Archive for the ‘Victims’ Category

A Suggested Read On A Variety Of Topics

Monday, November 10th, 2014

Read ThisSeveral prior posts (here, here, and here) have focused on basic causation issues in connection with many Foreign Corrupt Practices Act enforcement actions.

The lack of causation between an alleged bribe payment and any alleged business obtained or retained is not a legal defense because the FCPA’s anti-bribery provisions prohibit the offer, payment, promise to pay or authorization of the payment of any money or thing of value.  Indeed, several FCPA enforcement actions have alleged unsuccessful bribery attempts in which no business was actually obtained or retained.

Nevertheless, causation ought to be relevant when calculating FCPA settlement amounts, specifically disgorgement.  However, the prevailing FCPA enforcement theory often seems to be that because Company A made improper payments to allegedly obtain or retain Contract A, then all of Company A’s net profits associated with Contract A are subject to disgorgement.

Call it the “but for” theory. “But for” the alleged improper payments, Company A would not have obtained or retained the business.

However, this basic enforcement theory ignores the fact that Company A (as is often the case in FCPA enforcement actions) is generally viewed as selling the best product for the best price and because of this, or a host of other reasons, probably would have obtained or retained the business in the absence of any alleged improper payments.

If this general issue is of any interest to you (and it ought to be because it is instructive on many levels) you should read a recent U.K. decision in a civil case arising out of the same core facts alleged in the 2010 FCPA enforcement action against Innospec (see here for the prior post).

In addition, if the so-called “victim” issue in FCPA enforcement actions is of interest to you (i.e. because the FCPA involves bribery and corruption, when there is an FCPA enforcement action, there must be a victim) , you also should read the recent U.K. decision because it is instructive on this issue as well.

Prior to discussing the recent U.K. decision, a bit of background is necessary.

In 2010, Innospec agreed to pay approximately $26 million to resolve DOJ and SEC enforcement actions (see here).  The conduct was wide-ranging in that the enforcement action involved alleged violations of U.S. sanctions regarding doing business in Cuba in addition to alleged conduct in violation of the FCPA.  Even as to the FCPA conduct, the enforcement action was wide-ranging and included “standard” Iraq Oil-for-Food allegations found in a number of previous enforcement actions (i.e. inflated commission payments to an agent which were then used to pay kickbacks to the government of Iraq) as well as alleged conduct in Indonesia.

The bulk of the enforcement action though concerned DOJ allegations that Ousama Naaman (Innospec’s agent in Iraq) paid various bribes to officials in Iraq’s Ministry of Oil (“MoO”) to “ensure” that a competitor’s product “failed a field trial test and therefore would not be used by the MoO” as well as other allegations that Naaman paid other bribes to officials of the MoO to obtain and retain contracts with MoO on Innospec’s behalf.

The DOJ’s criminal information alleged (or perhaps merely assumed) a casual connection between the alleged bribes and the failed field test, as well as two specific contracts: a 2004 Long Term Purchase Agreement (“LTPA”) and a 2008 Long Term Purchase Agreement.

As often happens in this day and age, an Innospec competitor used the core conduct alleged in the DOJ’s enforcement action “offensively” in bringing civil claims against Innospec and various individuals in a U.K. court.

As highlighted in the U.K. decision, the claims were brought by a Jordanian company which alleged that Innospec “conspired to injure the claimants by engaging in corrupt practices, in particular the bribery of officials within the [MoO] with the intention of inducing its refineries to buy TEL rather than MMT …”.

TEL refers to a lead based fuel additive called tetraethyl lead and MMT refers to methylcyclopentadienyl manganese tricarbonyl, a product developed as a manganese based octane boosting and antiknock additive which was less toxic than TEL.

The U.K. decision is extremely dense as to the facts and circumstances surrounding the MoO’s decision to use TEL vs. MMT.

Relevant to the “but for” causation topic of this post, and as described by the U.K. court, the claimants “claim damages for the losses they allege they have suffered as a consequence of the conspiracy on the basis that, but for the bribery and corruption, the MoO would have started to purchase MMT ….”.  As further described by the U.K. court, ”the claimants also allege that between 2002 and 2008 payments were authorized by Innospec for travel and other expenses, including pocket money for Iraqi officials to incur goodwill and ensure continued orders of TEL.”

In the words of the U.K. court, in order for the claims to succeed, the claimants had to establish, among other things, that the decision to replace TEL with MMT “was not implemented because the promise of bribes by Mr. Naaaman procured the MoO to enter into the 2004 LTPA and that prevented sales of MMT” and “that, but for the promise of bribes, the decision would have been implemented and the MoO would have replaced TEL with MMT from early 2004 onwards, so that the counterfactual scenario on which the claim is based would have occurred.”  (Confusing verbiage to be sure, but that is what the decision says).

As noted in the U.K. decision, Innospec denied that bribes or the promise of bribes induced the 2004 LTPA, lead to the requirement of the field test or its result, or induced the 2008 LTPA.  Innospec argued that despite its admissions in the FCPA enforcement actions, the “court must look carefully and analytically at the evidence there is as to what bribes were paid and promised and when and whether any bribes paid or promised actually led to a decision different from that which would have been made anyway.”

In short, instead of merely alleging or assuming causation between alleged bribe payments and business or other benefits like the U.S. did in the FCPA enforcement action, the U.K. court held approximately 15 days of hearings with multiple witnesses to actually determine if there was a casual link between the alleged bribe payments or other benefits that Innospec obtained.

The end result of this process is that the U.K. court did not find any casual links and indeed found false certain allegations in the DOJ’s FCPA enforcement action.

For instance, as to the DOJ’s allegations that “Naaman, on behalf of Innospec, paid approximately $150,000 in bribes to officials of the MoO to ensure that MMT … failed a field trial test and therefore would not be used by the MoO as a replacement for TEL,” the U.K. court concluded that Naaman never made such payments.  Indeed, the U.K. court noted Naaman’s admission (which occurred after resolution of Innospec’s FCPA enforcement action) ”that he had never in fact paid the U.S. $150,000 in bribes to MoO officials to fail the field test, but had simply pocketed the money himself.”

In the words of the court, ”this has an important impact on the issue of causation.”

Regarding Innospec’s admission in the FCPA enforcement action that Naaman did indeed make such payments, the U.K. court stated:

“Unbeknownst to Innospec at the time they admitted these allegations, Mr. Naaman never in fact paid any of these monies to Iraqi officials, but notwithstanding that, Innospec had committed the relevant offense under the Foreign Corrupt Practices Act by making payments to him, believing they were reimbursing him for bribes paid, even though in truth they were not.”

In the words of the U.K. court, Naaman became upset that Innospec was not reimbursing him for certain expenses he viewed as being owed to him and that Naaman “saw the field test on MMT as an opportunity to recoup those expenses and informed Innospec that he proposed bribing the Iraqi engineers to fail the field test.  Innospec readily agreed and paid him some U.S. $150,000, expecting it would be used for bribes.  He kept the funds himself, believing that MMT would fail the field test [...]  On the material before the court, this was the first time it had emerged (some 10 months after Innospec signed the [U.S.] Plea Agreement) that money Innospec had paid to Mr. Naaman believing he had paid or promised to pay bribes was not so paid but simply pocketed by him.”

Regarding the 2004 LTPA that the DOJ alleged was a result of alleged improper payments to Iraqi officials, the U.K. court first noted the following about the U.S. invasion of Iraqi:

“[T]he U.S. authorities put Kellogg, Brown & Root in charge of procurement for the requirements of the Iraqi refineries, effectively replacing the finance department within the MoO.  All spending had to be approved by KBR which was the only entity which could actually conclude contracts and purchase products.”

“It seems to me that claimants’ case overlooks the fact that any switch to MMT would have had to be approved by KBR, and the weight of evidence at this time in August 2003 and thereafter is that KBR was not particularly enamoured of MMT, pointing strongly to the likelihood that, even if the claimants were right that there was a decision to continue with TEL and not to switch to MMT, which was in some way induced by bribery, the MoO may well have been driven to the same decision irrespective of bribery, because of the attitude of KBR.”

Elsewhere, the U.K. court termed it “fanciful in the extreme” certain of claimants’ evidence which sought to establish causation between the alleged bribes and business to Innospec.

In short, the U.K. court concluded that the 2004 LTPA was not procured by bribery.  Further the U.K. court stated:

“[T]he decision to enter the LTPA had to be and was endorsed by the American authorities .  Since there is no basis for saying that they were corrupted by the payment or promise of bribes, that is further demonstration that the LTPA was not procured by bribery.”

Indeed, in the words of the U.K. court, “bribery [was] the least likely explanation” for certain MoO decisions regarding the conduct at issue.  Elsewhere, the court stated that any suggestion that considerations made by the MoO “was induced or influenced by bribery by Innospec would be frankly ridiculous” and a “logical non-sequitur and a step too far.”

In closing, the U.K. court stated that even if it were wrong – and that the 2004 LTPA was procured by bribery ” that the MOO would always have followed the course they did, of continuing to use TEL given the octane boost they needed …”.

In terms of the 2008 LTPA, the U.K. court found that “no orders were ever placed under the LTPA, since the investigations by the U.S. authorities intervened.”

In short, what happened in the U.K. action was rather remarkable.

Certain facts alleged in a DOJ FCPA enforcement were subjected to an adversarial process and the resulting judicial scrutiny found certain facts false.  Moreover, instead of merely alleging or assuming causation, as if often the case in FCPA enforcement actions as relevant to determining settlement amounts, the U.K. court analyzed causation and found it lacking.

The U.K. action is also instructive when it comes to analyzing whether there are so-called “victims” in all FCPA enforcement actions.  In the past several years, there has been calls by some for portions of FCPA settlement amounts to be paid out to “victims” of the conduct alleged in the FCPA enforcement action.  (See here and here for prior posts). The general theory seems to be – for example – that if an FCPA enforcement action alleges bribes paid in Nigeria, Nigerian citizens must therefore be the “victims” of the conduct and thus somehow entitled to compensation.

As highlighted in prior posts, while this proposal “feels good,” it is not warranted for many different reasons.  In short, this proposal assumes two things:  (i) that FCPA enforcement actions always represent provable FCPA violations; and (ii) that there is a always a casual connection between the alleged bribes influencing “foreign official” conduct, that then always causes harm to the citizens of the “foreign official’s” country.

As to the first issue, such an assumption is not always warranted given that the vast majority of FCPA enforcement actions are resolved via non-prosecution agreements, deferred prosecution agreements, neither admit nor deny SEC settlements, or SEC administrative orders.  These resolution vehicles often represent the end result of a risk adverse business decision, not necessarily provable FCPA violations.  For instance, in the words of the Second Circuit, SEC neither admit nor deny settlements are not about the truth, but pragmatism.  For this reason, a typical FCPA resolution vehicle should not automatically trigger other actions or issues (whether plaintiff litigation, whistleblower bounties, or payments to an ill-defined group of alleged victims).

As to the second issue, such an assumption is also not always warranted.  Several FCPA enforcement actions fit into one of the following categories: (i) unsuccessful bribery attempts; (ii) payments to receive what the company was otherwise legitimately owed by a foreign government; or (iii) other situations where – for a variety of reasons – there would seem to be a lack of causation between the alleged bribes influencing “foreign official” conduct, that then causes harm to the citizens of the “foreign official’s” country. Indeed, most corporate FCPA enforcement actions involve companies that are otherwise viewed as selling the best product for the best price.  Moreover, as highlighted in this prior post, in one FCPA enforcement action a court found that an alleged bribery scheme benefited a foreign country.

Despite the above observations which I have long held, the failed field test allegations in the Innospec FCPA enforcement action legitimately caused me to ponder victim issues in FCPA enforcement actions.  After all, the DOJ alleged that Iraqi MoO officials were induced to sabotage a field test of a competitor product that resulted in the more harmful product, from a public health standpoint, to stay on the market.

It was a relatively convincing casual connection between an FCPA enforcement action and potential victims.

However, as highlighted above, the U.K. court found the failed field test allegation false and otherwise found deficient other causal links between other alleged conduct and actual business or benefits obtained or retained.

In short, the U.K. action should instruct the proponents of “victim” compensation that hinging a policy proposal on FCPA resolution documents is not always sound or warranted.

When The Government Does Not Pay

Thursday, September 11th, 2014

Reading the news with FCPA goggles on is an occupational hazard.

So it was when reading this recent Wall Street Journal concerning the dysfunctional Venezuelan government and the impact on air travel in the country.  According to the article”the cash-strapped government [is] holding back on releasing $3.8 billion in airline-ticket revenue because of strict currency controls,” and because of this, international airlines “have slashed service to Venezuela by half since January, adding another layer of frustration to daily life” in Venezuela.  The article further states that “despite several months of talks over the money Venezuela owes to airlines, little progress has been made” and that “about two-thirds of the 24 airlines that are affected, including those with the most money tied up in Venezuela, haven’t reached a payment agreement with the state.”  The article adds that those airlines “that have reached deals lack guarantees that the funds will be released.”

The question is posed:  can Foreign Corrupt Practices Act issues arise if a company makes payments to a foreign official who refuses, in the absence of such payments, to release funds legitimately owed to the company?

Your mind is probably wondering through the statutory elements.

Corrupt intent.

Congress tells us in the FCPA’s legislative history that “the word ‘corruptly’ connotes and evil motive or purpose.” How can seeking what one is legally entitled to receive evil?

Obtain or retain business.

In U.S. v. Kay, the 5th Circuit did conclude that payments outside the context of foreign government procurement “could” violate the FCPA, but only if payments were intended to lower a company’s cost of doing business enough to assist the company in “obtaining or retaining” business.  Specifically, the court stated:

“If the government is correct that anytime operating costs are reduced the beneficiary of such advantage is assisted in getting or keeping business, the FCPA’s language that expresses the necessary element of assisting in obtaining business would be unnecessary, and thus surplusage – a conclusion we are forbidden to reach.”

Thus, how can seeking what one is legally entitled to receive satisfy the “obtain or retain business” element?

Facilitating payments.

The FCPA expressly excludes from the anti-bribery provisions payments made “to expedite or to secure the performance of a routine government action by a foreign official.”

How can seeking what one is legally entitled to receive not fit within the exception for “secur[ing] the performance of a routine government action”?

Despite the above legal authority, there have been at least three – what can only be called dubious – FCPA enforcement actions based on companies or individuals seeking what they are legally entitled to receive.

In 2013, the DOJ and SEC extracted $54 million from Archer Daniels Midland Co. and related entities.  As explained in the article “Why You Should Be Alarmed by the ADM FCPA Enforcement Action,” the principal feature of the enforcement action was that ADM and its shareholders were victims of a corrupt Ukraine government which refused to release value-added tax refunds legitimately owed to the company.  In the words of the DOJ, “the Ukrainian government did not have the money to pay VAT refunds that it owed to companies that sold Ukrainian goods outside of Ukraine.”  Likewise, the SEC acknowledged that the “Ukrainian government determined to delay paying the VAT refunds owed or did not make any refunds payments at all.”

Prior to the ADM action, there was a 2010 SEC action against Joe Summers concerning conduct in Venezuela.  The title of this previous post was “Paying to Secure Receivables Is Now Bribery?” and it began as follows.

“Attention to companies (and employees) operating around the world. If you are party to a contract, and a mid-level employee at the entity receiving services under the contract holds up payment of money the company is legitimately entitled to receive, but the mid-level employee requests payment in order to release the funds, and you make the requested payment, you are violating the Foreign Corrupt Practices Act.”

As highlighted in the previous post, part of the SEC’s allegations included the following.

“Following widespread strikes and civil unrest in Venezuela in late 2002, Pride [...] and other companies performing work for PDVSA (PDVSA is the Venezuela state-owned oil company) had difficulty collecting outstanding receivables from PDVSA. By early 2003, Pride [...] had significant unpaid receivables for services that it had provided to PDVSA. In or around March or April 2003, Pride [...] received information that a mid-level PDVSA accounts payable employee was holding up the payment of funds owed to Pride [...] and wanted a payment of approximately $30,000 in order to release the funds due. In or around March or April 2003, Summers authorized a payment of approximately $30,000 to a third party, believing that all or a portion of the funds would be offered or given by the third party to an employee of PDVSA for purposes of securing an improper advantage in receiving payment from PDVSA. Shortly thereafter, in or around April 2003, Pride [...] received overdue payments from PDVSA for work that Pride [...] had performed.”

A third example of an FCPA enforcement action being based on a dysfunctional government not paying a company money it was legitimately owed was highlighted in this previous titled “One of the More Dubious FCPA Enforcement Actions of All-Time” concerning a 1994 DOJ enforcement action against Vitusa Corporation and its President Denny Herzberg.

As highlighted in the previous post, the DOJ alleged that Vitusa (a New Jersey corporation engaged in the business of selling commodities and other goods) “entered into a lawful contract to sell milk powder to the Government of the Dominican Republic.”

The DOJ then alleged as follows.

“Although Vitusa delivered the milk powder to the Government of the Dominican Republic, the Dominican government did not pay Vitusa promptly for the milk powder received and, in fact, maintained an outstanding balance due for an extended period of time.  Vitusa, therefore, made various efforts to collect the outstanding balance due, including contacting officials of the United States and Dominican Governments to obtain their assistance in securing payment in full.”

According to the DOJ, “during the pendency of the contract, Servio Tulio Mancebo (a citizen of the Dominican Republic) communicated to Herzberg a demand made by a foreign official [a senior official of the Government of the Dominican Republic] which called for the payment of a ‘service fee’ to that official in return for the official using that official’s influence to obtain the balance due to Vitusa for the milk powder contract from the Dominican Government.” According to the DOJ, “Herzberg agreed to Mancebo’s proposal that Vitusa would pay a ‘service fee’ indirectly to the foreign official.”  Thereafter, the DOJ alleged that the Government of the Dominican Republic made payment of $63,905.12 to Vitusa on the contract, but that following Herzberg’s instruction, “Mancebo retained $20,000 from that payment.” According to the DOJ, Vitusa and Herberg knew “that all or a portion of the money would be given to the foreign official for the purpose of inducing the official to use that official’s position and influence with the Government of the Dominican Republic in order to obtain and retain business, that is, full payment of the balance due for Vitusa’s prior sale of milk powder to the Government of the Dominican Republic.” Based on the above allegations, the DOJ charged Vitusa with violating the FCPA’s anti-bribery provisions.

In recent years, it has become popular to talk about the “victims” of FCPA enforcement actions and feel good proposals have even been made suggesting that “victims” (you know, the citizens of country x  which served as the locus of an FCPA enforcement action) are deserving of compensation from the FCPA settlement amount.

As the above examples highlight however, sometimes the “victims” of FCPA enforcement actions are the companies or related individuals resolving the actions because they were legitimately owed money by a dysfunctional government that refused to pay.

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.

*****

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.”

Why You Should Be Alarmed By The ADM FCPA Enforcement Action

Friday, January 24th, 2014

I am pleased to share my new article recently published by Bloomberg BNA’s White Collar Crime Report titled “Why You Should Be Alarmed By The ADM FCPA Enforcement Action.”

The abstract is as follows.

“Like all statutes, the Foreign Corrupt Practices Act has specific elements that must be met in order for there to be a violation. However, with increasing frequency in this new era of FCPA enforcement, it appears that the Department of Justice and the Securities and Exchange Commission have transformed FCPA enforcement into a free-for-all in which any conduct the enforcement agencies find objectionable is fair game to extract a multimillion-dollar settlement from a risk-averse corporation. A case in point is the recent $54 million FCPA enforcement action against Archer Daniels Midland Co. (ADM) and related entities.  After discussing the principal features of this enforcement action – namely that ADM and its shareholders were victims of a corrupt Ukraine government – this article highlights why anyone who values the rule of law should be alarmed by the ADM enforcement action.”

Green Restitution Order Stands … For Now

Friday, July 12th, 2013

Given the general lack of FCPA caselaw, anytime a court - let alone an appellate court - issues a decision that contains the words “Foreign Corrupt Practices Act,” it is a notable event even if the decision does not directly deal with FCPA issues.

As highlighted in this previous post, in September 2009 Gerald and Patricia Green were found guilty by a federal jury  of substantive FCPA violations, conspiracy to violate the FCPA, and other  charges in connection with a bribery scheme involving film festival contracts in Thailand.  As noted here, the judge rejected the DOJ’s 10 year sentencing recommendation and sentenced the Greens to six months in prison, three years’ supervised release and $250,000 in restitution.

On appeal to the Ninth Circuit, the Greens argued that the trial court violated the Supreme Court’s holding in Apprendi (that the Sixth Amendment reserves to juries the determination of any fact, other than the fact of a prior conviction, that increases a criminal defendant’s maximum potential sentence  ) “when it ordered them to pay restitution without a jury’s finding that there was ‘an identifiable victim or victims’ who suffered a ‘pecuniary loss.’”

This recent 9th Circuit opinion concerned the Greens’ appeal of the restitution order.

In a colorful, seemingly apologetic, opinion authored by Judge Alex Kozinski, the court acknowledged that the Supreme Court has “yet to hold whether Apprendi applies to restitution.”

On the other hand, the opinion states that the Ninth Circuit “has categorically held that Apprendi and it progeny don’t apply to restitution.”

On the other hand, the opinion states that the Supreme Court’s 2012 decision in Southern Union provides reason to believe that Apprendi might apply to restitution.  (As noted in this previous post, Southern Union held that Apprendi applies to the imposition of criminal fines).

One the other hand, the opinion states that Southern Union’s “strong signals aren’t enough” for a “three-judge panel to overrule circuit precedent.”

In conclusion, the court held as follows.

“Our precedents are clear that Apprendi doesn’t apply to restitution, but that doesn’t mean our caselaw’s well-harmonized with Southern Union.  Had Southern Union come down before our cases, those cases might have come out differently.  Nonetheless, our panel can’t base its decision on what the law might have been.  Such rewriting of doctrine is the sole province of the court sitting en banc.  Faced with the question whether Southern Union has ‘undercut the theory or reasoning underlying the prior circuit precedent in such a way that the cases are clearly irreconcilable,’ we can answer only:  No.”

Given the above language, the next step on this issue would seem to be obvious.

*****

An interesting topic of late is whether FCPA violations result in victims.  On this issue, the Ninth Circuit stated that FCPA convictions do not “necessarily imply a victim or a loss.”