Archive for the ‘Knowledge’ Category

Supreme Court Declines To Hear Bourke Case

Tuesday, April 16th, 2013

It began in 2005 with this indictment against Frederic Bourke and others.

Since then, the case against has had several twists and turns including dismissal of FCPA substantive charges on statute of limitations grounds, reinstatement of the FCPA substantive charges, a superseding indictment which then dropped the FCPA substantive charges in favor of conspiracy to violate the Foreign Corrupt Practices Act, among other charges.  (And that’s just the portion of the case dealing with Bourke, see here for a prior post concerning Bourke’s co-defendant Victor Kozney).

Key events during the Bourke case was the summer of 2009 when Bourke was found guilty by a jury for conspiring to pay bribes to Azerbaijan officials in violation of the FCPA and Travel Act and for making false statements.  In November 2009 (see here for the prior post), Judge Shira Scheindin (S.D.N.Y.) sentenced Bourke to 366 days in prison (followed by three years probation) and ordered him to pay $1 million fine.  At sentencing, Judge Scheindin stated “after years of supervising this case, it’s still not entirely clear to me whether Mr. Bourke is a victim or a crook or a little bit of both.”

A Second Circuit appeal followed and prior posts here and here outlined Bourke’s appeal which principally focused on the FCPA’s knowledge element, including the trial court’s conscious avoidance jury instruction.  In December 2011 (see here for the prior post), the Second Circuit affirmed Bourke’s conviction.  Given the nature of the appeal, the Second Circuit decision focused mostly on knowledge issues which are fact specific, although the Second Circuit’s holding on conscious avoidance was noteworthy in terms of FCPA jurisprudence. Essentially the court held that Bourke enabled himself to participate in a bribery scheme without acquiring actual knowledge of the specific conduct at issue and that such conscious avoidance, even if supported primarily by circumstantial evidence, is sufficient to warrant an FCPA-related charges.

Bourke still kept fighting.  He requested a new trial based on newly discovered evidence.  This request was denied by the trial court and affirmed by the Second Circuit in November 2012 (see here for this prior post).

Bourke next sought review by the Supreme Court.  The questions presented for review concerned (i) willful blindness and the request to resolve circuit splits over the doctrine in aftermath of Supreme Court’s decision in Global-Tech (which addressed willful blindness in the context of a civil patent case); (ii) the request to resolve circuit splits over the need for unanimity on a specific overt act; and (iii) issues concerning Federal Rule of Evidence 106 (which states as follows – “iff a party introduces all or part of a  writing or recorded statement, an adverse party may require the  introduction, at that time, of any other part — or any other writing or  recorded statement — that in fairness ought to be considered at the  same time”).

Yesterday, the Supreme Court declined to hear Bourke’s appeal likely ending a case that has lingered since 2005.

As suggested by the above questions presented, while Bourke’s appeal occurred in the context of an FCPA case, the issues the Supreme Court declined to hear are not unique to the FCPA context.  Indeed, aside from the facts of the Bourke case and its procedural history which obviously necessitated reference to the FCPA, there is little substantive reference to the FCPA in the U.S. Opposition Brief (see here).

Historic “Foreign Official” Appeals Filed

Thursday, May 10th, 2012

For the first time in FCPA history, “foreign official” is headed to an appellate court.

Yesterday, Carlos Rodriguez and Joel Esquenazi filed appeals (here) and (here) in the 11th Circuit challenging their convictions.  As noted in this previous post, in August 2011 a federal jury (after a two week trial) convicted Esquenazi and Rodriguez on all counts for their roles in a scheme to pay bribes to alleged Haitian officials at Haiti Telecom.  In the prior post discussing the verdict, I noted that given the “foreign official” jury instructions at trial, the defendants have a good chance to challenge the instruction on appeal should they so choose.  This was before the strange developments concerning the existence of Haiti Teleco – see here, here and here for prior posts.

As noted in this DOJ release announcing the jury verdict, Esquenazi and Rodriguez were convicted of one count of conspiracy to violate the FCPA and wire fraud; seven counts of FCPA violations; one count of money laundering conspiracy; and 12 counts of money laundering.  In October 2011, Esquenazi was sentenced to an FCPA record 15 years in prison and Rodriguez was sentenced to 7 years in prison - see here for the prior post.

The remainder of this post summarizes the initial briefs of Rodriguez and Esquenazi.

Rodriguez Brief

Representing Rodriguez in his appeal are Foley & Lardner attorneys David Simon (here), Michael Halfenger (here), James Cirincione (here), Pamela Johnson (here), Jaime Guerrero (here), Kenneth Winer (here), and Lauren Valiente (here).

The brief presents the following issues.

“1. Whether the District Court erred as a matter of law in its jury instruction regarding what constitutes an “instrumentality” of a foreign government for purposes of construing the counts, including the money laundering counts, that were dependent upon the Foreign Corrupt Practices Act (“FCPA”).

2. Whether the District Court abused its discretion when it refused to hold an evidentiary hearing concerning the circumstances and history regarding a declaration from the current Haitian Minister of Justice that stated that Telecommunications D’Haiti (“Teleco”) was not an “instrumentality” of the Haitian government that the Government turned over just after the jury’s verdict followed by a second declaration that the United States Government was involved in procuring that reversed the first declaration, which contained clear exculpatory evidence .

3. Whether the District Court erred as a matter of law in its “knowledge” jury instruction regarding the FCPA-dependent counts, including the money laundering counts.

4. Whether there was sufficient evidence to support jury’s verdicts as to the FCPA counts.

5. Whether the District Court plainly erred when it submitted the wire fraud-dependent counts, including the money laundering counts, to the jury based on an erroneous jury instruction that failed to require proof that of the jurisdictional facts necessary for federal wire fraud, that is that the wire communications crossed state lines (i.e., inter-state communications).

6. Whether the District Court plainly erred in its mens rea instruction to the jury regarding the wire fraud-dependent counts, including the money laundering counts, because the jury was not asked to find intent to defraud for the wire fraud-dependent counts.

7. Whether there was sufficient evidence to support the jury’s verdicts as to the wire fraud-dependent counts.

8. Whether the Government’s attempt to change the basis of its wire fraud theory from wire transfers to facsimiles constitutes an impermissible variance from its initial theory of the case.

9. Whether the District Court erred as a matter of law in its jury instruction of what constituted a violation of the Haitian bribery law as proper predicate for the money laundering counts.

10. Whether the District Court abused its discretion in not granting a motion to dismiss the money laundering counts where the “proceeds” of the predicate crimes were the same transfers of money that were charged as the money laundering transactions, thereby violating the merger rule, and whether there was sufficient evidence to support jury’s verdicts as to the money laundering counts for the same reason.

11. Whether Mr. Rodriguez’s sentence must be vacated.

12. Whether the forfeiture order and the forfeiture aspect of the amended judgment and commitment order must be vacated because the oral sentence pronounced by the District Court did not order forfeiture.”

In summary, the brief argues as follows (internal citations omitted).

“1. The District Court abused its discretion by refusing to charge the jury using Mr. Rodriguez’s proposed instructions as to the terms “foreign official” and “instrumentality.” The interpretation of these terms under the FCPA is an issue of first impression in this Court. However, the District Court’s instructions conflict with this Court’s existing precedent. The District Court instructed the jury that an instrumentality of the Haitian government “is a means or agency through which a function of the foreign government is accomplished.” This Court explicitly rejected such a definition while interpreting another statute that contains the term “instrumentality” in a virtually identical statutory context.  Addressing whether a private corporation that operated a prison system on behalf of the State of Florida was an “instrumentality of a state,” this Court held that the term “instrumentality of a state” referred to “governmental units or units created by them,” and rejected the functionality test incorporated into the instructions given by the District Court.. Mr. Rodriguez’s proposed instructions were consistent with this Court’s precedent. Because this Court rejected the functionality test in the context of another statute, the District Court abused its discretion by giving such an instruction in this case, in which Mr. Rodriguez may lose his liberty for seven years.

2. The District Court abused its discretion by denying Mr. Rodriguez’s motion for an evidentiary hearing regarding two contradictory declarations executed by Jean Max Bellerive, the Minister of Justice and Public Safety for Haiti (the Haitian government’s analog to the United States Attorney General). During the course of Mr. Rodriguez’s trial, Bellerive signed a declaration stating that Teleco “has never been and until now is not a State enterprise. Since its formation to date, it has and remains a Company under common law.” The Government disclosed this declaration five days after Mr. Rodriguez had been convicted. In opposing Mr. Rodriguez’s motion for an evidentiary hearing, the Government produced a second declaration signed by Bellerive that “clarified”several of the declarations key statements about Teleco’s status under Haitian law.  The United States government substantially assisted the Minister in preparing the second, “clarifying” declaration. Despite the confusion created by the conflicting declarations, the District Court declined to hold an evidentiary hearing on the potential Brady issues posed by these events. That was an abuse of discretion.

3. The District Court also abused its discretion by rejecting Mr. Rodriguez’s requested jury instructions as to the “knowledge” requirement of the FCPA and by giving a deliberate ignorance instruction with no basis in the evidence.

4. The District Court erred by denying Mr. Rodriguez’s motion for acquittal, because the evidence is insufficient to support the jury’s determination that Teleco was an “instrumentality” of the Haitian government under the FCPA, and because no evidence was admitted at trial establishing that Teleco performed a function of the Haitian government.

5. The District Court erred by denying Mr. Rodriguez’s motion for acquittal based on the insufficiency of the evidence. Most of the trial testimony centered on Mr. Rodriguez’s co-defendant, Esquenazi, who had been the CEO of the small telecommunications company at issue here. He, not Mr. Rodriguez, had direct contacts with Haitian citizens. The Government’s evidence against Mr. Rodriguez amounted to the fact that he signed Terra’s checks and Terra’s former Comptroller, Perez, thought Mr. Rodriguez was in one meeting where bribes were discussed. Perez’s testimony was uncorroborated, contradicted by his earlier statements to the Government, and inherently unreliable. The evidence is insufficient to support the jury’s verdict that Mr. Rodriguez conspired to violate any federal law.

6. The District Court erroneously instructed the jury as to the jurisdictional element for the interstate wire fraud communication counts and the elements of money laundering, because the jury was not instructed that the wires must cross state lines, and the jury was not instructed that Government had to prove that the proceeds of the specified unlawful activity resulted from a felony under Haitian law to support a money laundering conviction.

7. The evidence does not support the jury’s determination that Mr. Rodriguez committed wire fraud, because there is no evidence that any interstate wires were sent. The District Court evidence adduced at trial does not support the jury’s verdict as to any count of conviction, even when the evidence is construed in favor of the Government.

8. Finally, the District Court’s Amended Judgment and Commitment Order imposed an invalid sentence by including forfeiture because the District Court did not announce an order of forfeiture as part of Mr. Rodriguez’s orallyimposed sentence.”

Esquenazi Brief

Representing Esquenazi in his appeal are Perkins Coie attorneys Markus Funk (here) and Michael Sink (here) and Michael Rosen (Michael Rosen P.A.).

Esquenazi adopted portions of co-appellant Rodriguez’s brief relating to the FCPA, intra-state wire fraud issues, and the Haitian bribery and in addition the brief presents the following issues.

1. “Whether the district court erred by refusing to conduct an evidentiary hearing on Brady issues.”

2. “Whether Esquenazi is entitled to an acquittal because employees of Haiti Teleco were not “foreign officials” within the meaning of FCPA simply because the National Bank of Haiti owned shares of Haiti Teleco and the Haitian government appoints board members and directors.”

3. “Whether the FCPA jury instructions adequately conveyed the requisite governmental function necessary to establish that Haiti Teleco was an “instrumentality” of the Haitian government and Esquenazi’s knowledge of the same.”

4. “Whether the district court erred by improperly applying the sentencing guidelines as to leadership role, perjury and loss amount.”

In summary, the brief argues as follows (internal citations omitted).

“Although the FCPA is aimed at corrupt payments made to “foreign officials,” the Government never established that Haiti Teleco performed government functions similar to a governmental department or agency, such that Haiti Teleco’s employees would qualify as “foreign officials.” Instead, the Government relied on the National Bank of Haiti’s ownership of stock in Haiti Teleco and the Haitian government’s appointment board members and directors. Six days after the jury reached its verdict, however, the Government disclosed the existence of a declaration from the then-current Prime Minister of Haiti, Jean Max Bellerive, prepared ten days prior to the case going to the jury. The declaration stated that Haiti Teleco “has never been and is not a State enterprise,” and that the by-laws of the company had never been changed as required by law to make Haiti Teleco a government-owned entity.

Under Brady v. Maryland, the Government has an affirmative obligation under the Due Process Clause of the Fifth Amendment to “learn of any favorable evidence known to others acting on the government’s behalf in the case” and disclose any potentially exculpatory evidence to the defendant. Esquenazi requested a Brady hearing to determine if and when the Government knew of the contents of this critical declaration. The district court erred in refusing to hold an evidentiary hearing under the circumstances.

Esquenazi is also entitled to an acquittal on all FCPA-based counts because the term “instrumentality” in the FCPA should be construed to encompass only foreign entities performing governmental functions similar to departments or agencies. Here, the Government failed to establish that Haiti Teleco performed a governmental function. Despite the Government’s continued reliance on the premise that state-ownership or state-control of a business entity makes that entity and “instrumentality” of the government under the FCPA, that theory was explicitly considered by the drafters of the FCPA, but not included in the statute, and is inconsistent with the language of the statute as drafted. Because so many individuals and companies prosecuted by the Government prefer to resolve their cases prior to trial, the validity of the Government’s theory has seldom been tested in court, and never before by a United States Court of Appeals. This case presents an opportunity to review the Government’s aggressive enforcement of a less-than-clear federal statute and properly limit its scope to corrupt payments made to “foreign officials,” including employees of “instrumentalities” that perform governmental functions similar to governmental departments and agencies.

Esquenazi is also entitled to an acquittal or a new trial because the jury instructions failed to require that the jury determine whether Haiti Teleco ever exercised a government function akin to a department or agency, or even define “governmental function.” Because the jury could have reached its verdict without any consideration of the function of Haiti Teleco, the jury instructions were deficient.

Finally, the district court improperly calculated Esquenazi’s sentence. Esquenazi’s leadership role should have been that of an organizer or manager rather than a leader. Further, his enhanced sentence for perjury was improper both as to the substance of the district court’s findings and the procedure by which it made the determination.”

Second Circuit Affirms Bourke’s Conviction

Wednesday, December 14th, 2011

Earlier today the Second Circuit Court of Appeals issued a decision (here) affirming Frederic Bourke’s 2009 conviction of conspiring to violate the FCPA and the Travel Act and of making false statements.

The Bourke appeal was principally based on knowledge issues which present narrow, factually unique issues.   Nevertheless the Second Circuit’s holding on conscious avoidance is noteworthy in terms of FCPA jurisprudence.  Essentially the court held that Bourke enabled himself to participate in a bribery scheme without acquiring actual knowledge of the specific conduct at issue and that such conscious avoidance, even if supported primarily by circumstantial evidence, is sufficient to warrant an FCPA-related charges.  The message to international investors should be clear, if a potential investment results in sleepless nights and fear of asking specific direct questions because of the answers you might receive, there is probably better uses for your money.

Brian Whisler (an FCPA practitioner at Baker & McKenzie - see here) who has been following the case offered the following.  “Despite the considerable speculation surrounding this case, today’s Second Circuit opinion affirming Mr. Bourke’s conviction came with little surprise, as the standard on review is so heavily weighted in favor of the government when defendants challenge the sufficiency of the evidence underlying their convictions.  The Court found that a rational juror could infer from the totality of the evidence that Mr. Bourke deliberately avoided confirming his suspicious aroused by multiple red flags signaling corruption and that the same evidence could establish his knowledge about the crime.  Given DOJ’s aggressive pursuit of individual executives, this precedent is instructive, particularly for purposes of defining willful blindness.”

Before turning to the Second Circuit’s decision, a bit of background.  The Bourke case is arguably the most complex and convoluted case in the history of the FCPA and focuses on the conduct of Bourke and others – including most notably Viktor Kozeny (who is enjoying life in the Bahamas) – in a bribery scheme connected to the privatization of the Azerbaijan state-owned oil company, SOCAR.  The case largely focused on the FCPA’s knowledge element and whether Bourke, as an investor, had sufficient knowledge of the bribery scheme.

As noted in this previous post when Bourke was sentenced to 366 days in November 2009, the case involved a nearly decade long investigation that spanned the globe, dismissal of FCPA substantive charges on statute of limitations grounds, reinstatement of the FCPA substantive charges,  a superseding indictment which then dropped the FCPA substantive charges and a six week jury trial.  For additional background on the case, see this superb piece by Andrew Longstreth that appeared in the American Lawyer.

Bespeaking the complex nature of the case, in November 2009 when Judge Shira Scheindin (S.D.N.Y.)  sentenced Bourke she stated as follows.  “After years of supervising this case, it’s still not entirely clear to me whether Mr. Bourke is a victim or a crook or a little bit of both.”

A previous post (here) outlined Bourke’s appeal.

The Second Circuit’s opinion begins as follows.  “On appeal, Bourke vigorously attacks his conviction on several fronts, including the (1) correctness of the jury instructions given, (2) the propriety of certain evidentiary rulings made by the district court, and (3) the sufficiency of the evidence supporting the false statements conviction. For the reasons given below, we affirm.”

After a detailed discussion of the facts, the Court focused on the jury instructions and stated as follows.  “Bourke challenges the jury instructions on four primary grounds. First, he argues the district court erred in refusing to instruct the jury that it needed to agree unanimously on a single overt act committed in furtherance of the conspiracy. Second, he argues the district court improperly charged the jury on conscious avoidance because (1) there was no factual basis for such a charge; and (2) the government waived its reliance on the conscious avoidance theory. Third, he argues the district court erred by failing to instruct the jury that the government needed to prove Bourke acted “corruptly” and “willfully” to sustain a conviction on FCPA conspiracy. Finally, he argues the district court erred in failing to give the jury Bourke’s proposed good-faith instruction.”

As to overt acts, the Court held that “the jury need not agree on a single overt act to sustain a conspiracy conviction.”  The court stated as follows.  “We conclude, therefore, that although proof of at least one overt act is necessary to prove an element of the crime, which overt act among multiple such acts supports proof of a conspiracy conviction is a brute fact and not itself element of the crime. The jury need not reach unanimous agreement on which particular overt act was committed in furtherance of the conspiracy.”

As to conscious avoidance, the Court disagreed with Bourke’s argument that a conscious avoidance charge lacked a factual predicate and stated as follows.  “While the government’s primary theory at trial was that he had actual knowledge of the bribery scheme, there is ample evidence to support a conviction based on the alternate theory of conscious avoidance. The testimony at trial demonstrated that Bourke was aware of how pervasive corruption was in Azerbaijan generally.   Bourke knew of Kozeny’s reputation as the “Pirate of Prague.”  Bourke created the American advisory companies to shield himself and other American investors from potential liability from payments made in violation of FCPA, and joined the boards of the American companies instead of joining the Oily Rock board.   In so doing, Bourke enabled himself to participate in the investment without acquiring actual knowledge of Oily Rock’s undertakings. The strongest evidence demonstrating that Bourke willfully avoided learning whether corrupt payments were made came from tape recordings of a May 18, 1999 phone conference with Bourke, fellow investor Friedman and their attorneys, during which Bourke voiced concerns about whether Kozeny and company were paying bribes.  [...]  Finally, Bourke’s attorney testified that he advised Bourke that if Bourke thought there might be bribes paid, Bourke could not just look the other way. Taken together, a rational juror could conclude that Bourke deliberately avoided confirming his suspicions that Kozeny and his cohorts may be paying bribes.”

The Court further stated as follows.  “It is not uncommon for a finding of conscious avoidance to be supported primarily by circumstantial evidence. Indeed, the very nature of conscious avoidance makes it unlikely that the record will contain directly incriminating statements. Just as it is rare to find direct record evidence of an employer stating, “I am not going to give you a raise because you are a woman,” it is highly unlikely a defendant will provide direct record evidence of conscious avoidance by saying, “Stop! I think you are about to discuss a crime and I want to be able to deny I know anything about it!” Here, the evidence adduced by the government at trial suffices to support the giving of a conscience avoidance charge.”

The Court specifically rejected Bourke’s argument that the conscious avoidance charge improperly allowed the jury to convict him based on negligence, rather than based on evidence that he avoided learning the truth.  The Court stated as follows.  “[T]he record contains ample evidence that Bourke had serious concerns about the legality of Kozeny’s business practices and worked to avoid learning exactly what Kozeny was doing.”  Moreover, the Court stated that the “district court specifically charged the jury not to convict based on negligence [and] there is no reason to suspect that the jury ignored that instruction.”

As to mens rea, the Court found no error in the district court’s jury instruction that to convict the jury had to find that Bourke knew of the conspiracy’s object and that Bourke intended for that object to be accomplished.    The Court found that “the district court properly instructed the jury that it must find Bourke knowingly entered into a conspiracy that had the object of corruptly and willfilly bribing foreign officials and that Bourke intended to aid in achieving this object.”  In so holding, the Court stated that Bourke’s requested jury instruction that would have required the jury to “find Bourke willfully and corruptly joined a conspiracy to willfully and corruptly bribe foreign governments” was an “absurd result unsupported by the law.”

As to Bourke’s proposed good faith instruction, the Court stated as follows.  “Even assuming arguendo that Bourke’s proposed instruction was legally correct with an adequate basis in the record, his argument fails because the theory was effectively presented elsewhere” in the jury instructions and the “failure to give a specific good faith charge does not require reversal.”

Does the Second Circuit’s decision mark the end of the road for Bourke?  Perhaps not, his request for a new trial – based on the theory that a key witness offered false testimony – is still pending.  The Second Circuit’s decision does not address Bourke’s pending request, but in light of its decision, it is unlikely that Judge Scheindin will grant Bourke’s motion.

In The Words of John Keeney

Thursday, December 1st, 2011

Long-time DOJ attorney John “Jack” Keeney recently died.  See here for the Washington Post article.

Keeney (as Deputy Attorney General, Criminal Division) testified during Congressional FCPA reform hearings in the mid-1980′s.   For instance, on June 10, 1986, Keeney testified at a Joint Hearing Before the Subcommittee on International Finance and Monetary Policy and the Subcommittee on Banking, Housing, and Urban Affairs.  The hearing focused on S. 430, a bill to amend and clarify the FCPA.  (An interesting aside, so toxic was the political environment to amend a law called the “Foreign Corrupt Practices Act” that several reform bills  sought to change the name of the FCPA -  S. 430 was titled the “Business Accounting and Foreign Trade Simplification Act”).

In his prepared statement, Keeney presented the “views of the Department of Justice” on S. 430.  Kenney stated as follows.  “The Department supports S. 430 and its objective of removing unnecessary impediments to foreign trade …”.   As noted in this previous post, one of the major items of reform in the 1980′s was revising the FCPA’s third-party provision which, as enacted, was triggered by a broad “while knowing or having to reason to know” standard.

Keeney supported removal of the “reason to know” standard.  He stated as follows.  “The Justice Department is sensitive to the unnecessary problems that the American business community has encountered in its attempts to interpret and apply the ‘reason to know’ standard.  We also know it is difficult to define exactly what constitutes ‘reason to know.’  For that reason, the policy of the Department has been to prosecute only those cases where the evidence of awareness – whether direct or circumstantial – was so clear as to constitute actual knowledge of the bribe scheme.   This policy would not be changed by abolishing the ‘reason to know’ standard in favor of a more objective standard and would improve the clarity of the Act.”

One provision of S. 430 would have required the DOJ to issue binding opinions with respect to the criminal provisions of the FCPA.  Keeney did not support such a provision “since its general purpose is presently being met by the existing Foreign Corrupt Practices Act Review Procedure.”

As to the provision in S. 430 that gave the Attorney General authority to issue guidelines “concerning both the type of conduct which constitutes compliance with the criminal provisions of the Act as well as general precautionary procedures which businesses may voluntarily use to ensure compliance,” Keeney stated as follows.  “From a commercial as well as an enforcement point of view, the Department does not believe that issuing guidelines or precautionary procedures would be advisable.  Accordingly, we do not feel that this provision is necessary.  The Department has determined that such guidelines are impractical for several reasons.  No matter how carefully crafted, guidelines would have the effect of unnecessarily restricting business transactions and possibly placing American businesses at a disadvantage with their foreign competitors.  Moreover, the Department cannot place simple dollar limits on bribe or gratuties and then apply these limits uniformly.  Reasonable business practices differ significantly from industry to industry as well as from country to country.  As a matter of policy, the Department cannot publicly ignore a small but otherwise corrupt transaction any more than it can place dollar limitations on the actions prosecutable under the mail or wire fraud statutes.  If the Department promulgates guidelines, due process requires that these guidelines govern any position the Department later takes in any criminal action.  While arguably helpful to businesses, such guidelines are not really necessary.  Under the FCPA Review Procedure , a specific factual situation may be resolved without binding the Department in a case involving a somewhat different factual situation.  The Department believes the [Review Procedure] is the least restrictive and most useful process for resolving any instance of perceived ambiguity in the interpretation of the FCPA and should be used in place of guidelines.”

When the FCPA was amended in 1988, Congress did indeed request that the Attorney General issue guidelines, however as noted in this prior post, the DOJ decided not to issue such guidelines.

Following the hearing, Senator D’Amato asked Keeney various questions for the record as to DOJ’s FCPA Review Procedure – such as “has it been used very frequently, how many times since the procedure was put in place?”  In pertinent part, Keeney responded as follows.  “The Review Procedure has resulted in 18 Department opinions since its inception.  On various other occasions, applications for review have been submitted but subsequently withdrawn.  [See here for a prior post regarding the FCPA “Mulligan Rule”]. In addition, the Criminal Division of the Department has received frequent telephone inquiries about the Procedure which are not followed by any written request.”

John Keeney may no longer be with us, but the issues he discussed in 1986 (DOJ FCPA guidance and questions surrounding the DOJ’s FCPA Opinion Procedure Program) remain issues today.

Off-Target

Monday, October 17th, 2011

As detailed in this prior post, in September the Open Society Foundation released “Busting Bribery:  Sustaining the Global Momentum of the Foreign Corrupt Practices Act” (here).  The white paper was in response to the October 2010 white paper “Restoring Balance:  Proposed Amendments to the Foreign Corrupt Practices Act” (here) released by the Institute for Legal Reform, an affiliate of the U.S. Chamber of Commerce.  Authored by David Kennedy (Professor of Law, Harvard Law School) and Dan Danielsen (Professor of Law, Northeastern University School of Law), Busting Bribery stated that  “the Chamber proposes to change the [FCPA] in ways that would substantially undermine the possibility for successful enforcement of America’s anti-bribery commitments” and that the “Chamber’s proposed amendments would also set back decades of progress in the global struggle against corruption.”

As to a potential FCPA compliance defense, a defense that not only the Chamber supports, Kennedy and Danielsen (the “Authors”) stated as follows in the Executive Summary.   “Often seen as the least concerning of the Chamber’s proposals, the creation of an affirmative defense of ‘compliance’ to FCPA corporate criminal liability is actually potentially very dangerous.  Compliance is already taken into account at  every stage in the investigation and resolution of FCPA violations.  In 1988, Congress amended the FCPA to eliminate liability based on a company’s failure to eliminate bribery which it had ‘reason to know’ was taking place. A defense of ‘adequate’ or ‘good faith’ compliance makes no sense when, as under the current FCPA, corporate criminal liability requires proof beyond a reasonable doubt that the company acted with actual knowledge and corrupt intent to influence a foreign government to gain an improper business advantage. Creating a compliance defense to knowing and intentional violations of the FCPA would amount to eliminating criminal liability under the Act all together by permitting a ‘fig leaf’ compliance program to insulate companies from their knowing and intentional wrongdoing.” (emphasis in original).

In the substantive section of report, the Authors stated, among other things, as follows.  “… [A]n affirmative defense of ‘adequate’ or ‘good faith’ compliance is fundamentally inconsistent with the FCPA’s very high standards for corporate criminal liability which require prosecutors to prove that a company’s prohibited acts be both ‘knowing’ and ‘corruptly’ undertaken with intent.”  The Authors then state that  “these standards of liability were summarized in the Congressional Report on the 1988 amendments to the Act” and quote a portion of the Congressional Conference Report on the 1988 amendments as follows.  “Thus, the ‘knowing’ standard adopted covers both prohibited actions that taken with ‘actual knowledge‘ of intended results as well as other actions that, while failing short of what the law terms ‘positive knowledge,’ nevertheless evidence a conscious disregard or deliberate ignorance of known circumstances that should reasonably alert one to the high probability of violations of the Act.” (emphasis in original).

The Authors then continue as follows.  “From these articulated and clearly-defined standards of corporate culpability under the FCPA, it becomes immediately apparent that an affirmative defense of ‘good faith’ or ‘adequate’ compliance is simply inappropriate.  On the one hand, effective, ‘good faith’ compliance is logically incompatible with the requirement under the Act that violations be undertaken with ‘actual knowledge’ or a ‘conscious disregard or deliberate ignorance of known circumstances’ and the requisite ‘corrupt’ intent to induce a foreign official to misuse his official position to wrongfully obtain business or direct business to another.  Any compliance program that knowingly permitted, facilitated, or consciously or deliberately turned a blind eye to corrupt, intentional violations of the FCPA must be either per se inadequate or not undertaken in good faith.  On the other hand, the existence of a merely formal compliance program is irrelevant to the question of whether knowing, intentional and corrupt behavior took place.  Creating a ‘compliance defense’ to knowing and intentional violations of the Act would amount to eliminating criminal liability under the Act all together by permitting a ‘fig leaf’ compliance program to insulate companies from having knowing and intentional wrong-doing.”

To use the Authors phrase of “immediately apparent,” what is immediately apparent upon reading Busting Bribery  is how the Authors are off-target when it comes to the FCPA’s 1988 amendments as well as respondeat superior principles of corporate criminal liability.

In asserting that “Congress amended the FCPA to eliminate liability based on a company’s failure to eliminate bribery which it had ‘reason to know’ was taking place,” the Authors appear to assume that such was the general standard for corporate criminal liability prior to the 1988 amendments.  It wasn’t.

The FCPA, as originally enacted, prohibited those subject to the law from, among other things, providing things of value to “any person, while knowing or having reason to know that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly, to any foreign official.”  (emphasis added).   The FCPA, as originally enacted, thus contained a third-party payment prohibition triggered by a broad “while knowing or having to reason to know” standard.

This standard was very quickly criticized by many because companies were “unsure about the degree of their responsibility for questionable payments made by their foreign agents in cases when the companies believe they have instituted reasonable safeguards.”  (See  GAO Report, “Impact of Foreign Corrupt Practices Act on U.S. Business” at pg. iv).    U.S. Trade Representative William Brock candidly stated during a 1981 Senate FCPA hearing that “frankly, nobody knows what it means.”  (See “Business Accounting and Foreign Trade Simplification Act,” Joint Hearings Before the Subcommittee on Securities and the Subcommittee on International Finance and Monetary Policy of the Committee on Banking, Housing, and Urban Affairs, United States Senate, 97th Congress, First Session at pg. 63).

The FCPA reform efforts that began in 1980 and culminated in FCPA amendments in 1988 had, as a core reform proposal, revising the “reason to know” standard relevant to third-party payments.  Jonathan Rose (Assistant Attorney General) stated, in connection with a 1983 House FCPA hearing, that the FCPA’s then standard of liability for third-party payments was akin to a “simple negligence standard” and “is plainly inappropriate and inconsistent with the general approach of modern criminal law to state-of-mind requirements.”  (See “The Foreign Trade Practices Act,” Hearings Before the Subcommittee on International Economic Policy and Trade of the Committee on Foreign Affairs, House of Representatives, 98th Congress, First Session at pg. 118).

In 1987, the House Committee on Energy and Commerce stated, in reporting out an FCPA reform bill revising the third-party knowledge standards that the “reason to know standard under current law has been criticized as unclear” and that “some businesses interpret the standard as tantamount to “reason to suspect that an agent will pass on a bribe, or a negligence standard …”.  (See Trade and International Economic Policy Reform Act of 1987, House Report 100-49 (April 6, 1987) at pg. 75).  The House Report stated that “clearly such an interpretation was not intended by Congress …” and   when the FCPA was ultimately amended in 1988, the relevant Conference Report, under the heading “Standard of Liability for Acts of Third Parties (Agents)” stated that the conferees intended to retain the “knowing” requirement for payments to third-parties, to delete the House bill’s reference to “reckless disregard” and to include concepts of “conscious disregard” or “willful blindness.”  (See House Report No. 100-576 at 920 (1988) at pg. 919).

The third-party payment provisions were amended in 1988 (and remain the same today) to prohibit those subject to the law from providing things of value to “any person, while knowing that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly, to any foreign official.”  Knowledge was defined in the 1988 amendments, and still is today, as follows.  “(A) A person’s state of mind is ‘knowing’ with respect to conduct, a circumstance, or a result if – (i) such person is aware that such person is engaging in such conduct, that such circumstance exists, or that such result is substantially certain to occur; or (ii) such person has a firm belief that such circumstance exists or that such result is substantially certain to occur. (B) When knowledge of the existence of a particular circumstance is required for an offense, such knowledge is established if a person is aware of a high probability of the existence of such circumstance, unless the person actually believes that such a circumstance does not exist.”

In other words, Busting Bribery constructs, as the primary foundation for opposing an FCPA compliance defense, a knowledge standard that was relevant only, and continues to be relevant only, to the FCPA’s third-party payment provisions.  The FCPA, when enacted, and to this day, allows corporate criminal liability under respondeat superior principles when an employee acts within the scope of his or her duties intending to benefit, at least in part, the organization.  Knowledge (however defined) of the employee’s conduct by the board, executive officers, or other high-ranking executives is not required and, at present, the organization’s pre-existing compliance policies and procedures are not relevant as a matter of law to the organization’s criminal liability.

For instance, the only time in the FCPA’s history that a corporate FCPA charge was presented to a jury was in the Lindsey Manufacturing case early this year.  The relevant jury instruction (instruction 16 – entity responsibility – entity defendant – agency) stated as follows.

“To sustain the charge of conspiracy to violate the Foreign Corrupt Practices Act (“FCPA”) or violation of the FCPA against Lindsey Manufacturing Company, the government must prove the following propositions:

First, the offense charged was committed by one or more agents or employees of Lindsey Manufacturing Company; Second, in committing the offense, the agent or employee intended, at least in part, to benefit Lindsey Manufacturing Company; and Third, the acts by the agent or employee were committed within the authority or scope of his employment.

For an act to be within the authority of an agent or the scope of the employment of an employee, it must deal with a matter whose performance is generally entrusted to the agent or employee by Lindsey Manufacturing Company. It is not necessary that the particular act was itself authorized or directed by Lindsey Manufacturing Company. If an agent or an employee was acting within the authority or scope of his employment, Lindsey Manufacturing Company is not relieved of its responsibility because the act was illegal.”  (emphasis added).”

So yes, while it is true that the corrupt intent element must be met in order to convict a company of an FCPA offense, that corrupt intent element can be satisfied by singular and isolated acts of any employee, even if their conduct is in violation of pre-existing company policies and procedures.  However,  you would not glean this significant point from Busting Bribery because the term respondeat superior (or general concept) does not even appear in the lengthy white paper.

An FCPA compliance defense would not, as the Authors suggest, create a wholesale corporate defense to “knowing and intentional violations of the FCPA.”  If the board, executives, or other senior personnel were involved in the knowing and intentional conduct at issue, a company could not rely on the compliance defense.  If an employee, at any level, engaged in knowing and intentional conduct in violating of the FCPA, a company could not rely on the compliance defense unless it had in place pre-existing compliance policies and procedures reasonably designed and implemented to prevent and detect, insofar as practicable, the conduct at issue.

The notion that creating a potential compliance defense “would amount to eliminating [corporate] criminal liability under the Act all together” is simply false and off-target, as is Busting Bribery’s misleading reference to the FCPA’s 1988 third party payment revisions to support its position.

Despite its obvious shortcomings, others are championing Busting Bribery’s compliance defense rebuttal.  For instance, last week Citizens for Responsibility and Ethics in Washington (CREW) issued a release (here) touting the Authors’ work and praising Busting Bribery for “thoroughly debunk[ing] the Chamber’s arguments for amending the FCPA, finding them based on ‘myth.’”  See CREW’s letters to both the House (here) and Senate (here).

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How did Aaron Murphy (Latham & Watkins), an FCPA practitioner and author of “Foreign Corrupt Practices Act:  A Practical Resource for Managers and Executives” react to Busting Bribery?  In this twitter feed he asked – “why are professors with no apparent experience actually investigating corruption used as experts?”