On February 23rd, I received an e-mail from Adam Davidson with a re: line “New Yorker Magazine on the FCPA” which stated in pertinent part “I’m writing an article about a fascinating case of potential FCPA violation and would welcome the chance to discuss.”
Since launching FCPA Professor in 2009, I’ve had hundreds of conversations with journalists writing about the Foreign Corrupt Practices Act, but my 45 minute conversation with Davidson on February 23rd was the strangest, most concerning conversation I’ve ever had with a journalist about the FCPA.
A few minutes into the conversation, it was clear to me that Davidson was calling about the same Trump Organization / Trump Tower Baku story that I had spoken to a journalist about last Fall during the campaign.
A few minutes into the conversation, it was also clear to me that Davidson, in my opinion, had a narrative he wanted to tell in the story and was seeking confirmation or affirmation of that narrative. I carefully listened to all the information Davidson told me (and assumed for purposes of our conversation that such information was indeed factual) and then provided my analysis of the relevant FCPA issues.
In doing so, I told Davidson that with any instance of FCPA scrutiny, there are two questions that can be asked: (i) whether, given the DOJ’s and SEC’s enforcement theories, the conduct at issue can expose a company to FCPA scrutiny and an FCPA enforcement action; and (ii) whether Congress in passing the FCPA intended to capture the alleged conduct at issue and whether a court would find the alleged conduct in violation of the FCPA?
I told Davidson how these are two separate and distinct questions and how most people focus on question (i) but that I would focus on question (ii) having analyzed, among other things, the FCPA’s entire legislative history and every FCPA judicial decision.
My reward for responding to Davidson’s questions with actual legal authority was his argumentative statement that I was in “defense counsel mode” to which I responded “no, I am in law mode.” I then talked to Davidson about the importance of journalists getting the law right when writing articles about the FCPA. At some point towards the end of the 45 minute conversation, I recall Davidson saying something to the effect that even if there is only an 8% chance of the Trump Organization conduct being in violation of the FCPA, journalists can not only report the slam-dunk stories particularly when public figures are involved.
Needless to say, I was eager to read Davidson’s eventual story.
Earlier today the New Yorker published the story titled “Donald Trump’s Worst Deal .”
Given my exchange with Davidson and his argumentative response to my answers, I was not at all surprised that I was not quoted in the article.
Thus, I write this post to comment on the FCPA specific portions of the article and to provide context to the alleged facts and hypotheticals Davidson peppered me with during our conversation.
The basic issue presented by the Trump Organization Azerbaijan story is this: can a “domestic concern” subject to the FCPA’s anti-bribery provisions face legal liability to the extent the “domestic concern” is associated with and/or derives an income stream from a real estate development project that may have, at one point in time, been tainted by corruption.
The answer of course is it depends on the statutory elements of the FCPA’s anti-bribery provisions being met.
Generally speaking that means the “domestic concern” corruptly offered, paid, or promised to pay money or anything of value to a “foreign official” in order to assist the “domestic concern” in obtaining or retaining business.
Under the FCPA’s so-called third party payment provisions, a “domestic concern” is prohibited from not only engaging in the above conduct directly, but also indirectly through a third party.
Generally speaking, the third-party payment provisions state that a “domestic concern” can not corruptly provide money or anything of value 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 any foreign official in order to assist such domestic concern in obtaining or retaining business.
The FCPA provides the following definition of “knowing”
“(A) A person’s state of mind is “knowing” with respect to conduct, a circumstance, or a result if– (i) such person is aware that such person is engaging in such conduct, that such circumstance exists, or that such result is substantially certain to occur; or (ii) such person has a firm belief that such circumstance exists or that such result is substantially certain to occur. (B) When knowledge of the existence of a particular circumstance is required for an offense, such knowledge is established if a person is aware of a high probability of the existence of such circumstance, unless the person actually believes that such circumstance does not exist.”
Applying this undisputed legal framework to the information Davidson provided to me, I answered that just because the Trump Organization may have been associated with a real estate development project that may have, at one point in time, been tainted by corruption does not therefore mean that the above FCPA elements have been met.
I recall answering certain of Davidson’s questions with the following analogy.
An office building, it is undisputed, was only approved for construction in a particular location, after improper payments were made directly or indirectly to a foreign official. After the improper activity and after the office building is approved and built, along comes a company subject to the FCPA who becomes associated with the office building. For instance, think of coffee company x establishing a retail store in the office building and having signage on the building. Even if this coffee company had actual or constructive knowledge that the office building was approved and built x years ago only after bribery and corruption, this does not mean that the coffee company, because of its association with the office building and because it is deriving a revenue stream from the office building, is liable for violating the FCPA’s anti-bribery provisions.
Another useful analogy, not discussed during the conversation, but highlighted here as being relevant are the numerous oil and gas blocks or other projects around the world tainted, at one time, by corruption. Just because a company subject to the FCPA, after the bribery and corruption has occurred, becomes associated with the oil and gas block or other project, and thereby derives an income stream from the block or project, does not mean that the company is liable for violating the FCPA’s anti-bribery provisions. Indeed, there have been certain FCPA enforcement actions against (for instance) Company A because of conduct actually engaged in by Company A which resulted in an FCPA enforcement action against Company A, yet thereafter Company A continued to derive a revenue stream from the same project or contract.
The same analogy applies to the Trump Organization’s association with the Azerbaijan office building even if the Trump Organization hoped to gain a revenue stream from the building. In this regard, I respectfully disagree with Tom Fox’s statement in the New Yorker article that “it’s a problem if you’re making a profit off of someone else’s corrupt conduct.”
Sure that could be a problem, but that does not necessarily mean that any company subject to the FCPA that becomes associated with an office building and/or hopes to derive an income stream from an office building previously tainted by corruption is liable for violating the FCPA’s anti-bribery provisions.
It all depends on the elements of an FCPA anti-bribery being met.
During my conversation with Davidson, I told him, based on my review of all FCPA enforcement actions, that I was not aware of any FCPA enforcement action in the nearly 40 year history of the statute involving a licensor/licensee relationship. Davidson then asked about franchisor/franchisee relationships and I likewise said that I was not aware of any FCPA enforcement action involving such a relationship.
During my conversation with Davidson there was also much discussion about the FCPA’s third-party payment provisions including the Bourke case mentioned in the article (see below).
I told Davidson that the FCPA’s third-party payment provisions does not criminalize “knowing” of bribery and corruption in the abstract sense, but rather as stated in the statute, having knowledge that “any person” is providing or offering money or anything of value directly or indirectly to a foreign official in order to assist the company in obtaining or retaining business.
Given the ties between relevant actors mentioned in the article and Azeri “foreign officials,” I specifically mentioned to Davidson that it is not a per se violation of the FCPA to do business directly with a “foreign official” or a “foreign official’s” family member. I then told him that there were several DOJ FCPA Opinion Procedure releases in which the DOJ “blessed” such business arrangements.
Turning to information contained in the article, the article states:
“No evidence has surfaced showing that Donald Trump, or any of his employees involved in the Baku deal, actively participated in bribery, money laundering, or other illegal behavior. But the Trump Organization may have broken the law in its work with the Mammadov family. The Foreign Corrupt Practices Act, passed in 1977, forbade American companies from participating in a scheme to reward a foreign government official in exchange for material benefit or preferential treatment. The law even made it a crime for an American company to unknowingly benefit from a partner’s corruption if it could have discovered illicit activity but avoided doing so. This closed what was known as the “head in the sand” loophole.”
Given the above-described elements of an FCPA anti-bribery violation, the above language is misleading and not accurate.
Regarding the Bourke case, the article states:
“[I]n 2009, an American entrepreneur was successfully prosecuted for his part in a corruption conspiracy in Azerbaijan. Frederic Bourke, the co-founder of Dooney & Bourke, the handbag company, had invested in a project in which a foreign partner paid bribes to Azerbaijani government officials and their family members. Bourke was sentenced to a year in prison for violating the F.C.P.A.; he appealed the conviction, claiming ignorance of the corruption. Two years later, the U.S. Court of Appeals for the Second Circuit upheld the conviction, saying that, regardless of whether he had known about the bribes, “the testimony at trial demonstrated that Bourke was aware of how pervasive corruption was in Azerbaijan.” The F.C.P.A., they said, also criminalized “conscious avoidance”—a deliberate effort to remain in the dark about any transgressions a foreign partner might be involved in.”
This is a highly selective summary of the Bourke case.
True, the Second Circuit did conclude in the Bourke case that there was “ample evidence” to support a conviction at trial on a conscious avoidance theory under the FCPA’s third-party payment provisions. However, as to this “ample evidence,” the court stated:
“The testimony at trial demonstrated that Bourke was aware of how pervasive corruption was in Azerbaijan generally. Bourke knew of [a co-defendant’s] reputation […] Bourke created the American advisory companies to shield himself and other American investors from potential liability from payments made in violation of FCPA, and joined the boards of the American companies instead of joining [a board of another company involved in the investment]. In so doing, Bourke enabled himself to participate in the investment without acquiring actual knowledge of [the other company’s] undertakings. The strongest evidence demonstrating that Bourke willfully avoided learning whether corrupt payments were made came from tape recordings of a … phone conference with Bourke, [a] fellow investor … and their attorneys, during which Bourke voiced concerns about whether [a co-defendant] and company were paying bribes. […] Finally, Bourke’s attorney testified that he advised Bourke that if Bourke thought there might be bribes paid, Bourke could not just look the other way. Taken together, a rational juror could conclude that Bourke deliberately avoided confirming his suspicions that [co-defendant] and his cohorts may be paying bribes.”
In other words, the New Yorker article mentions just one factor identified in Bourke decision (and the most innocuous factor at that, that is knowledge of corruption in Azerbaijan generally) without mentioning the several other (more damning) factors relied upon by the Second Circuit in reaching its conclusion. For another amateur summary of the Bourke case, see this clip  (at the 18-19 minute mark) from the Rachel Maddow show.
The New Yorker article also seems to imply a casual relationship between the Baku deal being finalized and Trump’s 2012 statements about the FCPA. The article states:
“In May, 2012, the month the Baku deal was finalized, the F.C.P.A. was evidently on Donald Trump’s mind. In a phone-in appearance on CNBC, he expressed frustration with the law. “Every other country goes into these places and they do what they have to do,” he said. “It’s a horrible law and it should be changed.” If American companies refused to give bribes, he said, “you’ll do business nowhere.” He continued, “There is one answer—go to your room, close the door, go to sleep, and don’t do any deals, because that’s the only way. The only way you’re going to do it is the other way.”
Sorry to spoil the implied causation, but here are the facts concerning the context of Trump’s 2012 remarks (as previously discussed on FCPA Professor numerous time). Trump’s mid-May 2012 comment came at the height of public awareness of Wal-Mart’s FCPA scrutiny – scrutiny focused on alleged payments in Mexico to obtain various licenses and permits. Indeed, Trump’s comments (the video is here  go the approximate 14 minute mark) were made in the context of a discussion about Wal-Mart’s scrutiny.
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