Archive for the ‘Guest Posts’ Category

Hong Kong Court Rules on Extraterritorial Limits to the Territory’s Anti-Corruption Law

Wednesday, August 13th, 2014

Today’s post is from Philip Rohlik and Sebastian Ko (both attorneys in the Hong Kong office of Debevoise & Plimpton LLP).

Hong Kong Court Rules on Extraterritorial Limits to the Territory’s Anti-Corruption Law

By Philip Rohlik and Sebastian Ko

Hong Kong has a very strict and successful anti-corruption regime that has made it one of the cleanest jurisdictions in the world.  Hong Kong serves as a model for many other jurisdictions seeking to eradicate corruption and the Hong Kong Independent Commission Against Corruption has been copied in a number of jurisdictions and provides training to anti-corruption police from dozens of countries.  Despite being an international role-model, there has long been a question as to whether and to what extent the Prevention of Bribery Ordinance (POBO) extends beyond the borders of Hong Kong.  In the recent case of HKSAR v. Krieger & Anor. (06/08/2014, FAMC1/2014), the Court of Final Appeal (CFA) (the highest court in Hong Kong) confirmed that the extraterritorial reach of the law is limited.

Anti-Corruption Law in Hong Kong

The POBO dates from the 1970s, when the then-British colony was notoriously corrupt.  The ordinance defines a number of offenses including: giving bribes, receiving bribes, bribing a public servant, specific offenses relating to public tenders and the crime of “possession of unexplained property” by certain high-ranking public servants.  Section 4 prohibits bribing a “public servant.”  “Public servant” is defined to include only Hong Kong public servants.

Hong Kong is not a party to the OECD Convention and the POBO contains no explicit prohibition on bribing foreign officials.  However, bribing a foreign official could still meet the standards of Section 9(2), the offense most applicable to private bribery.  Under Section 9(2) it is an offense to offer an advantage to an “agent” with the intent of encouraging the agent to act against the interest of his or her principal’s affairs.  In the case of bribery of a foreign official, the official would be the agent and the foreign government or instrumentality would be the principal.

Section 4 contains explicit extraterritorial language, making it an offense to offer a bribe to a “public servant” “whether in Hong Kong or elsewhere.”  Section 9 contains no such explicit extraterritorial language.  The question before the court was whether a conspiracy to offer a bribe to a Macau official, in Macau, [1] violated Section 9(2) in a case in which most of the underlying acts of the conspiracy took place in Hong Kong.  The Court of Appeal held that the operative provision of a charge of conspiracy to bribe was Section 9(2) of the POBO through the “making of the offer.”  Since the offer was communicated outside of Hong Kong and the provision did not have extraterritorial application, there was no offense.  The CFA refused to grant leave to appeal against this ruling.

HKSAR v. Krieger

The defendants were two executives of a Macau waste management company that was a joint venture between Hong Kong and Macau companies.  They were also board members of the Hong Kong parent.  They were accused of conspiring with a Macau-based ex-director of the joint venture to offer a bribe to the then-Secretary of Transport and Public Works of Macau.  (The ex-Secretary and the Macau-based ex-director were convicted of bribery in Macau and are serving prison sentences.)  The evidence at trial was that the defendants and their co-conspirator came to agreement on offering the bribe while in Hong Kong.  The wife of the Macau-based co-conspirator had a Hong Kong company, into which the defendants (while in Hong Kong) transferred funds (by means of checks and wire transfers drawn on a Hong Kong bank) to be used to pay a bribe in Macau.  The District Court convicted both men and sentenced each to more than three years imprisonment.  In doing so, the District Court noted that the men could also be seen as “victims” as the ex-Secretary solicited bribes from them and “the jobs of some 500-odd employees” of their joint venture were threatened by the prospect of losing the contracts. [2]

The defendants appealed and the Court of Appeals quashed the convictions.  An important question on appeal was whether the operative act was the agreement between the conspirators to offer the bribe or the offer itself.  Defendants were charged under Section 159A of the Crimes Ordinance allowing multiple individuals to be charged where they have an agreement to commit a crime.  Section 159A does not, however, create a separate offense; Section 9(2) provided the underlying offense.  The court held that, under the POBO, an offer of advantage is not made until it is communicated to the “agent.” [3]  Although the proposal to bribe was hatched in Hong Kong and numerous steps were taken in Hong Kong after the offer was made, the offer was “made” when the then-Secretary received the proposal from the defendants’ Macau-based co-conspirator in Macau.

The court compared Section 9(2) with its public bribery equivalent provision, Section 4(1).  Section 4(1) specifically defines the bribery of a public official as offering an advantage “whether in Hong Kong or elsewhere.”  Section 9 contains no such language.  The Court of Appeal cited the English case of Cox v. Army Council [1963] AC 48, invoking the doctrine of statutory interpretation presuming that criminal offenses are not extraterritorial unless specifically provided in the offense-creating provisions (comparable with the U.S. doctrine of presumption against extraterritoriality). [4] Because it lacks the extraterritorial language, the court held, Section 9(2) is limited to offers made in Hong Kong, regardless of the fact that the defendants were Hong Kong residents and acted mostly in Hong Kong, through Hong Kong companies, ultimately for the benefit of their Hong Kong employer.

The Hong Kong Government applied to the CFA for leave to appeal the Court of Appeal’s decision.  Appeal of the decision in the CFA was not as of right, and the Government and the defendants submitted arguments in an application hearing to test whether an appellate hearing before the CFA’s full bench was merited.  The Government argued that the Court of Appeal took too narrow a view of “offer” as defined in the POBO.  Section 2(2) of which provides that “a person offers an advantage if he, or any other person acting on his behalf, directly or indirectly gives, affords or holds out, or agrees, undertakes or promises to give, afford or hold out, any advantage to or for the benefit of or in trust for any other person.”  The Government, while not disputing the lack of extraterritoriality, argued that Section 2(2)’s definition of “offer” was broad enough to encompass acts short of the communication.  The CFA held that under Section 9(2), the offer had to be made “to any agent,” which can only occur upon communication, regardless of the language of Section 2(2).  The CFA held that the Government’s case was not “reasonably arguable” (the standard for a grant of appeal) and denied a full appellate hearing.

Conclusion

HKSAR v. Krieger clarified the extraterritorial reach of the private bribery offense in the POBO, which had been used to prosecute bribery of foreign officials in Hong Kong.  As the POBO lacks an explicit offense of bribing a foreign official, the use of the private bribery provisions to create one would have been a stretch where the operative conduct occurred outside of Hong Kong.  It should be noted, Section 9(2) will continue to apply to offers made to foreign officials in Hong Kong and, as the Court of Appeal took pains to point out, the prosecution had limited its arguments by focusing on a narrow set of facts at trial.  Finally, prosecutors in Hong Kong, like prosecutors elsewhere, have a number of arrows in their quiver (for example, anti-money laundering laws) to potentially criminalize much of the activity underlying bribery.

The above summary was prepared for general information purposes and does not constitute legal advice and should not be acted on as such.


[1] Hong Kong and Macau are part of the People’s Republic of China (PRC), although they enjoy high autonomy as special administrative regions and are separate jurisdictions.  For most practical purposes, Macau and the PRC are treated as if they were “foreign” jurisdictions under Hong Kong law.

[2] HKSAR v. Krieger & Anor. (Feb. 29, 2012, DCCC316/2010) at ¶¶ 6-7.

[3] HKSAR v. Krieger & Anor. (Dec. 18, 2012, CACC99/2012) at ¶¶ 101-102.

[4] Ibid. at ¶¶ 79 and 96.

What Zhou Yongkang and a Disgruntled Cab Driver Illustrate About China’s Anti-Corruption Campaign

Monday, August 11th, 2014

Today’s post is from Russell Menyhart (Taft Stettinius & Hollister).  Prior to joining Taft, Menyhart served nine years as a diplomat with the U.S. State Department.  He was Political Unit Chief at the U.S. Consulate in Shanghai from 2011-2014, and also served in Beijing, Buenos Aires, and Washington DC.

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What Zhou Yongkang and a Disgruntled Cab Driver Illustrate About China’s Anti-Corruption Campaign

By Russell Menyhart

China’s anti-corruption campaign is back in the headlines with the announcement that former Politburo Standing Committee member and Communist Party strongman Zhou Yongkang is under investigation for corruption.  Traditionally, Party elders are considered untouchable, but in this case I doubt any of the Communist Party’s 86 million members were surprised by the announcement.  Rumors have flown about Zhou being a target since General Secretary Xi Jinping started the campaign in late 2012.

One view is that China’s anti-corruption campaign is simply a means for Xi to pursue political vendettas, as previous anti-corruption campaigns have been used in this way. But during the last three years I spent talking to people in East China, I became convinced that the new Communist Party leadership—especially Xi and Politburo Standing Committee member Wang Qishan—realized that corruption undermined their claim to legitimacy and had become an existential threat to the Communist Party.

I first believed the anti-corruption campaign was more than just politics not when a Vice Governor or PLA general was taken down, but when a cab driver in Hangzhou, a prosperous provincial capital, complained to me about the campaign in January 2013.  He explained that January was usually his most profitable month, as he was kept busy delivering expensive Chinese New Year gifts from hotels and restaurants to government offices all across town.  “But now they aren’t sending gifts anymore, so I don’t have any work!” he complained.  An entire industry of corruption was being undercut by the campaign.  Shortly thereafter a contact told me a tourism bureau official complained that he hadn’t been taken out to dinner for months, and Communist Party members told me of officials being forced to reach into their own pockets to pick up the tab at a sumptuous banquet after a warning phone call from Beijing.

This campaign absolutely should not be mistaken for an inclination towards real rule of law in China.  It is a political move to tighten the Party’s internal controls and consolidate power (and sadly has been accompanied by a brutal anti-rule of law crackdown on political activists).  But it appears to be a long-term change attempting to solidify Communist Party control, not just a short-term wiping out of select opponents.  In the long run it should benefit U.S. companies, who already have strong internal anti-corruption controls due to the need to adhere to the FCPA.  In fact, in some ways it validates the views of those who argued for passage of the FCPA 37 years ago on grounds that it would actually increase U.S. competitiveness abroad.  If you are feeling the need to reinforce or double-check your company’s anti-corruption policies, imagine how much your counterpart at a Chinese state-owned enterprise is scrambling to get up to the same standard!

One hot topic for discussion has been whether China’s anti-corruption campaign is targeting foreign companies.  The main state-run English language paper in Shanghai published an article in April entitled “Anti-corruption net has no holes for foreigners.” Domestic media cannot publish anything without Communist Party approval, and publishing such an article in the English-language paper showed intent to warn foreign companies.  But my contacts maintain that the intent is to pursue prominent entities—foreign or domestic—to send the message that no one is immune.  Major state-owned enterprises and powerful Chinese businesspeople have also been pursued.  That said, investigating a foreign company with wide-spread brand recognition is a powerful symbol to other businesses—just as investigating a former top leader like Zhou Yongkang sends the message within the Communist Party ranks.  So foreign companies are well-advised to tighten their own internal controls—and keep checking the screws at regular intervals.

U.S. companies should also anticipate how to handle the requirements of both Chinese law and the FCPA, particularly if they have operations outside of the main cities.  Lawyers who feel comfortable dealing with an investigation by officials in Beijing or Shanghai blanch at handling the same case in Lanzhou or Bengbu, because local Administration for Industry and Commerce (AIC) officials are said to sometimes allege violations of anti-bribery and other laws (such as false advertising) without always stating clearly the legal and factual basis.  Chinese lawyers have told me local AIC officials are used to Chinese companies negotiating reduced fines as a quick way to resolve such cases.  But foreign companies must be careful to avoid payments that could be seen as bribing local officials to close an investigation, and thereby possibly violating the FCPA.

Companies with operations in China should also increase due diligence of local partners and localized training on domestic Chinese law.  FCPA compliance is not enough.  Chinese law has criminal and administrative penalties for commercial bribery, so dealings with private entities need to be examined as carefully as those with state officials.  Ideally a compliance program will not complicated things for local staff by asking them to determine if they are dealing with a state official—just focus on making them aware of what actions are defined as bribery and are therefore illegal.  Have rules that make it easy for your employees.  For example, some companies have completely banned the use of gift cards—whether to suppliers, customers, or inside the company—because they are such a common form of bribery in China.

Xi may be using China’s anti-corruption campaign to consolidate power and eliminate other factions in the Communist Party (which he appears to be doing very effectively), but the campaign is broader than that.  While unfortunately it does not appear to indicate an interest in adopting the rule of law, it ultimately should result in a cleaner business environment.  That will benefit U.S. companies that already have strong FCPA compliance schemes.

Are We Carelessly Inviting Corrupt Behavior?

Thursday, August 7th, 2014

Today’s post is from Dr. Roger Miles.  Dr. Miles (PhD, Risk) is Behavioral Risk Lead at Thomson Reuters and he develops human factor analyses for Conduct Risk governance and compliance solutions.  His academic research focus is the “what actually happens” gap between designed systems and enacted human behavior.

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Are We Carelessly Inviting Corrupt Behavior?

By Dr Roger Miles

As regulators wrestle to assert new controls over corruption (and of course various other abuses), we’re reminded that the wider history of regulation resembles a trail littered with the carcasses of well-intended initiatives that failed.  Regulatory controls tend to fail because the people who design them often ignore how real people respond in practice, often contrarily, to having a control imposed on them.

A function of effective risk leadership in senior management – including compliance officers – should therefore be to pause to consider human aspects of control failures.  Where are the human-factor hazards brewing?  Do we know enough about these to keep ahead of them and head off problems early?

One way to overtake this hazard is to familiarize oneself with “dark side” research among people who game the rules (my special research interest as it happens).  This insight will rapidly rid us of the faulty assumption that rulebooks (whether in the context of the Foreign Corrupt Practices Act or otherwise) describe, or prescribe, what actually happens in organizations.  The reality of what actually happens is always something different, usually that the rulebook doesn’t foresee.  Once we make a habit of questioning the gap between what the rulebook says should be happening, and our observations of how people behave in reality, we become better both at spotting the early signs of “creative compliance” and at preventing all kinds of troublesome behavior.  A few examples make the point:

What Groups Do…

Formal demands (including the top-down introduction of rules and sanctions) often provoke ‘informal groups’ of work colleagues to respond in unorthodox local ways that create conditions for the control to fail later on.  The alert manager will watch for signs that ‘game-playing’ is becoming accepted as normal behavior, such as meaningless box-ticking (in response to quality control questionnaires); and filtering of inconvenient incident reports.  Also be alert for the many ways of massaging statistical reports, such as cherry-picking only the most favorable test results, re-basing of a reporting index, or redefining the thing that we’re reporting on.  Informal groups also like to ridicule anyone who dissents from their view of “how we do things here” – even (perhaps especially) when this contradicts what the rules require.  For the FCPA compliance leader, therefore, the first question should always be “who’s really in charge in this organization?”

What Individuals Do…

At a personal level, gaming responses include ‘presenteeism’ (physically turning up for work but leaving your motivation at the front door) and seeking to shift onto others any blame for failures.  Watch for early warning signs such as a person disengaging from routine involvement in work activities, disowning their own presence in management processes, or ignoring the legitimate authority of others.  Consistent with informal groups’ “how we do things”, individual rule-gamers will be active at making alternative sense of how rules apply (or don’t apply) locally to them.  They will be adept at coping, workarounds, and writing creative reports.  Alternatively they may retreat into fatalism, rationalizing that “it’s OK not to care because either nothing will change if I do, or I’ll only be labelled a trouble maker”.

In the Organization’s Structure

Sometimes we inadvertently design an organization to encourage rule-gaming responses.  To prevent this effect we need to become more skilled at spotting these preconditions for bad behavior, and design them out.  The preconditions include:

  • Lack of any coherent challenge from outsiders (advocacy groups, regulators, government)
  • A regulator who depends on regulatees for information (“enforced self-regulation”)
  • No apparent penalties for delay in responding to a question
  • Risk-taking uncoupled from consequence, with short-term rewards
  • Little required interaction with shareholders or other funding sources
  • The full Board meets only rarely; executive committees hand-picked by the Chairman
  • Power concentrated narrowly with CEO, Chairman, or Head of Sales
  • Penalties for non-compliance reported as a “normal friction cost of business”
  • An except reporting (whistleblowing) procedure exists but gets no explicit support from managers – it may          even be the  target of jokes

There is a large and expanding research field examining the gaps between control systems as designed and “what actually happens” when real people are told to use the controls.  A new approach to regulatory design intended to deal with this in the FCPA context and otherwise, behavioral regulation, is still in its infancy.  We should watch for developments.

“Countering Small Bribes” – Nice Words, We’ve Heard Them Before, But They Are Wrong

Monday, July 14th, 2014

Today’s post is from Professor Bruce Bean (Michigan State University College of Law).  Prior to academia, Bean had a diverse practice career including at various law firms and in-house counsel positions.

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As FCPA Professor recently highlighted, Transparency International UK released a new publication, “Countering Small Bribes – Principles and Good Practice Guidance for Dealing with Small Bribes including Facilitation Payments.” (See here.)  For once, TI has it all wrong!

This publication focuses on “grease,” “tea money,”  “facilitation payments.”  These terms describe small payments, and while no one knows how small these may be, such payments are common in the real world.  “Countering Small Bribes” discusses these in 44 pages and prescribes how such “bribes” can be eliminated.

TI begins by repeating a mantra regularly heard by those of us who deal in this area:

“[P]aying small bribes feeds a climate of corruption, which creates an unstable operating environment for companies. It destroys trust in government and public administration, undermines the rule of law, damages human rights and distorts business transactions. Small bribes are not confined to demands made to companies, as there are no boundaries for officials and others who demand bribes.”

Nice words.  We have heard them before.  They are wrong.

Small bribes do not “[create] an unstable operating environment,” “[damage] human rights” or “[distort] business.”  Rather, small bribes are one of the results of being in a jurisdiction where the rule of law has not been established and locals already do not trust government.  Facilitation payments do not create and do not corrode public and business standards; they are the result of an existing culture of corruption.

While the goal of eliminating corruption is a noble one, punishing the alleged “bribe” givers while ignoring the officials, high level and low, who extort such payments has proved to be fruitless.  Small and large bribes are more often extorted from businesses.  After all, no legitimate business hopes to give a bribe.  Such extortion is practiced by experts who have developed techniques very difficult to resist.  Fighting corruption by punishing the victims of such extortion is equivalent to pushing on a rope.  It gets us nowhere.  Given the 37 years of experience we have had with the FCPA, we cannot escape the conclusion that approaching bribery in international business solely from the bribe payers’ perspective has not, does not, and will not work.

Consider the prescription contained in “Countering Small Bribes.”  The TI approach is based upon ten unobjectionable principles.

“Effective countering of small bribes – including facilitation payments – will be based on the following principles.

1: There is a supporting culture of integrity

2: The company commits to eliminating small bribes

3: Risk assessment is the basis for designing the strategy and programme to eliminate small bribes

4: The company implements a programme to counter small bribes

5: Communication and training are provided to employees

6: Attention is given to countering third party risks

7: The internal accounting controls are designed specifically to counter small bribes

8: Appropriate actions are taken if small bribes are detected

9: The company monitors the effectiveness of its programme to counter small bribes

10: The company acts strategically to influence the corruption environment in which it operates.”

These principles already underlie many companies’ in-house anti-bribery compliance programs.  But these Ten Principles, or any principles, cannot be effective in eliminating bribes, large or small, in a corrupt environment.  The corruption problem in my experience (eight years in Moscow) will never be eliminated by focusing solely on the bribe payer, as the FCPA and the U.K. Bribery Act do.

TI-UK’s “Countering Small Bribes” focuses on small bribes.  Fine.  Consider an employee driving home from work in a foreign city, late at night.  This is a common scenario if the client’s home office in the US opens for business at 3:30 PM or later Moscow time.  Leaving the office in Moscow at 10 PM is not unusual.  A local police officer, lying in wait on the street opposite the office parking lot, flags down the employee and suggests that, because of the late hour, he must have been drinking.  This faithful public servant demands a blood test and displays a not-very-sanitary syringe.  Which of the Ten Principles applies?  (After a payment of less than $20, I was no longer deemed inebriated.)

“Countering Small Bribes” also explains why the FCPA exception for “facilitation payments” is wrong.

“The US Foreign Corrupt Practices Act (‘FCPA’), which was passed in 1977, introduced in 1988 the concept of facilitating (also commonly referred to as ‘facilitation’) payments with an exception from prosecution for such payments. This was to recognise a type of intractable bribery confronting US businesses when operating abroad. Since then, this form of bribery has attracted considerable debate and controversy.

Facilitation payments are illegal in most countries, although a small number including Australia, New Zealand, South Korea and the USA provide exceptions, in certain circumstances, for facilitation payments when paid abroad. They remain illegal in their own domestic law.

There is growing international recognition that facilitation payments are not easily separated from other forms of small bribes and more and more companies are following a no-bribes policy throughout their global operations, with no exemptions for facilitation payments.”

The “growing recognition” referred to in the final quoted paragraph doubtless refers to UK’s Bribery Act 2010, which criminalized all bribes, no matter how small.  The Bribery Act was the UK’s long delayed response to the OECD Convention on Combating Bribery of Public Officials in International Business Transactions first signed by the British in 1997.  At that time, the official Commentary addressed facilitation payments as follows:

“Small “facilitation” payments do not constitute payments made “to obtain or retain business or other improper advantage” …  and, accordingly, are also not an offence. Such payments, which, in some countries, are made to induce public officials to perform their functions, such as issuing licenses or permits, are generally illegal in the foreign country concerned. Other countries can and should address this corrosive phenomenon by such means as support for programs of good governance. However, criminalization by other countries does not seem a practical or effective complementary action.”

Note the final sentence: “Criminalization by other countries does not seem a practical or effective complementary action.”  Obviously the U.K. Parliament disagreed when, after much debate, it explicitly criminalized facilitation payments.  Governmental hypocrisy is normal in every U.S. administration and is perhaps a necessary aspect of today’s democracies.  Our British cousins exemplify this with this statement describing facilitation payments which is found in the Guidance to the UK Bribery Act 2010:

“As was the case under the old law, the Bribery Act does not (unlike US foreign bribery law) provide any exemption for such payments.”

This carefully crafted statement is precisely accurate.  It explains that neither the Bribery Act enacted in 2010, nor the superseded earlier anti-bribery laws in England and Wales dating back to 1886, exclude facilitating payments from the definition of crime of bribery.  Absolutely true – the law of England and Wales has never excepted such payments.  On the other hand, in the century plus of British foreign trade under their prior trio of anti-bribery laws, and in the three years since the new Bribery Act became effective, there has also never been a prosecution for foreign facilitating payments.  Not one!  Perhaps this is why Parliament had no problem criminalizing something they believed was not going to be prosecuted.  Whatever one might think about the wisdom of the grease payment exception in the FCPA, as readers of FCPA Professor are aware, the Department of Justice does actively ignores this exception in bringing enforcement actions.

TI-UK’s “Countering Small Bribes,” unfortunately, does nothing to advance the fight against corruption. TI does very valuable work, the results of which we all rely upon.  But “Countering Small Bribes” does not advance this fight.  To combat bribery, national prosecutors must actually bring cases.  To be meaningful, such cases should involve actual bribes, not small facilitation payments.  And if we are sincerely interested in effectively reducing bribery, we must enhance our efforts to punish the extortionate government officials who demand bribes, rather than continue to punish only the victims of extortion.

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Note – contrary to TI’s suggestion, facilitating payments were always exempted in the FCPA originally though a carve-out in the “foreign official” definition (i.e. a “foreign official” did not include an individual with ministerial or clerical duties).  In 1988 this exemption became the stand-alone facilitation payments exemption currently found in the FCPA.

New Article Examines Overcriminalization, Plea Bargaining, And The FCPA Africa Sting Case

Tuesday, July 8th, 2014

A guest post today from my Southern Illinois University School of Law colleague Lucian Dervan.  Professor Dervan is a widely recognized expert on plea bargaining and has, among other things, testified before Congress on such issues.

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I greatly appreciate the opportunity to guest post on Professor Koehler’s FCPA Professor site.  In my post today, I will focus on my discussion of overcriminalization, plea bargaining, and the Africa Sting case in a new article just posted to SSRN – “The Quest for Finality: Five Stories of White Collar Criminal Prosecution,” 4 Wake Forest Journal of Law & Policy 91 (2014) (available here).

In an article I authored a few years ago for the George Mason Journal of Law, Economics, and Policy (available here), I discussed the growth of overcriminalization in the United States and the impact of broad and vague statutes on white collar criminal enforcement.  In particular, I argued that there is a symbiotic relationship between overcriminalization and plea bargaining because each of these important legal concepts relies on the other to flourish.

As I wrote in that article:

To illustrate the co-dependent nature of plea bargaining and overcriminalization, consider what it would mean if there were no plea bargaining. Novel legal theories and overly-broad statutes would no longer be tools merely for posturing during charge and sentence bargaining, but would have to be defended and affirmed both morally and legally at trial. Further, the significant costs of prosecuting individuals with creative, tenuous, and technical charges would not be an abstract possibility used in determining how great of an incentive to offer a defendant in return for pleading guilty. Instead, these costs would be a real consideration in determining whether justice is being served by bringing a prosecution at all.

Similarly, consider the significant ramifications that would follow should there no longer be overcriminalization. The law would be refined and clear regarding conduct for which criminal liability may attach. Individual benefits, political pressure, and notoriety would not incentivize the invention of novel legal theories upon which to base liability where none otherwise exists, despite the already expansive size of the United States criminal code. Further, novel legal theories and overly-broad statutes would not be used to create staggering sentencing differentials that coerce defendants, even innocent ones, to falsely confess in return for leniency.

In the Over-Criminalization 2.0 article, I went on to focus on the Computer Associates prosecution.  In the Computer Associates case, the government requested the company retain outside counsel to perform an internal investigation regarding allegations of accounting improprieties.  During that internal investigation, several employees allegedly lied to investigating counsel.  The government later brought obstruction of justice charges against those employees.  In the indictment, the government argued that the defendants “knew, and in fact intended, that the company’s law firm would present these false justifications to the United States Attorney’s Office, the SEC and the FBI so as to obstruct and impeded (sic) the government investigations.”

This broad and creative application of an obstruction of justice statute (18 U.S.C. § 1512(c)(2)) led to widespread concern from various sectors of the legal community.  In particular, much unease was expressed about the impact of this charging decision on the role of privately retained investigating counsel.  Had the government deputized law firms?  Embracing similar concerns, including concerns about the impact of this case on the attorney-client privilege, the defendants challenged the government’s theory of the case.  Unfortunately, the district court dismissed the motion without specifically addressing the core issues of concern.  While the stage appeared set for an important review of this charging theory by the United States Court of Appeals for the Second Circuit, no such review ever took place.  As is so common today, the opportunity to examine the broad application of a vague statute was lost to the power of plea bargaining.  Instead of proceeding to the appellate court, all of the defendants pleaded guilty and the corporation entered into a deferred prosecution agreement.  Once again, the symbiotic relationship between overcriminalization and plea bargaining had prevented a true judicial review of this case.

In my new article, The Quest for Finality, I found similar issues in the FCPA Africa Sting case.  As readers of FCPA Professor will recall, the Africa Sting case involved an undercover FCPA operation targeting the defense sector.  As occurred in the Computer Associates case, the government used creative legal theories to build key aspects of its case.  Unlike the Computer Associates case, however, not all of the defendants pleaded guilty.  Therefore, the broad application of vague criminal statutes was tested and the results were very favorable for the defense.

In September 2011, a number of the Africa Sting defendants who had resisted the government’s offers of leniency in return for pleas of guilt went on trial.  Almost immediately, the government’s case began to fall apart under the weight of judicial scrutiny.  At one point, Judge Richard Leon stated, “I read all sixteen indictments, and I didn’t see it. I have zero sense that there was an omnibus grand conspiracy.”  Despite these words of caution, the government continued to pursue the conspiracy charges, the same conspiracy charges to which other defendants had already pleaded guilty.  Finally, after giving the government ample opportunity to make its case, Judge Leon dismissed the conspiracy counts in the middle of the trial.  Eventually, when the trial concluded, the case ended without a single conviction on the remaining counts.

In February 2012, the government asked Judge Leon to dismiss the charges against the remaining defendants awaiting trial in the Africa Sting matter.  As discussed on FCPA Professor at the time (see here), Judge Leon granted the motion and stated:

“This appears to be the end of a long and sad chapter in the annals of white-collar criminal enforcement. Unlike takedown day in Las Vegas, however, there will be no front page story in the New York Times or the Post for that matter tomorrow reflecting the government’s decision today to move to dismiss the charges against the remaining defendants in this case. Funny isn’t it what sells newspapers.
….

Two years ago, at the very outset of this case I expressed more than my fair share of concerns on the record regarding the way this case has been charged and was being prosecuted. Later, during the two trials that I presided over I specifically commented again on the record regarding the government’s very, very aggressive conspiracy theory that was pushing its already generous elasticity to its outer limits. Of course, in the second trial that elastic snapped in the absence of the necessary evidence to sustain it.

In addition, in that same trial, I expressed on a number of occasions my concerns regarding the way this case had been investigated and was conducted especially vis-a-vis the handling of Mr. Bistrong. I even had an occasion, sadly, to chastise the government in a situation where the government’s handling of the discovery process constituted sharp practices that have no place in a federal courtroom.”

In a move seldom seen, the government even went on to dismiss the charges against the defendants who had already pleaded guilty in the case.

In discussing, amongst others, the Africa Sting prosecution in my new article on The Quest for Finality, I examine once again the role of plea bargaining.

It is disturbing to recognize that if all of the defendants in the Broadcom or Africa Sting cases had taken plea deals, we would likely never have learned just how tenuous the government’s positions were in these matters.  Further, evidence demonstrates that it is not unlikely that all the defendants in such a case might plead guilty, even if they were innocent.  During 2011 and 2012, Professor Vanessa Edkins and I conducted a psychological study in which we placed students in a situation where they were accused of cheating.  All the students, regardless of factual guilt or innocence were then offered a deal.  Of the guilty participants, 89% took the plea deal. Of the innocent participants, 56% took the plea deal.  Given the incentives plea bargaining creates for defendants to falsely admit guilt and the observed utilization of plea bargaining as a tool to mask flawed criminal cases where the evidence alone is insufficient for conviction at trial, perhaps it is time to reevaluate our reliance on bargained justice.

The Africa Sting Case is one in which a number of defendants proceeded to trial to challenge the government’s theory of the case.  Such challenges, however, have become a rarity in today’s criminal justice system.  As the Computer Associates case illustrates, even where the government’s aggressive application of broad criminal statutes draws wide attention, most defendants succumb to the powerful incentives plea bargaining offers to forgo trial.

You can read the full examination of the Africa Sting case and related white collar prosecutions by clicking here for a free copy of the article.

Referenced Articles

  • The Quest for Finality: Five Stories of White Collar Criminal Prosecution, 4 Wake Forest Journal of Law & Policy 91 (2014) (available here).
  • Over-Criminalization 2.0: The Symbiotic Relationship Between Plea Bargaining and Overcriminalization, 7 The Journal of Law, Economics, and Policy 645 (2011) (available here).
  • The Innocent Defendant’s Dilemma: An Innovative Empirical Study of Plea Bargaining’s Innocence Problem, 103 Journal of Criminal Law & Criminology 1 (2013) (with Dr. Vanessa A. Edkins) (available here).