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FCPA Gets Some Mentions During Oral Argument In Supreme Court Disgorgement Case

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Because of how the DOJ and SEC have chosen to “enforce” the Foreign Corrupt Practices Act (that is largely through resolution vehicles that are not subject to any meaningful judicial scrutiny), the Supreme Court has never decided an FCPA case and, if this dynamic continues, likely will never decide an FCPA case.

Attempts were made in connection with the flawed 2014 U.S. v. Esquenazi “foreign official” decision (see here for my amicus brief urging the Supreme Court to accept the case including discussion of the above dynamic), but the Supreme Court ordinarily does not decide to hear a disputed legal issue after only one appellate court decision.

Given the above dynamics, the most FCPA observers can do is take note when the words “Foreign Corrupt Practices Act” are uttered in the Supreme Court and this occurred earlier this week during oral argument in SEC v. Kokesh, a non-FCPA case that is FCPA relevant because the issue before the Supreme Court is whether SEC disgorgement is subject to a five-year statute of limitations. (See prior posts here and here regarding the case and general issue as well as this FCPA Flash podcast in which Marc Bohn (Miller & Chevalier) discusses the case).

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

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I was directly involved in the “foreign official” challenges (i.e. are employees of so-called state-owned or state-controlled enterprises “foreign officials” under the FCPA) between 2011 and 2014.

Among other things: (i) I was engaged in connection with the original Carson challenge which relied in part on my “foreign official” declaration; (ii) I was engaged in connection with the Lindsey Manufacturing challenge which also relied in part on my declaration; (iii) I assisted the families of Joel Esquenazi and Carlos Rodriguez secure competent appellant FCPA counsel and assisted the pro bono counsel in that case; and (iv) after the 11th Circuit’s flawed “foreign official” decision in Esquenazi in 2014 (for a full discussion, see this article), I urged the Supreme Court in this amicus brief to accept cert.

In short, I am very familiar with the challenges and the statutory interpretation issues presented to the Supreme Court.

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Other Recent Supreme Court Rebukes Of Enforcement Theories Relevant To FCPA Enforcement

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U.S. v. McDonnell – the unanimous Supreme Court decision earlier this week vacating the former Virginia governor’s criminal convictions – was relevant to Foreign Corrupt Practices Act enforcement because the key issue in McDonnell , the proper meaning of the term “official action,” is term that also appears in the FCPA’s anti-bribery provisions.

In the FCPA’s nearly 40 years of existence, the Supreme Court has never addressed an FCPA issue. It is unlikely that the Supreme Court will address an FCPA topic anytime soon because of how the government has chosen to enforce the FCPA (the vast majority of corporate enforcement actions are resolved without any meaningful judicial scrutiny and the vast majority of corporate enforcement actions lack individual prosecutions)

Thus, when thinking about how the Supreme Court might address certain FCPA issues, one has to analogize to other relevant Supreme Court decisions.

This post highlights other recent Supreme Court decisions, in addition to McDonnell, to rebuke enforcement theories relevant to FCPA enforcement.

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Supreme Court Unanimously Rejects “The Government’s Boundless Interpretation Of The Federal Bribery Statute”

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This previous post previewed U.S. v. McDonnell, the former Virginia governor’s Supreme Court appeal of criminal charges related to the acceptance by the McDonnells of $175,000 in loans, gifts, and other benefits from Virginia businessman Jonnie Williams (CEO of Star Scientific) while Governor McDonnell was in office.

Although outside the context of the Foreign Corrupt Practices Act, the case is FCPA relevant because it presented the Supreme Court with the following question: “whether ‘official action’ is limited to exercising actual governmental power, threatening to exercise such power, or pressuring others to exercise such power, and whether the jury must be so instructed.”

As noted in the prior post, the core of the FCPA’s anti-bribery provisions prohibit the direct or indirect payment or offering of money or anything of value to a “foreign official” for purposes of: (A) (i) influencing any act or decision of such foreign official in his official capacity, (ii) inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official, or (iii) securing any improper advantage; or (B) inducing such foreign official to use his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality in order to assist the payor in obtaining or retaining business for or with, or directing business to, any person. (emphasis added).

Yesterday, the Supreme Court, in a unanimous decision written by Chief Justice Roberts, reversed McDonnell’s criminal convictions. Calling the government’s theory of prosecution “boundless,” the Court adopted a narrow interpretation of the meaning of “official action.”

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“Foreign Official” Cert Petition Filed In Supreme Court

As highlighted in this previous post, in May the 11th Circuit affirmed the FCPA (and related) convictions of Joel Esquenazi and Carlos Rodriguez.  Numerous previous posts have analyzed the 11th Circuit’s “foreign official” decision (see here for the key language of the decision; here for “foreign official” – the current landscape; here for a “foreign official roundup; here for the 193 different meanings of foreign official; and here for why the meaning of “foreign official” matters).

Perhaps most importantly, this previous post highlighted the 11th Circuit’s flawed reasoning.

Yesterday, Esquenazi and Rodriguez (through their counsel Markus Funk of Perkins Coie and David Simon of Foley & Lardner and others) filed this petition for certiorari in the Supreme Court.

The cert petition is believed to be the first substantive FCPA cert petition in FCPA history.  (As noted in this prior post, the Frederic Bourke FCPA enforcement action did result in a cert petition to the Supreme Court.  However, the issues presented were not FCPA specific. The Supreme Court denied cert.  Prior to Bourke’s cert petition, David Kay and Douglas Murphy filed a cert petition in the Supreme Court.  Again, the issues presented were not FCPA specific.  The Supreme Court denied cert.)  

The Supreme Court, which decides its own docket, has never substantively addressed any FCPA issue.

The petition states, in pertinent part, as follows.

“Few, if any, laws match the FCPA when it comes to the chasm between its profitability for the Government and the near-universal confusion concerning how far the statute actually reaches. The Eleventh Circuit’s ruling below only amplified the problem by providing a  purported “definition” of key FCPA provisions that differs from all provided previously and deepens the confusion over the term “foreign official.”

Under the heading, “Reasons for Granting the Petition” the petition states, in full, as follows.

The FCPA leaves open the pivotal question of who qualifies as a “foreign official” by not defining what “instrumentality [of a foreign government]” means.  Without a clear definition of “instrumentality,” the scope of the term “foreign official” cannot be understood. So it comes as no surprise that, though the statute was enacted in 1977, persistent questions about the correct interpretations of these terms have plagued it in this case and others.

Based on long-standing and straight-forward principles of statutory interpretation, Petitioners argued that instrumentalities should either be an actual part of the foreign government, or, at a bare minimum, perform core traditional governmental functions. The Government has lobbied for, and received from the Eleventh Circuit, an unacceptably broad interpretation of the term “instrumentality” that expands the reach of the statute to include partially state-owned or state-controlled enterprises that are not a part of any foreign  government, but whose employees could be considered “foreign officials” under the FCPA if they somehow fall into one or more of the court’s open-ended definitional options. Demonstrating the illogic of the Eleventh Circuit’s approach, consider that under its statutory construction, a janitor working for U.S. Government subsidized General Motors could qualify as a “foreign official” if General Motors were located overseas.

Prosecutorial discretion is one thing, but permitting the Government to take a “we-know-it-when-we-see it” approach to FCPA enforcement violates basic constitutional protections. In fact, the scope of the Government’s enforcement efforts have broadened to the point that even former Assistant Attorney General Breuer conceded the uncertainty—and the breadth of the Government’s interpretation—of who is a “foreign official” under the FCPA:

[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.

The Government’s excessively broad (and now judicially sanctioned) interpretation of who is considered to be a “foreign official” stands in direct contrast to the stated purpose of the FCPA, namely, to prohibit payments to a “narrow recipient category of traditional government officials performing official or public functions.” Decl. of Professor Michael J. Koehler In Support of Defendants’ Motion to Dismiss Counts One Through Ten of the Indictment in United States v. Carson, No. 8:09-cr-00077, ¶ 16(b) (C.D. Cal. Feb. 21, 2011).

Recognizing this untenable state of affairs, there has been widespread commentary and concern about the Government’s pursuit of “an increasingly expansive view of what makes an enterprise an ‘instrumentality’ of a foreign government, and, therefore, what makes employees of such enterprises ‘foreign officials.’” […]  Professor Koehler, for his part, has noted that no FCPA element “is more urgently in need of judicial scrutiny than the FCPA’s ‘foreign official’ element.” Michael J. Koehler, The Façade of FCPA Enforcement, 41 Geo. J. Int’l L. 907, 916 (2010).”

Elsewhere, the petition states, in pertinent part, as follows.

“In light of the Government’s recent increased enforcement action, and the span of time it has taken for just one federal appellate court to interpret this core statutory term, the time is now ripe for this Court to settle the meaning of instrumentality under the FCPA. This Court should not defer answering the question presented in this Petition until additional federal appellate courts reach conflicting decisions regarding whether state-owned enterprises are instrumentalities under the FCPA. By that time, the Government will have brought many more prosecutions or enforcement actions involving payments made, or benefits provided, to individuals who are not traditional government officials. Individuals and companies around the globe will be left to wonder whether the Government will unilaterally declare their conduct criminal. This Court should, therefore, settle the question of the meaning of “instrumentality” to clarify which of those enforcement actions Congress intended to sanction under the FCPA, and which it did not.

What is more, an acceptable answer to the definitional challenge lies near at hand. Congress is certainly capable of enacting language that applies to state-owned or state-controlled enterprises when it intends to do so. When Congress enacted the Foreign Sovereign Immunities Act (FSIA), for example, it specifically included within the definition of “agency or instrumentality of a foreign state” entities a “majority of whose shares or other ownership interest is owned by a foreign state or political subdivisions.” 28 U.S.C. § 1603(b). The presence of such an explicit definition in FSIA indicates that Congress knew how to include such language in the FCPA, but chose not to include it.

[…]

That absence is significant here and warrants construing “instrumentality” as excluding state-owned or state-controlled enterprises that are not political subdivisions and that do not perform core, traditional governmental functions. See Dole Food Co. v. Patrickson, 538 U.S. 468, 475-76 (2003) (contrasting the absence of language in FSIA with that used in other statutes and concluding that the absence of language was instructive). With regard to the FCPA, “[i]f Congress desires to go further . . . it must speak more clearly than it has.”

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A previously disclosed, I have provided pro bono expert services to pro bono defense counsel in this case.

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