Foreign Official And The Missing Link
A guest post today from Paul Rose (here – Associate Professor of Law, The Ohio State University Moritz College of Law). Professor Rose presented his scholarship “State Capitalism and the Foreign Corrupt Practices Act” (here) in March at a symposium hosted by the Ohio State Law Journal titled “The FCPA at Thirty-Five and Its Impact on Global Business.” (See here for a previous guest post concerning the symposium).
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“Many thanks to Professor Koehler for the opportunity to talk about my work. His research on the FCPA has been crucial in illuminating the many issues surrounding the DOJ’s enforcement of the FCPA, and particularly useful for me in focusing attention on the “foreign official” definition. My research interests include state-controlled enterprises and funds, including state-owned pension funds and sovereign wealth funds. The application of the FCPA to such funds—the managers and employees of which would almost certainly be considered “foreign officials” by the DOJ and SEC—raises a host of issues that are only just beginning to be addressed in the growing literature on the FCPA. My short article “State Capitalism and the Foreign Corrupt Practices Act was prepared as part of the Ohio State Law Journal’s symposium on the Foreign Corrupt Practices Act and it attempts to sketch out some of the issues.
First, it is unclear whether the FCPA can or should be read to cover state-owned funds. There are several practical reasons for arguing that it should not, among them a recognition that most of these enterprises and funds operate as quasi-independent entities that should not be viewed as direct agents of their respective governments. These funds also typically (but admittedly not always or exclusively) serve economic and financial purposes, rather than a political or governmental purpose.
Second, even if foreign enterprises and funds can be viewed as foreign instrumentalities, it is not clear that the FCPA provides the best remedy for the type of harm that occurs when a state-controlled fund employee is bribed. In non-FCPA contexts, the SEC has characterized the acceptance of bribes by fund managers as a breach of fiduciary duty to the fund investors. Cast in these terms, the harm was an agency cost, and the SEC assists the fund investors by applying their enforcement resources to cover some of the investors’ costs of monitoring the fund managers. If the fund investors are the beneficiaries of this shifting of agency costs from private investors to public enforcers, who are the beneficiaries of a similar shift when foreign officials are bribed?
A third concern, related to the foregoing, is the apparent enforcement agency and judicial drift away from the original purpose of the FCPA as a tool to prevent corruption that affects foreign policy. If this original purpose is to have any meaning in the context of state-controlled enterprises and funds, there must be a link between the foreign government, the instrumentality of the government, and the foreign officials who work for the instrumentality. Each of these entities must be connected like three links of a chain—the foreign government linked to the instrumentality, and the instrumentality linked to the foreign official. In this way, the acts of the foreign government have an effect on the foreign official, and the acts of the foreign official have an effect on the government. Only if there exists this linkage between the foreign official and the foreign government—in the case of state-controlled enterprises and state-controlled funds, through their respective links to an instrumentality—should we expect to find the kind of foreign policy effect that the FCPA was designed to police. Current SEC and DOJ interpretations, as well as the scant jurisprudence that has tested these interpretations, tends to look only at the connection between the foreign government and the instrumentality. The legislative history of the FCPA, however, suggests that because foreign policy concerns are central to the FCPA, the link between the instrumentality and the foreign official must also be tested. To more directly rephrase the question of who is benefitted when the U.S. government pays for foreign fund agency costs, why are U.S. taxpayers paying for enforcement that serves to reduce agency costs for foreign governments, their citizens, and in some cases, the stockholders of partially state-controlled enterprises, but has no effect on U.S. foreign policy considerations?
My article attempts to get at the core issue of the proper scope of the FCPA by considering who is an “instrumentality” and “foreign official” under the statute. Additional clarity could be brought to this question by looking first at the link between the foreign government and alleged instrumentality. Other areas of the law, including foreign investment law, have developed a substantial base of knowledge on the issues of foreign government control of state-affiliated enterprises and funds that could help inform FCPA jurisprudence. As noted above, however, the more significant problem concerns the unidirectionality of current tests for “instrumentality” and “foreign official” status. The tests used by the few courts addressing the issue have tended to look only at the issue of governmental control, but have ignored the link between the foreign official and the instrumentality—in other words, does the foreign official exercise control over the instrumentality so that there is a meaningful connection between the foreign government and the foreign official? This analysis is key because if one takes the legislative history of the FCPA seriously, an FCPA prosecution is predicated on the ability of the foreign official to affect foreign policy.”
Friday Roundup
From the campaign stump, Wal-Mart civil suits start to pour in – plus a comment regarding statute of limitations, where should the money go, don’t believe the hype, and for the weekend reading stack. It’s all here in the Friday roundup.
From The Stump
Zein Obagi (here – a fiscally conservative Democratic candidate for California’s new 33rd Congressional District) earlier this week posted a letter (here) he sent to U.S. Senator Dianne Feinstein (D-CA). Titled “Keeping California Companies Competing Abroad Competitive” the letter begins as follows. “I am writing to ask you to show our party’s understanding of international trade by updating and clarifying the Foreign Corrupt Practices Act. As you know Senator, both sides of the aisle have put forth efforts to clarify the FCPA, to assist in its enforcement and also keep America competitive with foreign nations’ trade practices.” In the letter, Obagi states that “California businesses expend enormous resources with insufficient assurances that they will not run afoul of the FCPA.”
Kudos to Obagi for the courage to tackle the politically sensitive issue of reforming the FCPA. His letter reminds us of an issue lost in the FCPA reform debate – that certain aspects of FCPA reform share bipartisan support. See here for the transcript of the Senate’s 2010 FCPA hearing (particularly statements from Democratic Senators Amy Klobuchar and Chris Coons) and here for the transcript of the House’s 2011 FCPA hearing (particularly statements from Democrat Representative John Conyers).
Wal-Mart Civil Suits Begin to Pour In
One of my earlier Wal-Mart posts (here) noted that not only will the DOJ and SEC likely be examining the conduct of Wal-Mart executives, but so too will plaintiff law firms representing shareholders who will likely scour Wal-Mart’s SEC filings and other statements to the market in bringing derivative claims alleging breach of fiduciary duty and potential Section 10(b) claims based on material omissions concerning Wal-Mart Mexico. On this score, shareholders are likely to allege, among other things, that Wal-Mart’s officers and directors demonstrated conscious disregard for fiduciary duties by failing to act diligently in the face of known facts suggesting a duty to act.
Approximately ten days later the civil suits are starting to pour in. See here (New York Times) and here (Los Angeles Times) for the derivative lawsuit brought by the California State Teachers’ Retirement System, the country’s second-largest public pension fund, the California State Teachers’ Retirement System, against current and former board members and executives of Wal-Mart Stores Inc., accusing them of using bribery and corruption to gain authorization from Mexican government officials to build new stores.
The complaint (here) generally tracks the New York Times article (see here for a prior summary), but also includes allegations suggesting potential insider trading. The complaint alleges as follows. “[T]he trading records of defendants [H. Lee Scott Jr.] and [Eduardo] Castro-Wright show that both of these defendants began selling millions of dollars worth of Wal- Mart shares in the months after The New York Times first contacted the Company regarding possible FCPA infractions by Wal-Mex in December 2011. Scott and Castro-Wright were divesting their shares in Wal-Mart in apparent anticipation of the publication of The New York Times exposé and the corresponding stock drop that would undoubtedly occur, and did occur. On the three trading days after The New York Times’ April 21, 2012 exposé, Wal-Mart stock dropped eight percent, wiping out all of its gains in 2012. Scott and Castro-Wright sold uncharacteristically large amounts of stock while in possession of the materially adverse nonpublic information that the Company was exposed to undisclosed liability for massive FCPA penalties and other contingences relating to the bribes and cover-up …”.
In addition, yesterday Gilman Law LLP announced here a derivative lawsuit filed in the United States District Court for the Western District of Arkansas against Wal-Mart. According to the release, the “complaint alleges the Directors of Wal-Mart breached their fiduciary duties by violating the Foreign Corrupt Practices Act and engaging in a six-year-long cover-up of a massive bribery scheme concerning Wal-Mart’s expansion in Mexico.”
Wal-Mart Statute of Limitations
In recent days, there has been much talk about the FCPA’s statute of limitations (5 years) and how the limitations period can generally be extended through conspiracy charges. All correct observations as to a fundamental black-letter law concept. Except in corporate FCPA inquiries, one can generally toss aside fundamental black-letter law concepts because they simply do not matter.
Sure, Wal-Mart (or any other company subject to FCPA scrutiny) can talk about statute of limitations around conference room tables behind closed doors in Washington D.C., but to truly challenge the DOJ on this issue (as all others) first requires that the company be criminally indicated, something few corporate leaders are willing to let happen. Cooperation is the name of the game in corporate FCPA inquiries and to assert statute of limitations issues is not cooperating. Given the “carrots” and “sticks” relevant to resolving FCPA enforcement actions (to learn more about these “carrots” and “sticks” please read ”The Facade of FCPA Enforcement” – here), one of first steps during a corporate disclosure of FCPA issues (one that Wal-Mart made in December 2011) is to enter into a tolling agreement or to waive any statute of limitations defenses.
As evidence, dig into the details of most FCPA enforcement actions and one quickly discovers that the conduct at issue is old – in some cases very old. The 2012 Biomet enforcement action (see here for the prior post) concerns conduct going back to 2000; the 2012 Smith & Nephew enforcement action (see here for the prior post) concerns conduct going back to 1998; and the 2012 Marubeni enforcement action (see here for the prior post) concerns conduct going back to 1995 (17 years ago) with the last act alleged occurring in 2004.
For a similar post on fundamental black letter law concepts in FCPA enforcement actions, see this prior post “Does DOJ Expect FCPA Counsel to Roll Over and Play Dead?”
Don’t Believe the Hype
Writing at the Huffington Post (here), Professor Brandon Garrett (here – University of Virginia School of Law) says “Don’t Believe the Hype on Corporate Bribery.” Professor Garrett notes that “at first, foreign bribery prosecutions may seem big and brash and the farthest thing from a wrist-slap” but he cautions that many FCPA enforcement actions “can be smaller than they appear.”
I frequently am put in the “the DOJ is too aggressive in enforcing the FCPA” camp and in many respects that is true. However, I have also frequently stated (see here for my Facade of FCPA Enforcement article, here for my Senate testimony and here and here for prior posts as to the same Siemens and BizJet enforcement actions Professor Garrett references) that in egregious instances of corporate bribery that legitimately satisfy the elements of an FCPA anti-bribery violation involving high-level executives and/or board participation the DOJ’s aggressive rhetoric does not match the reality of the enforcement action.
See this prior post for discussion of Professor Garrett’s article “Globalized Corporate Prosecutions.”
Where Should the Money Go
This prior post discussed the recent letter by Socio-Economic Rights and Accountability Project (“SERAP”) (a non-governmental civil society organization in Nigeria) to SEC Enforcement Division Director Robert Khuzami (with a copy to Assistant Attorney General Lanny Breuer and Deputy Chief, Fraud Section Charles Duross) regarding “FCPA civil penalty and disgorgement proceeds that companies agree to pay to resolve US Foreign Corrupt Practices Act investigations.”
The specific SERAP proposal is as follows. “…[A]fter, and ony after, public notice of an FCPA settlement agreement, the victim foreign government entity and any applicant NGO would have 60 days to file a request that the Enforcement Division pay some or all of the agreed payment proceeds to or for the benefit of the victim government entity or to a home country-based or US based NGO that would present a proposal [to] spend the proceeds for public purposes (e.g. on public health programs) in the country of the victim entity. Thereafter, the Enforcement Division would have 60 days to act upon the request, favorably or not in its discretion; in this context the Enforcement Division should provide a brief statement of its reasons for its decisions. In reaching its decisions the Enforcement Division would have the inherent authority to consult with Executive Branch agencies of the US government.
Recently the SEC responded to the letter (see here). The SEC thanked SERAP for its ‘thoughtful submission” and stated that it will “give appropriate consideration” to its suggestions while also noting as follows. “Although the macro effects of corruption can be ascribed generally, the framework of our securities laws requires a proximate connection to the harm caused by a particular violation. The question of identifying investors or other parties that suffer cognizable harm in connection with the securities law violation(s) at issue in a given enforcement matter is driven by the facts and circumstances of that particular case.”
For more, including my views, see here from Trustlaw.
Others are also thinking about the issue of where FCPA enforcement proceeds should go. In this draft paper titled “Reforming the Foreign Corrupt Practices Act to Reduce Rent Seeking and Better Deter Transnational Bribery,” Matthew Turk argues as follows: “(1) the SEC should cease retaining profits disgorged by corporate defendants; (2) disgorgements should be transferred to the Host country where the bribe took place, conditional on the Host government’s cooperation with the FCPA investigation; and (3) if cooperation is not forthcoming, disgorgement proceeds should be transferred to the OECD Working Group, an international organization designed to facilitate the enforcement of an important anti-bribery treaty.” According to Turk, “Reforming disgorgement practices in the manner suggested here would not constitute a legalistic attempt to ratchet the total level of anti-corruption enforcement up or down in a particular direction. Instead it would re-allocate the proceeds from FCPA enforcement on a global scale so as to properly align the incentives of the parties involved and provide greater access to the information required for effective enforcement.”
Weekend Reading Stack
I recommend this recent Q&A in Metropolitan Counsel with Homer Moyer (Miller & Chevalier) a “Dean” of the FCPA. Might as well make it a Homer Moyer weekend – see here for a prior Q&A post on this site with Moyer.
How Many Does It Take?
How many former high-ranking Department of Justice officials and/or former DOJ FCPA enforcement attorneys does it take before the current DOJ realizes that its FCPA enforcement policies and procedures are, in certain cases, broken?
The latest to join the growing chorus (see here at pages 31-33 for others in the chorus) is William Jacobson (the former assistant chief for DOJ FCPA enforcement and current co-general counsel and chief compliance officer at Weatherford International Ltd – a company currently under FCPA scrutiny). [One of the first Q&A’s on FCPA Professor profiled Jacobson (on the Siemens enforcement action – see here) and he is already in my notable and quotable hall of fame for his 2010 statement to American Lawyer on FCPA enforcement that “[t]he government sees a profitable program, and it’s going to ride that horse until it can’t ride it anymore.”]
In a recent article published in Bloomberg’s Criminal Law Reporter (here) titled “No Legislation Necessary: A Five-Part Test to Negate Corporate Criminal Liability in FCPA Cases,” Jacobson states in summary as follows. “[T[here is no need to tinker with the [FCPA]. Instead, the Department of Justice could, and should, exercise its prosecutorial discretion and commit to not bringing FCPA-related criminal charges against companies that have done all they could to curb corruption within their midst and to cooperate with the government when corruption is discovered. Such a policy would serve both government and corporate interests by, among other things, bringing more cases to the attention of the government, facilitating more prosecutions of individuals, and deterring future violations while at the same time bringing predictability to the prosecutorial process and rewarding responsible companies.”
Jacobson’s five-part test is as follows. “(1) the company must voluntarily disclose the violation; (2) the potential breach did not include illegal conduct by senior leaders within the company; (3) the company must cooperate fully with the government, including providing evidence and information against employees, officers, directors, and agents of the company; (4) the company must agree to implement appropriate remedial measures to mitigate the chances for future violations; and (5) prior to discovering the misconduct, the company must have implemented a robust compliance program.” Jacobson states that “if a company meets each element of this test, DOJ policy should state that the company will not be charged (including by deferred or nonprosecution agreement).”
In conclusion, Jacobson states as follows. “Current FCPA enforcement policy punishes rather than rewards companies that do all they can reasonably be expected to do to deter corruption and to cooperate with the government. This had led to an FCPA legislative reform movement that has gained considerable momentum over the past 18 months. DOJ can blunt most of these efforts with a shift in its prosecution policy that rewards responsible companies while at the same time serves important government interests and continues DOJ’s fight against international corruption.”
Much of what Jacobson writes about (for instance that current FCPA enforcement policies and procedures may actually discourage voluntary disclosure, make it more difficult for the DOJ to learn about individual culpable conduct, and thus not result in deterrence achieving individual prosecutions), I agree with and have previously written about in “Revisiting a Foreign Corrupt Practices Act Compliance Defense” – here).
In addition, Jacobson has a nice discussion about the FCPA’s unique posture (for more on this topic, see pages 8-16 of my “Revisiting” article for specific reasons warranting an FCPA compliance defense). Both are good reads given that the DOJ’s current FCPA reform talking points seems to be that because certain FCPA proposals are general in nature and can be applied to other statutes, specific FCPA reform is not needed.
While agreeing with many of Jacobson’s points (points well informed from his prior DOJ FCPA position, as well as his current general counsel position), I disagree that the remedy is non-binding DOJ policies and procedures.
There are some FCPA reform issues I have advocated that can perhaps be best dealt with through DOJ policy and procedure such as abolishing NPAs and DPAs, publishing declination decisions when a company voluntarily discloses, and establishing meaningful post-employment restrictions on FCPA enforcement attorneys.
However, non-binding DOJ policy and procedure is not the best way to accomplish real and meaningful FCPA reform. As to many of the issues Jacobson discusses, the best solution is an FCPA compliance defense as I discuss here.
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Jacobson’s article was reproduced with permission from Criminal Law Reporter, 91 CrL 77 (Apr. 11, 2012). Copyright 2012 by The Bureau of National Affairs, Inc. (800-372-1033) www.bna.com
Friday Roundup
Coming attractions, monitor talk, LatinNode related individual sentences, just who are those “gestores,” scholarship of note, and Supreme Court quotables. It’s all here in the Friday roundup.
Coming Attractions
This prior post contained FCPA practitioner Homer Moyer’s discussion of industry sweeps. Industries that have been subjected to industry sweeps or are reportedly in the middle of industry sweeps include: oil and gas, pharmaceutical / medical devices, and financial services.
Add Hollywood film studies to the list.
Reuters reports (here) that the SEC “has sent letters of inquiry to at least five movie studios in the past two months, including News Corp’s 20th Century Fox, Disney, and DreamWorks Animation” that “ask for information about potential inappropriate payments and how the companies dealt with certain government officials in China.”
The New York Times (here) also reported on the letters of inquiry and stated that the SEC “has begun an investigation into whether some of Hollywood’s biggest movie studios have made illegal payments to officials in China to gain the right to film and show movies there.”
In other disclosure news, Turkcell Iletisim Hizmetleri A.S. (Turkcell), Turkey’s only New York Stock Exchange listed company, recently disclosed in an SEC filing (here) as follows. “Some of [the countries the company operates in] also suffer from relatively high rates of fraud and corruption. For example, allegations have been made regarding improper payments relating to the operations of KCell, a mobile operator in Kazakhstan and 51% subsidiary of Fintur Holdings B.V., in which we hold a 41.45% stake, while TeliaSonera holds the remainder. The allegations were discussed by Turkcell’s Board of Directors, which requested an independent investigation of the allegations made. TeliaSonera initiated an independent investigation as agreed by the Fintur Board. The Turkcell Board has been informed that to date there has not been substantiated any such allegations and the Fintur Board informs us that it has completed its own investigation. Since no assurance can be given that there will not be further requests for investigation, we remain vigilant on this matter.”
In other disclosure news, in October 2006, the SEC informed the Bristol Myers Squibb Company that it had begun a formal inquiry into the activities of certain of the company’s German pharmaceutical subsidiaries and its employees and/or agents. The company previously disclosed that “the SEC’s inquiry encompasses matters formerly under investigation by the German prosecutor in Munich, Germany, which have since been resolved,” that the inquiry concerns potential violations of the FCPA and that “the company is cooperating with the SEC.” Yesterday, in a 10-Q filing, the company stated as follows. “In March, 2012, the Company received a subpoena from the SEC. The subpoena, issued in connection with an investigation under the FCPA, primarily relates to sales and marketing practices in various countries. The Company is cooperating with the government in its investigation of these matters.”
According to my tally, over the past two months, approximately 15 companies have newly disclosed, or been linked to, FCPA scrutiny. See here for the prior post “The Sun Rose, a Dog Barked, and a Company Disclosed FCPA Scrutiny.” (And no, Wal-Mart is not included in this list, the company disclosed its FCPA scrutiny in December 2011).
Hercules Offshore disclosed better news in its 10-Q filing yesterday. The company stated as follows. “On April 4, 2011, the Company received a subpoena issued by the Securities and Exchange Commission (“SEC”) requesting the delivery of certain documents to the SEC in connection with its investigation into possible violations of the securities laws, including possible violations of the Foreign Corrupt Practices Act (“FCPA”) in certain international jurisdictions where the Company conducts operations. The Company was also notified by the Department of Justice (“DOJ”) on April 5, 2011, that certain of the Company’s activities were under review by the DOJ. On April 24, 2012, the Company received a letter from the DOJ notifying the Company that the DOJ has closed its inquiry into the Company regarding possible violations of the FCPA and does not intend to pursue enforcement action against the Company. The DOJ indicated that its decision to close the matter was based on, among other factors, the thorough investigation conducted by the Company’s special counsel and the Company’s compliance program. The Company, through the Audit Committee of the Board of Directors, intends to continue to cooperate with the SEC in its investigation. At this time, it is not possible to predict the outcome of the SEC’s investigation, the expenses the Company will incur associated with this matter, or the impact on the price of the Company’s common stock or other securities as a result of this investigation.”
For the second straight day, I say kudos to the DOJ. Yet, I also ask on consecutive days – would anything really change with an FCPA compliance defense? As I note in “Revisiting a Foreign Corrupt Practices Act Compliance Defense” (here) the DOJ already recognizes a de facto FCPA compliance defense albeit in opaque, inconsistent and unpredictable ways. Thus, an FCPA compliance defense accomplishes, among other things, the policy goal of removing factors relevant to corporate criminal liability from the opaque, inconsistent, and unpredictable world of DOJ decision making towards a more transparent, consistent, and predictable model best accomplished through a compliance defense amendment to the FCPA.
Monitor Talk
As discussed in this prior post, in March Biomet resolved an FCPA enforcement action involving $22.8 million in combined fines and penalties ($17.3 million via a DOJ deferred prosecution agreement, and $5.5 million via a settled SEC civil complaint). Pursuant to the DPA, Biomet agreed to engage an independent compliance monitor “for a period of not less than 18 months” and to provide periodic reports to the DOJ regarding remediation and implementation of the enhanced compliance measures as described in an attachment to the DPA.
As evidence that investor concern regarding FCPA issues does not end on enforcement action day, during a recent earnings conference call, an analyst asked Biomet CEO Jeff Binder the following question.
“I guess just with regard to the DOJ settlement that was announced for the FCPA potential violations, I’m just wondering — I guess you’re going to have an 18-month monitoring period. So I assume that would only apply to your international business? And then maybe even within the international business, would that only apply to certain regions where there have been problems found? And then what sort of a pricing — sorry, not pricing, but cost impact do you expect from that monitoring? Is it something material or not?”
Binder responded as follows. “Yes. You’re correct that the monitorship will apply to our businesses outside the United States, but the monitors purview is broad outside the United States. The monitor has the ability to take a look at our businesses across the world. The monitor will do a risk assessment upfront. They’ll understand where our issues have been and they’ll take a look at our processes. They’ll develop that risk assessment. They’ll come up with a work plan that’s based on that risk assessment. And we’ll take it from there. We don’t expect that additional expenses for the monitor will be material to the business. DOJ and SEC require the candidates for the monitorship to submit budgets of the projected services for their work. And I’d just say that the amounts that were set forth in those budgets are not material, and we don’t anticipate significant internal expenses associated with the monitorship.”
LatiNode Individual Sentences
As noted in this DOJ release, in April 2009 LatiNode, a privately held Florida corporation, pleaded guilty to violating the Foreign Corrupt Practices Act in connection with improper payments in Honduras and Yemen and agreed to pay a $2 million criminal penalty. Thereafter, several of its former executives – Jorge Granados, Manuel Caceres, Manuel Salvoch, and Juan Vasquez were criminally charged and pleaded guility.
Earlier this week Caceres (former vice president of business development at LatiNode) and Vasquez (a former senior commercial executive at LatiNode) were sentenced. U.S. District Court Judge Joan Lenard (S.D. of Fl.) sentenced Caceres to 23 months followed by 1 year supervised release – the DOJ sought a 36 month sentence. U.S. District Court Judge Patrricia Seitz (S.D. of Fl.) sentenced Vasquez to 3 years probation, community service, home detention and monitoring and ordered him to pay a $7,500 criminal fine – the DOJ originally sought a 36 month sentence and recently stated that it “would not oppose a sentence for Vasquez that was less than the sentence for Caceres and Salvoch [who is yet to be sentenced].”
As noted in this prior post, in September 2011, Granados was sentenced to 46 months in prison.
“Gestores”
The New York Times article suggested that many of the Wal-Mart Mexican payments at issue were routed through Mexican gestores. Just who are those “gestores.”? I found this article from CBS of interest. The article states as follows. “A visit to any government office is likely to bring the sighting of a well-dressed man carrying reams of documents who will glide past the long lines, shake hands with the official behind the counter and get ushered into a backroom, where his affairs presumably get a fast-track service. The suspicion is these go-betweens funnel a portion of the fees they charge clients to corrupt officials to smooth the issuance of permits, approvals and other government stamps. In a country where laws on zoning rules, construction codes and building permits are vague or laxly enforced, the difference between opening a store quickly and having it held up for months may depend on using a gestor.”
Scholarship of Note
Pre-Wal-Mart, the FCPA conversation of the spring focused on charitable contributions in the context of the Wynn-Okada dispute. See here, here and here for the prior posts. Other posts have noted (see here) that, strange as it may sound, the FCPA’s anti-bribery provisions are only implicated when something of value is provided, directly or indirectly, to a foreign official to influence the official in obtaining or retaining business. The FCPA’s anti-bribery provisions are not implicated when the thing of value is provided to a foreign government itself. Other prior posts (here and here) have discussed Dodd-Frank Act Section 1504’s Resource Extraction Disclosure Provisions.
Given my prior writings on these issues, I was pleased when Emory University School of Law student Francesca Pisano sent me the student comment “Anti-Corruption Law & Corporate Philanthropy: Rethinking the Regulations” (here) selected for publication in a forthcoming issue of the Emory Law Journal.
The abstract states as follows.
“When the 2010 earthquake hit Port-au-Prince, Haiti, U.S. companies donated over $146.8 million to the relief effort. Despite this impressive display of global engagement, commentators suggested that the US anti-corruption laws had discouraged corporations from greater involvement. Even with the laws in force, however, reports of corruption in the relief effort soon surfaced, derailing Haiti’s recovery. Foreign aid that feeds corruption will never achieve sustainable growth, but development efforts will similarly fail if U.S. anti-corruption laws discourage corporate philanthropy. This comment analyzes the application of two U.S. anti-corruption laws, the Foreign Corrupt Practices Act (“FCPA”) and the Dodd-Frank Section 1504, to international corporate charity. It shows how the FCPA’s ambiguous nature has the unfortunate effect of being both over- and under-inclusive, discouraging bona fide charity while at the same time failing to capture corrupt donations. The recently-enacted Dodd-Frank Section 1504 has great potential, but the SEC’s proposed rules have created a loophole to allow corruption to continue if hidden in corporate charity. This comment proposes a modification to FCPA enforcement: creating a Safe Harbor Option. This will offer businesses the opportunity to “buy” a rebuttable presumption of legitimacy for their charitable donations by publically disclosing the payments, projects, and recipients of their philanthropy. Granting a presumption of legitimacy to disclosed donations will ameliorate many of the over-inclusive aspects of the FCPA. The increased disclosure will allow the public to monitor corporate charity and question suspicious gifts, ameliorating the under-inclusive aspects of FCPA enforcement. This comment also argues that Section 1504 should be defined expansively to prevent charity from being used to circumvent the congressional goals of increasing transparency and combating corruption. If properly defined, Section 1504 is an excellent example of regulation through disclosure and transparency, rather than prohibitions.”
Supreme Court Quotable
This recent post discussed non-FCPA caselaw that touched upon issues relevant to the recent “foreign official” challenges. Last week, the Supreme Court issued its opinion (here) in Mohamad v. Palestinian Authority concerning the scope of the Torture Victim Protection Act. The Court, in an opinion authored by Justice Sotomayor held that the term “individual” in the TVPA encompasses only natural persons, and thus the law does not impose liability against corporatons. In her opinion, Justice Sotomayor’s stated, among other things, as follows.
“Congress remains free, as always, to give the word [individual] a broader or different meaning. But before we will assume it has done so, there must be some indication Congress intended such a result.”
“We add only that Congress appeared well aware of the limited nature of the cause of action it established in the Act.”
“The text of the TVPA convinces us that Congress did not extend liability to organizations, sovereign or not. There are no doubt valid arguments for such an extension. But Congress has seen fit to proceed in more modest steps in the Act, and it is not the province of this Branch to do otherwise.”
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I went to Walmart last night. After completing my purchase and before exiting the store, I stopped, looked around, and thought, wow, what a week!
A good weekend to all.
Africa Sting – DOJ Moves To Dismiss Charges Against Spiller, Geri And Alvirez
[This post has been updated]
In February, when Judge Richard Leon granted the DOJ’s motion to dismiss charges against the remaining Africa Sting defendants (see here for the prior post), an open question was what would happen to Jonathan Spiller, Haim Geri and Daniel Alvirez. All three defendants previously plead guilty to a charge of conspiracy to violate the FCPA, a charge Judge Leon dismissed as to all defendants in the second Africa Sting trial in December 2011. In addition, Alvirez also plead guilty to non-sting, real-world conduct related to the Republic of Georgia.
The question has been answered.
Earlier today, the DOJ moved (see here) to dismiss, with prejudice, the Africa Sting charges against Spiller, Geri, and Alvirez. Moreover, the DOJ moved to dismiss, without prejudice, the Republic of Georgia charges against Alvirez. The DOJ filing states as follows. “The government has also concluded that it is in the interests of justice not to prosecute defendant Alvirez on the Georgia conspiracy count at this time, but rather to continue the investigation of that and related conduct. Following such investigation, the government will determine whether to bring criminal charges relating to the conduct.”
Asa Hutchinson (here – Asa Hutchinson Law Group) counsel for Alvirez stated as follows. “We applaud the government’s decision to dismiss all charges in the interest of justice. This case in its entirety was plagued with problems. The government recognized those problems and acted fairly to dismiss all remaining charges. We are hopeful and expectant that the dismissal will end this case.”
Ken Wainstein (here – O’Melveny & Myers) counsel for Spiller stated as follows. “We are very gratified that the Justice Department prosecutors ended their case against Mr. Spiller. This was a difficult decision for them—one of many difficult decisions faced by Mr. Spiller and the prosecutors throughout this case—and I admire them for getting to the fair and just result. Jonathan Spiller is a good man, and it is only right that he be cleared of these charges.” Spiller stated as follows. “I am so glad that this painful episode in my life is now over and that the government decided to do the right thing in dismissing the charges against me. I have tried all along to do what I felt was right and all I want now is to go on with my life. Thank you to everyone that has stood by me and believed in me through this process, especially my lawyers, my friends, and my fiancée.”
Eric Bruce and Matthew Menchel (here and here – Kobre & Kim) counsel for Geri stated as follows. “We commend the Department of Justice in making the appropriate decision to dismiss all charges against Mr. Geri. It would have been a grave injustice for Mr. Geri to be branded a felon as a result of this failed sting operation. Haim Geri is a good and decent man, who can now put this unfortunate chapter behind him and start rebuilding his life.”
During today’s hearing on the DOJ’s motion, a knowledgeable source informed that Judge Leon indicated he will grant the motion and defense counsel and the DOJ are working to prepare an order for Judge Leon to sign dismissing the charges (as noted above) and vacating the prior guilty pleas.
When Judge Leon grants the motion, the DOJ’s record in the Africa Sting case (a case Assistant Attorney General Lanny Breuer called a “turning point”) will be 0-22.
See here for my recent publication “What Percentage of DOJ FCPA Losses is Acceptable?” To borrow from Justice Potter Stewart’s classic reasoning in Jacobellis v. Ohio, I don’t know what level of DOJ FCPA losses is acceptable and the answer may be indefinable. But I know it when I see it, and the number and magnitude of DOJ’s recent FCPA losses is unacceptable.