Today’s post is from Sarah Frazier (Berg & Androphy ) regarding the SEC’s FCPA enforcement action against Mark Jackson and James Ruehlen. Frazier attended the oral argument last Friday in Houston on the Defendants’ motion to dismiss the SEC’s complaint. For prior posts on the challenge, see here.
By Sarah Frazier
Pleased with the quality of the briefing by all parties on Defendants’ motions to dismiss and ready with questions, Judge Ellison heard arguments for two-and-a-half hours on Friday. The motions presented a rare challenge to the SEC’s Foreign Corrupt Practices Act enforcement powers and raised issues surrounding pleading requirements under Rule 8(a)(2) with regard to intent, the FCPA’s facilitating payment exception, and the identity and role of the alleged “foreign officials” in the case.
The Court made it clear early in the hearing that he was inclined to ask the SEC to supplement its pleadings in one or more of these areas without dismissing the case, which may or may not make much difference in the end. Kenneth Donnelly, arguing for the SEC, stated that he had much more to plead if need be. Whether that includes specifics on the Nigerian “foreign officials” who received the alleged payments, who are unnamed in the complaint, remains to be seen, should Judge Ellison require it.
Regardless, the hearing proved a valuable opportunity for the Defendants, in pointing out what they saw as pleading inadequacies, to tell their own story. The SEC alleges that Jackson and Ruehlen repeatedly paid Noble’s customs agent in Nigeria to pass on bribes to (unidentified) Nigerian officials in order to extend temporary drilling permits for Noble’s offshore rigs. Further, the SEC alleges that Defendants submitted permit applications that falsely asserted that the rigs had been moved outside of Nigerian waters, a necessary falsehood in order to render the rigs eligible for the permits. David Krakoff and Nicola Hannah, for Defendants Jackson and Ruehlen respectively, explained that Noble had in fact approved the “special handling fees” according to its written policy for allowing facilitating payments allowed by the FCPA, in reliance on counsel. Hannah also did a fine job of making sure the Court knew that his client was a high school graduate whose work had been on rigs until shortly before his first involvement with the payments, and whose middle manager role excluded him from Board of Directors’ reports on the subject.
The SEC’s complaint refers multiple times to the permit applications as “false paperwork,” urging implicitly that the paperwork itself evidences corrupt knowledge. Defense counsel argued vigorously that this “falsity” was a red herring because it is not itself prohibited under the FCPA, and would not in their view render the facilitating payment defense unavailable. Judge Ellison was keen, given such arguments, to understand the FCPA’s intent requirement in a civil versus a criminal case – posing that question to both sides. Donnelly (SEC) took the position that the term “corruptly” in the statute applies whenever a payment is made to an official for misuse of his or her duties, while the defendants argued that the FCPA is a specific intent law and the SEC must show intent to violate the FCPA.
The parties and the Court spent much of the hearing grappling with how intent under the FCPA works when applying the FCPA’s “facilitating payment” or “routine government action” exception. If Jackson and Ruehlen understood that the bribe was illegal under Nigerian law, but qualified as a facilitating payment under the FCPA, then is corrupt intent present? If so, would not the whole facilitating payment exception be swallowed up? After all, as Krakoff, Hannah, and David Gerger (also representing Ruehlen) pointed out, aren’t facilitating payments essentially all bribes? And aren’t bribes generally illegal under local law? If it were otherwise, and facilitating payments were required to be legal locally, there would be no need for the separate affirmative FCPA defense allowing conduct that is legal under written local law.
But, the Court asked several times using various hypotheticals, what about where, independent of the bribe, the deed being paid for is discretionary or improper or even illegal? Is that a qualifying facilitating payment? Donnelly on behalf of the SEC took the position that it was not in those instances, but, interestingly, in doing so acknowledged that this issue makes Nigerian law potentially relevant in the case.
Hannah and Krakoff countered that a discretionary governmental act still qualifies as facilitating if it relates to issuance of a permit, as here, because the language in the FCPA specifically enumerates “permit,” but does not use the word “discretionary” except in a different context, and thus dicta in the Kay case is incorrect. Further, defense counsel argued, if Nigerian law is pertinent, then it must be pled, and the SEC’s bare notice of intent to rely on foreign law under Rule 44.1 is insufficient under Rule 8a.
Judge Ellison inquired whether the written law of Nigeria was sufficient to determine whether a government act was discretionary – wouldn’t it be necessary to put on evidence of actual practice? Defense counsel agreed, unsurprisingly, while Donnelly disagreed but raised the possibility of expert evidence on the point.
The Court probably need not decide all of these novel questions in ruling on the Defendants’ motions, but the questions will surely be relevant should the case proceed to trial. In the meantime, the parties gained insight into possible initial reluctance to apply the FCPA’s facilitating payment exception to situations involving governmental acts that seem improper or are merely discretionary.