Previous posts here, here, here, here and here have highlighted various aspects of the 11th Circuit’s recent “foreign official” decision in U.S. v. Esquenazi (the first time in FCPA history that an appellate court has directly addressed the enforcement theory that employees of alleged state-owned or state-controlled enterprises can be “foreign officials” under the FCPA).
This post contains additional perspectives and highlights the 11th Circuit’s flawed reasoning. For purposes of this post, knowledge of the court’s opinion and the facts and circumstances underlying the case are presumed. As previously disclosed, I served as a pro-bono expert to the defendants’ pro bono counsel in the 11th Circuit appeal and was previously engaged as an expert by defense counsel in prior “foreign official” challenges.
For starters, it is important to understand what was not at issue in the 11th Circuit appeal and what was at issue.
What was not at issue is whether the FCPA should be a comprehensive anti-bribery statute such as the U.K. Bribery Act. Congress could have passed a comprehensive anti-bribery statute in 1977 – as well as when the FCPA was amended in 1988 and 1998 – and could still pass a comprehensive anti-bribery statute today if it chooses. However, it is undisputed that Congress has not done so and the FCPA’s anti-bribery provisions are qualified in many ways, including as pertinent to the 11th Circuit appeal, through the category of recipients of the alleged improper payments.
What was not at issue was whether the 11th Circuit’s decision would have any practical effect on corporate compliance programs. The bulk of commentary regarding the 11th Circuit decision has been written by law firms writing for corporate audiences and I agree that the 11th Circuit decision has little practical impact on corporate compliance programs because risk-adverse business organizations were already structuring compliance policies and procedures to the DOJ and SEC’s enforcement theory that employees of SOEs were “foreign officials.” Such corporate positions were not evidence of the validity of the enforcement agency position for the same reason that the trending corporate position of eliminating facilitation payments is not evidence that the FCPA’s express facilitation payment exception is invalid.
Rather what was at issue in the 11th Circuit appeal was the basic and fundamental principle of ensuring – when the government marshals its full resources against individuals and deprives the individuals of their liberty – that each element of the charge alleged is being applied consistent with Congressional intent in enacting the statute. After all, the DOJ and SEC should only enforce a law that Congress passed.
Notwithstanding what was at issue in the 11th Circuit appeal, some have suggested:
“For those who challenged the government’s legal interpretation of the term “instrumentality,” they need to pick and choose better places to challenge the FCPA and the government’s enforcement program.”
Given what was at issue in the 11th Circuit appeal, as well as the other “foreign official” challenges, you will not find me apologizing one iota for my involvement in these cases or my “foreign official” declaration that partly served as a basis for the challenges.
Moreover, notwithstanding the 11th Circuit decision, let’s not forget the ultimate outcome of the other enforcement actions in which “foreign official” was challenged.
- A federal court judge granted, at the close of the DOJ’s case, John O’Shea’s motion for acquittal and found him not guilty of all substantive FCPA charges. In this post, O’Shea’s lawyers opine that the “foreign official” issue played a role in the ultimate outcome of the case.
- In the Carson “foreign official” challenge, “foreign official” issues moved to the jury instructions and the judge issued a pro-defendant jury instruction concerning “knowledge of status of foreign official” (see here for the prior post). Soon thereafter, the DOJ offered – what can only be described as lenient plea deals – that the risk adverse defendants accepted and the DOJ never had to prove its case.
- In the Lindsey Manufacturing enforcement action, the judge ultimately dismissed (see here) the case after finding numerous instances of prosecutorial misconduct. Although the prosecutorial misconduct was seemingly unconnected to “foreign official” issues, post-trial motions concerning, among other things, “foreign official” issues were pending at the time of dismissal.
One final big-picture point before highlighting the 11th Circuit’s flawed reasoning.
In the minds of some, the “foreign official” issue has now been “resolved” and “settled.” To this, I respond: can anyone name another instance in which a key element of an important law is deemed “resolved” or “settled” because of one appellate court decision?
The 11th Circuit recognized that the plain meaning of the word “instrumentality” in the FCPA only provides a partial answer as to its plain meaning and thus the court turned to “other tools to decide what instrumentality means in the FCPA.”
However, the court’s decision lacks any discussion of two statutes – one passed before the FCPA (the Foreign Sovereign Immunities Act) and one passed after the FCPA (Dodd- Frank, Section 1504) that explicitly contain the term instrumentality as well as SOE concepts.
It is a basic maxim of statutory construction that all terms in a statute are presumed to have distinct meaning and the 11th Circuit itself stated “it is a cardinal rule of statutory construction that significance and effect shall, if possible, be accorded to every word.”
However, the 11th Circuit dodged the salient question – if instrumentality was viewed by Congress to encompass SOEs, then why do statutes passed before the FCPA, as well as after the FCPA, explicitly contain the term instrumentality as well as SOE concepts?
If Congress believed the term “instrumentality” to encompass SOEs without an express definition saying so, then both FSIA and Dodd-Frank contain redundant terms which itself violates a basic maxim of statutory construction that statutes are presumed not to contain redundant terms. Indeed, where a particular element is explicitly set out in one statute, but it is not likewise set out in the statute at issue, courts presume that Congress did not intend to include that element in the statue at issue.
The court also examined the “broader statutory context” of the term “instrumentality” and examined the FCPA’s 1998 amendments and legislative history related thereto relevant to “foreign official.” However, the court’s decision lacks any discussion of the FCPA’s enacting legislative history relevant to “foreign official” and thus violates another maxim of statutory construction that enacting legislative history governs the meaning of a statutory term, not subsequent legislative history.
Here, the 11th Circuit recognized that it was skating on thin ice when it stated as follows. “Although we generally are wary of relying too much on later legislative developments to decide a prior Congress’ legislative intent, the circumstances in this case cause us less concern in this regard.” Indeed, the court even cited a Supreme Court decision stating that “the views of a subsequent Congress form a hazardous basis for inferring the intent of an earlier one.”
Nevertheless, the court stated as follows.
“This is not an instance in which Congress merely discussed previously enacted legislation and possible changes to it. Rather, Congress did make a change to the FCPA, and it did specifically to ensure that the FCPA fulfilled the promise the United States made to other nations when it joined the [OECD] Convention. The FCPA after those amendments is a different law, and we may consider Congress’s intent in passing those amendments as strongly suggestive of the meaning of ‘instrumentality’ as it exists today.”
The 11th Circuit’s rationale for consulting post-enactment legislative history, but not enacting legislative history, is not persuasive. Perhaps most important, the 1998 FCPA amendment to “foreign official” did not even concern the “department, agency, or instrumentality” prong of the “foreign official” definition. Rather the 1998 amendment to “foreign official” merely added those associated with “public international organizations” to the definition of “foreign official.”
As detailed in my “foreign official” declaration, the salient points from the FCPA’s enacting legislative history are as follows.
- During its multi-year investigation of foreign corporate payments that preceded enactment of the FCPA, Congress was aware of the existence of SOEs and that some of the questionable payments uncovered or disclosed may have involved such entities.
- In certain of the competing bills introduced in Congress to address foreign corporate payments, the definition of “foreign government” expressly included SOEs. These bills were introduced in both the Senate and the House during both the 94th (1975-76) and 95th (1977-78) Congresses.
- An American Bar Association committee informed the Chair of the House subcommittee holding hearings on these bills that the definition of “foreign government” in these bills, specifically the portion of the definition referring to “a corporation or other legal entity established or owned by, and subject to control by, a foreign government” was “somewhat ambiguous.” The American Bar Association committee suggested a “more precise definition of this aspect of the definition of ‘foreign government’ and proposed the following language: “a legal entity which a foreign government owns or controls as though an owner.
- Despite being aware of SOEs, despite exhibiting a capability for drafting a definition that expressly included SOEs in other bills, and despite being provided a more precise way to describe SOEs, Congress chose not to include such definitions or concepts in S. 305, the bill that ultimately became the FCPA in December 1977.
The above points have never been disputed in any of the “foreign official” challenges.
Rather, the DOJ argued that because SOEs were discussed during the legislative debate, Congress must therefore have intended to include SOEs in the definition of the “instrumentality” even though there is no explicit reference in the thousands of pages of legislative history for this position. The logic of the DOJ’s position would mean that Congress must have intended, despite the lack of explicit reference in the thousands of pages of legislative history, to include commercial bribery within the scope of the FCPA because there was much reference during the legislative history to commercial bribery payments.
In short, the 11th Circuit’s reasoning was flawed because in consulting legislative history the court consulted the wrong legislative history. The correct legislative history, the enacting legislative history, says what it says and the salient points from my “foreign official” declaration have never been disputed.
The 11th Circuit’s reasoning is further flawed by the inference in the court’s opinion that the FCPA’s 1998 amendments fully conformed the FCPA to the OECD Convention and, because of this, the FCPA must include SOEs because the OECD Convention does.
This is plainly false.
For starters, and as detailed in my “foreign official” declaration, it is clear that Congress was informed and understood that the 1998 amendments would not fully conform the FCPA to the OECD Convention. Rather, the OECD Convention was described as “closely modeling” the FCPA; being “very similar” to the FCPA; being “largely consistent” with the FCPA; and “closely tracking” the FCPA.
For this reason, the 11th Circuit’s statement that Congress amended the FCPA in 1998 to “implement[…] the Convention’s mandates” is false.
Indeed, this was previously recognized in U.S. v. Kay where both the trial court and appellate court rejected the DOJ’s position that the FCPA captured payments to secure an “improper advantage” because the OECD Convention captured such payments.
The trial court decision stated:
“The OECD Convention had asked Congress to criminalize payments made to foreign officials ‘‘ ‘in order to obtain or retain business or other improper advantage in the conduct of international business.’’ . . . Congress again declined to amend the ‘‘obtain or retain business’’ language in the FCPA . . . . Congress did not insert the ‘‘improper advantage’’ language into the ‘‘obtain or retain business’’ provision of the FCPA.”
Although the Fifth Circuit overruled the trial court’s decision granting the defendants’ motion to dismiss, the appellate court likewise stated as follows concerning the FCPA’s 1998 amendments:
“When Congress amended the language of the FCPA, however, rather than inserting ‘any improper advantage’ immediately following ‘obtaining or retaining business’ within the business nexus requirement (as does the Convention), it chose to add the ‘improper advantage’ provision to the original list of abuses of discretion in consideration for bribes that the statute proscribes.’’
Even thought the U.S. signed the OECD Convention, the Convention was not self-executing. Rather the Convention encouraged parties to “take such measures as may be necessary to establish that it is a criminal offense under its law for any person intentionally to offer, promise or give any undue pecuniary or other advantage, whether directly or through intermediaries, to a foreign public official …”.
The notion that the FCPA changed in 1998, in the absence of specific implementing legislation as to specific elements, because of generic references to the OECD Convention is false and has previously been rejected by the Fifth Circuit. In short, the OECD Convention was not self-executing and it is black letter law that if a treaty is not self executing it is not the treaty, but the implementing legislation, that is the law of the land.
Yet, the 11th Circuit suggested that because the “only change to the definition of ‘foreign official'” in the 1998 amendments was to add “public international organizations,” that “this seems to demonstrate that Congress considered its preexisting definition already to cover” employees of alleged SOEs.
For the reasons stated above in terms of the FCPA’s enacting legislative history, this suggestion is off-base and not supported by any explicit statement in the FCPA’s voluminous enacting legislative history.
The inference in the 11th Circuit’s decision is that the FCPA changed – presumably through a process of osmosis – because the U.S. signed the OECD Convention. Taking the court’s rationale to its logical conclusion, does the FCPA no longer have an express facilitation payment exception because the Convention does not? Does the FCPA no longer apply to payments made to political parties because the Convention does not? Congress surely did not change through osmosis the scope and meaning of the FCPA on these issues despite its generic references to the Convention in the 1998 amendments.
Throughout the “foreign official” challenges, the DOJ advanced the argument that a decision contrary its position (i.e. that employees of SOEs are not “foreign officials”) would result in the U.S. being out of compliance with its OECD Convention obligations.
This has been a red-herring argument all along. Another another U.S. law, the Travel Act, which the DOJ has often used in connection with FCPA enforcement actions, can capture payments outside the context of “foreign officials” and is capable of capturing payments to SOE officials as contemplated by the OECD Convention.
Moreover, the DOJ’s position ignores the fact that courts in other OECD Convention countries have concluded that employees of alleged SOEs are not “foreign officials.” (See here for a previous guest post regarding the issue in Korea).
Nevertheless, the 11th Circuit accepted the DOJ’s red herring argument and incorrectly concluded that it was “constrained to interpret ‘instrumentality’ under the FCPA so as to reach the types of officials the United States agreed to stop domestic interests from bribing when it ratified the OECD Convention.” Elsewhere, the court stated that to interpret instrumentality to exclude SOEs “would put the United States out of compliance with its international obligations.”
Neither statement is true.