In December 2022, the Department of Justice announced criminal charges against Samuel Bankman-Fried arising from an “alleged wide-ranging scheme by [him] to misappropriate billions of dollars of customer funds deposited with FTX, the international cryptocurrency exchange [he] founded …, and mislead investors and lenders to FTX and to Alameda Research, the cryptocurrency hedge fund [he] also founded.”
Specifically, Bankman-Friend was charged with conspiracy to commit wire fraud, wire fraud, conspiracy to commit commodities fraud, conspiracy to commit securities fraud, conspiracy to commit money laundering, and conspiracy to defraud the Federal Election Commission and commit campaign finance violations.
As highlighted in this prior post, in March 2023 the DOJ filed a superseding indictment adding a Foreign Corrupt Practices Act conspiracy charge to the criminal charges Bankman-Fried is facing.
As alleged by the DOJ:
“In or about 2021, Bankman-Fried authorized and directed a bribe of at least $40 million to one or more Chinese government officials. The purpose of the bribe was to influence and induce one or more Chinese government officials to unfreeze certain Alameda trading accounts containing over $1 billion in cryptocurrency, which had been frozen by Chinese authorities. Bankman-Fried and others sought to regain access to the assets to fund additional Alameda trading activity, in order to assist Bankman-Fried and Alameda in obtaining and retaining business.”
Recently, Bankman-Fried filed numerous pre-trial motions including a motion to dismiss the FCPA conspiracy charge.
In pertinent part, the motion states (certain internal citations omitted):
“Count 13 charges Mr. Bankman-Fried with conspiracy to violate the anti-bribery provisions of the Foreign Corrupt Practices Act (“FCPA”) by alleging his participation in a scheme to pay officials in the Chinese government to “regain access to Alameda trading accounts that had been frozen” by Chinese law enforcement. This count must be dismissed because the Government has failed to properly allege that payments were made “in order to assist [a] domestic concern in obtaining or retaining business,” which is an essential element of an anti-bribery violation.
[…]
Count 13 Should Be Dismissed for Failure to Allege a Conspiracy to Violate the FCPA’s Anti-Bribery Provision and Improper Venue
Count 13 … attempts to allege that Mr. Bankman-Fried conspired with others to violate the anti-bribery provisions of the FCPA. Mr. BankmanFried is alleged to have participated in an effort to make payments to “Chinese government officials” to “regain access to Alameda trading accounts that had been frozen by Chinese law enforcement authorities.” The … Indictment is silent as to the identities, positions, agencies, and official duties of the alleged recipients of the payments or how they were able to unfreeze Alameda’s assets. The … Indictment is also vague at best as to which Chinese authorities issued the “freeze orders,” and on what basis, or the purported grounds on which they were issued. (alleging only that the assets were frozen “as part of an ongoing investigation of a particular Alameda trading counterparty.”)
[T]he Government has failed to properly allege an essential element of an anti-bribery violation, namely, that any alleged payments were made “in order to assist [a] domestic concern in obtaining or retaining business.” Instead, the … Indictment alleges that payments were made to unfreeze assets that belonged to Alameda—not to secure or retain a contract with a foreign government agency, gain an unfair advantage, or achieve an objective of the sort addressed in the FCPA’s text or legislative history or in relevant caselaw. As such, the alleged payment did not violate the FCPA, and Mr. Bankman-Fried’s alleged agreement with others to effect the payment could not have been a conspiracy to violate the FCPA. Accordingly, Count 13 should be dismissed for failure to state an offense pursuant to Fed. R. Crim. P. 12(b)(3)(B)(v).
1. The Government fails to allege that the object of the charged conspiracy was to make improper payments “to obtain or retain business,” as required by the FCPA.
The FCPA anti-bribery provision invoked by the Government applies where, among other things, a “domestic concern,” such as a U.S. resident or a resident’s agent, engages in certain conduct “in furtherance of” a payment to a foreign official “to assist . . . in obtaining or retaining business for or with, or directing business to, any person.” 15 U.S.C. § 78dd-2(a). See Chevron Corp. v. Donziger, 974 F. Supp. 2d 362, 596-599 (S.D.N.Y. 2014) (discussing the elements of an FCPA anti-bribery violation, including the “business purpose test”). “‘Congress intended for the FCPA to apply broadly to payments intended to assist the payor, either directly or indirectly, in obtaining or retaining business for some person.’” Id. at 598-99 (quoting United States v. Kay, 359 F.3d 738, 755 (5th Cir. 2004)). As discussed below, the business purpose requirement is met where payments are intended to obtain an unfair business advantage to which the person who allegedly will “obtain[] or retain[] business” would not otherwise be entitled. Because the alleged payments here were only intended to recoup assets undisputedly belonging to Alameda and deploy those assets as would occur in the normal course, the Government has failed to satisfy this business purpose requirement here.
As noted, the … Indictment alleges that Mr. Bankman-Fried participated in a conspiracy to make payments to “Chinese government officials” to “regain access to Alameda trading accounts that had been frozen by Chinese law enforcement authorities.” Also as noted, the … Indictment does not identify the officials who allegedly froze the accounts or those who received the bribes by name, title, or even government agency. The absence of even basic information about the alleged bribe recipient is critical, because the effort to make payments to a “foreign official” and the intent to induce that “foreign official” to take or refrain from taking particular actions are essential elements of an FCPA anti-bribery violation. 15 U.S.C. § 78dd-2(a)(1); Donziger, 974 F. Supp. 2d at 596.
Importantly, the … Indictment makes clear that the frozen assets belonged to Alameda. Indeed, the assets are characterized as “Alameda cryptocurrency accounts” containing “Alameda’s funds.” This fact distinguishes the alleged payment here from the types of bribes prohibited by the FCPA: As alleged in the … Indictment, the objective of the alleged conspiracy was not to “assist in obtaining or retaining business,” 15 U.S.C. § 78dd-2, but to “regain access” to funds belonging to Alameda.
In an apparent effort to fill the hole in their FCPA theory, the Government alleges that after regaining access to the assets based in China, “Alameda used the unfrozen cryptocurrency to fund additional Alameda trading activity.” This allegation does not rescue the FCPA charge. Under the Government’s apparent theory, the business purpose test would be met inevitably and solely because Alameda was a business and deployed its assets as it would—and was entitled to—in the normal course. The only way to have avoided an FCPA violation after Alameda recouped its rightfully owned assets would have been to stow them under a mattress and refrain from investing them altogether. As further explained below, this theory is at odds with the FCPA’s business purpose requirement.
The Government may argue that even if the objective was to restore Alameda’s lawful access to its own assets, the FCPA prohibits pursuing such an objective by making payments to foreign officials. However, this logic would conflate the business purpose requirement with the requirement that an FCPA defendant act “corruptly,” § 78dd-2(a), which the Second Circuit has interpreted to mean with the “improper motive of accomplishing either an unlawful result or a lawful result by some unlawful method or means.” United States v. Kozeny, 667 F.3d 122, 135 (2d Cir. 2011) (emphasis added). The business purpose requirement is an independent element of an FCPA violation, and it has not been met here.
This Court’s decision in Donziger provides an instructive contrast in this regard. There, the defendant was found to have been instrumental in directing bribes to an Ecuadorian court official to obtain a multibillion-dollar judgment against Chevron Corp., of which the defendant would be entitled to a portion as a contingency fee. In concluding that the payments were for a business purpose, the Court noted that “the payments increased the likelihood that Donziger’s business—that of contingency litigation—would benefit from a favorable judgment.” Donziger, 974 F. Supp. 2d at 599.
The alleged FCPA conspiracy in this case is fundamentally different. It was not Alameda’s business to recoup assets that had been frozen by foreign regulators in the same way as Donziger’s business was to pursue contingency fees. And Alameda is not alleged to have intended to procure new business opportunities or to preserve existing business that would not otherwise have been available to it in the same way Donziger procured a fraudulent judgment. In other words, Alameda is only alleged to have used its unfrozen assets to engage in business, not to obtain or retain business.
The Fifth Circuit’s analysis of the business purpose test in United States v. Kay makes clear why an alleged payment to recoup one’s own assets and conduct business with them, as alleged here, does not satisfy the business purpose test. 359 F.3d 738, 742-56 (5th Cir. 2004). The defendant in Kay allegedly orchestrated payments to Haitian officials to obtain favorable customs duties and tax treatment. The central question addressed by the court’s analysis was whether procuring unwarranted favorable tax treatment could “ever constitute the kind of bribery that is proscribed by the FCPA.” The court held that such payments “could fall within the purview of the FCPA’s proscription,” but “hasten[ed] to add . . . that this conduct does not automatically constitute a violation of the FCPA.” As the court explained:
Avoiding or lowering taxes reduces operating costs and thus increases profit margins, thereby freeing up funds that the business is otherwise legally obligated to expend. And this, in turn, enables it to take any number of actions to the disadvantage of competitors. Bribing foreign officials to lower taxes and customs duties certainly can provide an unfair advantage over competitors and thereby be assistance to the payor in obtaining or retaining business.
Importantly, simply reducing a company’s tax burden—i.e., “freeing up funds” —would not satisfy the business purpose test under the Fifth Circuit’s reasoning. Nor would that requirement be satisfied solely because those funds were deployed for operational purposes. Rather, under the Kay analysis, the question is whether the intent of the payor was to obtain a sufficient windfall to create a previously unavailable “nexus to garnering business [in Haiti] or to maintaining or increasing business operations . . . there.” In Kay, that “nexus” could have (but would not necessarily have) taken the form of an “unfair advantage over competitors” flowing from the “increase[d] profit margin” created by “favorable but unlawful tax treatment.” In Donziger, the business purpose was to increase the likelihood of a favorable judgment—itself “business” under the circumstances—to which Donziger’s clients may not have been entitled, and a proportionately large contingency fee for Donziger.
In contrast, the alleged objective here was not to obtain “unfair” or “improve[d]” business opportunity for Alameda, Kay, 359 F.3d at 749, nor was it to “increase the likelihood” of an improper business opportunity akin to Donziger’s favorable judgment. Rather, the alleged payments here were only alleged to have enabled Alameda to “regain access” to its own assets, and to deploy those assets in the manner to which it was entitled. The ostensible objective of the FCPA conspiracy alleged in the … Indictment is categorically different than those at issue in Donziger and Kay, and it falls outside the purview of the FCPA.
Because the Government has not alleged a conspiracy to violate the FCPA by making unlawful payments “to assist in obtaining or retaining business,” Count 13 of the … Indictment should be dismissed.”
In addition, in the motion Bankman-Fried also seeks dismissal of the FCPA conspiracy charge based on improper venue.
In a separate motion, Bankman-Fried argues that the FCPA conspiracy charge (as well as the Bank Fraud and Unlicensed Money Transmitting charges) “are offenses separate from the offenses specified in the Warrant of Surrender and thus violate the rule of specialty, unless the Bahamas affirmatively consents to the addition of those charges under Article 14 of the Extradition Treaty.”
In pertinent part, the motion states:
“In the defense’s understanding, the Bahamas has not provided such consent. Moreover, the Bahamas is likely unable to provide its consent because the Government has failed to provide it with sufficient information for it to determine that Counts 9, 10 and 13 satisfy the dual criminality requirement. Indeed, there is clear authority that the conduct underlying the FCPA conspiracy charge is not considered criminal in the Bahamas and thus cannot satisfy the dual criminality requirement.”
In many respects, the motion invokes the DOJ’s failed extradition of Viktor Kozeny from the Bahamas on FCPA charges (see here for a prior post).
