suit had to be dismissed because, in order to prevail, it would have to show that “the defendants or certain or them intended to wrongfully influence the decision to award the Nigerian Contract by payment of a bribe, that the Government of Nigeria, its officials or other representatives knew of the offered consideration for awarding the Nigerian Contract to Kirkpatrick, that the bribe was actually received or anticipated and that ‘but for’ the payment or anticipation of the payment of the bribe, ETC would have been awarded the Nigerian Contract.”
The Third Circuit reversed finding that application of the act of state doctrine was unwarranted given the facts of the case. In particular, the Third Circuit found persuasive a letter to the district court by the State Department legal adviser which stated that a judicial inquiry into the purpose behind the act of a foreign sovereign would not produce the ‘unique embarrassment, and the particular interference with the conduct of foreign affairs that may result from the judicial determination that a foreign sovereign’s acts are invalid.”
Defendants then appealed to the Supreme Court which agreed to hear the case.
In 1990, Justice Scalia authored the opinion of a unanimous Supreme Court. See 493 U.S. 400. The opinion begins as follows. “In this case, we must decide whether the act of state doctrine bars a court in the United States from entertaining a cause of action that does not rest upon the asserted invalidity of an official act of a foreign sovereign, but that does require imputing to foreign officials an unlawful motivation (the obtaining of bribes) in the performance of such an official act.”
The Court concluded that the “factual predicate for application of the act of state doctrine does not exist” because nothing in the case required the Court to declare invalid the official act of a foreign sovereign. The Court reasoned that “neither the claim nor any asserted defense requires a determination that Nigeria’s contract with Kirkpatrick International was, or was not, effective,” that ETC “was not trying to undo or disregard the governmental action,” but rather that ETC was only trying to “obtain damages from private parties who had procured” the contract.
In short, the Court stated that the act of state doctrine “has no application to the present case because the validity of no foreign sovereign act is at issue.”