Top Menu

On The Eve Of Trial, Battle Over The FCPA’s “Local Law” Affirmative Defense In U.S. V. Ng Lap Seng

Seng2

This previous post highlighted U.S. v. Ng Lap Seng (pictured), a criminal enforcement action involving alleged bribery of United Nations officials that includes FCPA charges. Trial was to begin in late May but was adjourned at the last minute and trial is set to begin today.

As highlighted in this post, on the eve of trial the parties are battling over jury instructions regarding the Foreign Corrupt Practices Act’s “local law” affirmative defense.

In terms of background, the affirmative defense (added to the FCPA in 1988) provides that it should be an affirmative defense to an otherwise prima facie violation of the FCPA’s anti-bribery provisions if:

“the payment, gift, offer, or promise of anything of value that was made, was lawful under the written laws and regulations of the foreign official’s, political party’s, party official’s, or candidate’s country.”

It is believed that the local law affirmative defense has been subjected to judicial scrutiny just once.

In U.S. v. Bourke (582 F.Supp.2d 535 (S.D.N.Y. 2008), an enforcement action concerning an alleged bribery scheme in connection with the privatization of Azerbaijan’s state-owned oil company, Bourke argued that the alleged payments were legal under Azeri law and thus under the FCPA given its local law affirmative defense. Bourke’s expert opined that under Azeri law a “person who has given a bribe shall be free from criminal responsibility if, [among other things] the person after giving the bribe voluntarily made a report of the occurrence.”

The judge framed the disputed issue as follows.

“As a threshold matter, I must determine the meaning of “relieved (or free) from criminal responsibility.’  Bourke contends that if an individual is relieved of criminal responsibility, his action was ‘lawful’ and he may thus avail himself of the FCPA’s affirmative defense.”

The judge disagreed and concluded:

“For purposes of the FCPA’s affirmative defense, the focus is on the payment, not the payer.  A person cannot be guilty of violating the FCPA if the payment was lawful under foreign law. But there is no immunity from prosecution under the FCPA if a person could not have been prosecuted in the foreign country due to a technicality (e.g., time-barred) or because a provision in the foreign law ‘relieves’ a person of criminal responsibility. An individual may be prosecuted under the FCPA for a payment that violates foreign law even if the individual is relieved of criminal responsibility for his actions by a provision of the foreign law.”

As to the Azeri law at issue, the judge stated:

“The structure of the reporting exception to liability in [Azeri law] illustrates that the initial payment of a bribe was certainly not lawful.  [Azeri law] relieves the payer of a bribe from criminal liability if the bribe is properly reported not because such an action retroactively erases the stain of criminality, but because the state has a strong interest in prosecuting the government official who received the bribe. By waiving liability for reporting payers, the state increases the likelihood that it will learn of the bribery.  But at the moment that an individual pays a bribe, the individual has violated [Azeri law]. At that time, the payment was clearly not ‘lawful under the written laws’ of Azerbaijan.  If the individual later reports the bribe, she can no longer be prosecuted for that payment. But it is inaccurate to suggest that the payment itself suddenly became ‘lawful’ – on the contrary, the payment was unlawful, though the payer is relieved of responsibility for it.”

Back to U.S. v. Ng Lap Seng.

In a June 20th letter brief, the DOJ states:

“Under the FCPA, it is an affirmative defense that the “payment, gift, offer, or promise of anything of value that was made, was lawful under the written laws and regulations of the foreign official’s . . . country.” 15 U.S.C. §§ 78dd-2(c)(1) and 78dd-3(c)(1). The pertinent countries here are Antigua and Barbuda (“Antigua”) as to the Antiguan Ambassador, and the Dominican Republic as to the Dominican Ambassador.

The Court need not, and therefore should not, look beyond the plain language of the statute, which makes clear that to establish this affirmative defense, the defendant must prove that the “written laws” of Antigua and/or the Dominican Republic expressly make “lawful” the bribe payments at issue here.

Such a commonsense reading of the statute is squarely supported by its legislative history. When Congress enacted this affirmative defense, it specifically sought “to make clear that the absence of written laws in a foreign official’s country would not by itself be sufficient to satisfy this defense.” H.R. Rep. No. 100-576 (1988), at 922. As the Fifth Circuit explained, the amendments that codified this defense “illustrate an intention by Congress to identify very limited exceptions to the kinds of bribes to which the FCPA does not apply.” United States v. Kay, 359 F.3d 738, 750 (5th Cir. 2004). “Both houses [of Congress] insisted that their proposed amendments only clarified ambiguities ‘without changing the basic intent or effectiveness of the law.’” Id. (citing S. Rep. No. 100-85 (1987), at 53 and H.R. Rep. No. 100-40, pt.2, at 77). “[B]y narrowly defining exceptions and affirmative defenses against a backdrop of broad applicability, Congress reaffirmed its intention for the statute to apply to payments that even indirectly assist in obtaining business or maintaining existing business operations in a foreign country.” Kay, 359 F.3d at 756.

Thus, to use the most extreme hypothetical, payments to a foreign official of a country that has no laws or regulations whatsoever would not remove those payments from the ambit of the FCPA. That is because there is a world of difference between, on the one hand, conduct that is affirmatively lawful under the written laws of a foreign country, and, on the other hand, conduct that is not specifically criminalized (or even addressed) by foreign laws. Congress understood that in fashioning this affirmative defense, and by doing so, it did not delegate power to foreign countries to determine the applicability of the FCPA. See, e.g., United States v. Kozeny, 582 F. Supp. 2d 535, 539-41 (S.D.N.Y. 2008) (defendant not entitled to affirmative defense instruction regarding laws of Azerbaijan because those laws did not make the charged payments “lawful”).

Far from maintaining written laws that legalize bribery, the Dominican Republic and Antigua expressly outlaw bribery. Indeed, the defendant and the Government have submitted a proposed jury instruction about these very laws. Thus, the defendant cannot even attempt to meet the standard necessary to establish the affirmative defense under the FCPA. Faced with this incontrovertible fact, the defendant appears to contend that he is entitled to a jury instruction on this affirmative defense merely by asserting that the Government, in his view, will fail to establish a violation of the applicable foreign laws. That assertion does not entitle the defendant to the affirmative defense instruction, for multiple reasons.

First, as described above, the FCPA’s plain language and its legislative history make clear that the defendant’s position rests on a misreading of the affirmative defense. The proposition that the defendant appears to ask this Court to accept—that “lawful under the written laws and regulations of the foreign official’s . . . country” means simply that no written law or regulation expressly prohibits the allegedly unlawful conduct—is inconsistent with the statute’s plain language. Indeed, if the defendant were correct, the phrase “under the written laws and regulations” would become meaningless. Congress could have simply written “lawful.” But Congress deliberately chose to limit further the defense by requiring that the legality of the particular conduct be expressly codified. See, e.g., Leocal v. Ashcroft, 543 U.S. 1, 12 (2004) (“[W]e must give effect to every word of a statute wherever possible”); Ratzlaf v. United States, 510 U.S. 135, 140-41 (1994) (courts “should hesitate . . . to treat statutory terms” as “surplusage—as words of no consequence”); United States v. Nordic Vill. Inc., 503 U.S. 30, 36 (1992) (It is a “settled rule that a statute must, if possible, be construed in such fashion that every word has some operative effect.”). The only reading of the statute that gives meaning to “under the written laws and regulations” is that the written laws and regulations themselves must expressly condone the types of payments at issue and thus make the conduct lawful.

An FCPA case from this district, United States v. Kozeny, 582 F. Supp. 2d 535 (S.D.N.Y. 2008), illustrates the narrow applicability of this affirmative defense. In Kozeny, the district court held that a defendant was not entitled to an affirmative defense instruction under the FCPA regarding the laws of Azerbaijan even though Azeri written laws relieved a bribe payer of criminal liability under certain circumstances, because those laws did not make the bribe payments themselves “lawful,” as is required. 582 F. Supp. 2d at 539-41. In that case, the defendant was charged with bribing foreign officials in connection with a scheme to secure interests in the privatization of Azerbaijan’s state-owned oil company. Id. at 536-37. The defendant requested the district court to instruct the jury on potential defenses under Azeri law that relieved an individual of criminal responsibility for paying a bribe if he paid the bribe under threat of extortion, or if he self-reported the payment. The defendant argued that, because he bribed certain officials as a result of extortion, and because he eventually reported the payments, his actions were “lawful” under Azeri law, and therefore he was entitled to “avail himself of the FCPA’s affirmative defense.” Id. at 539. The district court disagreed, holding that the written laws of Azerbaijan did not render the payments lawful. The court explained that the Azeri defense in question merely encouraged bribe-payers to report bribes in order to help the government to prosecute corrupt officials; it did not, however, “retroactively erase[] the stain of criminality” on the bribe payment itself. In rejecting the defendant’s request to charge the jury on the affirmative defense, the court reasoned it did not matter whether an “individual is relieved of criminal responsibility for his actions by a provision of foreign law” because, “for purposes of the [FCPA’s] affirmative defense, the focus is on the payment, not the payer.” Id. (emphasis in original).

Second, the defendant’s reading of the affirmative defense would lead to a truly absurd result. Under the defendant’s interpretation, every time the Government charges an FCPA case, it would not only need to establish that every element of the FCPA itself was met, but also that every element of the applicable criminal law, if any, in the pertinent foreign country was also met. Stated differently, under the defendant’s reading, the FCPA would prohibit only conduct that was already outlawed by a pertinent foreign country because, so the defendant’s argument goes, if a country’s laws are silent as to the particular payments at issue, then the FCPA cannot apply. There is no support in the statute, the legislative history, or the case law for such an absurd result. The statute therefore cannot be construed in such a manner. See, e.g., United States v. Turkette, 452 U.S. 576, 580 (1981) (“absurd results are to be avoided”); Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 575 (1982) (“interpretations of a statute which would produce absurd results are to be avoided if alternative interpretations consistent with the legislative purpose are available”); Church of Holy Trinity v. United States, 143 U.S. 457, 459 (1892) (“absurd results which [would] follow from giving such broad meaning to the words[] makes it unreasonable to believe that the legislator intended” such a meaning).

Indeed, to the Government’s knowledge, no court has ever required that, for the Government to prove a violation of the FCPA, it must also prove a violation of foreign law. See, e.g., United States v. Bourke, No. 05 Cr. 518 (SAS) (S.D.N.Y. Jul. 8, 2009) (jury instructions), conviction aff’d, United States v. Kozeny, 667 F.3d 122 (2d Cir. 2011); United States v. Esquenazi, No. 09 Cr. 21010 (JEM) (S.D. Fla. Aug. 5, 2011) (jury instructions), conviction aff’d, United States v. Esquenazi, 752 F.3d 912 (11th Cir. 2014). 2 The FCPA is not structured so as to merely turn violations of foreign law into violations of U.S. law. Rather, it establishes that certain conduct is criminal under U.S. law even where foreign authorities are unable or unwilling to criminalize or prosecute the conduct themselves. See, e.g., Kozeny, 582 F. Supp. 2d at 539-41 (that foreign country relieves the defendant of criminal liability does not entitle him to affirmative defense under FCPA). Simply put, the FCPA does not rest on foreign law and the statute does not make payments to foreign officials criminal only if they are already criminalized in the applicable foreign country.

Finally, if the defendant were correct, then the FCPA’s affirmative defense is not, in fact, an affirmative defense at all, because the defendant need not make any showing whatsoever. He merely needs to claim that his conduct is not criminal under foreign law. An affirmative defense cannot rest on a defendant’s assertion that, in his view, he did not commit a crime prosecutable in a foreign country. As the Second Circuit has explained, “A defendant is entitled to an instruction on an affirmative defense only if the defense has a foundation in the evidence.” United States v. Gonzalez, 407 F.3d 118, 122 (2d Cir. 2005) (internal quotation marks omitted). The defendant offers none.”

In a June 22nd letter brief, counsel for Ng Lap Seng states:

“Defendant Ng Lap Seng respectfully submits this response to the government’s letter dated June 20, 2017, concerning the jury instructions he requested for his affirmative defense under the FCPA. The government’s claim that Mr. Ng’s requests “fail as a matter of law” is entirely meritless.

It is an affirmative to the FCPA charges in Counts Three and Four that “the payment, gift, offer, or promise of anything of value that was made, was lawful under the written laws and regulations of the foreign official’s … country. This simply means that if Mr. Ng shows that the written laws and regulations of Antigua and the Dominican Republic did not make the alleged payments unlawful, he is not guilty of violation the FCPA.

The government asserts that this provision’s ‘plain language’ requires proof that Antiguan and/or Dominican law “expressly makes lawful the bribe payments at issue here. […] What is ‘plain,’ however, is that the government is inserting the words ‘expressly’ and ‘affirmatively’ into the FCPA. Congress did not use those words. Congress could have required proof that the written laws of the foreign country ‘affirmatively authorized’ or ‘expressly approved’ the conduct at issue, but it did not.

Instead, Congress merely required the defendant to show that his conduct was ‘lawful under the written laws or regulations of the foreign country – in other words, not prohibited by those written laws or regulations. “Lawful’ means “not contrary to law; permitted or recognized by law.” Lawful, Black’s Law Dictionary (10th ed. 2014) (emphasis added). The Second Circuit has defined “lawful” as “conformable to law” or “allowed or permitted by law.” United States v. Johnson, 968 F.2d 208, 212 (2d Cir. 1992) (quoting Webster’s Third New International Dictionary 1279 (1971)). This is the natural interpretation of the word. For example, in Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983), the Supreme Court referred to practices “not covered by Title VII” as “lawful under Title VII,” even though “Title VII is neutral on the subject of all employment practices it does not prohibit.” Id. at 103-04, 108 (emphasis added).

The government argues that if Congress had meant to provide an affirmative defense whenever “no written law or regulation expressly prohibits the allegedly unlawful conduct,” it “could have simply written ‘lawful.’” (Gov’t Ltr. at 3). This is false, since if the defense applied to all conduct that is “lawful” in the foreign country, it would necessarily be broader and more ambiguous. As the commentators cited by the government (id. at 2 n.1) acknowledge, common practices in many countries deviate from the written law.2 Defendants whose bribe payments were in accordance with local custom or authorized by a powerful official could very well attempt to argue that their conduct was “lawful,” even if inconsistent with the applicable statutes. They could even argue that those statutes had fallen into desuetude. By tethering the affirmative defense to “written laws and regulations,” Congress ensured that “lawfulness” would be determined by reference to those texts, and not some other, less verifiable standard.

To mimic the appearance of real statutory interpretation, the government also invokes the canon against absurdities. According to the government, Mr. Ng’s reading of the affirmative defense would produce the “absurd result” of requiring the government to establish “every element of the applicable criminal law, if any, in the pertinent foreign country.” (Gov’t Ltr. at 4). This is nonsense. First, this is not the result of Mr. Ng’s interpretation, which does not require the government to “establish” anything related to his affirmative defense. Regardless of whether Mr. Ng must show that foreign law expressly authorized his conduct or merely failed to prohibit it, the burden rests with him. (See Dkt. 478 at 27 (requests to charge)).3 Second, it would not be absurd at all to require the government to prove a violation of foreign law. As the money laundering charges in this prosecution amply demonstrate, certain types of charges incorporate foreign law into the elements of a federal crime. And it is not absurd to believe that Congress would be wary of criminalizing payments that are legal in foreign countries, which would put American businesses at a disadvantage in foreign markets and potentially affect foreign relations. The government’s belief that this would be bad policy is not a legitimate basis for construing a statute in its favor. See Catskill Mountains Chapter of Trout Unlimited, Inc. v. Envtl. Prot. Agency, 846 F.3d 492, 517 (2d Cir. 2017) (holding that the “absurdity canon” applies “only where the result of applying the plain language would be, in a genuine sense, absurd, i.e., where it is quite impossible that Congress could have intended the result and where the alleged absurdity is so clear as to be obvious to most anyone”) (quotation marks omitted).

If anything, it is the government’s interpretation that is absurd. According to the government, the applicability of the affirmative defense turns entirely on the form of the foreign country’s bribery laws, rather than their substance. The foreign statute would have to say something to the effect of, “Bribing a UN ambassador shall be lawful.” It would not be sufficient to say, “Bribing an official other than a UN ambassador shall be unlawful.” Nor would it be sufficient to list classes of officials who are prohibited from accepting bribes, and omit UN ambassadors from that list. In each scenario, however, the result is the same: bribes to UN ambassadors are lawful. The government offers no reason why Congress would have wanted to distinguish among these scenarios. Although the government suggests that United States v. Kozeny, 582 F. Supp. 2d 535 (S.D.N.Y. 2008), supports its interpretation of the term “lawful” (Gov’t Ltr. at 2-4), that case does nothing of the sort. In Kozeny, the relevant Azeri laws prohibited bribery and merely “relieve[d] the payer of a bribe from criminal liability” if the payer was extorted or later reported the bribe to the authorities. Kozeny, 582 F. Supp. 2d at 539-40 & nn.27-30. The court found that the FCPA’s foreign-law affirmative defense did not apply to bribes that were extorted or reported to the authorities because those bribes were still criminal under Azeri law, just as a bribe remains criminal even though the statute of limitations has run. See id. This is fully consistent with applying the affirmative defense to payments that are not criminal under foreign law because they are not covered by any statute or regulation. The fact that a payment is not prohibited under foreign law is not a mere “technicality” that prevents prosecution, id. at 539—it is dispositive proof that the payment is “lawful.”

The government also mischaracterizes the FCPA’s legislative history in an attempt to bolster its position. (Gov’t Ltr. at 2). The 1988 conference report indicates that “[t]he House bill created a defense for payments ‘expressly permitted under any law or regulation’ of the foreign official’s country,” and “[t]he Senate amendment created an affirmative defense for payments that are ‘lawful’ under the laws and regulations of the foreign official’s country.” H.R. Conf. Rep. 100-576 (1988), 921, reprinted in 1988 U.S.C.C.A.N. 1547, 1954. Ultimately, “[t]he House receded to the Senate,” with an amendment that implemented the language currently codified. Id. at 922 (emphasis added). In other words, Congress thoroughly considered and rejected a version of the bill that would have limited the affirmative defense to payments “expressly permitted” by law or regulation. This is fatal to the government’s position. See Pan Am. World Airways, Inc. v. C. A. B., 380 F.2d 770, 781 (2d Cir. 1967) (“That Congress adopted the House version of the bill, specifically rejecting the Senate’s conflicting version, is of course an extremely significant factor in determining what was Congress’ intention which respect to the matters in issue.”), aff’d sub nom. World Airways v. Pan Am. World Airways, 391 U.S. 461 (1968).

The government relies heavily on the conference report’s statement “that the absence of written laws in a foreign official’s country would not by itself be sufficient to satisfy th[e] defense.” H.R. Conf. Rep. 100-576, 922. We are not, however, dealing with a situation in which there is an “absence of written laws.” Rather, Antigua and the Dominican Republic have enacted anti-corruption statutes with elements that differ from those of the analogous laws in the United States. These countries considered the problem of corruption and drew lines between lawful and unlawful conduct. Nothing in the legislative history suggests that Congress meant to disregard those lines and criminalize conduct excluded from the reach of those statutes. Had this been Congress’s intention, the conference report would undoubtedly have said that “the failure of the written foreign laws to criminalize certain conduct would not be sufficient,” instead of referring to the “absence of written laws.” Moreover, the report would not have said that the absence of written laws “would not by itself be sufficient” id. (emphasis added), which suggests that the absence of written laws is relevant to the determination of lawfulness. This would be impossible if the question turned entirely on whether written laws expressly authorized the conduct.5

In any event, legislative history is not a permissible reason to adopt the government’s interpretation. “[I]t is not consistent with the rule of lenity to construe a textually ambiguous penal statute against a criminal defendant on the basis of legislative history.” United States v. Pabon-Cruz, 391 F.3d 86, 102 n.19 (2d Cir. 2004) (quoting United States v. R.L.C., 503 U.S. 291, 307 (1992) (Scalia, J., concurring in part and in the judgment of the plurality)); accord Hughey v. United States, 495 U.S. 411, 422 (1990) (“[L]ongstanding principles of lenity . . . preclude our resolution of the ambiguity against petitioner on the basis of general declarations of policy in the statute and legislative history.”). The rule of lenity is crucial in part because it “ensures that criminal statutes will provide fair warning concerning conduct rendered illegal.” Liparota v. United States, 471 U.S. 419, 427 (1985). And while “the proposition that the words of the United States Code or the Statutes at Large give adequate notice to the citizen is something of a fiction,” this “fiction descends to needless farce when the public is charged even with knowledge of Committee Reports.” R.L.C., 503 U.S. at 309 (Scalia, J., concurring); accord Crandon v. United States, 494 U.S. 152, 160 (1990) (“Because construction of a criminal statute must be guided by the need for fair warning, it is rare that legislative history or statutory policies will support a construction of a statute broader than that clearly warranted by the text.”). Simply put, it is a violation of due process to construe a statute against a criminal defendant on the basis of legislative history. Ambiguous language in a conference report therefore cannot justify depriving Mr. Ng of an affirmative defense to the charges against him.

As explained above, however, this is a case in which the plain language of the statute, legislative history, and canons of construction all point in the same direction. The Court should instruct the jury on the foreign-law affirmative defense using the instruction proposed by Mr. Ng.”

The Most Comprehensive Book Written About the FCPA

Here is what others are saying about the book: "the most authoritative source for those seeking to understand and apply the FCPA;" "it should be on your FCPA bookshelf;" "for those wanting a pair of FCPA goggles no book is better"

Order Your Copy

Powered by WordPress. Designed by WooThemes