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FCPA Undercover

The Africa Sting case is indeed the largest and most dramatic use of pro-active, undercover investigative techniques in an FCPA investigation.

However, contrary to numerous reports and even statements attributed to DOJ officials, the Africa Sting case is not the first time that pro-active, undercover investigative techniques have been used in an FCPA investigation. In other words, this is not a new development as demonstrated below.

Shu Quan-Sheng

In September 2008, Shu Quan-Sheng (a naturalized U.S. citizen and President, Secretary, and Treasurer of AMAC International (“AMAC”), a high tech company located in Virginia with an office in Beijing, China) was charged in a criminal complaint (see here and here) with, among other things, offering bribes to Chinese “foreign officials” in violation of the FCPA.

An affidavit (see here) in support of the criminal complaint by an FBI special agent describes several pro-active, undercover investigative methods including court authorized electronic surveillance and physical surveillance. Among other things, the affidavit describes several phone conversations Shu participated in connection with the bribery scheme.

Shu plead guilty to FCPA violations (among other charges) and was sentenced to 51 months in prison. (see here).

Gerald and Patricia Green

In January 2008, Gerald and Patricia Green, owners and operators of Film Festival Management (a private Los Angeles based private entertainment company) were criminally indicted for conspiring to bribe an official with the Tourism Authority of Thailand (TAT) and for making improper payments to the TAT official in violation of the FCPA. (see here and here).

The criminal charges were supported by an affidavit (see here) from an FBI special agent which describes several pro-active undercover investigative methods, including a multiple agent trip to Thailand to witness Mr. Green meeting with the Thai “foreign official.”

In September 2009 (see here), the Greens were found guilty by a federal jury of substantive FCPA violations, conspiracy to violate the FCPA, and other charges. The Greens are scheduled to be sentenced in March 2010.

William Jefferson

In June 2007, then U.S. Congressman William Jefferson was criminally indicted (see here and here). The charges included substantive FCPA violations and conspiracy.

According to numerous media sources (see here), the FBI affidavit released in connection with the investigation describes several pro-active, undercover investigative techniques including cooperating witnesses wearing FBI wires and video surveillance.

In August 2009, Jefferson was acquitted of substantive FCPA charges by a federal jury, but convicted of a wide range of other charges. (see here for more on the Jefferson case). In November 2009, Jefferson was sentenced to 13 years in prison and he remains free on bail pending his appeal.

WrageBlog (see here) has also identified two other previous instances of pro-active, undercover investigative techniques employed in connection with FCPA investigations.

Indicting a “Foreign Official” – Part II

Yes, there is FCPA news other than the Africa Sting case.

In connection with the Green case (see here), an indictment was recently unsealed (see here) against Juthamas Siriwan and Jittisopa Siriwan.

According to the indictment, Juthamas “was the senior government officer of the Tourism Authority of Thailand (TAT)” and she is the “foreign official” the Greens were convicted of bribing. Jittisopa is the daughter of the “foreign official” and also alleged to be an “employee of Thailand Privilege Card Co. Ltd.” an entity controlled by TAT and an alleged “instrumentality of the Thai government.”

Incidentally, the Green’s sentencing (which was to occur today) in which the government is essentially seeking a life sentence for Mr. Green based on FCPA, as well as other convictions and factors, was postponed until March. For more on that issue, see here.

As noted in the first Indicting a “Foreign Official” post a month ago (see here), the FCPA only covers “bribe-payers, not “bribe-takers.”

Thus, like the prior indictment against the alleged Haiti “foreign officials” (Robert Antoine and Jean Rene Duperval), the charges against the Siriwans are not FCPA charges, but largely conspiracy to money launder and “transporting funds to promote unlawful activity.”

However, unlike Antoine and Duperval who are alleged to have U.S. bank accounts which were used in the connection with the bribery scheme, the Siriwan’s bank accounts were located in Singapore, the United Kingdom, and the Isle of Jersey.

There are however facts alleged in the Siriwan indictment which suggest a U.S. nexus. The indictment alleges that the Greens did on occasion “arrange for cash payments to be made directly to Juthamas Siriwan, including during her trips to Los Angeles, California.” The indictment further alleges that Juthamas Siriwan “sent and caused to be sent to co-conspirator Gerald Green a facsimile on TAT letterhead providing wire instructions for transferring funds.” Finally, the indictment also alleges that “co-conspirator Patricia Green received instructions to divide ‘commission’ payments owed to defendant Juthamas Siriwan into wire transfer to three separate accounts.” Although the indictment does not say, it is presumed that the facsimile and instructions were sent to the U.S.

The “transporting funds to promote unlawful activity” charges (two – eight) of the indictment rely on 18 USC 1956(a)(2)(A) which reads in pertinent part:

“(2) Whoever transports, transmits, or transfers, or attempts to transport, transmit, or transfer a monetary instrument or funds from a place in the United States to or through a place outside the United States or to a place in the United States from or through a place outside the United States

(A) with the intent to promote the carrying on of specified unlawful activity

shall be sentenced to a fine of not more than $500,000 or twice the value of the monetary instrument or funds involved in the transportation, transmission, or transfer, whichever is greater, or imprisonment for not more than twenty years, or both.”

The specified unlawful activity alleged in the indictment is “namely, bribery of a foreign official” in violation of the FCPA; “bribery of a public official of Thailand” in violation of Thai law; and the “misappropriation, theft, or embezzlement of public funds by or for the benefit of a public official” in violation of Thai law.

In November 2009, Attorney General Eric Holder stated (see here) that the U.S. was committed to recovering funds obtained by “foreign officials” through bribery and the indictment seeks forfeiture of approximately $1.7 million in the foreign bank accounts.

The FCPA’s Murky “Knowledge” Element

Knowledge is one of the more difficult concepts to distill in criminal law.

The FCPA is no exception, particularly when it comes to the FCPA’s “while knowing” standard set forth in the FCPA’s third party payment provisions which generally prohibit otherwise improper payments to “any person, while knowing that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly” to a foreign official. (see 78dd-1(a)(3)).

The third party payment provisions have not always included this “while knowing” standard. When first enacted in 1977 and up until 1988 (when the FCPA was amended), the third party payment provisions had a broader standard and applied if a defendant engaged in the prohibited conduct “while knowing or having reason to know” that all or a portion of such money or thing of value would be offered, given, or promised, directly or indirectly to a foreign official.

In a superb new piece titled, “The ‘Knowledge’ Requirement of the FCPA Anti-Bribery Provisions: Effectuating Or Frustrating Congressional Intent?,” – Kenneth Winer and Gregory Husisian of Foley & Lardner (the “Authors”) conclude that “[t]he DOJ and SEC … now interpret the knowledge requirement so broadly that they have effectively eviscerated the 1988 statutory changes thereby raising an important question: Are the DOJ and SEC frustrating the intent of Congress by ignoring the reason that Congress amended the FCPA?” (see here).

These are the type of questions we like to posed here at the FCPA Professor blog and, for the record, I am glad to see that I am not alone in questioning whether certain aspects of current FCPA enforcement frustrate or contradict Congressional intent in enacting or amending the FCPA.

The authors do a fine job of walking the reader through a concise overview of the “knowledge” element’s legislative history, particularly the 1988 House and Senate bills which sought to amend the “knowledge” element. Reviewing case law cited in the compromise conference report, the Authors conclude that the “intent of the 1988 amendments” was to “address concerns that FCPA intermediary violations could be found where there was no actual knowledge” and that even though “Congress adopted language to cover situations beyond actual knowledge, it did so in a very circumscribed fashion.”

That fashion, according to the Authors, – “[o]nly in the limited circumstances where the party had something very close to actual knowledge – that is, both awareness of a ‘high probability’ that a corrupt payment would be made and a ‘deliberate’ decision to avoid gaining information in a conscious effort to avoid learning the truth – is the knowledge requirement satisfied.”

According to the Authors, the DOJ and SEC, and most FCPA commentators, talk about “willful blindness” or “head in the sand” language, provide a list of red flags, and then state that “failure to follow up on red flags will be treated as knowledge, regardless of the reason why the person did not inquire.”

Suppose a company is aware of a “high probability” that a corrupt payment is being made on its behalf, but that the company, perhaps because of “cost, delay, disruption or likely futility involved” in attempting to conduct an investigation, does not further. Under the “common view,” such a failure to investigate is a form of culpable knowledge.

Nonsense says Winer and Husisian. They note that “[o]f course, failing to conduct sufficient due diligence or ignoring red flags can, in many circumstances, be foolish in the extreme,” but that, as noted in the FCPA’s legislative history and cases cited therein, such “foolishness, in and of itself, cannot constitute a finding that knowledge is present.”

According to the Authors, the “net effect of this attitude is to bring the FCPA back to its original ‘reason to know’ standard” and the current enforcement approach utilizing this standard is nothing more than “implementing an approach that Congress specifically rejected.”

Winer and Husisian close by saying:

“The SEC, DOJ, and many commentators might think it would be best if the knowledge requirement was satisfied by failure to conduct adequate due diligence or the failure to follow up on red flags (even if the defendant was not motivated by a purpose of avoiding knowledge of the corrupt payment). But that is not the policy balance that Congress struck in the 1988 amendments. The agencies should rethink their interpretation of the FCPA and enforce the knowledge requirement as Congress intended.”

***

Curious as to the Author’s take on the knowledge jury instructions from the Bourke and Green trials this summer? The Bourke jury instructions – thumbs up; the Green jury instructions – thumbs down.

Verdict In … Greens Found Guilty

The third FCPA trial of the summer has concluded and Gerald and Patricia Green (two Los Angeles area film executives) have been found guilty by a federal jury of conspiracy to violate the FCPA, substantive FCPA violations, and other charges (see here for the DOJ New Release).

According to the DOJ release, evidence introduced at trial showed that “beginning in 2002 and continuing into 2007, the Greens conspired with others to bribe the former governor of the [Tourism Authority of Thailand] in order to get lucrative film festival contracts as well as other TAT contracts.” According to the release, the evidence also established that the Green’s attempted to disguise the bribe payments by labeling them “sale commissions” and by making the payments “for the benefit of the former governor through the foreign bank accounts of intermediaries, including bank accounts in the name of the former governor’s daughter and friend.”

Reacting to the verdict, Assistant Attorney General Breuer stated that the DOJ “will not waiver in its fight against corruption, whether perpetrated within our borders or abroad” and that the FCPA “is a powerful tool that the [DOJ] will continue to use in an effort to stop individuals like the Greens who seek to further their own business interests through bribes paid to foreign officials.”

The Greens are to be sentenced in December and the conspiracy and FCPA charges each carry a maximum penalty of five years in prison.

As mentioned, the Green trial was the third FCPA trial of the summer.

The other two were the Bourke matter (see here) and the Jefferson matter (see here).

Leading up to these trials, the FCPA bar and the enforcement officials themselves, predicted that one result of these trials would be greater clarity of some of the FCPA’s murky elements.

While the verdicts were, on balance, pro-DOJ verdicts, the verdicts reached in these trials were not exactly uniform.

Bourke was convicted of conspiracy to violate the FCPA (the case did not proceed to trial on a substantive FCPA violation).

Jefferson was also convicted of conspiracy (although it is not entirely clear if the jury found him guilty of conspiracy to violate the FCPA). However, Jefferson was found not guilty on the substantive FCPA charge (the charge predicated on the “cash in the freezer” allegations).

Have these trials provided any greater clarity as to various FCPA elements as widely predicted?

I think it is far to say that as a result of the Bourke verdict (even though it was not a substantive FCPA trial), the FCPA’s knowledge standard has never been broader, and can be satisfied even when an investor, like Bourke, does not actually pay a bribe, but is merely aware that others may be making bribe payments in a widely viewed corrupt country for the potential benefit of an entity in which he is an investor (see here and here).

Beyond this, I’m not sure that any further clarity as to substantive FCPA elements has resulted from these trials, but I would be interested to hear what others have to say.

Will these trials and the largely pro-DOJ verdicts send a “proceed with caution” message to any individual or corporation faced with an FCPA enforcement action and stiffle legitimate defense theories based on the FCPA’s elements?

I expect so, yet that is indeed unfortunate as a significant portion of FCPA enforcements are based largely on DOJ/SEC’s untested and unchallenged interpretations of the law.

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