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Judge Denies Firtash Motion To Dismiss And In Doing So Disagrees With Second Circuit’s Hoskins Decision

As highlighted in this prior post [1], in 2014 the DOJ criminally charged various individuals alleging a wide ranging conspiracy to bribe Indian officials to secure mining licenses. Among those charged was Dmitry Firtash, a high-profile Ukrainian businessman.

As highlighted in prior posts here [2] and here [3], in May 2017 Firtash (and later a co-defendant Andras Knopp) filed motions to dismiss.

Recently, in this opinion U.S. District Court Judge Rebecca Pallmeyer denied the motion to dismiss and as highlighted below, in doing so, disagreed with the Second Circuit’s August 2018 decision in U.S. v. Hoskins (see here [4] and here [5] for prior posts).

As to the relevant background of the FCPA (and related) enforcement action, the opinion begins:

“Defendants Dmitry Firtash and Andras Knopp were indicted in 2013 on charges that they made use of United States financial institutions to bribe Indian public officials. Allegedly, these bribes were intended to secure approvals for a mining project in India (hereinafter “the Project”), many products of which would then be sold to a company headquartered in Chicago. Neither Defendant has appeared in court to answer these charges. Firtash, a Ukrainian citizen, currently resides in Austria, where extradition proceedings are pending. Knopp, a Hungarian citizen, currently resides in Russia, with which the United States has no extradition agreement. Defendants move to dismiss the Indictment on several bases: (1) that the court lacks venue, (2) that the Indictment fails to state an offense, and (3) that prosecution would violate their rights under the Fifth Amendment Due Process Clause.

[…]

[T]he government filed a five-count indictment against the six alleged conspirators, including Firtash and Knopp.

Count One charges a conspiracy to violate the Racketeer Influenced and Corrupt Organizations Act (“RICO”). It alleges that the six alleged conspirators, acting as a criminal enterprise, conspired to engage in racketeering activity. Specifically, the Indictment charges that in planning to bribe Indian public officials, the enterprise conspired to engage in acts that would violate two federal statutes: the Money  Laundering Control Act (the “MLCA) which criminalizes the laundering of monetary instruments, and the Travel Act which criminalizes travel from one state to another to promote or facilitate unlawful activity.

Count Two charges a conspiracy to violate the MLCA that relates to the same conduct, and Counts Three and Four charge conspiracy and aiding and abetting Travel Act violations.

Count Five charges Firtash, Knopp, Gevorgyan, Lal, and Sunderalingam with conspiracy and with aiding and abetting a violation of the Foreign Corrupt Practices Act which criminalizes the payment of money by a “domestic concern” to a “foreign official” for the purpose of influencing an official act. It alleges that Lal, a permanent resident of the United States, was a “domestic concern” within the meaning of the FCPA, and that the targets of bribery, Rao and Reddy, were both “foreign officials” under the Act. In summary, the factual allegation is that Firtash, Knopp, and others conspired to influence the decision-making of foreign public officials through the payment of bribes, and that this would be done using instruments of interstate commerce and while in the territory of the United States.

Notably, the Indictment does not allege that Firtash or Knopp were ever physically present in the United States, either in connection with or unrelated to the Project. The government has since alleged that it has evidence showing Knopp took an act to further the conspiracy while he was physically present in the United States, although it has not specified what this act was.”

As to venue, Judge Pallmeyer concluded that the DOJ met the “generous test” for venue because the Seventh Circuit has recognized venue in cases of criminal conspiracy where the illegal activity was “intended to have an effect” in the district” and that the DOJ’s allegations met this test by alleging a conspiracy to obtain and sell product to a Chicago company.

Regarding the Defendants’ failure to state an offense arguments as to the FCPA (and related) charges, Judge Pallmeyer began by nothing that dismissal of a criminal indictment is granted “only in unusual circumstances” given that indictments are sufficient so long as it sets: forth the elements of the crime to be charged; provides adequate notice; and allows a defendant to raise the judgment as a bar to future prosecutions for the same offense.

[6]

The opinion contains separate sections regarding the RICO, money laundering, and Travel Act charges and as to the FCPA charges the opinion states:

“Defendants next argue that the court should dismiss Count Five. Count Five alleges that Defendants conspired, in violation of the federal aider and abettor statute, 18 U.S.C. § 2, and the federal conspiracy statute, id. at § 371, to violate the Foreign Corrupt Practices Act (the “FCPA”), 15 U.S.C. §§ 78dd-2(a) and 78dd-3(a). Pertinently, § 78dd-2(a) applies only to domestic concerns and the agents thereof, whereas § 78dd-3 applies only to foreign persons or businesses who take specified illegal acts while physically present in the United States. However, secondary liability charged via 18 U.S.C. §§ 2 or 371 generally applies regardless of whether the defendant himself is capable of committing the substantive offense. See Salinas v. United States, 522 U.S. 52 (1997).

Defendants dispute that the government has set out all the elements of these charges. According to Defendants, although the indictment charges only secondary liability under Sections 2 and 371, it must nevertheless also allege that Defendants each belong to the class of individuals capable of committing a substantive FCPA violation. Because the Indictment does not charge that either Firtash or Knopp is the agent of a domestic concern or a qualified foreign national accepting Defendants’ argument would necessarily imply that the Indictment fails to set out an essential element of the offense.

Two doctrines are relevant to Defendants’ argument: limits to secondary liability imposed by the common law, see generally Gebardi v. United States, 287 U.S. 112 (1932), and the presumption against extraterritorial application of statutes, see generally RJR Nabisco, Inc. v. European Community, 136 S. Ct. 2090 (2016). It is well-established that “[a] conspirator need not agree to commit the substantive offense—or even be capable of committing it—in order to be convicted.” Ocasio v. United States, 136 S.Ct. 1423, 1426 (2016). Interpreting the legislative history of the FCPA, however, the Second Circuit recently held that even when charged via the federal conspiracy or complicity statutes, “foreign nationals may only violate the [FCPA] outside the United States if they are agents, employees, officers, directors, or shareholders of an American issuer or domestic concern.” United States v. Hoskins, 902 F.3d 69, 97 (2d Cir. 2018). Hoskins would thus require an additional element be alleged in any indictment for conspiracy or complicity where the substantive offense is (or would have been) an FCPA violation: that the defendant is the agent of a domestic concern or a qualified foreign national.

No such allegation is included in Count Five of the indictment for Firtash or Knopp; the government does not dispute this fact. The government observes, however, that controlling Seventh Circuit case law declines to impose the requirement recognized in Hoskins. The government is correct. Indeed, although the Seventh Circuit has not yet ruled on this precise question, its disagreement with the Second Circuit’s approach in Hoskins is evident from a pair of existing cases discussing exceptions to secondary liability: United States v. Amen, 831 F.2d 373 (2d Cir. 1978) and United States v. Pino-Perez, 870 F.2d 1230 (7th Cir. 1989).

In Amen, the Second Circuit considered the use of secondary liability to convict a defendant under the “Continuing criminal enterprise” statute, 12 U.S.C. § 848, also known as the federal “kingpin” statute. 831 F.2d at 381. The kingpin statute, “designed to reach the ‘top brass’ in the drug rings,” sets out heightened criminal penalties for commission of certain felonies “in concert with five or more other persons with respect to whom [the defendant] occupies a position of organizer, a supervisory position, or any other position of management” and “from whom [the defendant] obtains substantial income or resources.” Garrett v. United States, 471 U.S. 773, 781 (1985) (quoting 12. U.S.C. § 848(2)). One of the defendants in Amen, Abbamonte, was convicted under the statute, and another defendant, Paradiso, was convicted for conspiracy and for aiding and abetting Abbamonte. Amen, 831 F.2d at 381. On appeal, Paradiso argued that because the kingpin statute expressly applies only to the head of an enterprise, one cannot incur liability for aiding and abetting such a person. Id.

The Second Circuit approached this problem by analyzing legislative history to determine whether Congress had intended for the kingpin statute to be covered by the already-existing aider and abettor and conspiracy laws. Amen, 831 F.2d at 381–82. The panel’s analysis uncovered “no mention of aiders and abettors,” and it thus determined that “the purpose of making [the kingpin statute] a new offense . . . was not to catch in [its] net those who aided and abetted the supervisors’ activities.” Id. at 382. Absent evidence that Congress’s purpose in passing the substantive criminal statute was for secondary liability to apply, the Second Circuit refused to draw the conclusion that it did. Id. at 381 (holding that to be convicted under the kingpin statute, “one must meet all the requirements for a conviction under [the kingpin statute]”); id. at 381 (“[O]ne cannot incur liability for aiding and abetting [a person who violates the kingpin statute].”). The Second Circuit thus vacated Paradiso’s convictions for conspiracy and for aiding and abetting Abbamonte’s violation of the kingpin statute. Id. at 383.

Two years later, in United States v. Pino-Perez, the Seventh Circuit considered the same question, en banc, although only with regard to the federal aider and abettor statute.15 870 F.2d at 1231. Pino-Perez was a drug supplier for a criminal enterprise, not the leader of the enterprise. Id. at 1232. On appeal from his conviction under the kingpin statute for aiding and abetting the operation of the enterprise, Pino-Perez made the same argument as that made in Amen: that aiding and abetting liability did not apply to the kingpin statute. Id. at 1233. But the Seventh Circuit panel departed from the Second Circuit, rejecting the Amen court’s focus on legislative history, and explaining, “Congress doesn’t have to think about aider and abettor liability when it passes a new criminal statute, because section 2(a) attaches automatically.” Id. at 1233. It continued, “It would introduce great uncertainty into federal criminal law if the liability of a conceded aider and abettor depended on the results of an inquiry into Congress’s intent concerning such liability in creating the offense that the defendant aided and abetted. Yet that is the inquiry required by Amen.” Id. at 1234.

The Seventh Circuit held, therefore, that exclusions to the aider and abettor statute may only be derived from statutory text, and are limited to three circumstances. First, where “a ‘crime is so defined that participation by another is necessary to its commission,’ that other participant is not an aider and abettor.” Id. at 1231 (quoting United States v. Southard, 700 F.2d 1, 20 (1st Cir. 1983). Second, where a participant is also “the victim of the crime,” that participant may not be an aider and abettor. Id. at 1232. And third, where a participant is the “member[ ] of a group that the criminal statute seeks to protect,” that participant may not be an aider and abettor. Id. (citing Gebardi v. United States, 287 U.S. 112, 123 (1932)). These three categories, the Seventh Circuit wrote, “exhaust the cases” in which “an inference can confidently be drawn that Congress in enacting a criminal statute meant to protect a class of accomplices from being charged as aiders and abettors.” Pino-Perez, 870 F.2d at 1234.

The Seventh Circuit also noted an apparent tension between the Second Circuit’s approach and Supreme Court precedent. In Gebardi v. United States, 287 U.S. 112 (1932), the Supreme Court held that the Mann Act, 18. U.S.C. § 397, which criminalized “the transportation [of] any woman or girl for the purpose of prostitution . . . or for any other immoral purpose,” could not be used to punish a woman being transported. Gebardi, 287 U.S. at 112. In reaching this conclusion, the Gebardi Court set two notable standards from which the Second Circuit appears to depart in Amen. For example, whereas the Amen court based its holding on the absence of evidence demonstrating an intent to create secondary liability, Gebardi directs that “to create an exemption from the ordinary rules of accessorial liability” there must be a showing of “an affirmative legislative policy.” Pino-Perez, 870 F.2d at 1234 (first quoting United States v. Falletta, 523 F.2d 1198, 1200 (5th Cir. 1975), then quoting Gebardi, 287 U.S. at 123 (emphasis added)). Moreover, whereas Amen focuses heavily on legislative history, Gebardi (like Pino-Perez) infers legislative intent only from the text of the statute. See Gebardi, 287 U.S. at 123 (“[W]e perceive in the failure of the Mann Act to condemn the woman’s participation in those transportations which are effected with her mere consent, evidence of an affirmative legislative policy to leave her acquiescence unpunished.”). These variances informed the Seventh Circuit’s departure from Amen and, as discussed below, those issues continue with Hoskins.

United States v. Hoskins follows closely in the footsteps of Amen and, with it, the reasoning rejected by the Seventh Circuit in Pino-Perez. There, the Second Circuit considered whether Hoskins, a foreign national, could be convicted under conspiracy or complicity theory for violating the FCPA, even if he belonged to none of the categories of persons expressly targeted by the FCPA. Hoskins, 902 F.3d at 76. The Indictment charged that Hoskins was part of a scheme to secure a $118 million contract for his employer—the subsidiary of a global company with another subsidiary headquartered in the United States—by bribing Indonesian officials. Id. at 72. Although Hoskins never traveled to the United States while the bribery scheme was ongoing, the government alleged that several parts of the scheme occurred within the United States, and that Hoskins repeatedly emailed and called co-conspirators while they were in the United States. Id. Hoskins moved to dismiss the FCPA charge on the ground that the statute did not apply to him. Id. at 73. The district court granted Hoskins’ motion, and the government appealed. Id. at 74.

By its own terms, the Hoskins opinion “focuse[d] on two cases”: Gebardi and Amen. Hoskins, 902 F.3d at 78. Consistent with Gebardi, the Second Circuit’s analysis began with a brief discussion of the text and structure of the statute. Then, echoing its holding in Amen, the Second Circuit observed that “an affirmative legislative policy can be discerned by looking to the statute’s text, structure, and legislative history.” Hoskins, 902 F.3d at 81 (emphasis added). Thereafter, the lion’s share of the court’s analysis centered on legislative history. Compare id. at 84–85 (two pages discussing the text and structure of the FCPA) with id. at 85–95 (ten pages discussing the FCPA’s legislative history). And it was only after conducting this segment of its analysis that the court found a basis to exempt the defendant from conspiracy and complicity liability. Compare id. at 85 (noting, immediately after its discussion of text and structure, that “[t]he question thus becomes whether there is ‘something more,’ a policy basis for Congress to exclude Hoskins’s category of defendants from criminal liability”) with id. at 93 (“The strands of legislative history demonstrate, in several ways, the affirmative policy described above . . . .”). In focusing on legislative history, the Second Circuit thus relied on analysis that the Seventh Circuit has summarily determined is unreliable in this type of inquiry. See Pino-Perez, U.S. at 1233. And omitting that segment of the Second Circuit’s analysis, as this court believes the Seventh Circuit would, eliminates any basis from which the court might infer an affirmative legislative policy.

Moreover, Pino-Perez lists only three circumstances in which “an inference can confidently be drawn that Congress in enacting a criminal statute meant to protect a class of accomplices from being charged as aiders and abettors.” Pino-Perez, 870 F.2d at 1234. None describe the facts here. Neither Firtash nor Knopp can fairly be described as victims of the alleged crimes, nor are they members of a group the FCPA was designed to protect. And while they were certainly alleged to be involved in the alleged crimes, their participation as co-conspirators was not definitionally “essential” to the statute’s violation.

Defendants correctly note that Pino-Perez did not deal with issues of extraterritoriality, and that the presumption against extraterritoriality arguably undermines assumptions on which Pino- Perez was based. The Pino-Perez court noted that “once that determination [that someone is an aider and abettor] is made, liability is automatic by virtue of section 2(a),” but that may not always be true where the defendant’s actions are extraterritorial and the underlying statute has no extraterritorial application. Pino-Perez, 870 F.2d at 1234. RJR Nabisco did not address extraterritorial limits for conspiracy claims, but appears to acknowledge that legislative history can constrain a statute’s extraterritorial application. Absent binding precedent on this issue, however, this court is unwilling to disregard clear guidance from the Seventh Circuit on this subject. For these reasons, Defendants’ motion to dismiss Count Five is denied.”

Regarding the due process challenge, Judge Pallmeyer concluded that the prosecution did not violate the Fifth Amendment’s due process clause because a substantial part of the alleged criminal conduct took place within the U.S. and/or had a substantial effect in the U.S.

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