March 10th, 2015

In The FCPA Space, Who Speaks For Whom?

VentroI launched this website in 2009 and have writing on Foreign Corrupt Practices Act and related topics on a near daily basis. Everything I have written or said about the FCPA (whether on this website, my more formal articles or my Congressional testimony) has represented my genuine beliefs and you can hold me accountable for them.

Yet when it comes to many others writing and speaking in the FCPA space, the question arises – who speaks for whom?  Are others expressing genuine beliefs and willing to be held accountable for what they say and write.

Numerous prior posts have exposed the flip-flopping of former DOJ/SEC enforcement officials on various FCPA topics (see here for instance) and the reverse of the situation was first highlighted on these pages when an FCPA enforcement critic and reform advocate – Andrew Weissman – was recently selected as the DOJ’s new fraud section chief.

Others – including those on Capitol Hill – soon picked up on the issue.  As highlighted in this recent post Attorney General Nominee Loretta Lynch’s was specifically asked by a Senator as follows.

Q: As you know, the Criminal Division’s Fraud Section is charged with investigating and enforcing the criminal provisions of the FCPA. Recently, Andrew Weissmann was selected to be the Chief of the Fraud Section. Mr. Weissmann is a former prosecutor and FBI general counsel. In private practice, however, Mr. Weissmann has been an outspoken critic of DOJ’s FCPA program. Specifically, in a report36 Mr. Weissmann drafted for the U.S. Chamber of Commerce’s Institute for Legal Reform, he has recommended that: (1) a compliance defense to the FCPA should be added; (2) a company’s liability should be limited for the prior actions of a company it has acquired; (3) a “willfulness” element should be added for corporate criminal liability; (4) a company’s liability should be limited for the actions of a subsidiary; and (5) the definition of “foreign official” under the FCPA should be changed. Do you agree with any, some, or all of Weissmann’s proposals for reforming the FCPA?

RESPONSE: It is my understanding that Mr. Weissmann made these comments while in private practice and in connection with his representation of the U.S. Chamber Institute for Legal Reform (“Chamber”). It is also my understanding that, in the intervening time period, the Department has met with the Chamber, as well as other stakeholders, to engage in a healthy and productive dialogue regarding the Department’s interpretation and application of the FCPA. If confirmed as Attorney General, I would continue to foster dialogue with the Chamber and other stakeholders regarding our FCPA program.

That was a nice dodge by Ms. Lynch.

Yet it conveniently ignored – as highlighted in the previous post – that Weissmann, in his personal capacity, has long challenged traditional notions of corporate criminal liability and argued that when the DOJ “seeks to charge a corporation as a defendant, the government should bear the burden of establishing as an additional element that the corporation failed to have reasonably effective policies and procedures to prevent the conduct.  See “Rethinking Corporate Criminal Liability,” 82 IND. L.J. 411, 414 (2007).

Some will say that when a lawyer in private practice writes a law review article that he/she is advancing their clients interests.

Sure, a lawyer is advancing their client’s interest in writing a legal brief or making an argument before a court.

But a law review article?  What about a law firm client alert? What about when a lawyer appears on an FCPA panel at a conference and spontaneously responds to fellow panelist comments or audience questions?

Are we to discount everything the lawyer says about the FCPA because they are lawyer?  If so, is there any genuine or legitimate beliefs being articulated about the FCPA that people are willing to be held accountable for?

This recent Bloomberg article about Weissmann and his new DOJ position states:

“A person familiar with Weissmann’s thinking said he viewed most of his [FCPA] congressional testimony as giving his personal views rather than doing work for a client. In the instances where he didn’t disclose his Chamber connection, Weissmann agreed to testify after congressional officials reached out to him proactively, said the person, who asked not to be named because he wasn’t authorized to speak publicly.”

The irony of this general topic is that when DOJ/SEC FCPA enforcement attorneys speak on FCPA topics their comments are preceded by the standard disclaimer – something to the effect of – the views I express today are my own and do not necessarily represent the views of the DOJ/SEC.

Hardly. The enforcement attorney is often carrying forward the talking points of the DOJ/SEC (a dynamic that is apparent when one compares various speeches, etc.).

So the question remains – in the FCPA space, who speak for whom?

All I know is that everything I have written or said about the FCPA has represented my genuine beliefs and you can hold me accountable for them.

Posted by Mike Koehler at 12:03 am. Post Categories: Enforcement Agency SpeechesFCPA Inc.




March 9th, 2015

“It Is Unclear Why The Justice Department Champions The Fight Against Foreign Corruption While It Simultaneously Tries To Deport Those Perceived As Fighting Foreign Corruption”

Judge OwensI do not often read about the DOJ Board of Immigration Appeals (“BIA”).  Unless of course the decision contains the words “Foreign Corrupt Practices Act” in which case such a decision show up on my various searches.

An interesting recent case from the Ninth Circuit Court of Appeals in which Judge John Owens (pictured) wrote the words contained in the headline.

By way of background, an Armenian citizen sought asylum in the U.S. claiming “that the Armenian military police detained, beat, and threatened him after he was seen talking to a reporter following a personal confrontation with the city’s military police chief.”  According to the Armenian citizen, his objective in talking to the reporter was to expose corruption after his wife and cousin were forced to pay a bribe.

A U.S. immigration judge (“IJ”) held that the individual was ineligible for asylum because he failed to establish that he was persecuted on account of political opinion.  As noted in the Ninth Circuit opinion, the IJ concluded that the individual’s conversation with the reporter did not amount to whistleblowing because he “was telling about one incident with one police chief, not about the whole police force.  It was not an act of corruption within the police department.”

On appeal, the BIA held that the individual was ineligible for asylum because he had not demonstrated a nexus between his actual political opinion and the harm that he experienced.  According to the BIA, “to the extent that [the individual] sought to publicize his mistreatment, he has not demonstrated that his actions were meant to expose corruption in a governing institution, in this case the military police.”

On appeal to the Ninth Circuit, the court framed the issue as follows.

“The question thus presented is whether [the] direct and indirect evidence [of nexus offered by the individual] is sufficient proof that (1) the military police believed Petitioner to be a whistleblower who was attempting to expose corruption and, if so, (2) their belief motivated them to detain, beat, and threaten Petitioner. Even though the BIA couched a portion of its holding in terms of imputed political opinion, a close look at the BIA’s decision reveals that it did not address that key question at all.”

The Ninth Circuit noted that the “IJ concluded that there was no corruption to expose because the initial confrontation [with the police officer] did not involve bribery or extortion.”  However, the Ninth Circuit concluded, “the concept of government corruption is broader than that, and efforts to expose something that begins as a personal dispute can be interpreted as political dissent.”

In other respects, the Ninth Circuit stated:

“Corruption broadly refers to an abuse of public trust.  In common parlance, as well as in precedent, corruption means a lack of integrity and a use of a position of trust for dishonest gain, which need not be financial.  One form of gain is the maintenance of a position of authority.  We remand for the BIA to consider whether the evidence shows that the police chief, in an effort to keep his government job, used his position of power to silence a possible report about his abuse of that power.”

Concurring, Judge Owens stated in pertinent part as follows.

“I write separately to emphasize that the United States Department of Justice’s position in this and other immigration cases clashes with its own campaign against foreign corruption. The Justice Department does not limit corruption to “bribery.” Rather, it correctly defines corruption as the “abuse of entrusted power for personal gain.” Shortly after the Arab Spring, former Assistant Attorney General Lanny Breuer recounted the tragic story of Mohammed Bouazizi, who lit himself on fire in Tunisia after suffering the abuse of a corrupt local official.

Bouazizi faced corruption at the most personal level. His fruit stand and electronic scale were arbitrarily taken from    him by a municipal inspector, who also humiliated him with a slap across the face, and authorities refused to give         him back his property.

Bouazizi’s tale is unfortunately a global one, shared by [Petitioner] and many others. A guard who demands sexual favors from a prisoner is corrupt. So is a police officer who brutalizes a local community. And so is a police chief who, to impress his “ladies and friends,” uses his bodyguards to beat up a restaurant manager who refuses to kowtow to his demands. None of these violations feature bribes, but all involve the abuse of entrusted power for personal gain, which can be as petty as trying to look like a big shot in front of friends and members of the opposite sex. As [the majority] opinion ably demonstrates, this court has acknowledged that this abuse, not the exchange of money, is the essence of corruption. And I read our immigration laws as protecting (rather than deporting) those who protest (or are perceived as protesting) corrupt government officials. It is unclear why the Justice Department champions the fight against foreign corruption while it simultaneously tries to deport those perceived as fighting foreign corruption.” (emphasis added).

 

Posted by Mike Koehler at 12:02 am. Post Categories: Double Standard




March 6th, 2015

Friday Roundup

Roundup2Scrutiny alerts, asset recovery, and for the reading stack.  It’s all here in the Friday roundup.

Scrutiny Alerts

Akamai Technologies

Akamai Technologies, Inc., a company that provides cloud services for delivering, optimizing and securing online content and business applications, recently disclosed:

“We are conducting an internal investigation, with the assistance of outside counsel, relating to sales practices in a country outside the U.S. that represented less than 1% of our revenue in each of the years ended December 31, 2014, 2013 and 2012. The internal investigation includes a review of compliance with the requirements of the U.S. Foreign Corrupt Practices Act and other applicable laws and regulations by employees in that market.  In February 2015, we voluntarily contacted the U.S. Securities and Exchange Commission and Department of Justice to advise both agencies of this internal investigation.”

Soco International

As reported by Global Witness:

“A leader of a cross-party anti-corruption group of British MPs yesterday called for UK and US authorities to investigate claims that Soco International, a London-listed oil company, may have breached anti-corruption legislation in the course of its work in Africa’s oldest national park in the Democratic Republic of Congo.”

[...]

[At a recent] Westminster Hall debate Tessa Munt, Liberal Democrat MP for Wells and vice-chair of the All-Party Parliamentary Group on Anti-Corruption, said: “It is surely incumbent on the UK government and its agencies to ensure that any credible evidence of corruption and other criminal behaviour by a UK company, as we have here, is fully investigated by the relevant authorities.”

Munt explained that Soco’s American executive directors are employed by a Delaware-registered subsidiary. As a result, she said, “these individuals fall within the jurisdiction of the United States, and there seems to be a case to be made that Soco International, under their stewardship, has breached the terms of America’s Foreign Corrupt Practices Act.” Anas Sarwar MP, co-chair of the anti-corruption group, also raised concerns about the involvement of offshore companies in Soco’s corporate structure.

“The questions raised by British Members of Parliament highlight the urgent need for both Soco and the relevant authorities in the UK and the US to closely examine the company’s conduct in Virunga,” said Nathaniel Dyer, a campaigner at Global Witness. “Companies cannot be allowed to get away with criminal behaviour just because it happens in remote locations like Congo – if Soco is found to have broken the law, it must face the consequences.”

David Lidington MP, a Foreign Office Minister responding on behalf of the government, said that the UK’s Serious Fraud Office was aware of allegations against Soco and that he would look into the channels for exchanging information with US authorities.”

Asset Recovery

Separate from FCPA enforcement, another prong of the DOJ’s fight against global corruption is its Kleptocracy Asset Recovery Initiative which seeks return of the proceeds of foreign official corruption to benefit the people harmed by acts of corruption and abuse of office.

As noted in this recent release:

“[The] Department of Justice has reached a settlement of its civil forfeiture cases against $1.2 million in assets in the United States traceable to corruption proceeds accumulated by Chun Doo Hwan, the former president of the Republic of Korea.  The department also assisted the government of the Republic of Korea in recovering an additional $27.5 million in satisfaction of an outstanding criminal restitution order against former President Chun.”

In the release, Assistant Attorney General Leslie Caldwell stated:

“Chun Doo Hwan’s campaign of corruption and bribery while serving as Korea’s president betrayed the trust of the Korean people, deprived Korea’s government of precious resources and undermined the rule of law. Fighting corruption is a global imperative that demands a coordinated global response.  The close cooperation between the United States and Korea in successfully recovering corruption proceeds stands as a testament to our resolve to battle the scourge of corruption through international collaboration.”

Assistant Director in Charge David Bowdich of the FBI’s Los Angeles Field Office stated:

“The U.S. will not idly standby and serve as a money laundering haven for foreign officials to hide corrupt activities. The FBI will continue to collaborate with our foreign partners by leveraging its resources in order to identify those engaged in foreign corruption and to recover their ill-gotten gains.”

For the Reading Stack

Proposals for U.S. FCPA enforcement agencies to share FCPA settlement amounts with so-called victims in the country at issue may sound good, but are not warranted.  In this Center for International Private Enterprise article I explain why.

A Q&A with the author of “Thieves of State: Why Corruption Threatens Global Security.”  For additional coverage of the book, see here.

*****

A good weekend to all.

Posted by Mike Koehler at 12:06 am. Post Categories: Akamai TechnologiesAsset RecoverySoco InternationalVictims




March 5th, 2015

Analyzing The SEC’s Recent FCPA Pharma Speech

Pharm SpeechIn November 2009, then DOJ Assistant Attorney General Lanny Breuer delivered this Foreign Corrupt Practices Act speech at a pharmaceutical industry conference.  In the speech, Breuer warned the audience as follows.

“[C]onsider the possible range of “foreign officials” who are covered by the FCPA: Some are obvious, like health ministry and customs officials of other countries. But some others may not be, such as the doctors, pharmacists, lab technicians and other health professionals who are employed by state-owned facilities. Indeed, it is entirely possible, under certain circumstances and in certain countries, that nearly every aspect of the approval, manufacture, import, export, pricing, sale and marketing of a drug product in a foreign country will involve a “foreign official” within the meaning of the FCPA.”

In the speech, Breuer also talked about “the importance [of] rigorous FCPA compliance polic[ies] that are faithfully enforced” and reminded the audience as follows.

“[A]ny pharmaceutical company that discovers an FCPA violation should seriously consider voluntarily disclosing the violation and cooperating with the Department’s investigation. If you voluntarily disclose an FCPA violation, you will receive meaningful credit for that disclosure. And if you cooperate with the Department’s investigation, you will receive a meaningful benefit for that cooperation—without any request or requirement that you disclose privileged material. Finally, if you remediate the problem and take steps to ensure that it does not recur, you will benefit from that as well.”

Over five years and ten FCPA enforcement actions against pharma/healthcare companies later, Andrew Ceresney (Director of the SEC’s Enforcement Division) delivered a nearly identical speech earlier this week.

The below post excerpts Ceresney’s speech.

When reviewing the speech, you may want to keep the following in mind.

As highlighted in this prior post, the enforcement theory that physicians, lab personnel, etc. are “foreign officials” under the FCPA was first used in 2002 and has since been used in 17 corporate enforcement actions.

Even even though Ceresney’s speech contains several citations, it is telling that the following assertion lacks any citation “doctors, pharmacists, and administrators from public hospitals in foreign countries … are often are classified as foreign officials for purposes of the FCPA.”

There is no citation for this assertion because it is one of the most dubious enforcement theories of this new era of FCPA enforcement and an enforcement theory that finds no support in the FCPA’s extensive legislative history.  (See here for “The Story of the Foreign Corrupt Practices Act“).

Of further note, despite extracting hundreds of millions of dollars from risk averse corporations based on this “foreign official” theory, the DOJ and SEC have never used this enforcement theory to charge any individual.

Another issue to consider.

As highlighted in this recent post, despite the continued foreign scrutiny of the pharma and healthcare industry, the corporate dollars continue to flow to U.S. physicians and other healthcare workers.  It is one of the more glaring double standards when it comes to FCPA enforcement and enforcement of U.S. domestic bribery laws.

With that necessary information, to Ceresney began his speech as follows.

“Pursuing FCPA violations is a critical part of our enforcement efforts.  International bribery has many nefarious impacts, including sapping investor confidence in the legitimacy of a company’s performance, undermining the accuracy of a company’s books and records and the fairness of the competitive marketplace.  Our specialized FCPA unit as well as other parts of the Enforcement Division continue to do remarkable work in this space, bringing significant and impactful cases, often in partnership with our criminal partners.

Now, our FCPA focus obviously covers many industries.  For example, we have conducted a recent sweep in the financial services industry that will yield a number of important cases.  But the pharma industry is one on which we have been particularly focused in recent years.  A few factors combine to make it a high-risk industry for FCPA violations.  Pharmaceutical representatives have regular contact with doctors, pharmacists, and administrators from public hospitals in foreign countries.  Those people often are classified as foreign officials for purposes of the FCPA, and they often decide what products public hospitals or pharmacies will purchase.  This influence over the awarding of contracts is true for virtually every country around the globe.

There have been three types of misconduct that we have seen arise most often in our pharma FCPA cases.  One is “Pay-to-Prescribe”; another is bribes to get drugs on the approved list or formulary; and the third is bribes disguised as charitable contributions.  Let me discuss each of these in turn.

In “Pay-to-Prescribe” cases, we see public official doctors and public hospitals being paid bribes in exchange for prescribing certain medication, or other products such as medical devices.  Some of our cases involve simple cash payments to doctors and other medical officials. But we have also seen some more innovative schemes created for the purposes of rewarding prescribing physicians.  For example, in our 2012 action against Pfizer, subsidiaries in different countries found a variety of illicit ways to compensate doctors. In China, employees invited “high-prescribing doctors” in the Chinese government to club-like meetings that included extensive recreational and entertainment activities to reward doctors’ past product sales or prescriptions.  Pfizer China also created various “point programs” under which government doctors could accumulate points based on the number of Pfizer prescriptions they wrote.  The points were redeemed for gifts ranging from medical books to cell phones, tea sets, and reading glasses. In Croatia, Pfizer employees created a “bonus program” for Croatian doctors who were employed in senior positions in Croatian government health care institutions.  Once a doctor agreed to use Pfizer products, a percentage of the value purchased by a doctor’s institution would be funneled back to the doctor in the form of cash, international travel, or free products.  Each of these schemes violated the FCPA by routing money to foreign officials in exchange for business.

Let me turn to a second form of bribery, which is aimed at getting products on a formulary.  Of course, getting your company’s drugs on formularies is important to success in this industry.  But the FCPA requires that you do this without paying bribes, and we have taken action where companies have crossed that line.  We brought a case against Eli Lilly that included such violations.  There, the company’s subsidiary in Poland made payments totaling $39,000 to a small foundation started by the head of a regional government health authority.  That official, in exchange, placed Lilly drugs on the government reimbursement list.  That action involved a variety of other FCPA violations and Eli Lilly paid $29 million to settle the matter.

The Eli Lilly case brings me to my third point, which concerns bribes disguised as charitable contributions.  As you might know, the FCPA prohibits giving “anything of value” to a foreign official to induce an official action to obtain or retain business, and we take an expansive view of the phrase “anything of value.”  The phrase clearly captures more than just cash bribes, and Eli Lilly is not the only matter where we have brought an action arising out of charitable contributions.

For example, in Stryker, we charged a medical technology company after subsidiaries in five different countries paid bribes in order to obtain or retain business. Stryker’s subsidiary in Greece made a purported donation of nearly $200,000 to a public university to fund a laboratory that was the pet project of a public hospital doctor.  In return, the doctor agreed to provide business to Stryker.  Stryker agreed to pay $13.2 million to settle these and other charges.

Similarly, in Schering-Plough, we brought charges against the company arising out of $76,000 paid by its Polish subsidiary to a charitable foundation.  The head of that foundation was also the director of a governmental body that funded the purchase of pharmaceutical products and that influenced the purchase of those products by other entities, such as hospitals.  In settling our action, Schering-Plough consented to paying a $500,000 penalty.

The lesson is that bribes come in many shapes and sizes, and those made under the guise of charitable giving are of particular risk in the pharmaceutical industry.  So it is critical that we carefully scrutinize a wide range of unfair benefits to foreign officials when assessing compliance with the FCPA – whether it is cash, gifts, travel, entertainment, or charitable contributions.  We will continue to pursue a broad interpretation of the FCPA that addresses bribery in all forms.”

Under the heading “Compliance Program,” Ceresney stated:

“The best way for a company to avoid some of the violations that I have just described is a robust FCPA compliance program.   I can’t emphasize enough the importance of such programs.  This is a message that I think has started to get through in the past 5 years.

The best companies have adopted strong FCPA compliance programs that include compliance personnel, extensive policies and procedures, training, vendor reviews, due diligence on third-party agents, expense controls, escalation of red flags, and internal audits to review compliance.  I encourage you to look to our Resource Guide on the FCPA that we jointly published with the DOJ, to see what some of the hallmarks of an effective compliance program are.  I’ll highlight just a couple.

First, companies should perform risk assessments that take into account a host of factors listed in the guide and then place controls in these risk areas.  The pharmaceutical industry operates in virtually every country, including many high risk countries prone to corruption.  The industry also comes into contact with customs officials and may need perishable medicines and other goods cleared through customs quickly.  They may also come into contact with officials involved in licensing and inspections.  These are just a few examples of risk factors that a risk assessment should be focused on in this particular sector.

A healthy compliance program should also include third-party agent due diligence.  In addition to using third-party agents, many pharmaceutical companies use distributors.  This creates the risk that the distributor will use their margin or spread to create a slush fund of cash that will be used to pay bribes to foreign officials.  Because of this added layer of cash flow, companies frequently improperly account for bribes as legitimate expenses.  To properly combat against these abuses, a compliance program must thoroughly vet its third-party agents to include an understanding of the business rationale for contracting with the agent.  Appropriate expense controls must also be in place to ensure that payments to third-parties are legitimate business expenses and not being used to funnel bribes to foreign officials.”

Under the heading, “Self-Reporting and Cooperation,” Ceresney stated:

“The existence of FCPA compliance programs place companies in the best position to detect FCPA misconduct and allow the opportunity to self-report and cooperate.  There has been a lot of discussion recently about the advisability of self-reporting FCPA misconduct to the SEC.  Let me be clear about my views – I think any company that does the calculus will realize that self-reporting is always in the company’s best interest.  Let me explain why.

Self-reporting from individuals and entities has long been an important part of our enforcement program.  Self-reporting and cooperation allows us to detect and investigate misconduct more quickly than we otherwise could, as companies are often in a position to short circuit our investigations by quickly providing important factual information about misconduct resulting from their own internal investigations.

In addition to the benefits we get from cooperation, however, parties are positioned to also help themselves by aggressively policing their own conduct and reporting misconduct to us.  We recognize that it is important to provide benefits for cooperation to incentivize companies to cooperate.  And we have been focused on making sure that people understand there will be such benefits.  We continue to find ways to enhance our cooperation program to encourage issuers, regulated entities, and individuals to promptly report suspected misconduct.  The Division has a wide spectrum of tools to facilitate and reward meaningful cooperation, from reduced charges and penalties, to non-prosecution or deferred prosecution agreements in instances of outstanding cooperation. For example, we announced our first-ever non-prosecution agreement in an FCPA matter with a company that promptly reported violations and provided real-time, extensive cooperation in our investigation. And just six weeks ago, we entered into a deferred prosecution agreement with another company that self-reported misconduct.

More commonly, we have reflected the cooperation in reduced penalties.  Companies that cooperate can receive smaller penalties than they otherwise would face, and in some cases of extraordinary cooperation, pay significantly less.  One recent FCPA matter in this sector illustrates the considerable benefits that can flow from coming forward and cooperating.  Our joint SEC-DOJ FCPA settlement with Bio-Rad Laboratories for $55 million reflected a substantial reduction in penalties due to the company’s considerable cooperation in our investigation. In addition to self-reporting potential violations, the company provided translations of numerous key documents, produced witnesses from foreign jurisdictions, and undertook extensive remedial actions.  There, the DOJ imposed a criminal fine of only $14 million, which was equivalent to about 40% of the disgorgement amount – a large reduction from the typical ratio of 100% of the disgorgement amount.

In fact, we have recently announced FCPA matters featuring penalties in the range of 10 percent of the disgorgement amount, an even larger discount than the case I just mentioned. And in the Goodyear case we announced last week, we imposed no penalty.  In those cases, the companies received credit for doing things like self-reporting; taking speedy remedial steps; voluntarily making foreign witnesses available for interviews; and sharing real-time investigative findings, timelines, internal summaries, English language translations, and full forensic images with our staff.

The bottom line is that the benefits from cooperation are significant and tangible.  When I was a defense lawyer, I would explain to clients that by the time you become aware of the misconduct, there are only two things that you can do to improve your plight – remediate the misconduct and cooperate in the investigation.  That obviously remains my view today.  And I will add this – when we find the violations on our own, and the company chose not to self-report, the consequences are worse and the opportunity to earn significant credit for cooperation often is lost.

This risk of suffering adverse consequences from a failure to self-report is particularly acute in light of the continued success and expansion of our whistleblower program.  The SEC’s whistleblower program has changed the calculus for companies considering whether to disclose misconduct to us, knowing that a whistleblower is likely to come forward.  Companies that choose not to self-report are thus taking a huge gamble because if we learn of the misconduct through other means, including through a whistleblower, the result will be far worse.”





March 4th, 2015

If Only The Supreme Court Had Accepted Cert In The “Foreign Official” Challenge

If OnlyAs highlighted here, here and here, last Fall the Supreme Court had the opportunity to correct the 11th Circuit’s flawed interpretation of the important “foreign official” element of the FCPA’s anti-bribery provisions in U.S. v. Esquenazi.

As highlighted here, the Supreme Court declined the opportunity to hear the case.

If only the Supreme Court had accepted cert the likely outcome would have been similar to last week’s Supreme Court decision in Yates v. U.S. in which the court reversed the 11th Circuit’s flawed statutory interpretation of Sarbanes Oxley in the (in)famous are “fish” a “tangible object” case.

The issues addressed by the Supreme Court in Yates were very similar to the issues the Court was asked to address in Esquenazi.

Indeed, the 11th Circuit’s flawed interpretation in Esquenazi was even more egregious because, as highlighted in my amicus brief, (i) competing versions of the FCPA Congress considered yet rejected, specifically included state-owned or state-controlled enterprise (SOE) concepts; and (ii) laws passed both before the FCPA and after the FCPA contain the term “instrumentality” as well as SOE concepts.

Despite the compelling arguments made for cert in Esquenazi, the Foreign Corrupt Practices Act community was left pondering what if (and because of how the DOJ and SEC have chosen to enforce the FCPA will likely be asking what if for some time).

The what if was likely answered by the Court in Yates and the below post highlights excerpts from the majority opinion written by Justice Ginsburg.

“Mindful that in Sarbanes-Oxley, Congress trained its attention on corporate and accounting deception and cover-ups, we conclude that a matching construction of §1519 is in order: A tangible object captured by §1519, we hold, must be one used to record or preserve information.”

[...]

“On appeal, the Eleventh Circuit found the text of §1519“plain.” Because “tangible object” was “undefined” in the statute, the Court of Appeals gave the term its “ordinary or natural meaning,” i.e., its dictionary definition, “[h]aving or possessing physical form.”

[...]

In the Government’s view, §1519 extends beyond the principal evil motivating its passage. The words of §1519,the Government argues, support reading the provision as a general ban on the spoliation of evidence, covering all physical items that might be relevant to any matter under federal investigation.

Yates urges a contextual reading of §1519, tying “tangible object” to the surrounding words, the placement of the provision within the Sarbanes-Oxley Act, and related provisions enacted at the same time, in particular §1520 and §1512(c)(1). Section 1519, he maintains, targets not all manner of evidence, but records,documents, and tangible objects used to preserve them, e.g., computers, servers, and other media on which information is stored.

We agree with Yates and reject the Government’s unrestrained reading. “Tangible object” in §1519, we conclude, is better read to cover only objects one can use to record or preserve information, not all objects in the physical world.

[...]

The ordinary meaning of an “object” that is “tangible,”as stated in dictionary definitions, is “a discrete . . . thing,” Webster’s Third New International Dictionary 1555 (2002), that “possess[es] physical form,” Black’s Law Dictionary 1683 (10th ed. 2014). From this premise, the Government concludes that “tangible object,” as that term appears in §1519, covers the waterfront, including fish from the sea.

Whether a statutory term is unambiguous, however,does not turn solely on dictionary definitions of its component words. Rather, “[t]he plainness or ambiguity of statutory language is determined [not only] by reference to the language itself, [but as well by] the specific context in which that language is used, and the broader context of the statute as a whole.” Robinson v. Shell Oil Co., 519 U. S. 337, 341 (1997). See also Deal v. United States, 508 U. S. 129, 132 (1993) (it is a “fundamental principle of statutory construction (and, indeed, of language itself) that the meaning of a word cannot be determined in isolation, but must be drawn from the context in which it is used”). Ordinarily, a word’s usage accords with its dictionary definition. In law as in life, however, the same words, placed in different contexts, sometimes mean different things.

[...]

In short, although dictionary definitions of the words “tangible” and “object” bear consideration, they are not dispositive of the meaning of “tangible object” in §1519.

[...]

The legislative history reveals that §1512(c)(1) was drafted and proposed after §1519. See 148 Cong. Rec. 12518, 13088–13089 (2002). The Government argues, and Yates does not dispute, that §1512(c)(1)’s reference to “other object” includes any and every physical object. But if §1519’s reference to “tangible object” already included all physical objects, as the Government and the dissent contend, then Congress had no reason to enact §1512(c)(1): Virtually any act that would violate §1512(c)(1) no doubt would violate §1519 as well, for §1519 applies to “the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States . . . or in relation to or contemplation of any such matter,” not just to “an official proceeding.”5

The Government acknowledges that, under its reading,§1519 and §1512(c)(1) “significantly overlap.” Brief for United States. Nowhere does the Government explain what independent function §1512(c)(1) would serve if the Government is right about the sweeping scope of §1519. We resist a reading of §1519 that would render superfluous an entire provision passed in proximity as part of the same Act.6 See Marx v. General Revenue Corp., 568 U. S. ___, ___ (2013) (slip op., at 14) (“[T]he canon against surplusage is strongest when an interpretation would render superfluous another part of the same statutory scheme.”).

[...]

Had Congress intended “tangible object” in §1519 to be interpreted so generically as to capture physical objects as dissimilar as documents and fish, Congress would have had no reason to refer specifically to “record”or “document.” The Government’s unbounded reading of“tangible object” would render those words misleading surplusage.

Having used traditional tools of statutory interpretation to examine markers of congressional intent within the Sarbanes-Oxley Act and §1519 itself, we are persuaded that an aggressive interpretation of “tangible object” must be rejected. It is highly improbable that Congress would have buried a general spoliation statute covering objects of any and every kind in a provision targeting fraud in financial record-keeping.

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Finally, if our recourse to traditional tools of statutory construction leaves any doubt about the meaning of “tangible object,” as that term is used in §1519, we would invoke the rule that “ambiguity concerning the ambit of criminal statutes should be resolved in favor of lenity.” Cleveland v. United States, 531 U. S. 12, 25 (2000) (quoting Rewis v. United States, 401 U. S. 808, 812 (1971)).That interpretative principle is relevant here, where the Government urges a reading of §1519 that exposes individuals to 20-year prison sentences for tampering with any physical object that might have evidentiary value in any federal investigation into any offense, no matter whether the investigation is pending or merely contemplated, or whether the offense subject to investigation is criminal or civil. See Liparota v. United States, 471 U. S. 419, 427 (1985) (“Application of the rule of lenity ensures that criminal statutes will provide fair warning concerning conduct rendered illegal and strikes the appropriate balance between the legislature, the prosecutor, and the court in defining criminal liability.”). In determining the meaning of “tangible object” in §1519, “it is appropriate, before we choose the harsher alternative, to require that Congress should have spoken in language that is clear and definite.” See Cleveland, 531 U. S., at 25 (quoting United States v. Universal C. I. T. Credit Corp., 344 U. S. 218, 222 (1952)). See also Jones v. United States, 529 U. S. 848, 858–859 (2000) (rule of lenity “reinforces” the conclusion that arson of an owner-occupied residence is not subject to federal prosecution under 18 U. S. C. §844(i) because such a residence does not qualify as property “used in” commerce or commerce-affecting activity).

For the reasons stated, we resist reading §1519 expansively to create a coverall spoliation of evidence statute, advisable as such a measure might be. Leaving that important decision to Congress, we hold that a “tangible object” within §1519’s compass is one used to record or preserve information. The judgment of the U. S. Court of Appeals for the Eleventh Circuit is therefore reversed, and the case is remanded for further proceedings.”

Posted by Mike Koehler at 12:03 am. Post Categories: Carlos RodriguezForeign OfficialJoel Esquenazi