Outlining Bourke’s Appeal
The DOJ recently filed its reply brief (here) in Frederic Bourke’s appeal.
A prior post (here) summarized the FCPA related issues in Bourke’s brief and this post summarizes the DOJ’s reply brief.
The DOJ begins with this paragraph:
“The evidence at trial established that Bourke, a successful entrepreneur and multi-millionaire, knowingly backed rogue investor Viktor Kozeny in a corrupt plan to purchase the state-owned Azerbaijani oil industry, in secret partnership with the president of Azerbaijan, Heydar Aliyev, and his family. The corrupt plan included the payment of bribes to Aliyev and other officials.”
The DOJ states – “[a]t some point, Bourke learned about Kozeny’s business success and strategies from a December 1996 Fortune magazine article.” The brief states that the article “detailed Kozeny’s insider trading, purchase of state secrets from a government official, and other fraudulent activity.” According to the DOJ, “[h]aving read the article and discussed it with his lawyers, Bourke was aware of Kozeny’s questionable business practices; but Bourke was impressed by the outsized profits Kozeny generated in this scheme, and, as Bourke would later tell a prospective investor, Kozeny had not actually been convicted of a crime.”
Bourke’s trial principally focused on his investments in Oily Rock, a vehicle the government maintains was used to funnel bribe payments to Azerbaijan officials to ensure that the officials would privatize the State Oil Company of the Azerbaijan Republic (SOCAR) in a rigged auction that only the investors, including Bourke, Kozeny and others could win.
The DOJ states that “Bourke made his initial investment in Oily Rock without directing any of his many lawyers to conduct due diligence.”
According to the DOJ:
“Bourke’s interest in the investment was motivated by his knowledge of the corrupt arrangement. Because Bourke knew of the payments to Azerbaijani officials, Bourke demonstrated an assured confidence in the success of the privatization, even though most of the investors who were not privy to the details of the conspiracy viewed it as extremely risky. The inherent risk in the investment arose from the fact that the privatization of SOCAR required a presidential decree.”
The DOJ nevertheless acknowledges that many others invested, directly or indirectly, in Oily Rock including former U.S. Senator George Mitchell and other individuals, institutional investors and hedge funds, AIG and Columbia University.
Bourke’s appellate brief argued that the district court “committed a series of errors that crippled Bourke’s mens rea defense.”
Below is a summary of Bourke’s arguments along with the DOJ’s response as set forth in its reply brief.
Bourke
“The district court improperly instructed on conscious avoidance, despite the absence of evidence that Bourke deliberately avoided knowledge of Kozeny’s bribes.” According to Bourke, this instruction was error “because there was no evidence that Bourke deliberately avoided learning about Kozeny’s bribery.” Bourke states that the conscious avoidance instruction “was particularly damaging because the government presented evidence and argued that Bourke failed to exercise adequate due diligence, thus exacerbating the risk inherent in the conscious avoidance instruction that the jury would convict for negligence or recklessness.
DOJ
“There was an ample factual basis for a conscious avoidance charge in this case. To be sure, the Government’s principal theory at trial was that Bourke had actual knowledge of the bribery scheme. But the jury easily could have found, in the alternative, that Bourke was aware of a high probability of the existence of corrupt arrangements, yet deliberately avoided confirming that fact. Such a finding would have been supported, by, among other things, the following evidence:
• Bourke was aware of the high level of corruption in Azerbaijan generally.
• Bourke had read a Fortune magazine article that described Kozeny’s reliance on illegal business practices, such as insider trading, purchase of state secrets from a government official, and fraud, to accomplish the goals of a privatization scheme. This article alerted Bourke that there was a high probability that Kozeny’s latest scheme involving Azerbaijan also included corrupt arrangements, such as bribe payments or offers to pay bribes.
• Bourke defended Kozeny by stating that he had not actually been convicted of a crime.
• Bourke expressed concern to other investors and their attorneys that Kozeny and his employees were paying bribes.
• Bourke proposed the formation of separate companies affiliated with Oily Rock and Minaret to shield Bourke and other American investors from liability from any corrupt payments.
• Bourke played a role in coordinating United States medical treatments, combined with tourism and shopping excursions, for Azerbaijani officials.
From these facts, among others, a rational juror could have concluded that Bourke was aware of a high probability of the existence of corrupt arrangements, yet deliberately avoided confirming that fact. Accordingly, Bourke is wrong when he suggests that a conscious avoidance was inappropriate because ‘the trial record contains no evidence that Bourke ‘decided not to learn’ about Kozeny’s bribery.’ In fact, a conscious avoidance instruction was particularly appropriate in this case, because Bourke’s corporate attorney had actually cautioned him that, if he thought there might be bribes paid, he could not just look the other way.”
“Bourke’s assertion that the conscious avoidance instruction allowed the jury to convict on a negligence theory is mistaken. To the contrary, the District Court told the jury that it could not find Bourke guilty merely because he was negligent. The Government did not argue that the jury should convict because Bourke was negligent in failing to ask his lawyers to conduct due diligence. Rather, the Government argued that Bourke refrained from asking his lawyers to conduct due diligence either because he was consciously avoiding learning about the bribes or because he did not want his lawyers to learn the true facts of his corrupt investment.”
“In sum, a rational juror could have concluded based on, among other things, Bourke’s close relationship to Kozeny and other co-conspirators, Bourke’s understanding of the Azerbaijan investment and the Azerbaijani government, and Bourke’s previously expressed concerns about Kozeny’s paying of bribes, that Bourke was aware of a high probability that Kozeny was paying bribes but deliberately avoided confirming that fact. Accordingly, the District Court properly instructed the jury on the doctrine of conscious avoidance.”
“Even if the District Court erred in instructing the jury on the doctrine of conscious avoidance (and it did not), the error would provide no basis for vacating Bourke’s conviction. This Court has repeatedly ruled that a conscious avoidance instruction is harmless in cases where, as here, there was sufficient evidence of the defendant’s actual knowledge to support the jury’s verdict.”
“Moreover, conscious avoidance was not a prominent feature of the Government’s arguments to the jury. Although the Government did refer to evidence of Bourke’s conscious avoidance, the Government’s primary argument was that Bourke had actual knowledge of the bribes.”
Bourke
The district court erred in admitting testimony about the due diligence performed by Texas Pacific Group (“TPG”), an investment fund that did not make the same investment as Bourke, because its lawyers advised of the FCPA risk.
According to Bourke, because he knew nothing about their work, their testimony was irrelevant to his state of mind particularly since the results were never shared or communicated with him.
Bourke states that “the government offered the testimony […] solely as a contrast with the comparatively skimpy inquiry that Bourke and his lawyers performed” and that this testimony “increased the risk, created by the conscious avoidance instruction and heightened by the government’s closing, that the jury would convict Bourke based on his negligence or recklessness — what he should have known, rather than what he actually knew.”
Bourke further argues that having admitted the TPG testimony, “the district court should at least have permitted Bourke to present the contrasting testimony” of the head of investments for Columbia University that would have established that “Columbia invested $15 million with Kozeny in Azeri privatization after due diligence comparable to Bourke’s.”
According to Bourke, this excluded testimony “would have rebutted the government’s claim that his lack of due diligence compared to TPG established his culpability.”
Bourke argues that “once the district court permitted the government to present TPG’s due diligence as a benchmark for measuring [his] inquiry, fairness demanded that [he] be allowed to present the contrasting picture of Columbia’s due diligence, which resembled his own.”
DOJ
“The testimony of Wheeler and Rossman [individuals who conducted due diligence for potential Oily Rock investor David Bonderman of TPG] was not offered to show Bourke was negligent; the purpose was to show that Kozeny had not concealed evidence of the corrupt arrangements from potential investors in Oily Rock. Given that Bourke was much closer to Kozeny than Bonderman was, this was important circumstantial evidence of Bourke’s knowledge. As such, the testimony was relevant and appropriately admitted by the District Court.”
“To conduct due diligence on the Oily Rock investment, at Kozeny’s invitation, Wheeler traveled to Baku with Bourke and several other potential investors; together, they toured Kozeny’s operations and were introduced to Azerbaijani government officials. Based on what she saw during her visit and her assessment that the investment was “risky [in] nature”, Wheeler and Bonderman brought in TPG’s outside counsel, Cleary Gottlieb, to perform due diligence. Rossman testified that, in 1998, he was a Cleary Gottlieb attorney. During that time, he was asked to conduct due diligence on the Oily Rock investment for TPG. As a part of due diligence, Rossman met with Bodmer at Bodmer’s law offices. During this meeting, Bodmer provided Rossman with various documents related to the Oily Rock investment, and Bodmer and Rossman discussed various details regarding the investment, including the involvement of Azerbaijani investors. Based on his review of documents, his understanding of the investment thesis, and Kozeny’s reputation, which he researched from news coverage, Rossman concluded that this proposed investment could violate the FCPA, and he advised his client not to make the investment. TPG did not invest in Oily Rock.”
“… Wheeler and Rossman’s testimony was appropriately admitted, because Bourke was exposed at minimum to the same sources of information as Wheeler and Rossman — Wheeler and Bourke took the same factfinding trip to Baku in January 1998, and Rossman, like Bourke, learned of the investment structure from Bodmer. Accordingly, this testimony was probative of Bourke’s knowledge.”
“… the District Court’s decision to admit Wheeler and Rossman’s testimony was entirely appropriate. Moreover, given the volume of direct and circumstantial evidence of Bourke’s knowledge of the conspiracy’s objectives, any conceivable error was harmless.”
“Bourke also contends that the District Court erred in barring the testimony of Bruce Dresner, who served as Columbia University’s Vice President for Investments in 1998, and, in that capacity, based on representations by Omega’s Clayton Lewis and Leon Cooperman, recommended that Columbia invest $15 million in privatization vouchers through Omega. Bourke complains that, although the Government was permitted to call Wheeler and Rossman to contrast their due diligence with Bourke’s, he was not permitted to contrast his due diligence with Columbia’s. The comparison is inapt. Unlike Wheeler and Rossman, who testified about a potential investment in Oily Rock itself, Columbia University was a potential investor in Omega, which was merely planning to invest alongside Oily Rock. The District Court did not abuse its discretion in excluding this proposed testimony.”
“The District Court properly precluded Dresner’s testimony because it was not relevant. As the District Court stated, Dresner’s state of mind “has nothing to do with the defendant on trial.” Unlike other defense witnesses and Government witnesses who were present in Baku with Bourke to consider an investment in Oily Rock and therefore possessed relevant information regarding Bourke’s knowledge, Dresner had no contact with Bourke and was considering investing in Omega, not Oily Rock. Dresner never traveled to Azerbaijan to investigate the investment opportunity, relying instead on the recommendation of Omega. Dresner never met Kozeny, Farrell, or Bodmer — the individuals who discussed the FCPA violations with Bourke.”
“In addition, Dresner’s testimony would not have been particularly helpful to Bourke, and therefore any error in excluding the testimony would have been harmless. Notwithstanding Dresner’s exclusion, Bourke offered evidence through several Government and defense witnesses that Columbia University had invested in the same project, and there was no suggestion in any of that testimony or in arguments that Columbia University was aware of bribes or was prosecuted. Thus, Bourke was able to establish that some investors in the Azerbaijani vouchers were not aware of the bribes. Had Dresner actually testified, he would have revealed that Columbia and Bourke were not similarly situated and that Columbia had much less information about the investment than Bourke did.”
“In sum, the District Court acted within its discretion in excluding Dresner’s testimony, and this ruling does not warrant a new trial.”
Bourke
The district court “refused to instruct that conviction for conspiracy requires the same mens rea as the underlying FCPA offense — meaning (among other things) a bad purpose to disobey or disregard the law.”
According to Bourke, “the district court compounded its error in giving the conscious avoidance instruction by rejecting [his] requested instruction [as to the conspiracy charge] that the government had to prove that he acted corruptly and willfully.”
Bourke argued that “when the district court turned to the mens rea required for the conspiracy offense, rather than for a substantive FCPA offense, it omitted the requirement that the defendant act corruptly” and that this “watering-down of the mens rea requirement for the conspiracy charged […] undermined [his] defense, which rested on his state of mind.”
DOJ
“Bourke did not lodge this objection in this District Court, and therefore, this part of the charge is reviewed for plain error. The District Court’s mens rea instruction was correct and was certainly not plainly erroneous.”
“The District Court instructed the jury on all the elements of a substantive FCPA violation, including the requirement that the defendant act “willfully” and “corruptly,” terms which the Court defined for the jury.”
“The District Court’s charge encompassed the mens rea elements of the FCPA and was not plainly erroneous. The “word ‘corruptly’ in the FCPA signifies . . . a bad or wrongful purpose and an intent to influence a foreign official to misuse his official position. But there is nothing in the word or any thing else in the FCPA that indicates that the government must establish that the defendant in fact knew that his or her conduct violated the FCPA to be guilty.”
“The District Court’s extensive instructions on mens rea included the instruction that Bourke had to act “with the specific intention of furthering [the conspiracy’s] business or objective” and “for the purpose of furthering the illegal undertaking.” It is simply not possible to conspire to act corruptly without acting corruptly.”
“Finally, Bourke failed to raise this highly abstract objection during any of the several conferences on the jury charge.”
“Accordingly, the charge is subject to review only for plain error. There was no error, much less plain error, in this case.”
Bourke
The district court “rejected Bourke’s proposed good faith instructions, even though [he] produced ample evidence to warrant the instructions and no other instruction covered the point.”
Bourke argued that his proposed instruction “accurately reflected the principle that a defendant’s good faith belief that he acted lawfully negates the mens rea for specific intent offenses.”
While Bourke concedes that his efforts to investigate the investment “were not as extensive” as others, his efforts “suffice for a good faith instruction.” Because the case turned on his state of mind, Bourke states that “there is no doubt that the good faith defense, if accepted by the jury, would have produced an acquittal.”
DOJ
“Bourke’s contention is without merit. A separate good faith instruction was not necessary in this case, as the relevant jury instructions effectively communicated the essence of a good faith defense in its discussion of the elements of knowledge and willfulness.”
“Indeed, the District Court’s instructions that an FCPA violation required a defendant to act “with a bad purpose to disobey or disregard the law” and that the Government could not meet its burden of proof by showing that the defendant’s actions were the result of “mere negligence or some other innocent explanation” captured the concepts identified in Bourke’s proposed charge — that Bourke could not be convicted of Count One if he believed he “was acting properly in connection with the matters alleged in [Count One], even if he was mistaken in that belief, and even if others were injured by his conduct.” […] Thus, the good faith instructions Bourke requested were “effectively presented elsewhere in the charge.” Accordingly, the District Court’s decision not to deliver a separate good faith charge was appropriate and does not provide a basis for a new trial.”
Bourke
“Any one of the errors concerning [his] knowledge of Kozeny’s bribes and his specific criminal intent, standing alone, warrants reversal” and if any one error is harmless in isolation, then their “cumulative effect profoundly damaged [his] defense.”
DOJ
“Bourke contends correctly that the cumulative effect of errors that are individually harmless can cast doubt upon the fairness of a conviction. For the reasons set forth above, there were no such errors. Accordingly, Bourke’s “cumulative effect” argument provides no basis for granting a new trial.”
The Other Leaf Drops
The other tobacco leaf dropped for Bobby Jay Elkin Jr. this week.
In April (see here), the SEC charged Elkin, and others, with civil FCPA anti-bribery violations for authorizing, directing and making improper payments to various Kyrgyzstan officials in connection with tobacco business in that country.
This week, Elkin pleaded guilty to a one count criminal information charging him with conspiracy to violate the FCPA. The allegations in the information largely mirror the SEC’s allegations in the April enforcement action. See here for the DOJ release, here for the criminal information, and here for the plea agreement.
Elkin was Country Manager for Dimon International Kyrgyzstan (DIK), a wholly-owned subsidiary of Dimon Inc. Dimon and Standard Commercial Corporation merged to form Alliance One International in 2005. Dimon, Standard Commercial and Alliance One are referred to as Companies A, B, and C in the criminal information and DIK is referred to as the Kyrgyz Subsidiary.
According to the information, Elkin conspired and agreed with Dimon, DIK, and others to pay and authorize payment of bribes to “officials of state-owned enterprises and other public officials in Kyrgyzstan in order to secure business for” Dimon and DIK.
The officials included “Kyrgyz Official A,” “the Akims” and the “Kyrgyz Tax Inspection Police.”
According to the information, Kyrgyz Official A served as the “General Director of the Tamekisi” “an agency and instrumentality of the [Kyrgyz] government [established] to manage and control the government-controlled shares of the tobacco processing facilities throughout Kyrgyzstan.” According to the information, the Tamekisi agreed to issue a license to Dimon to process and export tobacco and that from October 1996 through at least February 2004 Elkin and others personally delivered $2.6 million in cash payments on behalf of Dimon and DIK to the official. The information charges that these payments were intended by Elkin and others to “influence acts or decisions” of the official in his official capacity and to secure Dimon’s “continued access to the tobacco processing facilities controlled by the Tamekisi.”
According to the information, an Akim is a head of Kyrgyz local government with “authority over the sale of tobacco by the growers” within a specific municipality or geographic area. The information charges that beginning in 1996 “it became necessary for [DIK and Elkin] to obtain approval from local Akims to purchase tobacco from the growers in each area. According to the information, several of the Akims demanded payment of a “commission” from Elkin “in order to secure the relevant Akim’s approval” for DIK to purchase tobacco from local growers. The information charges that from January 1996 to at least March 2004 Elkin and others personally delivered “numerous cash payments” on behalf of Dimon and DIK “to the Akims of five different municipalities totaling approximately $254,262.” According to the information, “the payments to the Akims were bribes, intended to influence the acts and decisions of the Akims and to secure [DIK’s] continued ability to purchase tobacco from growers in the muncipalities controlled by the Akims.”
As to the Kyrgyz Tax Inspection Police, the information charges that “during periodic audits” of DIK, the police assessed penalties and threatened to shut down DIK. According to the information, from March 2000 to March 2003, Elkin and others “made approximately nine cash payments to officers of the Kyrgyz Tax Inspection Police totaling approximately $82,850 in order to influence the acts and decisions” of the police and to secure DIK’s “continued ability to conduct its business in Kyrgyzstan.”
What about Alliance One?
The company stated in its recent annual report (here) that it has reached an agreement in principle with the DOJ and the SEC and that its estimated “probable loss” in an enforcement action will be $19.45 million in disgorgement, fines and penalties.
The tobacco industry is proving to be fertile ground for FCPA enforcement.
See here for what Universal Corporation, a Richmond, Virgina based tobacco producer, had to say about its discussions with the DOJ and SEC as to its previously disclosed FCPA matters.
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As portrayed in the DOJ’s criminal information and the SEC’s prior enforcement action, carrying on a tobacco business in Kyrgyzstan appears to have a wild-west component to it.
Extortionate payments, facilitating payments, and payments made to obtain or retain business. These are all points on the same continuum. The first two do not violate the FCPA, payments made to obtain or retain business do.
What does the FCPA’s “obtain or retain business” element mean?
The only circuit court decision on this key FCPA element is U.S. v. Kay, 359 F.3d 738, 740 (5th Cir. 2004). The Fifth Circuit, like the trial court, concluded that the FCPA’s “obtain or retain business” language was ambiguous and it thus analyzed the FCPA’s legislative history.
After reviewing the legislative history, the Fifth Circuit was convinced that Congress intended to prohibit a range of payments wider than only those that directly influence the acquisition or retention of government contracts. The Fifth Circuit held that making payments to a “foreign official” to lower taxes and custom duties in a foreign country can provide an unfair advantage to the payer over competitors and thereby assist the payer in obtaining and retaining business. The court concluded that there was “little difference” between these type of payments and traditional FCPA violations in which a company makes payments to a “foreign official” to influence or induce the official to award a government contract.
However, the Fifth court emphatically stated that not all such payments to a “foreign official” outside the context of directly securing a foreign government contract violate the FCPA; it merely held that such payments “could” violate the FCPA. The court recognized that “there are bound to be circumstances” in which a custom or tax reduction merely increases the profitability of an existing profitable company and thus, presumably, does not assist the payer in obtaining or retaining business.
The court specifically stated:
“…if the government is correct that anytime operating costs are reduced the beneficiary of such advantage is assisted in getting or keeping business, the FCPA’s language that expresses the necessary element of assisting in obtaining or retaining business would be unnecessary, and thus surplusage – a conclusion that we are forbidden to reach.”
Did the payments at issue in the Elkin enforcement action “merely increase the profitability of an existing profitable company.”?
Honest Services Fraud and the FCPA
While much of the white-collar bar awaits the Supreme Court’s decisions in the trio of honest services fraud cases on its docket (Jeffrey Skilling, Conrad Black and Bruce Weyhrauch) why not talk about the FCPA and honest services fraud!
What is honest services fraud? Stay tuned for the Supreme Court’s decisions.
For present purposes, honest services fraud is part of the mail and wire fraud statutes and is found at 18 USC 1346 which simply states that the term “scheme or artifice to defraud” includes a scheme or artifice to deprive another of the intangible right of honest services.
What does this have to do with the Foreign Corrupt Practices Act?
It turns out, not much, but that is not how the DOJ saw it when charging James Giffen in 2004. (For more on the Giffen case see here).
The Giffen superceding indictment focuses on charges that he made unlawful payments totaling more than $78 million to the former Prime Minister and Oil Minister of Kazakhstan in violation of the FCPA.
In addition to the FCPA charges, the 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.
Yes, you did read that correctly – the DOJ alleged that Giffen deprived the citizens of Kazakhstan of the honest services of their government officials. That is why the Giffen honest services fraud charge is one of the more curious “tag-a-long” charges ever in an FCPA enforcement action.
Unlike most FCPA defendants (corporate and individual) Giffen mounted, and still is mounting, an aggressive legal defense.
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 Congress’ original intent.
Judge William Pauley of the Southern District of New York agreed with Giffen and granted his 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.”
Accordingly, 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.”
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As FCPA practitioners well know, many current FCPA legal theories are aggressive, untested and not supported by any case law or other meaningful precedent or guidance.
If challenged, would a judge (like Judge Pauley in Giffen) conclude that the DOJ offered the “slenderest of reeds” to support its expansive interpretations?
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 its interpretations?
All interesting (and important) questions to ponder while awaiting the Supreme Court’s honest services fraud decisions.
An Interesting Corollary
Last week’s guest post (here) about the 1988 amendments to the Foreign Corrupt Practices Act and the DOJ’s decision not to issue compliance guidance provides an interesting corollary to private rights of action under the FCPA.
How so?
Around the same general time frame as the 1988 FCPA amendments, several courts addressed the issue of whether the FCPA contained an implied private right of action.
The answer was no.
Guess what was a key factor in the courts’ reasoning?
The guidance that Congress envisioned the Attorney General would issue.
The leading FCPA private right of action case is Lamb v. Phillip Morris Inc., 915 F.2d 1024 (6th Cir. 1990).
Here is what the court had to say:
“Recognition of the plaintiffs’ proposed private right of action, in our view, would directly contravene the carefully tailored FCPA scheme presently in place. Congress recently expanded the Attorney General’s responsibilities to include facilitating compliance with the FCPA. See 15 U.S.C. §§ 78dd-1(e), 78dd-2(f). Specifically, the Attorney General must ‘establish a procedure to provide responses to specific inquiries’ by issuers of securities and other domestic concerns regarding ‘conformance of their conduct with the Department of Justice’s [FCPA] enforcement policy….’ 15 U.S.C. §§ 78dd-1(e)(1), 78dd-2(f)(1). Moreover, the Attorney General must furnish ‘timely guidance concerning the Department of Justice’s [FCPA] enforcement policy … to potential exporters and small businesses that are unable to obtain specialized counsel on issues pertaining to [FCPA] provisions.’ 15 U.S.C. §§ 78dd-1(e)(4), 78dd-2(f)(4). Because this legislative action clearly evinces a preference for compliance in lieu of prosecution, the introduction of private plaintiffs interested solely in post-violation enforcement, rather than pre-violation compliance, most assuredly would hinder congressional efforts to protect companies and their employees concerned about FCPA liability.”
Given that the expected Attorney General guidance was a key factor in the court’s reasoning that the FCPA does not contain a implied private right of action, how would a court address this issue today given that the Attorney General never issued the guidance?
Also, what about the snippet from the Sixth Circuit’s opinion – that the 1988 amendments “clearly evinces a preference for compliance in lieu of prosecution.”
In this era of so-called aggressive FCPA enforcement, does the DOJ have its priorities backwards
Bourke’s Appeal
As previously noted (here), the Frederic Bourke case is arguably the most complex and convoluted case in the history of the FCPA.
The trial court portion of the case ended in November 2009 when Judge Scheindin sentenced Bourke to 366 days for, among other things, conspiracy to violate the FCPA. At sentencing Judge Scheindin stated – “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.”
Bourke has appealed his conviction to the Second Circuit.
An FCPA trial like Bourke’s is rare. An FCPA appeal is even more rare. An FCPA appeal to the influential Second Circuit is even more rare.
Thus, with good reason, this case is of great interest to those who follow the FCPA in that it is hoped to shed some light on the FCPA’s knowledge element, and perhaps other issues as well.
First step in the appeal is Bourke’s brief (see here) filed April 1st. The brief principally focuses on the FCPA’s knowledge element, including the trial court’s conscious avoidance jury instruction (a portion of the brief is redacted and a portion deals with Bourke’s false statement conviction).
This post summarizes the FCPA related issues in Bourke’s brief.
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According to the brief, the “trial focused on two related issues: whether Bourke knew that Kozeny was bribing the Azeris, and whether he willfully and corruptly joined the bribery conspiracy.”
The brief argues that the district court “committed a series of errors that crippled Bourke’s mens rea defense.”
The brief then discusses three such errors.
“First, the court instructed on conscious avoidance, despite the absence of evidence that Bourke deliberately avoided knowledge of Kozeny’s bribes.” According to the brief, this instruction was error “because there was no evidence that Bourke deliberately avoided learning about Kozeny’s bribery.” The brief states that the conscious avoidance instruction “was particularly damaging because the government presented evidence and argued that Bourke failed to exercise adequate due diligence, thus exacerbating the risk inherent in the conscious avoidance instruction that the jury would convict for negligence or recklessness.” The brief cites Second Circuit case law which emphasizes that “essential to the concept of conscious avoidance is the requirement that the defendant be shown to have decided not to learn the key fact, not merely to have failed to learn it through negligence” and argues that “the trial record contains no evidence that Bourke decided not to learn about Kozeny’s bribery.”
Bourke also argues that the court erred in admitting testimony about the due diligence performed by Texas Pacific Group (“TPG”), an investment fund that did not make the same investment as Bourke, because its lawyers advised of the FCPA risk. The brief states, “[b]ecause Bourke knew nothing about their work, their testimony was irrelevant to his state of mind” particularly since the results were never shared or communicated with Bourke. According to the brief, “the government offered the testimony […] solely as a contrast with the comparatively skimpy inquiry that Bourke and his lawyers performed.” “That testimony” according to the brief, “increased the risk, created by the conscious avoidance instruction and heightened by the government’s closing, that the jury would convict Bourke based on his negligence or recklessness — what he should have known, rather than what he actually knew.” The brief argues that the “government’s tactic had its intended effect on the jury” and it cites the foreman of the of jury telling the press, “It was Kozeny, it was Azerbaijan, it was a foreign country …. We thought he knew and definitely could have known. He’s an investor. It’s his job to know.”
The brief further argues that, having admitted the above testimony relating to TPG, “the district court should at least have permitted Bourke to present the contrasting testimony” of the head of investments for Columbia University that would have established that “Columbia invested $15 million with Kozeny in Azeri privatization after due diligence comparable to Bourke’s.” According to the brief, this excluded testimony “would have rebutted the government’s claim that Bourke’s lack of due diligence compared to TPG established his culpability.” The brief argues that “once the district court permitted the government to present TPG’s due diligence as a benchmark for measuring Bourke’s inquiry, fairness demanded that Bourke be allowed to present the contrasting picture of Columbia’s due diligence, which resembled his own.”
Second, the brief states – “the court refused to instruct that conviction for conspiracy requires the same mens rea as the underlying FCPA offense — meaning (among other things) a bad purpose to disobey or disregard the law.” According to the brief, “the district court compounded its error in giving the conscious avoidance instruction by rejecting Bourke’s requested instruction [as to the conspiracy charge] that the government had to prove that he acted corruptly and willfully.” The brief argues that “when the district court turned to the mens rea required for the conspiracy offense, rather than for a substantive FCPA offense, it omitted the requirement that the defendant act corruptly” and that this “watering-down of the mens rea requirement for the conspiracy charged […] undermined Bourke’s defense, which rested on his state of mind.”
“Third, the court rejected Bourke’s proposed good faith instructions, even though Bourke produced ample evidence to warrant the instructions and no other instruction covered the point.” The brief argues that Bourke’s proposed instruction “accurately reflected the principle that a defendant’s good faith belief that he acted lawfully negates the mens rea for specific intent offenses.” While the brief concedes that Bourke’s efforts to investigate the investment “were not as extensive” as others, his efforts “suffice for a good faith instruction.” Because the case turned on Bourke’s state of mind, the brief states “there is no doubt that the good faith defense, if accepted by the jury, would have produced an acquittal.”
The brief argues that “any one of the errors concerning Bourke’s knowledge of Kozeny’s bribes and his specific criminal intent, standing alone, warrants reversal” and if any one error is harmless in isolation, then their “cumulative effect profoundly damaged Bourke’s defense.”
Next up … the DOJ which has until July 29th to file its response brief.