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Law Firm Partner Cleared To Pay Medical Expenses For Foreign Official’s Daughter

The DOJ recently released this Foreign Corrupt Practices Act Opinion Procedure Release dated December 19th.

Fitting of the holiday season, the DOJ concluded that being a nice person does not equal being a criminal.

As stated in Release 13-01, the “Relevant Facts and Circumstances” are as follows.

“Requestor is a partner with a U.S. law firm (the “Law Firm”). Requestor and other attorneys with the Law Firm have represented Foreign Country A in various international arbitrations. Requestor presently represents Foreign Country A in two international arbitrations for which the Law Firm receives payment. In the past 18 months, the Law Firm has billed fees to Foreign Country A of over $2 million, and Requestor anticipates that in 2014, the fees on matters for Foreign Country A will exceed $2 million.

Over the past several years of these representations, Requestor has become a personal friend of Foreign Official, who works in Foreign Country A’s Office of the Attorney General (the “OAG”). The OAG is responsible for selecting and contracting with international counsel on behalf of Foreign Country A. According to Requestor, however, Foreign Official has not had and will not have in the future any role in the selection of Requestor or the Law Firm as counsel for Foreign Country A. Requestor is not the Law Firm’s “primary relationship attorney,” “originating attorney,” or “lead attorney” for the OAG or the government of Foreign Country A, but has participated in the selection or pitch processes for new business with OAG and/or the government of Foreign Country A, and would expect to do so with regard to future business from these clients.

Requestor proposes to pay the medical expenses of Foreign Official’s daughter, who suffers from a severe medical condition that cannot effectively be treated in Foreign Country A or anywhere in the region. The physicians treating Foreign Official’s daughter have recommended that she receive inpatient care at a specialized facility located in Foreign Country B. Requestor reports that the treatment will cost between approximately $13,500 and $20,500 and that Foreign Official lacks financial means to pay for this treatment for his daughter.

In addition to the above representations, Requestor has further represented that among other things:

•  Requestor’s intention in paying for the medical treatment of Foreign Official’s daughter is purely humanitarian, with no intent to influence the decision of any foreign official in Foreign Country A with regard to engaging the services of the Law Firm, Requestor, or any third person.

• The funds used to pay for the medical treatment will be Requestor’s own personal funds. Requestor will neither seek nor receive reimbursement from the Law Firm for such payments.

• Requestor will make all payments directly to the facility where Foreign Official’s daughter will receive treatment in Foreign Country B. Foreign Official will pay for the costs of his daughter’s related travel.

• Foreign Country A is expected to retain the Law Firm to work on one new matter in the near future.  Requestor is presently unaware of any additional, potential matters as to which Foreign Country A might retain the Law Firm. However, if such a matter develops, Requestor anticipates that Foreign Country A would likely retain the Law Firm given its successful track record and their strong relationship.

• Under the law for Foreign Country A, any government agency such as OAG that hires an outside law firm must publicly publish a reasoned decision justifying the engagement. It is a crime punishable by imprisonment under the penal code of Foreign Country A for any civil servant or public employee to engage in corrupt behavior in connection with public contracting.

In addition, Foreign Official and Requestor have discussed this matter transparently with their respective employers. The government of Foreign Country A and the leadership of the Law Firm have expressly indicated that they have no objection to the proposed payment of medical expenses. Indeed, Requestor has provided a certified letter from the Attorney General of Foreign Country A that represents the following:

• The decision by Requestor to pay for or not to pay for this medical treatment will have no impact on any current or future decisions of the OAG in deciding on the hiring of international legal counsel.

• In the opinion of the Attorney General, the payment of medical expenses for Foreign Official’s daughter under these circumstances would not violate any provision of the laws of Foreign Country A.

The Attorney General further confirms that while Foreign Official handles aspects of the cases on which the Law Firm and Requestor work, Foreign Official has not taken part in any decisions regarding the Firm’s retention for any matter, nor would Foreign Official have such a role in any possible future decision regarding contracting outside counsel, as such decisions are outside of Foreign Official’s responsibilities.

Finally, Foreign Official has represented and warranted in writing that he has not had, does not have, and will not have any influence in the contracting of international lawyers to represent Foreign Country A; he will not attempt to assist Requestor or the Law Firm in the award of future work; and he would not get involved in any decision that the OAG might make in the future in this regard.

Based on the above facts and circumstances, the DOJ set forth, in pertinent part, the following analysis (internal citiations omitted).

“[T]he Department does not presently intend to take any enforcement action with respect to the proposed payment of approximately $13,500 to $20,500 described in the Request.

A person may violate the FCPA by making a payment or gift to a foreign official’s family member as an indirect way of corruptly influencing that foreign official.  However, “the FCPA does not per se prohibit business relationships with, or payments to, foreign officials.”  Rather “the Department typically looks to determine whether there are any indicia of corrupt intent, whether the arrangement is transparent to the foreign government and the general public, whether the arrangement is in conformity with local law, and whether there are safeguards to prevent the foreign official from improperly using his or her position to steer business to or otherwise assist the company, for example through a policy of recusal.”

Although no previous opinion release addresses the precise facts at issue here, the Department has previously expressed its lack of enforcement intent in matters where the requestor provided adequate assurances that the proposed benefit to the foreign official would have no impact on the requestor’s present or future business operations.

This is not to say that paying the medical expenses, or any other expenses, of a foreign official’s family member could never violate the FCPA. The payment of such expenses would certainly violate the FCPA if intended corruptly to influence a foreign official to use his or her position “in order to assist … in obtaining or retaining business for or with, or directing business to, any person.”

Here, however, the facts represented suggest an absence of corrupt intent and provide adequate assurances that the proposed benefit to Foreign Official’s daughter will have no impact on Requestor’s or Requestor’s Law Firm’s present or future business with Foreign Country A. As noted above, Foreign Official does not and will not play any role in the decision to award Foreign Country A’s legal business to Requestor’s Law Firm. Requestor and Foreign Official have informed their respective employers of the proposed gift and neither has objected. Indeed, the Attorney General of Foreign Country A has expressly stated that the proposed gift will not affect the decision to award work to Requestor’s Law Firm and, under the circumstances presented, is not illegal under Foreign Country A’s laws. This is further reinforced by Foreign Country A’s public contracting laws, which require transparent reasoning in contracting for legal work and criminally punish corrupt behavior. Finally, Requestor intends to reimburse the medical provider directly, ensuring that the payments will not be improperly diverted to Foreign Official. Accordingly, based on the representations made in the Request, including those described above, the Department does not presently intend to take enforcement action.”

*****

One criticism of DOJ FCPA Opinion Procedure Releases is the time it takes a requestor to obtain the DOJ’s opinion.  Release 13-01 states as follows.

“[The request was] submitted on October 15, 2013, as well as supplemental information that was submitted by Requestor on November 12, 2013, and November 25, 2013.”

In short, it took over two months for the requestor to obtain the opinion.

*****

It is interesting to note that the DOJ cited U.S. v. Liebo, 923 F.2d 1308 (8th Cir. 1991) twice in Release 13-01.

As noted in this recent post, a key conclusion by the Eighth Circuit in Liebo was that a jury could find that a subordinate who acted at his supervisor’s direction in providing a thing of value to a foreign official lacked “corrupt” intent.

Did Richard Liedo Win Or Lose?

[This post is part of a periodic series regarding “old” FCPA enforcement actions]

This previous post highlighted the 1989 Foreign Corrupt Practices Act enforcement action against NAPCO International in connection with military sales to the Republic of Niger.  The previous post noted that the DOJ also criminally charged the Vice President of the Aerospace Division of NAPCO and that this individual exercised his constitutional right to a jury trial and put the DOJ to its burden of proof.

That person was Richard Liedo and his enforcement action is worthy of its own post.

Among other things, the Liebo enforcement action resulted in a rare appellate FCPA decision, and an often overlooked one at that given that the court concluded that a jury could find that a subordinate who acted at his supervisor’s direction in providing a thing of value to a foreign official lacked “corrupt” intent.

In this lengthy 62 page criminal indictment, the DOJ charged Liebo in connection with the same bribery scheme alleged in the NAPCO action.  In pertinent part, the DOJ alleged that in connection with aircraft sales to Niger, Liebo conspired with others to violate the FCPA by making payments or authorizing payments of money to “officials of the Government of Niger, that is, Tahirou Barke Doka [the First Counselor of the Embassy of Niger in Washington, D.C.] and Captain Ali Tiemogo [Chief of Maintenance for the air force component of the Niger Ministry of Defense] and “Fatouma Mailelel Boube and Amadou Mailele, both relatives of Tiemogo, while knowing that all or a portion of such money would be offered, given or promised, directly or indirectly, to foreign officials, namely Barke and Tiemogo” for the purpose of “influencing the acts and decisions of Barke and Tiemogo in their official capacities, and inducing them to use their influence with the Ministry of Defense.”

In addition to the conspiracy charge (count 1), the DOJ also charged Liebo with 10 counts of violating the FCPA’s anti-bribery provisions (counts 2 – 11), one count of violating the FCPA’s books and records provisions (count 12), three counts of aiding and abetting in the preparation of false corporate income tax returns (counts 13 – 15), and five counts of making false statements to the Defense Security Assistance Agency (DSAA) of the U.S. Department of Defense in connection with the sales (counts 16 – 20).

Liebo exercised his constitutional right to a jury trial and put the DOJ to its burden of proof.

The jury considered 19 charges against Liebo (on the first day of trial, the court granted the DOJ’s motion to dismiss one of the false statement charges) and he was acquitted of 17 charges.  The only charges Liebo was convicted of was one count of violating the FCPA’s anti-bribery provisions and one count of making a false statement to DSAA.  The FCPA charge related to the payment of $2,028 “for the airline tickets purchased for Barke’s wedding and honeymoon travel.”

As noted in this judgment, Liebo was sentenced to 18 months in federal prison.  However, as noted in a Trace Compendium entry, “Liebo only served two of the 18 months, having petitioned for, and eventually received, a retrial.”

As noted in this Eighth Circuit opinion, Liebo appealed and argued on appeal that “his convictions should be reversed because of insufficient evidence and because the district court erred in instructing the jury” and that the “district court abused its discretion by denying his motion for a new trial based on newly discovered evidence.”

As to the FCPA anti-bribery charge Liebo was found guilty on, he argued on appeal that: (1) there was insufficient evidence to show that the airline tickets were given to obtain or retain business; and (2) that there was no evidence to show that his gift of honeymoon tickets was done corruptly.

After setting forth the standard of review (i.e. considering the evidence in the light most favorable to the government with all reasonable inferences and credibility determinations made in support of the jury’s verdict), the court stated as follows as to obtain or retain business.

“There is sufficient evidence that the airplane tickets were given to obtain or retain business. Tiemogo testified that the President of Niger would not approve the contracts without his recommendation. He also testified that Liebo promised to “make gestures” to him before the first contract was approved, and that Liebo promised to continue to “make gestures” if the second and third contracts were approved. There was testimony that Barke helped Liebo establish a bank account with a fictitious name, that Barke used money from that account, and that Barke sent some of the money from that account to Tiemogo. Barke testified that he understood Liebo deposited money in the account as “gestures” to Tiemogo for some “of the business that they do have together.”

Although much of this evidence is directly relevant to those counts on which Liebo was acquitted, we believe it appropriate that we consider it in determining the sufficiency of evidence as to the counts on which Liebo was convicted.

[…]

Moreover, sufficient independent evidence exists that the tickets were given to obtain or retain business. Evidence established that Tiemogo and Barke were cousins and best friends. The relationship between Barke and Tiemogo could have allowed a reasonable jury to infer that Liebo made the gift to Barke intending to buy Tiemogo’s help in getting the contracts approved. Indeed, Tiemogo recommended approval of the third contract and the President of Niger approved that contract just a few weeks after Liebo gave the tickets to Barke. Accordingly, a reasonable jury could conclude that the gift was given “to obtain or retain business.”

As to corrupt intent, the court stated as follows.

“Liebo also contends that the evidence at trial failed to show that Liebo acted “corruptly” by buying Barke the airline tickets. In support of this argument, Liebo points to Barke’s testimony that he considered the tickets a “gift” from Liebo personally. Liebo asserts that “corruptly” means that the offer, payment or gift “must be intended to induce the recipient to misuse his official position….”  […] Because Barke considered the tickets to be a personal gift from Liebo, Liebo reasons that no evidence showed that the tickets wrongfully influenced Barke’s actions.

We are satisfied that sufficient evidence existed from which a reasonable jury could find that the airline tickets were given “corruptly.” For example, Liebo gave the airline tickets to Barke shortly before the third contract was approved. In addition, there was undisputed evidence concerning the close relationship between Tiemogo and Barke and Tiemogo’s important role in the contract approval process. There was also testimony that Liebo classified the airline ticket for accounting purposes as a “commission payment.” This evidence could allow a reasonable jury to infer that Liebo gave the tickets to Barke intending to influence the Niger government’s contract approval process. We conclude, therefore, that a reasonable jury could find that Liebo’s gift to Barke was given “corruptly.” Accordingly, sufficient evidence existed to support Liebo’s conviction.”

As to Liebo’s argument on appeal that the “district court abused its discretion by denying his motion for a new trial based on newly discovered evidence,” Liebo noted that “two months after his conviction, a NAPCO employee provided Liebo with a memorandum showing [a superior’s] approval to the charge of the airline tickets.”  Liebo argued that the discovery of this evidence warranted a new trial.  In support, Liebo argued that “he was acquitted on all other bribery counts for which there was evidence that the payment in question was approved [by a superior].  Liebo argued that evidence of a superior’s approval of the wedding trip was a determinative factor in the jury’s verdict by “pointing to a question sent out by the jury during their deliberations asking whether there was ‘any information regarding authorization for payment of wedding trip.'”

After noting that motions for a new trial based on newly discovered evidence are looked upon with disfavor, the court also noted that “courts have granted a new trial based on newly discovered evidence especially when the evidence supporting the defendant’s conviction is weak.”

The court closed its opinion as follows.

“[T]he evidence against Liebo, while sufficient to sustain the conviction, was not overwhelming. Indeed, we believe that the company president’s approval of the purchase of the tickets is strong evidence from which the jury could have found that Liebo acted at his supervisor’s direction and therefore, did not act “corruptly” by giving the tickets to Barke. Furthermore, we are highly persuaded that the jury considered such approval pivotal, especially in light of the question it submitted to the court during its deliberations and its acquittal of Liebo on the other bribery counts in which evidence of approval existed. Accordingly, we hold that the district court clearly abused its discretion in denying Liebo’s motion for a new trial.”

In the re-trial, Liebo was convicted of aiding and abetting FCPA anti-bribery violations and making a false statement to the DSAA.  He was then sentenced to three years probation, two months home detention, and 400 hours of community service.

Based on all of the above, the question is raised – did Richard Liedo win or lose when he put the DOJ to its burden of proof?

In this the exam grading season, I know where I come out when the one with the burden is 90% unsuccessful.

Judge Grants Jackson And Ruehlen’s Motion To Dismiss SEC’s Monetary Claims – Finds That SEC Was Not Diligent In Bringing Case And That SEC Failed To Negate Facilitation Payments Exception – However Judge Allows SEC To File An Amended Complaint

Previous posts here, here and here discussed the motion to dismiss briefing in the SEC v. Mark Jackson and James Ruehlen Foreign Corrupt Practices Act enforcement action.  The enforcement action is notable in that the defendants, unlike most FCPA defendants, mounted a legal defense.

This previous guest post highlighted last week’s oral argument on the motion.

Yesterday, Judge Keith Ellison (S.D. Tex.) issued a lengthy 61 page decision (see here).

This post goes long and deep as to Judge Ellison’s decision.

Judge Ellison granted Defendants’ motion to dismiss the SEC’s claims that seek monetary damages while denying the motion to dismiss as to claims seeking injunctive relief.  Even though Judge Ellison granted the motion as to SEC monetary damage claims, the dismissal is without prejudice meaning that the SEC will be allowed to file an amended complaint within 30 days.  Presumably after the SEC does this, a new round of briefing will begin again.

In short, Judge Ellison’s decision was based on statute of limitations grounds (specifically that the SEC failed to plead any facts to support an inference that it acted diligently in bringing the complaint) as well as the SEC’s failure to adequately plead discretionary functions relevant to the facilitation payments exception.  As to the first issue, see this post from February 2011 in which I imagined a world in which FCPA defendants mounted legal defenses based on black-letter legal principles such as statute of limitations.  As to the second issue, Judge Ellison concluded, in what is believed to be an issue of first impression, that the SEC must bear the burden of negating the facilitation payments exception.

In addition, Judge Ellison’s decision also touches upon whether the SEC needs to specifically identify the alleged “foreign officials” as well as corrupt intent.  As to the first issue, Judge Ellison concluded that the identity of the foreign official need not be pled with specificity nor does the FCPA mandate a bright-line rule of detailed pleadings about a foreign official’s particular duties.  In so concluding, Judge Ellison acknowledged his disagreement with Judge Lynn Hughes (also in the S.D. of Texas) who stated the opposite in the DOJ’s unsuccessful prosecution of John O’Shea.

All issues are discussed below in the order discussed in Judge Ellison’s decision.

By way of background, the SEC’s complaint (see here for the prior post) alleges that Jackson and Ruehlen violated “the FCPA by participating in a bribery scheme to obtain illicit permits [Temporary Import Permits – “TIPs”] for oil rigs  in Nigeria in order to retain business under lucrative drilling contracts.”  The SEC’s complaint is based on the same core set of facts as the November 2010 DOJ/SEC enforcement action against the Defendants employer, Noble Corporation (see here for the prior post).  As Judge Ellison stated (his recitation of the facts takes up 15 pages) “the SEC charges Jackson and Ruehlen with multiple violations of the Foreign Corrupt Practices Act and other federal securities law in connection with actions they allegedly took to obtain TIPs and TIP extensions in order to avoid paying permanent import duties.”

As Judge Ellison observed in setting forth the legal standard in ruling on a motion to dismiss, “the question for the court to decide is whether the complaint states a valid claim when viewed in the light most favorable to the plaintiff” and the “court should not evaluate the merits of the allegation, but must satisfy itself only that plaintiff has adequately pled a legally cognizable claim.”

Judge Ellison next addressed Defendants claims which contended that the SEC’s complaint failed to adequately plead:  (1) the involvement of a foreign official; (2) that the payments were not facilitating payments, (3) that the Defendants acted corruptly, and (4) whether the facilitating payments exception is unconstitutionally vague.

“Foreign Official”

As to the involvement of a “foreign official,” Judge Ellison summarized the position of the parties as follows.

“Defendants contend that the FCPA requires a plaintiff to allege the identity of the foreign official whose authority a defendant sought to misuse.  They suggest that the SEC must allege by name, or at a minimum by role and job responsibility, the foreign official who was sought to be influenced.  The SEC contends that there is nothing in the FCPA that requires pleading the identity of the foreign official involved with the level of detail Defendants advocate.  Furthermore, it [the SEC] argues that Defendants’ interpretation of the FCPA would run counter to congressional intent.”

Judge Ellison stated, in pertinent part, a follows.

“The language of the statute does not appear to require that the identity of the foreign official involved be pled with specificity. Indeed, the terms of the FCPA make it unlawful corruptly to authorize payments to any person, knowing that any portion of those payments would be offered to any foreign official.  It is possible that the requirement that the payment be made or authorized with the purpose of “influencing any act or decision of such foreign official . . . in his . . . official capacity . . . , (ii) inducing such foreign official . . . to do or omit to do any act in violation of the lawful duty of such foreign official . . . , or (iii) securing any improper advantage . . . ”, would, at times, require the government to plead details about the foreign official’s identity, duties and responsibilities. For instance, the Court can imagine cases where, in order to show that the payment was intended to influence the official to neglect some particular duty, the government would have to plead that the official had that duty in the first place. However, the Court can similarly imagine situations where the purpose element could be satisfied without pleading details about a foreign official’s particular duties. Where the government alleges that payments made were intended to influence a foreign official to violate the very laws he is charged with implementing, it hardly seems necessary to require the government to identify the day-to-day duties of that foreign official; that foreign official, irrespective of whether he is the most junior staff member or the official who name appears at the top of the organizational chart, surely has a duty, like every government official, not to violate the laws he is charged with implementing. Furthermore, [the FCPA] provides that the purpose element can be satisfied by factual allegations that a payment was made with the purpose that some foreign official would be paid money to secure some improper advantage, which also does not appear to require allegations about that individual’s job responsibilities. The Court cannot see why the purpose requirement in [the FCPA] should mandate a bright-line rule of detailed pleadings about a foreign official’s particular duties.

Nothing in the legislative history of the FCPA suggests that Congress intended to limit the application of [the FCPA] to those cases where the government could show that a defendant knew, either by name or job description, precisely which foreign officials would be receiving the illicit payments he had authorized. The Fifth Circuit has recognized that, subject to the narrow exception for facilitation payments, Congress intended, with the FCPA, to “cast an otherwise wide net over foreign bribery.”  Kay I, 359 F.3d at 749.  Indeed, in explaining the requirement that a defendant act knowingly, Congress specified that the statute is intended to cover “both prohibited actions that are taken with ‘actual knowledge’ of intended results as well as other actions that, while falling short of what the law terms ‘positive knowledge,’ nevertheless evidence a conscious disregard or deliberate ignorance of known circumstances that should reasonably alert one to the high probability of violations of the Act.” H.R. Conf. Rep. 100-576 (1988).

In light of this legislative history, it would be perverse to read into the statute a requirement that a defendant know precisely which government official, or which level of government official, would be targeted by his agent; a defendant could simply avoid liability by ensuring that his agent never told him which official was being targeted and what precise action the official took in exchange for the bribe. Yet, Defendants contend that the Complaint must allege this level of detail. […] The Court seriously doubts that Congress intended to hold an individual liable under [the FCPA] only if he took great care to know exactly whom his agent would be bribing and what precise steps that official would be taking. Congress intended to address the problem of domestic entities bribing foreign officials to accomplish certain proscribed ends, see Kay I, 359 F.3d at 747, not domestic entities carefully monitoring the execution of that bribery.  And, if the FCPA does not require a defendant to know precisely which government official was being bribed, a plaintiff bears no burden to allege such facts.

[T]he limitations set out in [the FCPA] do not require the government in every case to plead details about the particular duties of the government official involved; sometimes, the nature of the benefit sought would inherently fall into the class of prohibited acts. Similarly, as discussed infra, pleading the non-applicability of the “facilitating” payments exception will not always require pleading details about the foreign official’s duties. Finally, that the offer or payment must be made in order to assist a defendant in obtaining or retaining business also does not require pleading anything about the foreign officials’ particular responsibilities.  Accordingly, the Court’s conclusion is bolstered by the fact that interpretations of the domestic bribery statutes have not required the level of specificity Defendants seek.

The authorities cited by the Defendants do not convince this Court. It is true that, in Kay I, the Fifth Circuit noted, in a parenthetical, that among the elements of a violation of the FCPA are “the identity of the foreign country and of the officials to whom the suspect payments were made, and the sought-after unlawful actions taken or not taken by the foreign officials in consideration of the bribes.”  Kay I, 359 F.3d at 760.  This, of course, says nothing about the level of detail with which these elements must be alleged. It is telling that, in Kay I itself, the government alleged only that payments were made to “customs officials in the Republic of Haiti” and “officials of other Haitian agencies” to accept documents that understated the true amount of rice being imported by the defendants in that case.  Kay I, 359 F.3d at 762.  The indictment does not specify the job responsibilities of the customs officials and entirely unidentified “other” officials, or what precise actions they took to accept the false documents at issue in Kay I.  If the Fifth Circuit intended for the foreign officials’ identities and specific  misdeeds to be alleged in the great level of detail that Defendants propose, the Court thinks it would have made mention of the woefully inadequate allegations in the case before it. The SEC here has alleged that payments were made to “Nigerian government officials” to “process eleven illegitimate TIPs with false paperwork” and “to obtain discretionary or unlawful extensions of these TIPs.”  The SEC also specifically alleges that among the agencies that received such payments were the NMA and NPA. The Court finds that these allegations are no less detailed than the allegations in Kay I’s indictment.

[…]

In a footnote, Judge Ellison stated as follows.

“[T]he Court must disagree with Judge Hughes’s oral statements in a recent criminal FCPA prosecution. [U.S. v. O’Shea] (“You can’t convict a man promising to pay unless you have a particular promise to a particular person for a particular benefit. If you call up the Basurtos and say, look, I’m going to send you 50 grand, bribe somebody, that does not meet the statute.”). This Court holds that asking a third party to bribe a government official, in order to induce that official to act in one of the proscribed ways detailed in [the FCPA], would meet the statute. The government does not have to “connect the payment to a particular official.”

“Facilitating” Payments and “Corruptly”

Judge Ellison summarized the position of the parties as follows.

“Defendants argue that the FCPA charges must be dismissed because the SEC bears the burden of pleading the inapplicability of the “facilitating” payments exception, […]   and it has failed to do so. Defendants also argue that the SEC has failed to plead sufficient facts that would support the inference that Defendants acted “corruptly” because the facts pled by the SEC are equally consistent with Defendants’ belief that the payments were permissible facilitating payments, and because, in any event, the SEC has not alleged sufficient facts to indicate that the payments were made with the requisite intent.  Finally, Ruehlen argues that the “facilitating” payments exception is unconstitutionally vague.

The SEC contends that Defendants bear the burden of pleading the inapplicability of the “facilitating” payments exception, but claims that, in any event, it has negated the “facilitating” payments exception.  The SEC further argues that it has adequately pled corrupt intent because it has pled sufficient facts to support the inference that Defendants knew their actions did not fall under the “facilitating” payments exception and were, in fact, taken with the requisite evil motive.  Finally, the SEC argues that the “facilitating” payments exemption is not unconstitutionally vague because a man of common intelligence would have understood what would constitute a permissible payment under the exception and what would not.”

As to the issues, Judge Ellison stated as follows.

“[T]he Court cannot, in every instance, divine, from the sheer fact that Congress chose to exempt “facilitating” payments from liability through an exception instead of an affirmative defense, that it intended for plaintiffs to bear the burden of pleading and proving the exception.  Instead the Court starts from the presumption that  Defendants bear the burden of raising and proving the applicability of an affirmative defense.  The Court then considers whether this statute is on of those rare instances where the true definition of the offense cannot be discerned unless the exception is negated.”

Judge Ellison next turns to the “particular circumstances that led to the addition of the “facilitating” payments exception, which neither party addresses” and stated as follows.

“When the FCPA was first enacted in 1977, there was no such explicit exception, but the legislative history indicated that by using the word “corruptly,” Congress intended to exempt such payments from the purview of the statute. For instance, the House Committee on interstate and foreign commerce provided as follows in its report: The language of the bill is deliberately cast in terms which differentiate between such payments and facilitating payments, sometimes referred to as “grease payments.” In using the word “corruptly,” the committee intends to distinguish between payments which cause an official to exercise other than his free will in acting or deciding or influencing and act or decision and those payments which merely move a particular matter toward an eventual act or decision or which do not involve any discretionary action. H.R. Rep. No. 95-640, at 4 (1977). Similarly, the Senate Committee on Banking, Housing and Urban Affairs wrote: “The statute does not . . . cover so-called ‘grease payments’ such as payments for expediting shipments through customs or placing a transatlantic telephone call, securing required permits, or obtaining adequate police protection, transactions which may involve even the proper performance of duties.” S. Rep. No. 95-114, at 10 (1977). In adding an explicit exception for “facilitating” payments in 1988, both houses explained that the amendment was meant “only to clarify ambiguities ‘without changing the basic intent . . . of the law.’” […]  The legislative history reveals that Congress intended, by using the word “corruptly,” to except facilitating payments from the ambit of the FCPA, and the addition of the “facilitating” payments exception into the language of the statute was intended only to clarify that intent. No one disputes that the SEC must bear the burden of proving that Defendants acted corruptly. Accordingly, the Court finds that the evolution of the statute in this case strongly supports the conclusion that the SEC must bear the burden of negating the “facilitating” payments exception.  The facilitating payments exception is best understood as a threshold requirement to pleading that a defendant acted “corruptly.”

The “facilitating” payments exception was intended to provide a “very limited exception[] to the kinds of bribes to which the FCPA does not apply.”  Kay I, 359 F.3d at 750.  The exception allows for payments to foreign officials the purpose of which is to “expedite or secure the performance of a routine government action,” […], which refers to a “very narrow categor[y] of largely non-discretionary, ministerial activities performed by mid- or low-level foreign functionaries.” Kay I, 359 F.3d at 751.  While the statute specifically includes “obtaining permits” as an example of the type of action that typically qualifies as routine, the Court interprets the example to refer to obtaining permits to which one is properly entitled.  See H.R. Rep. No. 95-640, at 8 (explaining that Congress intended to exclude from the FCPA’s reach “those payments which merely move a particular matter toward an eventual act or decision or which do not involve any discretionary action”).

The SEC alleges that Defendants authorized payments to foreign officials in order to obtain TIPs based on false paperwork, in contravention of what Defendants knew was the proper process for obtaining TIPs. As discussed supra,the SEC pled sufficient facts to support the allegation that Defendants knew these payments would be going to Nigerian government officials to obtain TIPs in a manner that violated Nigerian law. The grant of permits by government officials that have no authority to grant permits on the basis sought is in no way a ministerial act nor can it be characterized as “speeding the proper performance of a foreign official’s duties.” H.R. Rep. No. 95-640, at 8. Similarly, if payments were made to induce officials to validate the paperwork while knowing it to be false, that too would not qualify as simply expediting a ministerial act. Accordingly, the SEC’s pleadings easily negate the “facilitating” payments exception with regard to payments made to acquire false paperwork TIPs.

The SEC also alleges that Defendants authorized payments to foreign officials in order to obtain discretionary TIP extensions. Although the Court found that the SEC has alleged sufficient facts to support the inference that Ruehlen, and for the most part Jackson as well, knew that the payments they authorized would be going to bribe foreign officials, the Court cannot conclude that the Complaint pleads sufficient facts to support the allegation that Ruehlen or Jackson knew that these payments would be used to influence a discretionary decision of a foreign official. In fact, the SEC fails to plead sufficient facts to support the allegation that granting of TIP extensions is a discretionary action. The SEC repeatedly alleges that the granting of extensions is a discretionary action.  However, repeated incantations that NCS may grant an extension in its discretion do not satisfy the SEC’s obligations under Iqbal and Twombly to plead facts that render plausible such conclusory allegations.  The SEC alleges sufficient facts to support the conclusion that fourth extensions were illegal, including that grants of third extensions routinely indicated that the extension was the final extension that would be granted for that rig, as well as Noble’s own failed attempt to obtain a fourth extension.  It also alleges that NCS had previously denied a third extension because the rig was operating under a different drilling contract. However, these allegations are insufficient to make plausible the conclusion that granting TIP extensions is discretionary. These allegations are just as consistent with a regime where up to three TIP extensions are granted as a matter of routine for rigs that continue to operate on the same contract as they were operating when the initial TIP was granted. And if NCS does grant up to three TIPs routinely, any bribes offered to speed along or assure that action would fall squarely into the “facilitating” payments exception.

[…]

[T]he SEC has leave to amend the Complaint to allege facts that would support the allegation that granting TIP extensions is a matter of discretion. The SEC can satisfy this burden in a number of ways. The simplest way to do so would be to plead the Nigerian law or policy that so provides. However, the Court does not discount other means. After all, the SEC has plausibly pled that granting TIPs based on false paperwork is a violation of Nigerian law by relying on the fact of a prior Nigerian prosecution and the opinion of a legal expert.  Therefore, the Court does not rule out the possibility that the SEC may be able adequately to plead facts that would support the conclusion that grants of TIP extensions are a matter of discretion without pleading the provisions of Nigerian law. However, should the SEC not rely on Nigerian law, it must do more than just plead facts tat would be equally consistent with a protocol under which where TIP extensions are routinely granted if they satisfy certain threshold requirements.

After reviewing the FCPA’s legislative history, Judge Ellison interpreted the word “corruptly” as an act done with an evil motive or wrongful purpose of influencing a foreign official to misuse his position.”

He further stated as follows.

“In pleading that Defendants acted corruptly, the SEC need not proffer facts that would show that they knew their actions would constitute a violation of the FCPA […] (noting that nothing about the word “corruptly” suggests that the government must prove that a defendant knew he was violating the FCPA);  Kay II, 513 F.3d at 450-451 (holding that even the willfulness requirement in a criminal prosecution does not require the government to prove that a defendant knew he was violating a particular statute).  Indeed, this court seriously doubts that the SEC even needs to prove that Defendants knew that their actions violated any specific law. Because Kay II interpreted the willfulness requirement as requiring only a showing that a defendant knew that his actions were in some way unlawful, […] to interpret the word “corruptly” to require such knowledge would eliminate the distinction between a criminal and civil violation of the FCPA.  […]

Defendants argue that the SEC has not pled that they acted corruptly because it had failed to plead any violations of Nigerian law, and because both defendants had a good faith belief that they were acting lawfully.   Specifically, Jackson argues that he had a good faith belief in the legality of the payments as facilitating payments, and Ruehlen argues that he relied in good faith on the approval of the payments by supervisors, including Jackson.

As the Court has already discussed, the SEC has alleged sufficient facts that support the inference that obtaining TIPs through the use of false paperwork violated Nigerian law. However, as explained, the SEC has no obligation to plead that Defendants knew that they were violating a law, or even that they were seeking an illegal result to state a civil FCPA violation. Instead, it must plead only that Defendants acted with the wrongful purpose of influencing a foreign official to misuse his official position. As explained the SEC has adequately alleged that Defendants authorized payments to foreign officials to obtain TIPs based on false paperwork, in contravention of what Defendants knew to be the proper protocol. Seeking to obtain governmentally-issued benefits through payments intended to ensure Nigerian officials ignore the proper protocols plainly satisfies the requirement of having the wrongful purpose of influencing a foreign official to misuse his position. Defendants’ representations of their good-faith belief that the payments were “facilitating” payments, and therefore legal, are unavailing. First, as explained, the SEC’s allegations support the inference that Defendants knew they were seeking to obtain TIPs in an illegal manner, thereby pleading facts that, if true, would negative any claim of good faith belief that the payments were made to ensure routine government actions. At the motion to dismiss stage, representations to the contrary are irrelevant. Second, the Court is not certain that the SEC is obliged to plead that Defendants did not have a good-faith belief that their payments fell under the “facilitating” payments exception. As a practical matter, the Court has difficulty imagining how the SEC could plead that Defendants acted “corruptly” without, at the same time, pleading facts that, if true, would render implausible any claim that Defendants had a good-faith belief that the payments fell into the “facilitating” payments exception. After all, it is hard to see how one could have the evil motive or wrongful purpose of influencing an official to misuse his official position while, at the same time, believing, in good faith, that he was simply ensuring or expediting a routine government action. The Court need not resolve the question, however, because, in any event, the facts alleged by the SEC support the inference that Defendants knew use of false paperwork to obtain TIPs was illegal.

Finally, Ruehlen argues that the SEC has not pled adequate facts that he acted corruptly because he authorized payments with the knowledge and consent of Noble’s senior management.  […]  The factfinder may certainly consider whether Jackson’s approval of the payments negates corrupt intent. However, for the purpose of Rule 12(b)(6) motion, the Court finds that the facts pled regarding Ruehlen’s intimate involvement with the West Africa Audit make plausible the allegation that he did act “corruptly.”

Because the Court finds that the SEC has failed adequately to plead that the payments to obtain TIP extensions were not facilitating payments, it does not address whether the SEC has adequately pled that Defendants acted corruptly in making those payments. However, the Court notes, that should the SEC amend its complaint to plead sufficient facts to support the inference that the grant of TIP extensions is a discretionary act, it will need also to plead facts that support the inference that, in making these payments, Jackson and Ruehlen had the evil motive or wrongful purpose of influencing an official to misuse his position.”

In a footnote Judge Ellison then stated as follows.

[W]hile the Court finds no explicit statutory obligation to plead facts that would tend to show that Defendants did not have a good faith belief that their payments fell within the “facilitating” payments exception, the Court has difficulty imagining that the SEC will be able to plead that Defendants had the bad purpose of influencing an official to misuse his position if it does not first plead that Defendants knew they were not entitled to extensions as a matter of right upon satisfying certain basic threshold requirements.

As to the unconstitutional vagueness issue, Judge Ellison stated as follows.

“Here, a person of common intelligence should have no difficulty understanding that routine government actions do not include the granting of permits based on fraudulent documents. He would not fail to understand that the statutory example of “obtaining permits” as a routine governmental action presupposes that those permits are obtained based on some valid entitlement. Furthermore, even if a man of common intelligence might be somewhat uncertain about whether payments to secure TIPs through a known illegal method would be covered by the “facilitating” payments exception, the exception is but one of numerous elements of a civil FCPA violation; some ambiguity in the scope of this one part of the statute does not draw an impermissibly vague line.  […]

Similarly, should the SEC amend its Complaint adequately to plead that the granting of TIP extensions is a discretionary action, any argument that enforcement actions could not be initiated on the basis of payments to obtain favorable exercises of discretion in obtaining permits would also fail. In analyzing the FCPA, the Fifth Circuit made it unambiguously clear that the FCPA was enacted in substantial part to “prohibit the type of bribery that . . . prompts officials to misuse their discretionary authority.”  […} Even if the language of the “facilitating” payments exception failed adequately to put persons of common intelligence on alert that bribery to influence discretionary decisions was prohibited under the FCPA, Kay I, a  decision from February 2004, established the point as a matter of law. It is, of course, a “common maxim, familiar to all minds, that ignorance of the law will not excuse any person, either civilly or criminally.” […]”

Statute of Limitations

Judge Ellison summarized the positions of the parties as follows.

“Jackson and Ruehlen argue that the SEC’s Complaint should be dismissed because all of the events giving rise to the claims occurred outside of the limitations period and the SEC’s Complaint has failed to raise any basis for tolling.  The SEC does not dispute that the Complaint, on its face, raises no basis for tolling, but it argues that the statute of limitations should be tolled because of tolling agreements between the parties, because the fraudulent concealment doctrine applies, and because the continuing violations doctrine applies. Additionally, the SEC contends that the statute of limitations does not apply to equitable relief such as injunctions.  Finally, the SEC requests leave to amend its Complaint to plead any additional facts necessary for statute of limitations purposes.”

After discussing the applicable five year statute of limitations, he stated as follows.

The Complaint in this case was filed on February 24, 2012. Accordingly, absent some reason the statute of limitations should not apply, claims that accrued before February 24, 2007 should be barred. Here, the vast majority of the misconduct alleged occurred before February 24, 2007.  Although the Complaint does not plead any basis for tolling, the Court examines the  arguments as to why the statute of limitations should be tolled or is inapplicable, to determine whether any of the claims predicated on conduct prior to February 24, 2007 survive, and also to determine whether leave to amend would be futile.

[…]

Defendants do not dispute that they each signed tolling agreements with the SEC that would suspend the running of the statute of limitations for a total of 290 days.  These tolling agreements would make timely any claims based on conduct occurring after May 10, 2006.  […] Thus, although the SEC should have pled the existence of these tolling agreements, the Court finds it appropriate to grant the SEC leave to amend.”

As to fraudulent concealment as a basis for tolling the statute of limitations, Judge Ellison stated as follows.

Defendants also argue that the Complaint has failed to raise any basis for tolling. They argue that the SEC has failed to plead facts that would give rise to tolling based on the doctrine of fraudulent concealment. The SEC contends that it has pled the elements of fraudulent concealment that it is required to plead, and that Defendants actually bear some of the burden because the statute of limitations is an affirmative defense.

[…]

The Court rejects the SEC’s contention that it is Defendants who must bear the burden of proving that the Commission should have discovered the fraud earlier.

[…]

Under the applicable Fifth Circuit standard, the SEC has pled enough facts to suggest that Defendants concealed their wrongdoing. Specifically, the SEC has pled that each time a payment for false paperwork TIPs was approved, it was logged as a legitimate operating expense, as Defendants knew and intended. Furthermore, the SEC has alleged that Jackson signed personal certifications as CFO and CEO that were attached to Noble’s public quarterly and annual filings, dated from August 8, 2005 to May 9, 2007, stating that he had disclosed to Noble’s auditors and Audit Committee all significant deficiencies and material weaknesses in the design or operation of internal controls and any fraud. These acts are pled with adequate specificity and can, theoretically, be enough to support a claim of concealment. However, the Court notes that, if these assertions by Defendants that their actions are legal are to be the sole basis of the fraudulent concealment allegations, the SEC will eventually have to show that its reliance on these representations was reasonable. This is because “generally speaking, denial of wrongdoing is no more an act of concealment than is silence” and such a denial may constitute concealment only “where the parties are in a fiduciary relationship, or where the circumstances indicate that it was reasonable for the plaintiff to rely on defendant’s denial.”

However, the SEC has not pled any facts that support the inference that it acted diligently in bringing this Complaint. The SEC argues that, because it did not learn of the misconduct until June 2007, and because it brought its complaint within five years of that date, it has pled all it needs to plead.  However, as explained above, the SEC must plead facts that show that it acted diligently in gathering the facts that form the basis of its claims. It concedes that, by June 2007, when Noble disclosed its internal investigation to the SEC, it had inquiry notice of potential misconduct. The SEC has leave to amend its Complaint to plead facts that would support the inference that it acted diligently in gathering the facts that form the basis of this Complaint.

As to the SEC seeking the equitable remedy of injunction, the court noted that the “parties have cited no cases that suggest that dismissal of claims for injunctive relief is appropriate at the Rule 12(b)(6) stage.  […] The SEC, of course, ultimately will bear the burden of showing that an injunction is warranted.

Oral Argument Held In Jackson / Ruehlen Challenge

Today’s post is from Sarah Frazier (Berg & Androphy ) regarding the SEC’s FCPA enforcement action against Mark Jackson and James Ruehlen.   Frazier attended the oral argument last Friday in Houston on the Defendants’ motion to dismiss the SEC’s complaint.  For prior posts on the challenge, see here.

*****

By Sarah Frazier

Pleased with the quality of the briefing by all parties on Defendants’ motions to dismiss and ready with questions, Judge Ellison heard arguments for two-and-a-half hours on Friday.  The motions presented a rare challenge to the SEC’s Foreign Corrupt Practices Act enforcement powers and raised issues surrounding pleading requirements under Rule 8(a)(2) with regard to intent, the FCPA’s facilitating payment exception, and the identity and role of the alleged “foreign officials” in the case.

The Court made it clear early in the hearing that he was inclined to ask the SEC to supplement its pleadings in one or more of these areas without dismissing the case, which may or may not make much difference in the end.  Kenneth Donnelly, arguing for the SEC, stated that he had much more to plead if need be.  Whether that includes specifics on the Nigerian “foreign officials” who received the alleged payments, who are unnamed in the complaint, remains to be seen, should Judge Ellison require it.

Regardless, the hearing proved a valuable opportunity for the Defendants, in pointing out what they saw as pleading inadequacies, to tell their own story.  The SEC alleges that Jackson and Ruehlen repeatedly paid Noble’s customs agent in Nigeria to pass on bribes to (unidentified) Nigerian officials in order to extend temporary drilling permits for Noble’s offshore rigs.  Further, the SEC alleges that Defendants submitted permit applications that falsely asserted that the rigs had been moved outside of Nigerian waters, a necessary falsehood in order to render the rigs eligible for the permits.  David Krakoff and Nicola Hannah, for Defendants Jackson and Ruehlen respectively, explained that Noble had in fact approved the “special handling fees” according to its written policy for allowing facilitating payments allowed by the FCPA, in reliance on counsel.  Hannah also did a fine job of making sure the Court knew that his client was a high school graduate whose work had been on rigs until shortly before his first involvement with the payments, and whose middle manager role excluded him from Board of Directors’ reports on the subject.

The SEC’s complaint refers multiple times to the permit applications as “false paperwork,” urging implicitly that the paperwork itself evidences corrupt knowledge.  Defense counsel argued vigorously that this “falsity” was a red herring because it is not itself prohibited under the FCPA, and would not in their view render the facilitating payment defense unavailable.  Judge Ellison was keen, given such arguments, to understand the FCPA’s intent requirement in a civil versus a criminal case – posing that question to both sides.  Donnelly (SEC) took the position that the term “corruptly” in the statute applies whenever a payment is made to an official for misuse of his or her duties, while the defendants argued that the FCPA is a specific intent law and the SEC must show intent to violate the FCPA.

The parties and the Court spent much of the hearing grappling with how intent under the FCPA works when applying the FCPA’s “facilitating payment” or “routine government action” exception.  If Jackson and Ruehlen understood that the bribe was illegal under Nigerian law, but qualified as a facilitating payment under the FCPA, then is corrupt intent present?  If so, would not the whole facilitating payment exception be swallowed up?  After all, as Krakoff, Hannah, and David Gerger (also representing Ruehlen) pointed out, aren’t facilitating payments essentially all bribes?  And aren’t bribes generally illegal under local law?  If it were otherwise, and facilitating payments were required to be legal locally, there would be no need for the separate affirmative FCPA defense allowing conduct that is legal under written local law.

But, the Court asked several times using various hypotheticals, what about where, independent of the bribe, the deed being paid for is discretionary or improper or even illegal?  Is that a qualifying facilitating payment?  Donnelly on behalf of the SEC took the position that it was not in those instances, but, interestingly, in doing so acknowledged that this issue makes Nigerian law potentially relevant in the case.

Hannah and Krakoff countered that a discretionary governmental act still qualifies as facilitating if it relates to issuance of a permit, as here, because the language in the FCPA specifically enumerates “permit,” but does not use the word “discretionary” except in a different context, and thus dicta in the Kay case is incorrect.  Further, defense counsel argued,  if Nigerian law is pertinent, then it must be pled, and the SEC’s bare notice of intent to rely on foreign law under Rule 44.1 is insufficient under Rule 8a.

Judge Ellison inquired whether the written law of Nigeria was sufficient to determine whether a government act was discretionary – wouldn’t it be necessary to put on evidence of actual practice?  Defense counsel agreed, unsurprisingly, while Donnelly disagreed but raised the possibility of expert evidence on the point.

The Court probably need not decide all of these novel questions in ruling on the Defendants’ motions, but the questions will surely be relevant should the case proceed to trial.  In the meantime, the parties gained insight into possible initial reluctance to apply the FCPA’s facilitating payment exception to situations involving governmental acts that seem improper or are merely discretionary.

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