Judge Denies Esquenazi’s “Foreign Official” Challenge
In a cursory November 19th opinion (see here) devoid of substantive analysis, Judge Jose Martinez (S.D. Fla.) denied Joel Esquenazi’s “foreign official” challenge. (See here and here for prior posts).
Esquenazi’s challenge was launched by a lawyer with no apparent FCPA expertise and his brief did not even scratch the surface as to the FCPA’s extensive legislative history regarding the “foreign official” element. Esquenazi’s “foreign official” brief was just one of several dismissal motions (such as selective and vindictive prosecution and spoilation of defense favorable evidence) filed over a brief time period – a factor which perhaps influenced Judge Martinez’s view of Esquenazi’s otherwise valid “foreign official” challenge – an issue at the core of a significant number of recent FCPA enforcement actions.
In its November 17th response, the DOJ termed Esquenazi’s challenge premature. The DOJ did offer to provide supplemental briefing on the meaning of “foreign official” “to elaborate on how the FCPA’s plain text, its current interpretation by courts, its legislative history, and U.S. treaty obligations provide no support for the defendants’ novel and confusing definition.”
Against this backdrop, within 48 hours of the DOJ’s response, Judge Martinez denied Esquenazi’s challenge.
The substance of Judge Martinez’s decision is as follows.
“The Court […] finds that the Government has sufficiently alleged that Antoine and Duperval were foreign officials by alleging that these individuals were directors in the state-owned Haiti Teleco. Any factual arguments Defendant has on this point may be addressed at trial.”
“The Court also disagrees that Haiti Teleco cannot be an instrumentality under the FCPA’s definition of foreign official. The plain language of this statute and the plain meaning of this term show that as the facts are alleged in the indictment Haiti Teleco could be an instrumentality of the Haitian government.”
As to Esquenazi’s vagueness challenge, the Court stated as follows.
“… the Court also disagrees that the phrase ‘department, agency, or instrumentality’ in the definition of ‘foreign official’ is unconstitutionally vague. ‘Vagueness arises when a statute is so unclear as to what conduct is applicable that persons of common intelligence must necessarily guess at its meaning and differ as to its application.’ Defendant has not met this standard, and the Court find that persons of common intelligence would have fair notice of this statute’s prohibitions.”
DOJ Argues That Esquenazi’s “Foreign Official” Challenge is Premature
The DOJ filed its response brief (here) in the Joel Esquenazi enforcement action – an action which, as described in this prior post, the defendant is challenging the DOJ’s “foreign official” interpretation.
As it did in the Nguyen / Nexus Technologies case (see here – middle of the post) the DOJ asserts as follows. “Although styled as a “motion to dismiss,” the defendants’ submission is instead a premature request for a ruling on the sufficiency of the government’s evidence concerning the status of officers of Telecommunications D’Haiti (“Haiti Teleco”) as a foreign officials of a government instrumentality before the evidence regarding that issue has been presented to the jury. The defendants’ arguments, which are premised on misstatements of both the law and the facts and are premature at best, will be moot after presentation of the government’s case. Therefore the defendants’ motion should be denied.”
The response brief contains a separate section on “the Nature of Haiti Teleco” and states as follows. “At the times relevant to the Indictment, between 2001 and 2004, Haiti Teleco held a state granted monopoly over land line telephone service in Haiti. During that time, Haiti Teleco was 97% state-owned by the Central Bank of Haiti, the Banque de la Republic of Haiti (“BRH”), which held 97% of Haiti Teleco’s shares. No one knows who owned the remaining 3% of Haiti Teleco’s shares, as no records still exist concerning their ownership, yet no person or company has claimed them in institutional memory. Therefore, effectively and functionally, during this period, Haiti Teleco operated with 100% state-ownership. Also during this period, Haiti Teleco was 100% state-controlled.”
The response brief asserts as follows. “… the defendants seek to circumvent the trial process and have the Court determine, before the presentation of any evidence, that the government has not met its burden of proving that Haiti Teleco was a instrumentality of a foreign government as defined by the FCPA. As will be demonstrated in the government’s case-in-chief, whether Haiti Teleco was an instrumentality of the Republic of Haiti is not a close case, a fact the defendants likely understand and therefore attempt to raise this issue before the evidence has been presented. Taken as true, the Indictment is more than sufficient to meet the Hagner standard and the precedent of this Circuit. Therefore, the motion should be denied.”
Under the heading, “Interpretation of the Term Government Instrumentality” the DOJ’s brief states in full as follows.
“The bulk of the defendants’ Motion focuses on suggesting that the Court adopt an insupportably narrow interpretation of government instrumentality that is contradicted by the statute on its face, case law, legislative history, and international treaties. The defendants’ proffered arguments are, in any event, arguments for jury instructions or for the Court after the government’s
case-in-chief pursuant to Federal Rule of Criminal Procedure 29. However, if the Court would like supplemental briefing on the meaning of “foreign official,” the government is more than willing to elaborate on how the FCPA’s plain text, its current interpretation by courts, its legislative history, and U.S. treaty obligations provide no support for the defendants’ novel and confusing definition. These sources confirm that the definition of “foreign official” includes officials of state-owned and state-controlled companies. Further, it is not limited to the narrow and ambiguous restriction that it applies only to “officials performing a public function.” DE 283 at 2. This tortured formulation finds no support, even in the sources the defendants themselves cite. The government stands prepared to brief and argue this issue again, should the defendants raise it, upon a Rule 29 motion or in the context of formulating jury instructions.”
The DOJ response brief also contains a section which argues that the term “foreign official” is not unconstitutionally vague.
Esquenazi Challenges DOJ’s “Foreign Official” Interpretation
Like many FCPA defendants (corporate and individual), Joel Esquenazi allegedly violated the FCPA’s anti-bribery provisions by providing something of value, not to a foreign government official, but to an employee of an alleged state-owned or state-controlled enteprise (“SOE”).
In a December 2009 indictment (here), the DOJ alleged that: (i) “Telecommunications D’Haiti (“Haiti Teleco”) was the Republic of Haiti’s state-owned national telecommunications company;” (ii) Robert Antoine and Jean Rene Duperval were, at various times, “the Director of International Relations of Haiti Teleco” and a “foreign official as that term is defined in the FCPA;” and (iii) Esquenazi, and others provides, things of value to these “foreign officials” in order to obtain or retain business in violation of the FCPA’s anti-bribery provisions.
Unlike most FCPA defendants (corporate and individual), including others charged with Esquenazi in the same indictment, Esquenazi is putting the DOJ to its burden of proof, specifically as to the FCPA’s “foreign official” element.
In a November 2nd motion to dismiss the indictment (here), Esquenazi “respectfully moves the Court to dismiss the indictment for failure to state a criminal offense and, in the alternative, for vagueness with respect to who would constitute a ‘foreign official’ within the meaning of the” FCPA.
The motion states as follows.
“The instant indictment fails to state a criminal offense because it alleges that the recipients of the improper payments were ‘foreign officials’ because they were employees of an entity ‘owned’ by the Republic of Haiti. Such a definition of ‘foreign official’ is unsupported by the text or the purpose of the FCPA. The FCPA is a public bribery statute which criminalizes improper payments to officials performing a public function. Mere control or partial control or ownership (or partial ownership) of an entity by a foreign government no more makes that entity’s employees ‘foreign officials’ than control of General Motors by the U.S. Department of the Treasury makes all GM employees U.S. officials.” (emphasis in original).
Alternatively, the motion states as follows.
“… the Court should dismiss the indictment on the grounds that the FCPA’s definition of ‘foreign official,’ which includes employees of any foreign government ‘department, agency or instumentality,’ is unconstitutionally vague. Especially in the context of third country under a coup such as Haiti was under at the relevant time, a vague definition of ‘foreign official’ to include employees of entities solely based on partial or even full government ‘ownership’ of those entities would unfairly sweep nearly all economic activity within the scope of the statute.”
Richard J. Diaz, an attorney from Coral Gables, Florida, filed the motion on behalf of Esquenazi.
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For prior entries regarding the Haiti Teleco case see here.
As noted in a prior post, an interesting twist is that Haiti Teleco is currently 60% owned by Viettel, a telecommunications company run by Vietnam’s military (see here).
My Two Cents On The FCPA’s Affirmative Defenses
Students looking for scholarship ideas, should consider the Foreign Corrupt Practices Act.
Why?
There is a good chance that publication of an article will generate coverage and discussion on the blogosphere and elsewhere.
Case in point is Kyle Sheahen’s “I’m Not Going to Disneyland: Illusory Affirmative Defenses Under the Foreign Corrupt Practices Act.” (see here).
For prior coverage of Sheahen’s article see here, here and here.
Sheahen’s article is about the FCPA’s two affirmative defenses – the so-called local law and promotional expense defenses.
Big picture, Sheahen terms these defenses as being “hollow,” “illusory,” and “useless in practice.”
For starters, I respectfully disagree with Sheahen’s statement that “business and businessmen accused of giving bribes to foreign officials have fared poorly in federal courts” as well as the implication that this somehow supports his thesis.
The three FCPA trials cited from 2009 – Frederick Bourke, William Jefferson, and Gerald and Patricia Greene were a mixed bag for the DOJ, not slam-dunk successes.
For starters, the jury found Jefferson not guilty of substantive FCPA anti-bribery violations (see here).
Sure, Bourke was found guilty by a jury of conspiracy to violate the FCPA and the Travel Act (as well as making false statements to the FBI) (see here), yet when the DOJ alleges that one is a key participant of a “massive bribery scheme” yet secures only a 366 day sentence (see here) from a judge who remarks that “after years of supervising this case, it’s still not entirely clear to me whether Mr. Bourke is a victim or a crook or a little bit of both” – I struggle to put such a case in the decisive “win” category for the DOJ. Plus, Bourke’s case is currently on appeal (see here).
The Green case (see here) would seem to represent the cleanest win for the DOJ even though the sentencing judge expressed concerns whether the Green’s conduct caused any harm in sentencing the couple to six months in prison thereby rejecting the DOJ’s recommended ten year sentence. (See here).
Sheahen’s article was published before the Giffen Gaffe (see here). Giffen aggressively mounted a legal defense and, whether for legal, political or other reasons, the case that began with charges that Giffen made “more than $78 million in unlawful payments to two senior officials of the Republic of Kazakhstan in connection with six separate oil transactions, in which the American oil companies Mobil Oil, Amoco, Texaco and Phillips Petroleum acquired valuable oil and gas rights in Kazakhstan” ended with a one-paragraph superseding information charging a misdemeanor tax violation. Further, back in 2004, Giffen was successful in having FCPA-related criminal charges dismissed when the trial court judge (see here) concluded that the DOJ offered “the slenderest of reeds” to support the collateral criminal charge.
Going back in time …
George McLean won his FCPA case when the Fifth Circuit concluded, see 738 F.2d 655 (5th Cir. 1984) that the FCPA, as it then existed because of the subsequently repealed Eckhardt Amendment, barred prosecution.
Donald Castle and Darrell Lowry (two Canadian “foreign officials”) won their FCPA-related cases, see 741 F.Supp. 116 (N.D. Tex. 1990), when the court dismissed their criminal indictments. The DOJ asserted that even though the officials could not be prosecuted under the FCPA, they could be prosecuted under the general conspiracy statute (18 USC 371) for conspiring to violate the FCPA. However, the court declined DOJ’s invitation to extend the reach of the FCPA through the application of the conspiracy statute to Castle and Lowry.
Richard Liebo was acquitted, following a three week jury trial, of several counts including nine counts of violating the FCPA’s anti-bribery provisions and one count of violating the FCPA’s accounting and record keeping provisions. See 923 F.2d 1308 (8th Cir. 1991). He was found guilty of one FCPA count concerning his company’s purchase of honeymoon airline tickets for the cousin and close friend of Captain Ali Tiemogo, the chief of maintenance for the Niger Air Force. In connection with this conviction, the Eighth Circuit found that the district court “clearly abused its discretion in denying Liebo’s motion for a new trial” and remanded for a new trial.
Hans Bodmer didn’t fare too badly either in 2004 when Judge Shira Scheindlin (the same judge in the Bourke case) held that the portion of the criminal indictment “charging Bodmer with conspiracy to violate the FCPA contravenes the constitutional fair notice requirement, and the rule of lenity demands its dismissal.”
Of course, the DOJ has had its fair share of FCPA successes, but it remains a misperception that FCPA defendants have “fare[d] so badly” in FCPA trials as Sheahen, and others, have asserted.
Returning to the substance of Sheahen’s article, he discusses the October 2008 Bourke decision by Judge Scheindlin (see 582 F.Supp.2d 535) – a case of first impression on the FCPA’s local law defense.
Bourke argued that the FCPA’s local law affirmative defense was applicable because, under Azeri law even though the payments were illegal, he was relieved from criminal responsibility when he reported the payments at issue to the President of Azerbaijan.
Judge Scheindlin disagreed, drawing a hard line between payments – the focus of the FCPA’s local law affirmative defense in her mind – and the related issue of whether a person could not be prosecuted in the foreign country because a provision may relieve that person from criminal responsibility.
Judge Scheindlin concluded that “an individual may be prosecuted under the FCPA for a payment that violates foreign law even if the individual is relieved of criminal responsibility for his actions by a provision of the foreign law.”
I agree with Sheahen’s statement that Judge Scheindlin’s decision of first impression narrowed the FCPA’s local law defense “to the point of extinction.”
I would go a step further and argue that Judge Scheindlin’s decision would seem to violate the basic axiom that a statute should be construed so that effect is given to all of its provisions, so that no part will be inoperative or superfluous, void or insignificant.
In other words, courts should not suppose that Congress intended to enact unnecessary statutes and there is a presumption against interpreting a statute in a way that renders it ineffective.
The local law affirmative defense was added to the FCPA in 1988 and we must presume that Congress intended to enact the affirmative defense for some reason.
It was widely assumed by Congress in 1977 (when the FCPA was enacted), and by the Congress that amended the FCPA in 1988 to include the local law defense as well, that no nation’s written law permitted bribery of its officials.
Yet, given Judge Scheindlin’s narrow construction of the local law defense, the decision would appear to render the local-law defense (a statutory term that must have some meaning) inoperative, superfluous and insignificant.
As to the promotional expense defense, I would respectfully disagree with Sheahen’s apparent conclusion that the defense is meaningless just because it has never been successfully invoked by an FCPA defendant at trial.
Because of the “carrots” and “sticks” the DOJ and SEC possess in an FCPA enforcement action, and because of the resolution vehicles typically offered to FCPA defendants to resolve an FCPA enforcement action (such as non and deferred prosecution agreements) there is much about the FCPA that has never been subjected to judicial scrutiny.
That does not mean however that an element or defense not successfully invoked at trial renders that element or defense meaningless or hallow.
Indeed, Sheahen discusses the FCPA Opinion Procedure Release process. Through this mechanism, those subject to the FCPA have gained degrees of comfort from DOJ “no enforcement” opinions that are based on the promotional expense defense.
Although the Opinion Procedure Releases are not precedent, countless others in the legal, business, and compliance communities find comfort in these releases, as well as the statute itself, when analyzing real-world conduct for potential FCPA exposure.
FCPA enforcement is in need of many fixes and indeed the Opinion Procedure Release process is likely not the best way for the DOJ to make its enforcement positions known.
However, these structural flaws in FCPA enforcement, coupled with the typical ways in which FCPA enforcement actions are resolved, necessarily leads to the conclusion that the FCPA’s affirmative defenses are “hollow,” “illusory,” and “useless in practice.”
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I provided Sheahen with my draft post so that he could respond and here is what he said.
“Professor Koehler,
Thank you for your thorough analysis. Although DOJ’s trial record in FCPA prosecutions is not a clean sheet, the government has still been substantively successful in almost every FCPA case that has gone to trial. Further, the fact remains that no FCPA defendant has successfully invoked either the local law or the promotional expenses defense in an FCPA enforcement action.
Also, while I agree that the promotional expenses defense provides some guidelines for compliance with the FCPA, neither it nor the local law defense provide a meaningful defense to an enforcement action. Accordingly, Congress must take action to ensure that individual and corporate defendants have the actual ability to raise the affirmative defenses contemplated by the statutory scheme.
Thanks again and all the best,
Kyle Sheahen
sheahen2010@lawnet.ucla.edu
Giffen’s Contribution to FCPA Case Law
Notwithstanding its mysterious conclusion, the Giffen enforcement action was instructive because it represented a rare instance in which an FCPA defendant mounted an aggressive legal defense. As a result, the long enforcement action yielded FCPA case law, even though the issues subjected to judicial scrutiny did not involve core FCPA elements.
So what did we learn from the Giffen case law?
For starters, we learned that just because the DOJ charges it, does not mean that the charge is legally viable.
As I explored in this prior post, in addition to the FCPA charges, the original indictment also alleged that Giffen’s actions violated 18 USC 1346 by depriving the citizens of Kazakhstan of the honest services of their government officials – one of the more curious “tag-a-long” charges ever in an FCPA enforcement action.
In 2004, Giffen moved to dismiss portions of the charges that alleged a scheme to deprive the citizens of Kazakhstan of the honest services of their government officials. He asserted that application of the honest services fraud theory of Section 1346 to Kazakhstan impermissibly extended the mail and wire fraud statutes to cover activities beyond the original intent of Congress.
Judge William Pauley of the Southern District of New York agreed and granted Giffen’s motion to dismiss portions of the charges that alleged a scheme to deprive the citizens of Kazakhstan of the honest services of their government officials. See U.S. v. Giffen, 326 F.Supp.2d 497 (S.D.N.Y. 2004).
In so holding, Judge Pauley stated that the DOJ offered “the slenderest of reeds to support its expansive interpretation.” Among other things, Judge Pauley noted that the DOJ could not point to “any decision where a court upheld application of the honest services theory in an international setting involving a foreign government and its citizens.”
When the DOJ pointed to “two 25-year old indictments” charging a similar theory, Judge Pauley noted that the DOJ “has not unearthed any published decision on the issue” and that the DOJ “conceded that there were no court decisions addressing the validity of the two 25-year old indictments.” Judge Pauley further stated that just because certain U.S. Attorneys were able to obtain indictments “under an intangible rights theory, grounded between a foreign government and its citizenry, is not the kind or quality of precedent this Court need consider.”
Judge Pauley concluded that “Congress did not intend that the intangible right to honest services encompasses bribery of foreign officials in foreign countries” and that “application of Section 1346 to Giffen [was] unconstitutional.”
In the prior post, I noted that many current FCPA legal theories are similarly not supported by any case law or other meaningful precedent or guidance.
I then posed the question – if challenged would a judge (like Judge Pauley in Giffen) conclude that the DOJ offered the “slenderest of reeds” to support many of its expansive FCPA interpretations?
I asked – what case law would the DOJ cite to support certain of its aggressive interpretations (such as employees of seemingly “commercial” enterprises being “foreign officials” under the FCPA)? Would DOJ not have to concede that there are no court decisions addressing the validity of certain of its interpretations? Would the DOJ point to prior enforcement actions settled by companies or individuals to support many of its enforcement theories? If so, presumably a judge would similarly state “this is not the kind of precedent” I need to consider.
We also learned during the Giffen enforcement action that an act of state doctrine is near impossible to properly assert in an FCPA enforcement action. In addition to claiming that his actions were taken with the knowledge and support of the Central Intelligence Agency, the National Security Council, the Department of State and the White House, Giffen also asserted that he was acting as an official of the Kazakh government and thus, under the act of state doctrine, the court was precluded from considering the validity of Kazakh law and the officials acts of its leaders.
However, Judge Pauley stated that the act of state doctrine has a territorial dimension in that it is limited to acts done within the applicable foreign state in the exercise of government authority. Because the Giffen allegations, like most FCPA allegations, did not relate solely to conduct within Kazakhstan, Judge Pauley concluded that the act of state doctrine did not bar Giffen’s prosecution. For instance, and among other things, the indictment alleged that Giffen transferred funds from Swiss bank accounts.