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Case Law Of Note

Judicial opinions construing the Foreign Corrupt Practices Act are rare. Thus, when they occur (even if only a trial court opinion on a pre-trial motion to dismiss) FCPA judicial opinions are worthy of note.

As highlighted in this prior post [1], in January 2015 the DOJ criminally charged Dmitrij Harder, the former owner and President of Chestnut Consulting Group Inc. and Chestnut Consulting Group Co., for allegedly bribing an official with the European Bank for Reconstruction and Development (“EBRD”).

The enforcement action was notable in that it invoked the rarely used “public international organization” prong of the FCPA’s “foreign official” element.

As highlighted here [2], in October 2015, Harder filed this motion to dismiss [3]:  In summary fashion it stated:

“The Indictment fails to accurately allege the elements of a violation under the Foreign Corrupt Practices Act (“FCPA”) – it is devoid of any allegations that Mr. Harder paid an allegedly corrupt payment to a “foreign official,” fails to state required allegations when an allegedly corrupt payment is made to a third party, and impermissibly substitutes “public international organization” in the charging language against Mr. Harder. The FCPA counts should also be dismissed because the provision permitting the President to expand the term “foreign official” by identifying “public international organizations” as authorized by 15 U.S.C. § 78dd-2(h)(2)(B) is unconstitutional.”

In an unsurprising development given the procedural posture of the motion, last week Judge Paul Diamond (E.D. Pa.) denied the motion [4]. It is believed to be the first judicial decision in FCPA history construing the rarely implicated “public international organization” prong of the FCPA’s “foreign official” definition.

In pertinent part, Judge Diamond held:

“Defendant argues that the Government failed to plead that: 1) he corruptly paid a “foreign official” within the FCPA’s meaning; and 2) he had the requisite mens rea when paying Official’s Sister. Defendant further argues that the Indictment impermissibly substitutes “public international organization” for the term “foreign government or instrumentality thereof.” I do not agree. The Indictment is sufficient because it includes the requisite elements. Fed. R. Civ. P. 7(c)(1); United States v. Gillette, 738 F.3d 63, 74 (3d Cir. 2013) (“[A]n indictment is enough to call for a trial of the charge on the merits so long as it is facially sufficient.”) (citations and quotations omitted).

To make out an FCPA violation, the Government must allege that a “domestic concern”corruptly offered, promised to pay, or paid anything of value to a foreign official (or through a third party) to induce him to use his influence to act unlawfully, inter alia, respecting a “foreign government or instrumentality thereof.” 15 U.S.C. § 78dd-2(a)(1)-(3). A “foreign official” includes any officer of a public international organization. Id. § 78dd-2(h)(2)(A). The FCPA includes the following mens rea requirement: the payor must know that “all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly, to any foreign official.” Id. § 78dd-2(a)(3). The FCPA thus makes it a crime to bribe a third party if the payor knows that foreign official will ultimately receive the payment and will thus be induced to act unlawfully. See id. § 78dd-2(a)(3), (h)(3)(a).

Here, Defendant, a United States permanent resident, is plainly a domestic concern. Id. § 78dd-2(h)(1) (defining a “domestic concern” as, inter alia, a U.S. resident). Moreover, Official (the ultimate bribe recipient) was an employee and/or officer of EBRD—a properly designated public international organization (as I discuss below). Additionally, the Government has charged, as it must, that Defendant paid Official Sister knowing that those bribes would be given, directly or eventually, to Official to induce him to violate the law. See id. § 78dd-2(a)(3); (Doc. No. 62 at ¶ 42 (“Dmitrij Harder, being a domestic concern . . . did willfully use . . . any instrumentality of interstate commerce, corruptly . . . while knowing that all or a portion of such money . . . had been offered . . . for the purposes of influencing acts and decisions of such foreign official in his official capacity . . . .”) (emphasis added). The Government moreover pled that “Official’s Sister received these payments for the benefit of EBRD Official, to corruptly influence the foreign official’s actions.” (Doc. No. 62 at ¶ 23.) Finally, as Defendant acknowledges, the Government alleges that Defendant made corrupt payments to: 1) “influenc[e Official’s] acts and decisions,” 2) “induc[e] [Official] to do and omit acts in violation of [his] and authority with a public international organization to affect and influence acts and decisions of such organization.” (Doc. No. 40 at 11; Doc. No. 62 ¶ 42.)

These allegations certainly make out that Defendant acted knowingly with respect to both Official and his Sister. See, e.g., SEC v. Straub, 921 F. Supp. 2d 244, 265 (S.D.N.Y. 2013) (FCPA violation is complete even when payor does not know the ultimate recipient’s identity); SEC v. Jackson, 908 F. Supp. 2d 834, 850 (S.D. Tex. 2012) (“The Court seriously doubts that Congress intended to hold an individual liable under 15 U.S.C. § 78dd–1(a)(3)(A) only if he took great care to know exactly whom his agent would be bribing and what precise steps that official would be taking.”). The FCPA Counts thus sufficiently “apprise[] the defendant of what he must be prepared to meet.” United States v. John-Baptiste, 747 F.3d 186, 195 (3d Cir. 2014); Vitillo, 490 F.3d at 321.

I also reject Defendant’s argument that the Government impermissibly substituted in the Superseding Indictment the term “public international organization” for “foreign government or instrumentality thereof.” (Doc. No. 40 at 10.) Although the FCPA explicitly proscribes conduct aimed at inducing a foreign official to misuse his position in connection with “a foreign government or instrumentality thereof,” it also contemplates that a “foreign official” includes “any officer or employee of . . . a public international organization.” Id. § 78dd-2(a)(1), (3), (h)(2)(A). Plainly, the FCPA thus proscribes unlawful conduct in connection with a public international organization—itself an association of foreign governments. The construction Defendant urges would effectively read § 78dd-2(h)(2)(A) out of the statute, and so make it impossible to prosecute any public international organization employee who unlawfully used his position respecting his employer—an absurd result. See United States v. Schneider, 14 F.3d 876, 880 (3d Cir. 1994) (“It is the obligation of the court to construe a statute to avoid absurd results, if alternative interpretations are available and consistent with the legislative purpose.”). The Government’s use of “public international organization” in the Superseding Indictment is thus permissible.

In any event, whether EBRD falls within the FCPA’s ambit is necessarily a “fact-bound question[]” properly decided by a jury. See United States v. Esquenazi, 752 F.3d 912, 925 (11th Cir.) (in case of first impression, noting that whether an entity constitutes an “instrumentality” is a “fact-bound question[]” and providing relevant factors to the jury’s inquiry), cert. denied, 135 S. Ct. 293 (2014); United States v. Duperval, 777 F.3d 1324, 1333 (11th Cir. 2015) (“fact-finder should consider the factors” enumerated in Esquenazi to determine whether entity constitutes instrumentality), cert. denied, 136 S. Ct. 859 (2016). Because the Government has alleged sufficient facts for a jury determination as to this issue, it may proceed to trial. See Huet, 665 F.3d at 595.

In sum, because the Government has adequately charged the substantive FCPA counts, Defendant is not entitled to their dismissal.

The FCPA’s Inclusion of EBRD

Defendant also asks me to dismiss the substantive FCPA counts because § 78dd-2(h)(2)—the Act’s provision defining a public international organization—is unconstitutional. (Doc. No. 40 at 12-28.) I do not agree.

a. Non-Delegation Challenge

Defendant first argues that the President, using improperly delegated legislative authority, impermissibly expanded the FCPA’s use of “foreign official” to include “public international organizations.” In response, the Government sets out a lengthy legislative history—namely, the enactment of: 1) the International Organization Immunities Act, 2) the European Bank for Reconstruction and Development Act, 3) the Omnibus Trade and Competiveness Act, and 4) the International Anti-Bribery and Fair Competition Act. (Doc. No. 72 at 4-11, 25-31); 22 U.S.C. § 288; 22 U.S.C. § 290l; Pub. L. No. 100-418, § 5003(d), 102 Stat. 1107 (1988); Pub. L. No. 105-366, 112 Stat. 3302 (1998). The Government argues that this history demonstrates that there was no such delegation, and that Congress independently designated EBRD a public international organization.

Although the Government’s narrative is convincing, I will nonetheless assume, arguendo, that Congress delegated its authority to the President. That delegation is constitutional. There is no blanket prohibition against legislative delegation of authority in the criminal context. See Loving v. United States, 517 U.S. 748, 768 (1996) (“The exercise of a delegated authority to define crimes may be sufficient in certain circumstances to supply the notice to defendants the Constitution requires.”). Rather, such delegation is unconstitutional only in the rare instance when Congress fails to provide some “intelligible principle” by which the Executive must exercise its delegated authority. See Mistretta v. United States, 488 U.S. 361, 371-72 (1989); United States v. Amirnazmi, 645 F.3d 564, 575 (3d Cir. 2011) (“The [Supreme] Court has expressly refrained from deciding whether Congress must provide stricter guidance than a mere ‘intelligible principle’ when authorizing the Executive ‘to promulgate regulations that contemplate criminal sanctions.’” (citing Touby v. United States, 500 U.S. 160 (1991)). The Third Circuit has found “only two occasions [where] the [Supreme] Court [has] invalidated legislation based on the nondelegation doctrine, and both occurred in 1935.” United States v. Cooper, 750 F.3d 263, 268 (3d Cir. 2014).

This case does not present the third such occasion. Congress has complied with each of the Supreme Court’s delegation requirements. See Mistretta, 488 U.S. at 372-73 (A delegation “is constitutionally sufficient if Congress clearly delineates the general policy, the public agency which is to apply it, and the boundaries of this delegated authority”). First, it has explicitly stated the FCPA’s goal: “[to ]improve the competitiveness of American business and promote foreign commerce.” Pub. L. 105-366, 112 Stat. 3302 (1998). Courts have upheld far less precise policy statements. See Whitman v. American Trucking Associations, 531 US 457, 474 (2001) (“In the history of the Court we have found the requisite ‘intelligible principle’ lacking in only two statutes, one of which provided literally no guidance for the exercise of discretion, and the other of which conferred authority to regulate the entire economy on the basis of no more precise a standard than stimulating the economy by assuring ‘fair competition.’”); Cooper, 750 F.3d at 272 (policy statement directing the Attorney General to “protect children and the public at large from sex offenders” in determining the applicability of the Sex Offender Registration and Notification Act for pre-act Offenders); United States v. Berberena, 694 F.3d 514, 523 (3d Cir. 2012) (“The Supreme Court has upheld, . . . without deviation, Congress’ ability to delegate power under broad standards.”) (citations and quotations omitted).

Second, Congress permissibly conferred the designation authority on the President. 15 U.S.C. § 78dd-2; Amirnazmi, 645 F.3d at 575 (upholding congressional delegation to Executive). As Defendant acknowledges, such a delegation plainly suffices to identify the implementing agency. (Doc. No. 40 at 21.) The first two prongs of the intelligibility test are thus met.

Finally, under the FCPA provision at issue here, Congress narrowly circumscribed the President’s delegated authority to define public international organizations pursuant to Executive Order. 15 U.S.C. § 78dd-2(h)(2)(B)(i) (“‘[P]ublic international organization’ means [inter alia] an organization that is designated by Executive Order pursuant to section 288 of title 22 [the International Organization Immunities Act].”). The IOIA itself requires Congress to act before the President can exercise his discretion in this context. See 22 U.S.C. § 288 (“‘[I]nternational organization’ means a public international organization in which the United States participates pursuant to any treaty or under the authority of any Act of Congress.”). Such boundaries—necessarily requiring antecedent congressional action through the treaty ratification or equivalent process—are more than sufficient to pass constitutional muster. See, e.g., Cooper, 750 F.3d at 268 (upholding broad delegation to Attorney General to determine SORNA registration requirements); Amirnazmi, 645 F.3d at 577 (upholding delegation to the Executive to declare a national emergency and expand the scope of criminal liability in the trade context without an antecedent authorizing congressional action).

In these circumstances, Congress’s delegation is constitutional because it materially constrains the President’s power to define public international organizations. Touby, 500 U.S. at 166. Finally, the President acted permissibly within these boundaries when designating EBRD a public international organization. As the applicable Executive Order confirms, the President invoked his authority under the IOIA and acted consistent with it when recognizing EBRD as a public international organization. See 56 FR 28463 (June 18, 1991), Exec. Order No. 12,766 (“By the authority vested in me as President by the Constitution and the laws of the United States of America, including the International Organizations Immunities Act. . .[and] the European Bank for Reconstruction and Development Act, . . . it is hereby ordered . . . that the [EBRD] . . . is hereby designated a public international organization . . . .”). Given this explicit language, I must reject Defendant’s suggestion that the EBRD comes within the FCPA’s ambit by virtue of some provision other than subsection (h)(2)(B)(i). 15 U.S.C. § 78dd-2(h)(2)(B)(i); (Doc. No. 40 at 23-24). As the Executive Order makes plain, the President’s Order is consistent with 22 U.S.C. § 288; the operative provision at issue in this case thus must be subsection (h)(2)(B)(i). Id. As I have discussed, that provision plainly is not an impermissible delegation of authority. Defendant has thus not shown that § 78dd-2(h)(2) is unconstitutional as applied to him.

Because EBRD is constitutionally included in the FCPA’s ambit, Defendant is not entitled to dismissal of the substantive FCPA Counts.

b. Vagueness Challenge

A statute is void for vagueness only if it: (1) fails to provide a person of ordinary intelligence a reasonable opportunity to understand what conduct it proscribes; or (2) authorizes or encourages arbitrary or discriminatory enforcement. Amirnazmi, 645 F.3d at 588; see also United States v. Kay, 513 F.3d 432, 441 (5th Cir. 2007) (“The FCPA delineates seven standards that may lead to a conviction. All are phrased in terms that are reasonably clear so as to allow the common interpreter to understand their meaning.”). Additionally, an undefined word or phrase does not render a statute void when a court could ascertain the term’s meaning by reading it in context. See Boos v. Barry, 485 U.S. 312, 332 (1988). Finally, a vagueness challenge is particularly difficult to sustain when, as here, the statute includes a mens rea requirement. See Gonzales v. Carhart, 550 U.S. 124, 149 (2007) (“[S]cienter requirements alleviate vagueness concerns.”); Vill. of Hoffman Estates v. Flipside, Hoffman Estates, Inc., 455 U.S. 489, 499 (1982) (“[S]cienter requirement may mitigate a law’s vagueness, especially with respect to the adequacy of notice to the complainant that his conduct is proscribed.”).

“Public international organization” as used in the FCPA is not vague. As I have discussed, the Act clearly prohibits corrupt conduct directed at employees of a “public international organization”—which is, in turn, explicitly defined pursuant to IOIA and Executive Order. 15 U.S.C. § 78dd-2(h)(2)(B)(i); 22 U.S.C. § 288; Exec. Order No. 12,766, 56 Fed. Reg. 28463 (June 18, 1991). A person of ordinary intelligence would thus have no difficulty identifying EBRD as one among several enumerated public international organizations falling within the FCPA’s ambit. Indeed, Defendant acknowledges that such a list exists, and that “researching all Executive orders issued by the President pursuant to either 22 U.S.C. § 288 or the FCPA” would reveal that EBRD is a public international organization. (Doc. No. 40 at 23, 28.) Defendant’s suggestion that he could not have known that the EBRD qualified as a public international organization is thus untenable. San Filippo v. Bongiovanni, 961 F.2d 1125, 1136 (3d Cir. 1992) (“Simply because a criminal statute could have been written more precisely does not mean the statute as written is unconstitutionally vague.” (citing United States v. Powell, 423 U.S. 87, 94 (1975))).

Moreover, the FCPA includes a knowledge requirement, thus alleviating any concern that Defendant might be punished for conduct that he did not know was proscribed. See United States v. Amirnazmi, 2009 WL 2603180, at *2 (E.D. Pa. Aug. 21, 2009) (“[W]here the punishment imposed is only for an act knowingly done with the purpose of doing that which the statute prohibits, the accused cannot be said to suffer from lack of warning or knowledge that the act which he does is a violation of the law.”). Plainly, an ordinary person—and especially a sophisticated businessman like Defendant—would understand that the EBRD is a public international organization both literally and legally, and that bribing an employee of such an organization could well be criminal. See Kay, 513 F.3d at 442 (“A man of common intelligence would have understood that . . . bribing foreign officials, was treading close to a reasonably-defined line of illegality.”). I will thus reject Defendant’s vagueness challenge.

In sum, the inclusion of EBRD within the FCPA’s ambit is not unconstitutional, either facially or as-applied to Defendant. Accordingly, I will permit the Government to proceed on its substantive FCPA Counts.”