Archive for the ‘Legislative History’ Category

In the Words Of Roderick Hills

Friday, November 14th, 2014

Roderik HillsRecently, the SEC noted the passing of Roderick Hills (Chairman of the Securities and Exchange Commission from 1975 to 1977).  It was during this time period in which Congress was engaged in its multi-year investigation and deliberation of the so-called foreign corporate payments problem.

As told in “The Story of the Foreign Corrupt Practices Act,” Hills was a prominent voice during this process and he testified at several Congressional hearings.

While the SEC (compared to the DOJ and other government departments) played the most prominent and trusted role during Congress’s consideration of the foreign corporate payments problem, the SEC’s role was also the most curious as the Commission was a reluctant actor in Congress’s quest for a new and direct legislative remedy to the problem.

It is clear from the legislative record that the SEC wanted no part in policing the morality of American business or in determining what was an improper foreign corporate payment. Rather, the SEC – true to its then mission – was focused on ensuring disclosure of material foreign corporate payments to investors by companies subject to its jurisdiction. In other words, the SEC wanted no part in enforcing the FCPA’s anti-bribery provisions.

Fast forward to the present when the SEC has a specific FCPA Unit and views enforcement of the FCPA’s anti-bribery provisions as central to its mission of investor protection.

Below are excerpts from Congressional testimony given by Hills relevant to the above issue.

“We don’t have the skill to say should we, can we, enforce the laws of the rest of the world? I’m sure the West Digest that reports these decisions would be full of cases trying to decide whether a given payment is or is not legal. The legal profession has enough business without going to all the countries of the world to try to establish whether a given transaction is right or wrong. We are concerned with the materiality of these practices.”

Prohibiting Bribes to Foreign Officials: Hearing Before the S. Comm. on Banking, Hous., and Urban Affairs, 94th Cong. 19 (1976)

“[Congress] has asked for our views as to the adequacy and effectiveness of the present laws and regulations and any recommendations we may have for improving them. As [Congress] knows, a primary purpose of the Federal securities law and the Commission’s regulations is to protect investors by requiring issuers of securities to make full and fair disclosure of material facts. In my opinion, these statutes provide the Commission adequate authority to require appropriate disclosure about the matters I have been discussing in order to protect stockholders.”

Abuses of Corporate Power: Hearings Before the Subcomm. on Priorities and Econ. in Gov’t of the Joint Econ. Comm., 94th Cong. 13 (1976)

“The Commission does not oppose direct prohibitions against these payments, but we have previously stated that, as a matter of principle, we would prefer not to be involved even in the civil enforcement of such prohibitions. As a matter of long experience, it is our collective judgment that disclosure is a sufficient deterrent to the improper activities with which we are concerned.”

“[A]s a matter of longstanding tradition and practice, the [SEC] has been a disclosure agency. Causing questionable conduct to be revealed to the public has a deterrent effect. Consistent with our past tradition, we would rather not get into the business, however, we think get involved in prohibiting particular payments. It is a different thing entirely to try to prohibit something, to try to make a decision as to whether it is legal or illegal, or proper or improper. Under present law, if it is material, we cause its disclosure, and we need not get into the finer points of whether it is or is not legal.”

Foreign Payments Disclosure: Hearings Before the Subcomm. on Consumer Prot. and Fin. of the H. Comm. on Interstate and Foreign Commerce, 94th Cong. 2 (1976)

“[The SEC] would prefer not to be involved in civil enforcement of such [anti-bribery] prohibitions since they embody separate and distinct policies from those underlying the federal securities laws. The securities laws are designed primarily to insure disclosure to investors of all of the relevant facts concerning corporations which seek to raise their capital from the public at large. The [anti-bribery provisions], on the other hand, would impose substantive regulation on a particular aspect of corporate behavior. The Commission recognizes the congressional interest in enacting these prohibitions, but the enforcement of such provisions does not easily fit within the Commission’s mandate.”

Foreign Corrupt Practices and Domestic and Foreign Investment Disclosure: Hearing Before the S. Comm on Banking, Hous., and Urban Affairs, 95th Cong. 98–99 (1977)

The following statement by Senator Proxmire to Hills best captures the SEC’s reluctant role in seeking a new and direct legislative remedy to the foreign corporate payments problem:

“[Y]ou were responsible for about the only action we have taken with respect to foreign bribery and your agreements, your work, with various corporations to persuade them to cleanse their operation have been a fine example of how an agency can work to get this job done even without legislation. Because of that, you see, we would like to have you involved at least on the investigative disclosure basis. And perhaps we can work something out that would protect you from not pushing you into something you think you wouldn’t want to do.”

Foreign Corrupt Practices and Domestic and Foreign Investment Disclosure: Hearing Before the S. Comm on Banking, Hous., and Urban Affairs, 95th Cong. 98–99 (1977)

11th Circuit “Foreign Official” Decision – Perspective Including As To The Court’s Flawed Reasoning

Thursday, June 12th, 2014

Previous posts here, here, and here have highlighted various aspects of the 11th Circuit’s recent “foreign official” decision in U.S. v. Esquenazi (the first time in FCPA history that an appellate court has directly addressed the enforcement theory that employees of alleged state-owned or state-controlled enterprises can be “foreign officials” under the FCPA).

This post contains additional perspectives and highlights the 11th Circuit’s flawed reasoning.  For purposes of this post, knowledge of the court’s opinion and the facts and circumstances underlying the case are presumed.  As previously disclosed, I served as a pro-bono expert to the defendants’ pro bono counsel in the 11th Circuit appeal and was previously engaged as an expert by defense counsel in prior “foreign official” challenges.

For starters, it is important to understand what was not at issue in the 11th Circuit appeal and what was at issue.

What was not at issue is whether the FCPA should be a comprehensive anti-bribery statute such as the U.K. Bribery Act.  Congress could have passed a comprehensive anti-bribery statute in 1977 – as well as when the FCPA was amended in 1988 and 1998 – and could still pass a comprehensive anti-bribery statute today if it chooses.  However, it is undisputed that Congress has not done so and the FCPA’s anti-bribery provisions are qualified in many ways, including as pertinent to the 11th Circuit appeal, through the category of recipients of the alleged improper payments.

What was not at issue was whether the 11th Circuit’s decision would have any practical effect on corporate compliance programs. The bulk of commentary regarding the 11th Circuit decision has been written by law firms writing for corporate audiences and I agree that the 11th Circuit decision has little practical impact on corporate compliance programs because risk-adverse business organizations were already structuring compliance policies and procedures to the DOJ and SEC’s enforcement theory that employees of SOEs were “foreign officials.”  Such corporate positions were not evidence of the validity of the enforcement agency position for the same reason that the trending corporate position of eliminating facilitation payments is not evidence that the FCPA’s express facilitation payment exception is invalid.

Rather what was at issue in the 11th Circuit appeal was the basic and fundamental principle of ensuring – when the government marshals its full resources against individuals and deprives the individuals of their liberty – that each element of the charge alleged is being applied consistent with Congressional intent in enacting the statute.  After all, the DOJ and SEC should only enforce a law that Congress passed.

Notwithstanding what was at issue in the 11th Circuit appeal, some have suggested:

“For those who challenged the government’s legal interpretation of the term “instrumentality,” they need to pick and choose better places to challenge the FCPA and the government’s enforcement  program.”

Given what was at issue in the 11th Circuit appeal, as well as the other “foreign official” challenges, you will not find me apologizing one iota for my involvement in these cases or my “foreign official” declaration that partly served as a basis for the challenges.

Moreover, notwithstanding the 11th Circuit decision, let’s not forget the ultimate outcome of the other enforcement actions in which “foreign official” was challenged.

  • A federal court judge granted, at the close of the DOJ’s case, John O’Shea’s motion for acquittal and found him not guilty of all substantive FCPA charges.  In this post, O’Shea’s lawyers opine that the “foreign official” issue played a role in the ultimate outcome of the case.
  • In the Carson “foreign official” challenge, “foreign official” issues moved to the jury instructions and the judge issued a pro-defendant jury instruction concerning “knowledge of status of foreign official” (see here for the prior post).  Soon thereafter, the DOJ offered – what can only be described as lenient plea deals – that the risk adverse defendants accepted and the DOJ never had to prove its case.
  • In the Lindsey Manufacturing enforcement action, the judge ultimately dismissed (see here) the case after finding numerous instances of prosecutorial misconduct.  Although the prosecutorial misconduct was seemingly unconnected to “foreign official” issues, post-trial motions concerning, among other things, “foreign official” issues were pending at the time of dismissal.

One final big-picture point before highlighting the 11th Circuit’s flawed reasoning.

In the minds of some, the “foreign official” issue has now been “resolved” and “settled.”  To this, I respond:  can anyone name another instance in which a key element of an important law is deemed “resolved” or “settled” because of one appellate court decision?

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The 11th Circuit recognized that the plain meaning of the word “instrumentality” in the FCPA only provides a partial answer as to its plain meaning and thus the court turned to “other tools to decide what instrumentality means in the FCPA.”

However, the court’s decision lacks any discussion of two statutes – one passed before the FCPA (the Foreign Sovereign Immunities Act) and one passed after the FCPA (Dodd- Frank, Section 1504) that explicitly contain the term instrumentality as well as SOE concepts.

It is a basic maxim of statutory construction that all terms in a statute are presumed to have distinct meaning and the 11th Circuit itself stated ”it is a cardinal rule of statutory construction that significance and effect shall, if possible, be accorded to every word.”

However, the 11th Circuit dodged the salient question – if instrumentality was viewed by Congress to encompass SOEs, then why do statutes passed before the FCPA, as well as after the FCPA, explicitly contain the term instrumentality as well as SOE concepts?

If Congress believed the term “instrumentality” to encompass SOEs without an express definition saying so, then both FSIA and Dodd-Frank contain redundant terms which itself violates a basic maxim of statutory construction that statutes are presumed not to contain redundant terms.  Indeed, where a particular element is explicitly set out in one statute, but it is not likewise set out in the statute at issue, courts presume that Congress did not intend to include that element in the statue at issue.

*****

The court also examined the “broader statutory context” of the term “instrumentality” and examined the FCPA’s 1998 amendments and legislative history related thereto relevant to “foreign official.”  However, the court’s decision lacks any discussion of the FCPA’s enacting legislative history relevant to “foreign official” and thus violates another maxim of statutory construction that enacting legislative history governs the meaning of a statutory term, not subsequent legislative history.

Here, the 11th Circuit recognized that it was skating on thin ice when it stated as follows.  ”Although we generally are wary of relying too much on later legislative developments to decide a prior Congress’ legislative intent, the circumstances in this case cause us less concern in this regard.”  Indeed, the court even cited a Supreme Court decision stating that “the views of a subsequent Congress form a hazardous basis for inferring the intent of an earlier one.”

Nevertheless, the court stated as follows.

“This is not an instance in which Congress merely discussed previously enacted legislation and possible changes to it.  Rather, Congress did make a change to the FCPA, and it did specifically to ensure that the FCPA fulfilled the promise the United States made to other nations when it joined the [OECD] Convention.  The FCPA after those amendments is a different law, and we may consider Congress’s intent in passing those amendments as strongly suggestive of the meaning of ‘instrumentality’ as it exists today.”

The 11th Circuit’s rationale for consulting post-enactment legislative history, but not enacting legislative history, is not persuasive.  Perhaps most important, the 1998 FCPA amendment to “foreign official” did not even concern the “department, agency, or instrumentality” prong of the “foreign official” definition.  Rather the 1998 amendment to “foreign official” merely added those associated with “public international organizations” to the definition of “foreign official.”

As detailed in my “foreign official” declaration, the salient points from the FCPA’s enacting legislative history are as follows.

  • During its multi-year investigation of foreign corporate payments that preceded enactment of the FCPA, Congress was aware of the existence of SOEs and that some of the questionable payments uncovered or disclosed may have involved such entities.
  • In certain of the competing bills introduced in Congress to address foreign corporate payments, the definition of “foreign government” expressly included SOEs. These bills were introduced in both the Senate and the House during both the 94th (1975-76) and 95th (1977-78) Congresses.
  • An American Bar Association committee informed the Chair of the House subcommittee holding hearings on these bills that the definition of “foreign government” in these bills, specifically the portion of the definition referring to “a corporation or other legal entity established or owned by, and subject to control by, a foreign government” was “somewhat ambiguous.” The American Bar Association committee suggested a “more precise definition of this aspect of the definition of ‘foreign government’ and proposed the following language: “a legal entity which a foreign government owns or controls as though an owner.
  • Despite being aware of SOEs, despite exhibiting a capability for drafting a definition that expressly included SOEs in other bills, and despite being provided a more precise way to describe SOEs, Congress chose not to include such definitions or concepts in S. 305, the bill that ultimately became the FCPA in December 1977.

The above points have never been disputed in any of the “foreign official” challenges.

Rather, the DOJ argued that because SOEs were discussed during the legislative debate, Congress must therefore have intended to include SOEs in the definition of the “instrumentality” even though there is no explicit reference in the thousands of pages of legislative history for this position.  The logic of the DOJ’s position would mean that Congress must have intended, despite the lack of explicit reference in the thousands of pages of legislative history, to include commercial bribery within the scope of the FCPA because there was much reference during the legislative history to commercial bribery payments.

In short, the 11th Circuit’s reasoning was flawed because in consulting legislative history the court consulted the wrong legislative history.  The correct legislative history, the enacting legislative history, says what it says and the salient points from my “foreign official” declaration have never been disputed.

****

The 11th Circuit’s reasoning is further flawed by the inference in the court’s opinion that the FCPA’s 1998 amendments fully conformed the FCPA to the OECD Convention and, because of this, the FCPA must include SOEs because the OECD Convention does.

This is plainly false.

For starters, and as detailed in my “foreign official” declaration, it is clear that Congress was informed and understood that the 1998 amendments would not fully conform the FCPA to the OECD Convention.  Rather, the OECD Convention was described as “closely modeling” the FCPA; being “very similar” to the FCPA; being “largely consistent” with the FCPA; and “closely tracking” the FCPA.

For this reason, the 11th Circuit’s statement that Congress amended the FCPA in 1998 to “implement[...] the Convention’s mandates” is false.

Indeed, this was previously recognized in U.S. v. Kay where both the trial court and appellate court rejected the DOJ’s position that the FCPA captured payments to secure an “improper advantage” because the OECD Convention captured such payments.

The trial court decision stated:

“The OECD Convention had asked Congress to criminalize payments made to foreign officials ‘‘ ‘in order to obtain or retain business or other improper advantage in the conduct of international business.’’ . . . Congress again declined to amend the ‘‘obtain or retain business’’ language in the FCPA . . . . Congress did not insert the ‘‘improper advantage’’ language into the ‘‘obtain or retain business’’ provision of the FCPA.”

Although the Fifth Circuit overruled the trial court’s decision granting the defendants’ motion to dismiss, the appellate court likewise stated as follows concerning the FCPA’s 1998 amendments:

“When Congress amended the language of the FCPA, however, rather than inserting ‘any improper advantage’ immediately following ‘obtaining or retaining business’ within the business nexus requirement (as does the Convention), it chose to add the ‘improper advantage’ provision to the original list of abuses of discretion in consideration for bribes that the statute proscribes.’’

Even thought the U.S. signed the OECD Convention, the Convention was not self-executing.  Rather the Convention encouraged parties to “take such measures as may be necessary to establish that it is a criminal offense under its law for any person intentionally to offer, promise or give any undue pecuniary or other advantage, whether directly or through intermediaries, to a foreign public official …”.

The notion that the FCPA changed in 1998, in the absence of specific implementing legislation as to specific elements, because of generic references to the OECD Convention is false and has previously been rejected by the Fifth Circuit.  In short, the OECD Convention was not self-executing and it is black letter law that if a treaty is not self executing it is not the treaty, but the implementing legislation, that is the law of the land.

Yet, the 11th Circuit suggested that because the ”only change to the definition of ‘foreign official’” in the 1998 amendments was to add “public international organizations,” that ”this seems to demonstrate that Congress considered its preexisting definition already to cover” employees of alleged SOEs.

For the reasons stated above in terms of the FCPA’s enacting legislative history, this suggestion is off-base and not supported by any explicit statement in the FCPA’s voluminous enacting legislative history.

The inference in the 11th Circuit’s decision is that the FCPA changed – presumably through a process of osmosis – because the U.S. signed the OECD Convention.  Taking the court’s rationale to its logical conclusion, does the FCPA no longer have an express facilitation payment exception because the Convention does not?  Does the FCPA no longer apply to payments made to political parties because the Convention does not?  Congress surely did not change through osmosis the scope and meaning of the FCPA on these issues despite its generic references to the Convention in the 1998 amendments.

*****

Throughout the “foreign official” challenges, the DOJ advanced the argument that a decision contrary its position (i.e. that employees of SOEs are not “foreign officials”) would result in the U.S. being out of compliance with its OECD Convention obligations.

This has been a red-herring argument all along.  Another another U.S. law, the Travel Act, which the DOJ has often used in connection with FCPA enforcement actions, can capture payments outside the context of “foreign officials” and is capable of capturing payments to SOE officials as contemplated by the OECD Convention.

Moreover, the DOJ’s position ignores the fact that courts in other OECD Convention countries have concluded that employees of alleged SOEs are not “foreign officials.”  (See here for a previous guest post regarding the issue in Korea).

Nevertheless, the 11th Circuit accepted the DOJ’s red herring argument and incorrectly concluded that it was “constrained to interpret ‘instrumentality’ under the FCPA so as to reach the types of officials the United States agreed to stop domestic interests from bribing when it ratified the OECD Convention.”  Elsewhere, the court stated that to interpret instrumentality to exclude SOEs “would put the United States out of compliance with its international obligations.”

Neither statement is true.

Alleged Bribes For Buses, However A Bumpy Road For The DOJ

Thursday, May 8th, 2014

[This post is part of a periodic series regarding "old" FCPA enforcement actions]

This post highlights related Foreign Corrupt Practices Act enforcement actions brought by the DOJ in the early 1990s concerning an alleged scheme to sell buses to the Saskatchewan, Canada Transportation Company (STC), an alleged instrumentality of the Canadian government.

The enforcement action was a bumpy road for the DOJ.  Among other things, both the trial court and appellate court rebuked the DOJ’s position that the alleged “foreign officials” could be charged with conspiracy to violate the FCPA and both decisions contain an extensive review of the FCPA’s legislative history.  As to the alleged bribe payors, two defendants put the DOJ to its burden of proof at trial and were acquitted.

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In March 1990, the DOJ charged George Morton in this criminal information with conspiracy to violate the FCPA’s anti-bribery provisions. Morton is described as a Canadian national agent who represented Texas-based Eagle Bus Manufacturing Inc. (a subsidiary of issuer Greyhound Lines, Inc.) in connection with the sale of buses in Canada.  According to the information, Morton conspired with others in paying $50,000 to alleged Canadian “foreign officials” to obtain or retain business for Eagle Bus in violation of the FCPA.

The foreign officials were Darrell Lowry and Donald Castle, both Canadian nationals, and the Vice-President and President, respectively, of Saskatchewan Transportation Company (STC), an alleged instrumentality of the government of the Province of Saskatchewan.

The information specifically alleged that Morton requested “that Eagle pay money, in the sum of approximately two percent of the purchase price of 11 buses to be purchased by STC from Eagle, to officials of STC in order to ensure that Eagle received a contract for the sale of the buses.”  The information also alleged that Morton and others “offered, promised and agreed to pay, and authorized the payment of money to officials of the government of the Province of Saskatchewan in order for Eagle to obtain and retain a contract to sell buses to STC.”

According to the information, Morton and his conspirators used “various methods to conceal the conspiracy in order to insure the continuing existence and success of the conspiracy, including but not limited to: preparing and using false invoices and other documentation; and arranging to have an STC check drawn payable to a corporation owned and controlled by Morton and converting the proceeds into Canadian currency.”

The information alleges, as to overt acts among other things, that Morton traveled from Canada to Texas “to discuss the payment of money to officials of STC in order to obtain and retain a contract to sell the 11 buses.”

In this plea agreement, Morton pleaded guilty and agreed to cooperate with the DOJ.

This “Factual Resume” in the Morton case suggests that the purchase price of the buses was approximately $2.77 million.  It further suggests that Lowry told Morton “that a payment of Canadian $50,000 would be necessary in order for Eagle to ensure that the bus contract would be approved by STC’s Board of Directors” and that “Morton, whose compensation from Eagle was dependent upon the transaction being completed, agreed to attempt to obtain Eagle’s agreement to make the requested payment.” The Factual Resume further suggested that, while in Texas, “Morton met with Eagle’s President, John Blondek, and with Vernon Tull, a Vice-President of Eagle” and that “at the meeting, it was agreed that the requested payment would be made.”

A few days after Morton pleaded guilty, the DOJ filed this criminal indictment against Blondek and Tull (the Eagle executives) and Castle and Lowry (the alleged “foreign officials”).

The allegations were based on the same core conduct alleged in the Morton information and the indictment charged all defendants with conspiracy to violate the FCPA’s anti-bribery provisions.  Original source media reports suggest that videotaped evidence existed in which Tull told an official at Greyhound (who helped the FBI arrange the videotaped exchange) that Lowry was accepting the money for “political purposes.”

Castle and Lowry moved to dismiss the charge against them on the basis that “as Canadian officials, they cannot be convicted of the offense charged against them.”  In this June 1990 Memorandum Opinion and Order (741 F.Supp. 116), the trial court granted the motion.  The issues, as framed by the court, were as follows.

“[It is undisputed] that Defendants Castle and Lowry could not be charged with violating the FCPA itself, since the Act does not criminalize the receipt of a bribe by a foreign official.  The issue here is whether the government may prosecute Castle and Lowry under the general conspiracy statute, 18 USC 371, for conspiring to violate the FCPA.  Put more simply, the question is whether foreign officials, whom the government concedes it cannot prosecute under the FCPA itself, may be prosecuted under the general conspiracy statute for conspiring to violate the Act.”

By analogizing to a prior Supreme Court [Gebardi v. U.S.] which addressed a similar issue, the court stated:

“Congress intended in both the FCPA [and the statute at issue in Gebardi] to deter and punish certain activities which necessarily involved the agreement of at least two people, but Congress chose in both statute to punish only one party to the agreement.  In Gebardi the Supreme Court refused to disregard Congress’ intention to exempt one party by allowing the Executive to prosecute that party under the general conspiracy statute for precisely the same conduct.  Congress made the same choice in drafting the FCPA, and by the same analysis, this Court may not allow the Executive to override the Congressional intent not to prosecute foreign officials for their participation in the prohibited acts.”

The court next reviewed the FCPA’s legislative history and concluded that “Congress had absolutely no intention of prosecuting the foreign officials involved, but was concerned solely with regulating the conduct of U.S. entities and citizens.”

In rejecting the DOJ’s position, the court stated, among other things as follows.

“… Congress knew it had the power to reach foreign officials in many cases, and yet declined to exercise that power.  Congress’s awareness of the extent of its own power reveals the fallacy in the government’s position that only those classes of persons deemed by Congress to need protection are exempted from prosecution under the conspiracy statute.  The question is not whether Congress could have included foreign officials within the Act’s proscriptions, but rather whether Congress intended to do so, or more specifically, whether Congress intended the general conspiracy statute, passed many years before the FCPA, to reach foreign officials.”  (emphasis in original).

The court then stated:

“The drafters of the statute knew that they could, consistently with international law, reach foreign officials in certain circumstances. But they were equally well aware of, and actively considered, the “inherent jurisdictional, enforcement, and diplomatic difficulties” raised by the application of the bill to non-citizens of the United States. See H.R.Conf.Rep. No. 831, 95th Cong., 1st Sess. 14, reprinted in 1977 U.S. Cong. & Admin.News 4121, 4126. In the conference report, the conferees indicated that the bill would reach as far as possible, and listed all the persons or entities who could be prosecuted. The list includes virtually every person or entity involved, including foreign nationals who participated in the payment of the bribe when the U.S. courts had jurisdiction over them. Id. But foreign officials were not included.

It is important to remember that Congress intended that these persons would be covered by the Act itself, without resort to the conspiracy statute. Yet the very individuals whose participation was required in every case—the foreign officials accepting the bribe—were excluded from prosecution for the substantive offense. Given that Congress included virtually every possible person connected to the payments except foreign officials, it is only logical to conclude that Congress affirmatively chose to exempt this small class of persons from prosecution.

Most likely Congress made this choice because U.S. businesses were perceived to be the aggressors, and the efforts expended in resolving the diplomatic, jurisdictional, and enforcement difficulties that would arise upon the prosecution of foreign officials was not worth the minimal deterrent value of such prosecutions. Further minimizing the deterrent value of a U.S. prosecution was the fact that many foreign nations already prohibited the receipt of a bribe by an official. See S.Rep. No. 114 at 4, 1977 U.S. Cong. & Admin.News at 4104 (testimony of Treasury Secretary Blumenthal that in many nations such payments are illegal). In fact, whenever a nation permitted such payments, Congress allowed them as well.

Based upon the language of the statute and the legislative history, this Court finds in the FCPA what the Supreme Court in Gebardi found in the Mann Act: an affirmative legislative policy to leave unpunished a well-defined group of persons who were necessary parties to the acts constituting a violation of the substantive law. The Government has presented no reason why the prosecution of Defendants Castle and Lowry should go forward in the face of the congressional intent not to prosecute foreign officials. If anything, the facts of this case support Congress’ decision to forego such prosecutions since foreign nations could and should prosecute their own officials for accepting bribes. Under the revised statutes of Canada the receipt of bribes by officials is a crime, with a prison term not to exceed five years, see Criminal Code, R.S.C. c. C–46, s. 121 (pp. 81–84) (1985), and the Royal Canadian Mounted Police have been actively investigating the case, apparently even before any arrests by U.S. officials. Defendant Castle’s and Lowry’s Supplemental Memorandum In Support of Motion to Dismiss, filed May 14, 1990, at 10. In fact, the Canadian police have informed Defendant Castle’s counsel that charges will likely be brought against Defendants Castle and Lowry in Canada. Id. at 10 & nn. 3–4. Thus, prosecution and punishment will be accomplished by the government which most directly suffered the abuses allegedly perpetrated by its own officials, and there is no need to contravene Congress’ desire to avoid such prosecutions by the United States.

As in Gebardi, it would be absurd to take away with the earlier and more general conspiracy statute the exemption from prosecution granted to foreign officials by the later and more specific FCPA. Following the Supreme Court’s admonition in an analogous criminal case that “[a]ll laws are to be given a sensible construction; and a literal application of a statute, which would lead to absurd consequences, should be avoided whenever a reasonable application can be given to it, consistent with the legislative purpose,” [...] the Court declines to extend the reach of the FCPA through the application of the conspiracy statute.”

Accordingly, Defendants Castle and Lowry may not be prosecuted for conspiring to violate the Foreign Corrupt Practices Act, and the indictment against them is Dismissed.”

It is also interesting to note that the trial court observed as follows regarding the FCPA’s legislative history.

“The legislative history repeatedly cited the negative effects the revelations of such bribes had wrought upon friendly foreign governments and officials.  [...]  Yet the drafters acknowledged, and the final law reflects this, that some payments that would be unethical or even illegal within the United States might not be perceived similarly in foreign countries, and those payments should not be criminalized.”

The DOJ appealed the trial court’s dismissal of the conspiracy charge against Castle and Lowry. In this March 1991 5th Circuit opinion (925 F.2d 831) the court stated:

“We hold that foreign officials may not be prosecuted under 18 USC 371 for conspiring to violate the FCPA.  The scope of our holding, as well as the rationale that undergirds it, is fully set out in [the trial court opinion] which we adopt and attach as an appendix hereto.”

In this July 1991 superseding indictment, the DOJ charged Blondek and Tull with conspiracy to violate the FCPA’s anti-bribery provisions, Blondek with two substantive FCPA anti-bribery violations and Tull with three substantive FCPA anti-bribery violations.  In addition, the superseding indictment charged Blondek, Tull, Castle and Lowry with violating 18 USC 1952 (interstate and foreign travel or transportation in aid of racketeering enterprises – also known as the Travel Act).

In October 1991, the DOJ filed this Civil Complaint for Permanent Injunction against Eagle Bus based on the same core conduct. Without admitting or denying the allegations in the complaint, in this Consent and Undertaking Eagle Bus agreed to a Final Judgment of Permanent Injunction enjoining the company from future FCPA violations.  Of note, the Consent and Undertaking states:

“[Eagle Bus] has cooperated completely with the Department of Justice in a criminal investigation arising from the circumstances described in the complaint [...] and will continue to cooperate.  The DOJ has agreed that, in the event neither Eagle Bus, nor its parent corporation Greyhound Lines shall violate the FCPA during the period of the following three years, the DOJ will not object to the defendant’s subsequent motion to dissolve the permanent injunction.”

This February 1992 DOJ Motion for Downward Departure in Morton’s case states as follows.

“Morton cooperated with the United States in the investigation and indictment of defendants John Blondek, Donald Castle, Darrell Lowry and Vernon Tull.  Blondek and Tull were tried and acquitted of all charges on October 12, 1991.  Castle and Lowry have not been been apprehended and remain fugitives.  Morton rendered substantial assistance to the United States in the preparation and prosecution of the case against Blondek and Tull.  [...]  Morton also appeared as a witness for the Crown in criminal proceedings in Regina, Saskatchewan, Canada, against Castle and Lowry.  The United States is informed that Morton was of substantial assistance in that case.  In the Canadian case, Castle was acquitted of all charges, while Lowry was convicted of all charges.  Lowery has been sentenced to approximately 16 months incarceration.”

Morton was sentenced to three years probation.

According to docket entries, in April 1996, the DOJ moved to dismiss the charges against Castle and Lowry.

Other than a single sentence in the above mentioned DOJ motion for a downward departure in the Morton case, I was unable to find any public reporting or reference to the Blondek and Tull trial in which they were acquitted of all charges.  There is no reference to the trial on the DOJ’s FCPA website and efforts to learn more about the trial from former DOJ enforcement attorneys or those representing Eagle Bus were either not fruitful or unsuccessful.

FCPA trials are rare.  Thus if anyone has any information about the Blondek and Tull trial, please contact me at fcpaprofessor@gmail.com.

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One final note about the “buses for bribery” enforcement action.  In an original source media article, George McLeod, the provincial cabinet minister responsible for STC, said “he has seen no information that Saskatchewan paid an inflated price for the luxury buses.”  He is quoted as follows.  ”I don’t think the product is on trial.  As far as I’m aware, we received an excellent product for the price.”

“Corporate Bribery Is Not The Simple, Safe Issue It Seems At First Blush”

Tuesday, May 6th, 2014

I tend to read the news with Foreign Corrupt Practices Act goggles on.  It’s an occupational hazard that sometimes is annoying, but often rewarding.

Although the FCPA was not mentioned in a recent Wall Street Journal article “Can Moguls Untangle Nigeria’s Power Lines?,” the article is interesting from so many angles relevant to the issues discussed on this website and highlights that FCPA issues are multi-faceted legal and policy issues involving multiple actors and are often not as simple as some seem to suggest.

Indeed, the article reminded me of one of my favorite statements from the FCPA’s legislative history by Theodore Sorensen:

“Corporate bribery abroad is not the simple, safe issue it seems at first blush. [...]  [T]here will be countless situations in which a fair-minded investigator or judge will be hard-put to determine whether a particular payment or practice is a legitimate and permissible business activity or a means of improper influence [...]  Reasonable [persons] and even angels will differ on the answers to these and similar questions. At the very least such distinctions should make us less sweeping in our judgments and less confident of our solutions.”

(See here for the “Story of the Foreign Corrupt Practices Act”)

Prior to discussing the article, I want to make crystal clear that the recent Wall Street Journal article does not accuse any companies or individuals of any wrongdoing, nor am I. Rather, I am merely using the general issues discussed in the article to highlight various issues relevant to the FCPA and related issues.

The article highlights how Nigeria’s electrical system is dismal and in disrepair.  According to the article, ”the result:  Nigeria produces less than half as much electricity as North Dakota for 249 times more people.  Blackouts strike 320 days a year.”  If the electrical system is modernized, the article notes, “airlines will be able to land after sunset” and “schoolchildren will do their homework after dark.”

Let’s assume for purpose of this post, that in connection with the modernization of Nigeria’s electrical system, Company A involved in the project (a company that is otherwise viewed as selling the best product for the best price) makes an improper payment to a Nigerian “foreign official” to motivate the “foreign official” to select the company’s product for the modernization. This conduct leads to an FCPA enforcement action against Company A and those who claim all FCPA enforcement actions must involve a “victim” will say that the Nigerian people have been victimized, their human rights violated, and some will even request that the FCPA settlement amount be diverted to the Nigerian “victims.”

Without in any way countenancing the above hypothetical payments, I struggle to find any “victims” from a modernized Nigerian electrical system.

Some will say, but wait, because of the improper payment, inferior product will be incorporated into Nigeria’s electrical system (the lines will crumble, electrical fires will ensure, people will be injured).  At least so goes the conventional rhetoric surrounding bribery issues.  Yet recall that Company A is otherwise viewed as selling the best product for the best price and its goods are used the world over because they are the best.

Some will still say, but wait, because of the improper payment, the Nigerian government ended up paying more for the electrical upgrade then it would have paid but for the hypothetical improper payment.  But what if the Nigerian government selected Company A’s product because it was actually cheaper because, by selecting Company A, the Nigerian government availed itself of low interest loans from the Export-Import Bank of the U.S. which titled the balance in favor of Company A?

Again, without in any way countenancing the above hypothetical payments, I struggle to find any “victims” when a foreign government pays a lower price for a better product and indeed is incentivized to choose the product by the U.S. government.

What about the role of the U.S. government?

Is the U.S. government not seeking to influence an act or decision of a foreign official to favor a U.S. company through low interest loans?  After all, the Export-Import Bank low interest loans in Nigeria are in furtherance of President Obama’s $7 billion “Power Africa” initiative.  (See here).

As noted in this prior post, the U.S. government bears some responsibility when it comes to certain circumstances that result in FCPA scrutiny.  Indeed, several FCPA enforcement actions (see herehere and here for instance) have involved conduct in connection with U.S. government financing programs.  There is an irony of course in the U.S. government encouraging companies to do business in certain countries because it serves U.S. interests.  Then when the company does business in that country and encounters business conditions that the U.S. government no doubt knew it was going to encounter, the company then becomes the subject of a U.S. law enforcement inquiry.

Reading the recent Wall Street Journal article about transforming Nigeria’s electrical system with FCPA goggles on was rewarding in that it reminded me of the multi-faceted legal and policy issues involving multiple actors that are often relevant to the issues discussed on this website.

As Theodore Sorensen said ”corporate bribery abroad is not the simple, safe issue it seems at first blush.”

FCPA Readings

Wednesday, March 12th, 2014

If your idea of a good time is cuddling up with an entire law journal volume devoted to the Foreign Corrupt Practices Act, then this post is for you.

Even if that is not your idea of a good time, if you are the least bit interested in the FCPA and its evolution, then you owe it to yourself to get your hands on the Fall 1982 edition of the Syracuse Journal of International Law and Commerce, a symposium volume titled “The Foreign Corrupt Practices Act:  Domestic and International Implications.”

This post previously highlighted the speech by Richard Shine (Chief, Multinational Fraud Branch, Criminal Division, U.S. Department of Justice – the name given to the DOJ’s then de facto FCPA Unit) in the volume.

This recent post highlighted the speech by Frederick Wade (Chief Counsel, SEC Enforcement Division) in the volume.

The remainder of this post highlights notable aspects of other articles found in the Fall 1982 edition of the Syracuse Journal of International Law and Commerce.

In “An Overview of the FCPA,” Wallace Timmeny (the former Deputy Director, SEC Division of Enforcement and at the time a lawyer in private practice) rightly identified the foreign policy concerns which motivated Congress to pass the FCPA:

“Concerns were expressed that our government was faced with foreign policy determinations and decisions made by American corporations.  In other words, some of our corporations were affecting foreign policy and there was also the overriding concern that the whole idea of foreign payments or corruption in business was really putting an arrow in the bow of the countries that oppose our system.”

For more on this primary motivation of Congress in enacting the FCPA, and how the FCPA was thus not a purely altruistic act, see my article “The Story of the Foreign Corrupt Practices Act.”

In “An Examination of the Accounting Provisions of the FCPA,” Lloyd Feller (the former Associate Director of the SEC’s Division of Market Regulation and at the time a lawyer in private practice) nicely touched upon the FCPA’s books and records and internal controls provisions and how they created much controversy at the time.

“Let me try to put into context the controversy surrounding the accounting provisions.  First, it is important to understand that the accounting provisions are part of the Securities Exchange Act of 1934, and apply to all issuers which register securities with the SEC.  The provisions apply to all such issuers, whether or not they do business overseas.  The Act, as it is applied through the accounting provisions, has absolutely nothing to do with foreign corrupt practices; it has to do with accounting, including the maintenance of books and records, and the establishment and maintenance of a system of internal accounting controls.”

“I think it is important to start with the understanding of how the Act was presented to the corporate community at the time it was passed, because the context in which the words were used and the purpose for which the accounting provisions were intended create the great controversy.  It is important to understand that people who never heard of the bribery of foreign officials woke up one day and found that an Act had just been passed which applied to them in very significant ways.  This was an Act which they had never heard of, had never thought involved them, had never paid any attention to, and had never understood.  They listened to the lawyers and accountants explain it to them and still did not understand.”

In “The SEC Interpretative and Enforcement Program Under the FCPA,” John Sweeny (former Assistant General Counsel of the SEC and at the time a lawyer in private practice) rightly noted:

“The SEC did not actively support the bribery provisions of the Foreign Corrupt Practices Act.  Indeed, it’s not entirely clear that they have any interest in prohibiting bribery per se.”

Sweeny also nicely touched upon a prosecutorial common law issue that remains today.

“The corporate community cannot sit back and wait to see how the law develops.  Because it makes sound business sense to comply with federal regulatory authorities without a public clamor, corporations must confirm their activity in ways which the agency requires.  To do otherwise would mean that the corporations would be risking substantial litigation expenses and adverse publicity.”

In ”International Aspects of the Control of Illicit Payments,” Professor Seymour Rubin assessed the then current state of the FCPA.

“The course of events in this particular area has been long, but it has not yielded much in the way of result.  Whether the FCPA has yielded a great deal in the way of results, I leave to all of you who have considered the matter.  Certainly it has yielded much in the way of instruction to people in various corporations.  I am somewhat impressed by the amount of paper which has been produced on this subject.  It reminds me again of the old saying to the effect that when the weight of the paper equals the weight of the airplane, the airplane will fly.”

Professor Rubin also rightly identified bribery and corruption as a trade issue and particularly how Senate Resolution 265 sponsored by Senator Ribicoff during the FCPA’s legislative debate was the most promising way to deal with the bribery and corruption problem.  For more on Senate Resolution 265, see the Story of the Foreign Corrupt Practices Act (pgs. 982-984).

“[Senator Ribicoff's proposal - Senate Resolution 265] was more realistic than some of the other proposals.  In particular, Senator Ribicoff argued that bribes, as well as similar practices, represent distortions of proper trade practices.  Under this premise, the members of the General Agreement on Tariffs and Trade would be the appropriate group to consider the question of illicit payments and bribes that distort the fair competition desirable in the field of international trade.  In other words, just as dumping and subsidization distort normal competition, so too does the practice of making illicit payments.  This premise served as the basis upon which the issue was to be presented at the GATT conference.  But when a special trade representative presented Senator Ribicoff’s proposal before the GATT conference, he was greeted with polite silence.  The GATT, in 1979, concluded a multilateral trade negotiation.  Among other things, this multilateral trade negotiation dealt with trade-distorting practices such as nontariff barriers, the question of government procurement, dumping codes, and the anti-subsidy or subsidies and countervailing duties.  It would seem that the multilateral trade negotiation would have been a legitimate arena in which to discuss the subject, as being one more example of a trade distortion which ought to be regulated.”

“I think if one were to rexamine the idea presented in Senate Resolution 265 and adopt this in the area of trade, one would be addressing the problem of illicit payments in more meaningful and significant terms.  When a large contract is lost by an American corporation because somebody else paid a bribe, a trade distortion results.  Clearly, if one were really serious about achieving a meaningful agreement in the area of international control of illicit payments, the peg on which to hang it would be trade policy and not morality.”

In “The Foreign Corrupt Practices Act:  Implications for the Private Practitioner,” Robert Primoff (a lawyer in private practice) called the FCPA a “prosecutor’s paradise” and observed:

“The target is always guilty of the violation.  The government has the option of deciding whether or not to prosecute.  For practitioners, however, the situation is intolerable.  We must be able to advise our clients as to whether their conduct violates the law, not whether this year’s crop of administrators is likely to enforce a particular alleged violation.  That would produce, in effect, a government of men and women rather than a government of law.”

If the Fall 1982 edition of the Syracuse Journal of International Law and Commerce does not completely fill your FCPA belly, you might also want to check out Volume 18, Number 2 of the Northwestern Journal of International Business (Winter 1998).

It is a symposium edition titled “A Review of the Foreign Corrupt Practices Act on Its Twentieth Anniversary:  Its Application, Defense and International Aftermath.“  The articles are rather pedestrian, but Stanley Sporkin’s (the former Director of the SEC’s Enforcement Division during Congress’s consideration and deliberation of the FCPA) article “The Worldwide Banning of Schmiergeld:  A Look at the Foreign Corrupt Practices Act On Its Twenieth Birthday” is worth a read as he provides a first-person account of the origins of the FCPA. [In case you are wondering Schmiergeld is the German word for bribe].

See here for a prior post detailing articles in a 2012 symposium edition of the Ohio State Law Journal “The FCPA At Thirty-Five and Its Impact on Global Business.”