Chevron Decision Touches Upon FCPA Issues
This 2009 post flagged the “War of Words in Ecuador” between Chevron and plaintiff lawyers representing Ecuadorian villagers alleging environmental contamination at oil fields in the Amazon for its potential FCPA implications.
Earlier this week, as noted in this Wall Street Journal article:
“A federal judge ruled in favor of Chevron … in a civil racketeering case [against New York lawyer Steven Donziger, the plaintiffs’ lawyer], saying a record $9.5 billion environmental judgment in Ecuador against the oil giant was “obtained by corrupt means.” U.S. District Judge Lewis Kaplan [S.D.N.Y.] found that … Donziger and his litigation team engaged in coercion, bribery, money laundering and other criminal conduct in pursuit of the 2011 verdict.”
As stated by Judge Kaplan:
“This case is extraordinary. The facts are many and sometimes complex. They include things that normally come only out of Hollywood – coded emails among Donziger and his colleagues describing their private interactions with and machinations directed at judges and a court appointed expert, their payments to a supposedly neutral expert out of a secret account, a lawyer who invited a film crew to innumerable private strategy meetings and even to ex parte meetings with judges, an Ecuadorian judge who claims to have written the multibillion dollar decision but who was so inexperienced and uncomfortable with civil cases that he had someone else (a former judge who had been removed from the bench) draft some civil decisions for him, an 18-year old typist who supposedly did Internet research in American, English, and French law for the same judge, who knew only Spanish, and much more. The evidence is voluminous. The transnational elements of the case make it sensitive and challenging. Nevertheless, the Court has had the benefit of a lengthy trial. It has heard 31 witnesses in person and considered deposition and/or other sworn or, in one instance, stipulated testimony of 37 others. It has considered thousands of exhibits. It has made its findings, which of necessity are lengthy and detailed.”
As relevant to the Foreign Corrupt Practices Act and any potential FCPA liability of Donziger, Judge Kaplan, beginning at pg. 392 of his mammoth 485-page opinion, addressed Chevron’s assertion that “Donziger violated the Travel Act through the use of facilities of interstate or foreign commerce with the intent to facilitate violations of the anti-bribery provisions of the Foreign Corrupt Practices Act (“FCPA”).”
Judge Kaplan concluded that “[Donziger] did so by using email and by causing money to be wired to Ecuador to further the payment of money to Cabrera, a court appointee [of the Ecuadorian judicial system].”
Judge Kaplan’s decision most squarely addressed the FCPA’s “obtain or retain business” element. Judge Kaplan stated as follows.
“The SEC and the Department of Justice interpret the FCPA to prohibit payments to court officials and regularly find that such payments satisfy the business purpose test. [citing to DOJ FCPA enforcement actions against Pride International and Jim Bob Brown]. This court agrees.”
“Here, the payments increased the likelihood that Donziger’s business – that of contingency litigation – would benefit from a favorable judgment. Roughly 30 percent of the 20 percent contingency fee owed to the litigation team accrues to Donziger. He stood to benefit directly from any judgment and, accordingly, from any act that improved the likelihood that such a judgment would issue and its amount. The improper payments to Cabrera were intended to do, and did, exactly that.”
As to “foreign official,” Judge Kaplan stated: “as an expert appointed by the Lago Agrio court, Cabrera was an officer or official of the Ecuadorian court” (citing to an exhibit which stated: “The Expert [Cabrera] is hereby reminded that he is an auxiliary to the Court for purposes of providing to the process and to the Court scientific elements for determining the truth.”).
As to the “knowledge” component of the FCPA’s third-party payment provisions, Judge Kaplan stated: “The Court … finds that Donziger was “aware” that it was “substantially certain” that Cabrera would be paid from the funds he wired to the secret account.”
A judicial finding that Donziger engaged in conduct sufficient to establish an FCPA violation is – to state the obvious – a troubling event for him.
In response to Judge Kaplan’s decision, Donziger issued this statement. In the above-referenced Wall Street Journal article, Donziger is quoted as follows. “I am a zealous advocate for my clients. I woud never bribe a judge or perpetrate a fraud … Ultimately I think the Court of Appeals will reverse this decision and whatever damage caused to my reputation will be restored.”
In this press release, Chevron stated, in pertinent part:
“[Judge Kaplan’s decision] finds that Steven Donziger, the lead American lawyer behind the Ecuadorian lawsuit against the company, violated the federal Racketeer Influenced and Corrupt Organizations Act (RICO), committing extortion, money laundering, wire fraud, Foreign Corrupt Practices Act violations, witness tampering and obstruction of justice in obtaining the Ecuadorian judgment and in trying to cover up his and his associates’ crimes. […] Chevron’s reputation was taken hostage and held for a multibillion-dollar ransom. Rather than give in and pay these criminals off, Chevron exposed the truth. Chevron is pleased with today’s judgment. We are confident that any court that respects the rule of law will likewise find the Ecuadorian judgment to be illegitimate and unenforceable.”
For additional coverage of Judge Kaplan’s decision, see here from the New York Times and here from Reuters. In addition, this 2013 Wall Street Journal article goes in-depth as to Donziger and the case.
FCPA Reform And The Olympics
The DOJ may think that my “foreign official” declaration “selectively reviews the [FCPA’s] legislative history.” However, the truth is the 152 page declaration is the most comprehensive document ever written on the FCPA’s legislative history relevant to “foreign official” issues. So comprehensive in fact that it highlights Foreign Corrupt Practices Act reform efforts and the Olympics.
You may be asking in your best Gary Coleman voice “whatcha talkin bout.”
This is what I am talking about.
In April 1999, Representative Henry Waxman introduced H.R. 1370, Senator John McCain introduced S. 803, and Senator John Ashcroft introduced S. 797. These bills sought to amend the FCPA by restricting American corporate sponsorship of the International Olympic Committee (“IOC”).
Specifically, H.R. 1370 sought to “amend the FCPA to prevent persons doing business in interstate commerce from providing financial support to the International Olympic Committee until the International Olympic Committee adopts institutional reforms.”
Specifically, S. 803 sought “to make the International Olympic Committee subject to the FCPA” by amending the “foreign official” definition – specifically the “public international organization” prong to include the International Olympic Committee.
Specifically, S. 797 sought “to apply the FCPA to the International Olympic Committee” by amending the term “‘foreign official’ [to] include[] any member of, employee of, or any person acting in an official capacity for or on behalf of, the International Olympic Committee.'”.
None of these bills made it out of committee.
You may be thinking, what about the “public international organization” prong of the FCPA’s “foreign official” definition which states that a “public international organization” is
an organization that is designated by Executive Order pursuant to section 1 of the International Organizations Immunities Act (22 U.S.C. § 288); or
any other international organization that is designated by the President by Executive order for the purposes of this section, effective as of the date of publication of such order in the Federal Register
The list of “public international organizations” is here. For more, see here.
And now back to the Games.
From Healthcare Providers To Customs Officials To SOE Employees – The “Foreign Officials” Of 2013
A “foreign official.”
Without one, there can be no FCPA anti-bribery violation (civil or criminal). Who were the “foreign officials” of 2013 (at least from an enforcement perspective – recognizing of course that the meaning of this key FCPA element is the subject of on-going dispute including a historic appellate court challenge – see here for links to the briefing).
This post, describes the alleged “foreign officials” from 2013 corporate DOJ and SEC FCPA enforcement actions.
There were 9 core corporate enforcement actions in 2013. Of the 9 enforcement actions, 5 (55%) involved, in whole or in part, employees of alleged state-owned or state-controlled entities (“SOEs”). These entities ranged from oil and gas companies to banks .
In 2012, 42% of corporate enforcement actions involved, in whole or in part, employees of alleged SOEs (see here at pages 348-353). In 2011, 81% of corporate enforcement actions involved, in whole or in part, employees of alleged SOEs (see here at pages 29-41). In 2010, 60% of corporate FCPA enforcement actions involved, in whole or in part, employees of alleged SOEs (see here at pages 108-119). In 2009, 66% of corporate FCPA enforcement actions involved, in whole or in part, employees of alleged SOEs (see here at pages 410-44). As to whether Congress intended employees of SOEs to be “foreign officials” under the FCPA, see here for my “foreign official” declaration.
Another notable “foreign official” enforcement theory from 2013 was that various foreign health care providers are “foreign officials” under the FCPA. Of the 9 core corporate enforcement actions in 2012, 2 (22%) involved, in whole or in part, foreign health care providers. In 2012, 50% of corporate enforcement actions involved, in whole or in part, this enforcement theory. See here for a prior post on the origins and prominence of this enforcement theory.
Combining enforcement actions that involved, in whole or in part, SOE employees with enforcement actions that involved, in whole or in part, foreign health care providers, the result is 7 of 9 corporate enforcement actions (78%). Last year, this figure was 10 of 12 (83%).
The remainder of this post describes (as per DOJ/SEC allegations) the “foreign officials” of 2013. As is apparent from the specific descriptions below, in certain instances the enforcement agencies describe the “foreign official” with reasonable specificity; in other instances with virtually no specificity.
[Note: certain of the enforcement actions below technically only involved FCPA books and records and internal control charges. As most readers know, actual charges in most FCPA enforcement actions hinge on voluntary disclosure, cooperation, collateral consequences, and other non-legal issues. Thus, even if an FCPA enforcement action is resolved without FCPA anti-bribery charges, the actions remain very much about the “foreign officials” involved. As I’ve said before, if an employee of a U.S. company consistently entertains his brother-in-law in the corporate suite and seeks reimbursement for “client entertainment” you will not be reading about this FCPA books and records and internal controls violation]
Philips Electronics
SEC
“public officials of Polish healthcare facilities”
Parker Drilling
DOJ
Employees of the Nigerian Customs Service (“NCS”)
Employees of the “Panel of Inquiry for the Investigation of All Cases of Temporary Import Permits Issued Between 1984 to Year 2000 (the “TI Panel”) (a board empanelled for the purpose of examining certain duties and tariffs that the NCS collected or failed to collect; the TI Panel was presidentially appointed, operated under the auspices of the Nigerian President’s office, and possessed the power to issue subpoenas and levy fines)”
Employees of “Nigeria’s State Security Service, a Nigerian intelligence and law enforcement agency that operated as a department within the Nigerian government’s executive”
SEC
Employees of the Nigerian Customs Service (“NCS”)
Employees of the “Panel of Inquiry for the Investigation of All Cases of Temporary Import Permits Issued Between 1984 to Year 2000 (the “TI Panel”) (a board empanelled for the purpose of examining certain duties and tariffs that the NCS collected or failed to collect; the TI Panel was presidentially appointed, operated under the auspices of the Nigerian President’s office, and possessed the power to issue subpoenas and levy fines)”
Employees of “Nigeria’s State Security Service, a Nigerian intelligence and law enforcement agency that operated as a department within the Nigerian government’s executive”
Ralph Lauren
DOJ
“customs and other government officials [in Argentina] to assist in improperly obtaining paperwork necessary for goods to clear customs, to permit clearance of items without the necessary paperwork, to permit the clearance of prohibited items, and to avoid inspection”
SEC
“Argentine customs officials to secure the importation of RLC’s products into Argentina”
“Argentine government officials to improperly secure the importation of RLC’s products into Argentina”
Total
DOJ
An Iranian Official described as “the Chairman of an Iranian engineering company that was more than 90% owned by the Government of Iran and substantially controlled by the Government of Iran” and also described as follows. “The Iranian Official was [also] the head of an Iranian organization concerned with fuel consumption, which was a wholly owned subsidiary of NIOC, and was a government advisor to a high-ranking Iranian official.” NIOC is described as a “government-owned corporation operating under the direction and control of the Ministry of Petroleum of Iran.”
SEC
An Iranian Official described as follows. “Between 1995 and 2004 the Iranian Official was first the head of one wholly owned subsidiary of the National Iranian Oil Company (“NIOC”) and later the head of another NIOC wholly owned subsidiary. The Iranian Official was also a government advisor to a high-ranking Iranian official.”
Diebold
DOJ
Employees of Bank 1 and Bank 2 described as follows. “[The Banks] were controlled and approximately 70% owned by the [Chinese government] … and were [two] of several state-owned banks in [China] that together maintained a monopoly over the banking system in [China] and provided core support for the government’s projects and economic goals. The government retained a controlling right in [the Banks], including appointing or nominating a majority of board of directors and top managers at the bank. [The Banks] were an ‘instrumentality’ of a foreign government [under the FCPA].”
Inferences to employees of banks owned or controlled by the government of Indonesia
SEC
Employees of banks owned or controlled by the government of China
Employees of banks owned or controlled by the government of Indonesia
Stryker
SEC
“various government employees including public health care professionals in Mexico, Poland, Romania, Argentina, and Greece”
“foreign officials employed by a Mexican governmental agency responsible for providing social security for government employees”
“foreign official then employed as the director of a public hospital in Poland,” “a state-employed healthcare professional” in Poland
a person “waiting to be confirmed as chief physician” at a public hospital in Romania
“physicians employed in the public healthcare system” of Argentina
“a foreign official who served as a prominent professor at the Greek University, and was the director of medical clinics at two public hospitals affiliated with the Greek University”
Weatherford
DOJ
Employees of Sonangol, a company wholly owned, controlled, and managed by the Angolan government
Angolan Officials 1, 2, and 3 (described as “high-level, senior officials of Sonangol” with influence over contracts), a “relative of Angolan Official 4 (described as a “high-level, senior official of Angola’s Ministry of Petroleum” with influence over contracts entered into by the Angolan government), Angolan Official 5 (described as “a Sonangol official with decision-making authority in Angola’s Cabinda region”), Angolan Official 3′s wife, Angolan Official 4′s daughter and son-in-law.”
“Decision makers at the national oil company” in the Middle East
SEC
A Sonangol Drilling Manager, Sonangol officials
“Decision makers at the national oil company” in the Middle East
Employees of Sonatrach, an Algerian state-owned company
Albanian tax auditors
the tax director and two members of Albania’s National Petroleum Agency
Bilfinger
DOJ
Employees of the Nigerian National Petroleum Corporation (NNPC), employees of National Petroleum Investment Management Services (a subsidiary of NNPC), the dominant political party in Nigeria, and an official in the executive branch of the Government of Nigeria
ADM
DOJ
Ukrainian government officials in exchange for those officials’ assistance in obtaining VAT refunds
An employee of Industrias Diana (an oil company headquartered in Venezuela that was wholly owned by Petroleos de Venezuela, Venezuela’s state-owned and controlled national oil company)
SEC
Ukrainian government officials in exchange for obtaining VAT refunds
Friday Roundup
“Scurrilous and hypocritical,” scrutiny alerts and updates, a foreign official brain teaser, quotable, and for the reading stack. It’s all here in the Friday roundup.
“Scurrilous and Hypocritical”
As I have highlighted for years (see approximately 25 separate posts under the subject matter heading double standard), there is a double standard concerning corporate interaction with “foreign officials” under the FCPA and corporate interaction with U.S. officials under other U.S. laws – specifically 18 U.S.C. 201.
Commenting on JPMorgan’s current FCPA scrutiny concerning its alleged hiring practices in China, former SEC Commissioner Arthur Levitt writes, in pertinent part, in this Wall Street Journal opinion piece as follows.
“[A]ccording to financial regulators now looking into the hiring practices of major U.S. banks and multinationals in China—some of which have employed members of influential Chinese families—anyone who once hired me [Levitt’s father was the New York state comptroller] might have been violating ethical and legal standards. Securities and Exchange Commission regulators now suggest that such hiring overseas is a form of untoward influence, akin to bribing foreign officials to win business.
The accusation is scurrilous and hypocritical. If you walk the halls of any institution in the U.S.—Congress, federal courthouses, large corporations, the White House, American embassies and even the offices of the SEC—you are likely to run into friends and family members of powerful and wealthy people.
[…]
Whether this is right or wrong, unfair or fair, is not the point. It is hypocritical of financial regulators to criticize—even penalize—practices abroad that are commonplace in Washington, New York and other seats of political and economic power.
Were the SEC to be completely consistent in its approach, it would have to come down hard on the same practices here in the U.S. And the agency would have a field day. Members of Congress and the executive branch regularly hire the children of major donors. Regulators would find scores of examples of men and women, occupying internships and entry-level positions in U.S. corporations, who were hired on the say-so of someone much higher up in the organization.
[…]
[I]f we were to deny multinational companies the ability to hire locally recommended talent, where do we draw the line? Are spouses of influential officials off-limits, but not their children? What about siblings? If not siblings, what about cousins, uncles, nephews? And then there is the issue of friends: How can a financial regulator know whether a friend of someone in power received a job offer in good faith or as a form of influence peddling?
I would hate to imagine what would happen if we applied the same kind of sliding scale to the many people who have received job offers by way of their familial relationships. If that happened, there aren’t many people in finance who would escape the accusation that their hiring was the byproduct of influence peddling.”
Scrutiny Alerts and Updates
This Macau Business Daily report notes the timing of a $10 million pledge by Nasdaq-listed Melco Crown Entertainment for a cultural project in collaboration with the Tokyo University of the Arts. As noted in the article, the company needs various government permissions to increase its presence in Japan. As noted in this prior post, among others, casino operators including Wynn Resorts have been the subject of FCPA scrutiny based on similar charitable contributions.
This previous post highlighted how Transparency International urged the DOJ to investigate the conduct of Walters Power International (an Oklahoma based company that supplies, develops, services and manages electrical generation power plants around the world) in connection with power plant projects in Pakistan. This recent article in The News International reports that Walters Power has “been cleared of any misconduct by the US Department of Justice.” The article notes:
“Following [TI’s] complaint, the US Department of Justice launched a lengthy inquiry against WPIL […]. On Oct 31, 2012, it informed WPIL’s […] lawyers in the US that the inquiry was being closed as no evidence of wrongdoing could be found against the companies. The clearance letter, a copy of which is available with The News, said: “Over the past several months, your client, Walters Power International Ltd., has responded to a number of inquires by the Department of Justice, Criminal Division, Fraud Section, into possible violations of the Foreign Corrupt Practices Act. You have also responded to inquiries on behalf of Pakistan Power Resources, LLC, and Walters Power International, LLC. As you are aware, the Supreme Court of Pakistan issued an order on March 30, 2012, that declared the country’s rental power plant contracts void ab initio. Our review of that order and related pleadings has revealed no allegations of bribery in connection with those contracts. In addition, on July 24, 2012, Pakistan’s National Accountability Bureau closed its case regarding Walters Power noting that “there remains no basis for further proceedings about the Company.” Finally, Transparency International Pakistan, which publicly referred this matter to the US Department of Justice, has provided no evidence of bribery in connection with the RPP contracts in response to our request for further information. Based upon our investigation and the information that has been made available to us to date, we presently do not intend to take any enforcement action and are closing our inquiry into this matter. If, however, additional information or evidence should be made available to us in the future, we may reopen our inquiry.”
The article concludes as follows.
“Interestingly, WPIL […] sat on this letter issued by the US Department of Justice for over a year. When asked why this letter had not been made public for so long, a spokesman for WPIL said: “We cooperated unreservedly with the impartial and unimpeachable investigation of the US Department of Justice and are satisfied with the results. The findings of the US Department of Justice were shared with all shareholders and financial institutions but not made public for fear that this might be misconstrued as a rebuke by the now former chief justice of Pakistan.” He added that the Washington inquiry found no evidence of wrongdoing on the part of either company, contrary to popular misconceptions within Pakistan.”
“Foreign Official” Brain Teaser
As noted in this recent Wall Street Journal article, China State Construction Engineering Corp. (the largest home builder in the world), “is making its first acquisition in the U.S. market through its American subsidiary, as the company continues its aggressive push into overseas markets. China Construction America, the U.S. subsidiary, … agreed to acquire Manhattan-based Plaza Construction for an undisclosed sum.” As noted in the article, “Plaza Construction mainly provides construction management and consulting services in places including New York, Florida, California and Washington, D.C.”
Congress never intended for employees of state-owned or state-controlled enterprises (SOEs) to be “foreign officials” under the FCPA – see here for my “foreign official” declaration – but given the DOJ and SEC’s “foreign official” interpretations, post-acquisition are Plaza Construction employees now Chinese “foreign officials?”
Quotable
World Bank Group President Jim Yong Kim recently stated as follows:
“I’d like to make clear why fighting corruption is a critical priority for me personally, and for the entire World Bank Group: Every dollar that a corrupt official or a corrupt business person puts in their pocket is a dollar stolen from a pregnant woman who needs health care; or from a girl or a boy who deserves an education; or from communities that need water, roads, and schools. Every dollar is critical if we are to reach our goals to end extreme poverty by 2030 and to boost shared prosperity. Let’s not mince words: In the developing world, corruption is public enemy number one. We will never tolerate corruption, and I pledge to do all in our power to build upon our strong fight against it.”
Reading Stack
The most recent edition of the always-informative Debevoise & Plimpton FCPA Update is here. As to the recent Weatherford settlement, the Update states as follows.
“The $152 million in fines and penalties paid by Weatherford make it the eighth largest FCPA settlement in history. Although the monetary resolution is objectively large, comparing it to the monetary resolution in another recent enforcement action points to the difficulty of ascertainting the logic of penalty determinations.
[…]
Beyond the lack of transparency in the calculations that led to the financial resolution – a recurring feature of settled FCPA matters – the Weatherford settlement, like other recent settlements, is a disposition in which facts are included in the allegations or information without an explanation as to why they are relevant, potentially creating even more confusion as to what is or is not acceptable from the enforcement agencies’ point of view.”
For the recent post titled “FCPA Settlements Have Come a Long Way In a Short Amount of Time,” see here.
As to the recent Corruption Perception Index scores recently released by Transparency International (see here for the prior post), the FCPA Update rightly notes as follows.
“[W]hile companies subject to the FCPA, the UKBA, or other transnational anti-bribery regimes should continue to pay heed to the CPI, those seeking most efficiently to assess compliance risks also need to assess such matters as: (1) sector risk; (2) business model risk (including the degree to which the firm relies on third parties and the nature of controls over their activities); and (3) the nature and scope of government interactions, not only in connection with winning sales from government customers but also in obtaining zoning and building permits, tax clearances, customs rulings, currency transaction permissions, investment and financing approvals, and a range of other daily decisions from government actors. Firms with business risks associated with non-compliance such as expiring patents, excess capacity, disproportionate sales-based compensation, and limited oversight over sales and supply chain personnel, may well have significant corruption risks even in nations ranked highly in the CPI.”
*****
A good weekend to all.
Oral Arguments Heard In Historic “Foreign Official” Challenge
Last Friday in Miami, the 11th Circuit Court of Appeals heard oral argument in U.S. v. Joel Esquenazi & Carlos Rodriguez. (See here for the audio recording of the arguments). The issues on appeal did not just relate to the FCPA’s “foreign official” element, but as to this important element, the appeal is a historic occasion – the first time in FCPA history when an appellate court has the opportunity to weigh in on the prominent enforcement theory that employees of alleged state-owned or state-controlled entities are “foreign officials” under the FCPA.
The defense relied, in part, on my foreign official declaration previously used in other cases and as previously disclosed in prior posts I have served as a pro-bono expert to the defense in this case. For additional background reading on the case (in chronological order), as well as links to the underlying briefs, see here, here, here, here, here, here, and here.
The below guest post is from Paul Calli (Carlton Fields) who was present in the courtroom for the oral arguments. The 11th Circuit does not post audio recordings of oral arguments. When such a recording or transcript becomes available, it will be posted.
*****
The panel consisted of Eleventh Circuit Judges Beverly B. Martin and Adalberto Jordan and Sixth Circuit Senior Judge Richard F. Suhrheinrich. The argument was a homecoming of sorts for Judge Jordan, a favorite son and Judge adored by all who appear before him and who served as an Assistant United States Attorney and United States District Court Judge in the Southern District of Florida. I understand that this was his first oral argument back in Miami since he ascended to the Court of Appeals.
What I endeavor to do in this post is not engage in an analysis of where things might come out in an ultimate decision by the 11th Circuit, but to provide a recap of the arguments for those who could not attend the hearing but are following this case closely.
T. Markus Funk (Perkins Coie) argued on behalf of Joel Esquenazi and David Simon (Foley & Lardner) argued the FCPA foreign official / instrumentality issue on behalf of Carlos Rodriguez. (Pamela Johnston (Foley & Larder) argued the money laundering and wire fraud issues which were more generalized issues of criminal law (including a plain error analysis) that did not really implicate FCPA issues, are not issues of first impression, and with which the panel seemed less interested).
The courtroom was filled to capacity and unfortunately I was relegated to the attorney overflow room, which was also packed, to listen to the oral argument.
All members of the panel peppered the lawyers to varying degrees with questions primarily focused on defining “instrumentality” generally and in jury instructions. As reflected below, Judge Jordan and Senior Judge Suhrheinreich were relentless on this issue and despite the best efforts of the three lawyers arguing the FCPA issues, remained seemingly unsettled with either side’s position or definition.
I missed the beginning of Funk’s argument due to delay entering the courthouse, but when I picked up he was hammering the jury instructions in this regard, referring to the jury instructions in the case as “exceptional” and observing that “they went beyond what the government wanted.” He deemed the jury instructions the “…greatest flaw and most unfair thing in the case….” Funk stayed true to his brief, in arguing that the “instrumentality” must perform a “governmental function” and thus the rubber meets the road in his view, on what constitutes a “governmental function.”
Funk was effective in trying to focus the panel on the flaws in the government’s definition of instrumentality as overly broad, while at the same time promoting his position that the definition should hinge on whether the entity performs “traditional government functions.” He pounded his view of the government’s definition as so overly broad as to render any entity merely owned or controlled to some degree by the government, an instrumentality regardless of what function it discharged.
Funk drew a compelling analogy to demonstrate the flaw in the government’s definition of “instrumentality” as applied to Haiti Teleco by suggesting that since his law firm collects federal income tax from his salary and pays it to the Department of the Treasury, under the government’s definition of instrumentality, his law firm qualifies a state entity. Others in the room apparently felt different than me. The panel began to warm up with Judge Jordan asking several questions regarding Funk’s framing of the definitional issue.
David Simon stepped into a hot panel and he was ready to go. He picked up nicely where Funk left off, attacking “the jury instructions as error which requires reversal.” Simon proposed that to qualify as an entity of the government, it needs to be part of/a “unit of government.” Senior Judge Suhrheinrich stopped him early with this question – “unit of government: what does that mean? Ownership?” Simon unequivocally answered in the negative and when Judge Suhrheinrich shot back, “why?”, Simon responded that ownership merely makes it an “asset” of the government. At which point Judge Suhrheinrich drew some laughter by stating that if it looks or quacks “like a duck, it’s a duck.” But he got serious and asked if national parks are just an asset. Simon was teed up on the hot seat and impressed me. He seemed quick and well prepared. He responded in the negative again, and indicated that parks are created by statute and are “not merely a commercial entity that happens to be owned by a government.”
Judge Jordan stated generally that in other countries a state owned enterprise may be or have a commercial function … “so how do you make the distinction? You can just tell it or you just know it?” ( I wondered if anyone else in attendance was reminded of Justice Stewart’s famous statement “I know it when I see it” in Jacobellis…). But then Judge Jordan really defined the issues: “We can’t give that in a jury instruction.” Simon shot back – “nor can we give the one given in this case,” and he certainly stimulated questions from the bench.
At this point Judge Martin asked: “isn’t that what juries do?,” meaning apply the facts to the law. Simon responded that the defendants’ approach to the definitional issues was a “much cleaner and easier” undertaking, generally taking the position that it would present a workable paradigm for the jury to in fact apply the facts to the law, and not be forced – or allowed – to speculate.
Judge Suhrheinrich took the baton from Judge Martin and pressed, stating “I’ve been practicing law for 50 years and I’m not sure a jury would understand because I don’t.” Simon suggested it was an easy call – is it a municipality, is it created by statute, is it in the constitution…
Judge Suhreinrich wasn’t letting him off the hook: “Well in the case of a foreign government, do we go to their constitution ? Or do we look to how the entity functions? Do we have to go to the constitutions and statutes of that country? Because those constitutions may be difficult, different or murky?”
My thought was doesn’t that question expose the flaw in the FCPA on “instrumentality?” Apparently I wasn’t alone. Simon responded “these questions invite a constitutional problem in criminal cases.”
Judge Jordan jumped in – “ what about a state created entity providing commercial services – like the U.S. Olympic Committee?” Simon, not missing a beat, stated – “that does not qualify. It needs to be a “unit of government.” I thought I heard Judge Suhrheinrich grumble…
Simon drew the analogy between government employees – when the government shuts down, the employees are furloughed. “That is one indicator of an instrumentality of government.”
Judge Martin jumped in by observing the language “…department, agency or instrumentality…” and stating “you focus on the first two. What’s an example of instrumentality, that’s not a department or agency?” Simon responded – “the FDIC” and cited to the Edison case. Whether she expected it or was satisfied is unclear, but Judge Martin asked no follow-up and Simon’s argument ended.
Kirby A. Heller from the Appellate Section of DOJ in Washington argued for the government. Heller countered that the defendants’ definition of instrumentality was too narrow in that isolating the crux of the definition to performance of a “government function” disregards other factors the government deems sufficiently indicative of being an instrumentality of government.
Ms. Heller was probably less than two minutes into her presentation when Judge Martin tossed a softball: “Give me a one sentence definition of instrumentality. What is it?” Long pause, some stumbling, followed by “dominion and control over the entity.” Judge Suhrheinrich asked, “what’s the government function though?” As to Haiti Teleco, Heller responded that Haiti Teleco had a “monopoly on phone service and just because that’s a commercial service, does not mean it can’t be an instrumentality. In Haiti, they obviously define it by the fact that the government took over, profits flowed to the government, and the government would have to cover if costs needed to be advanced and Teleco could not do so. The government of Haiti seized this as a foreign instrumentality.”
Judge Jordan pursued one logical extension/problem with Heller’s point: “Isn’t notice a problem? If you are letting juries analyze and decide these issues, don’t you run into vagueness problems?” Heller replied “Maybe. But not on the facts of this case. We’re talking bribes! Everyone knew it was illegal and was on notice!”
Judge Jordan pressed. “But there is a fair amount of criminal conduct not covered by the U.S. Code. To give a bribe does not mean you are on notice that you are committing a federal criminal offense in violation of the FCPA because it is not clear if it’s a state-owned entity.” Heller didn’t deviate from her position and in the process, failed to respond to the point Judge Jordan was making. Heller: “This was not a marginal, fringe case in which vagueness would be implicated. Not even close. Everyone knew bribes and grease payments were flowing…”
Judge Jordan asked if a plurality ownership would satisfy the government’s definition. “Possibly,” replied Heller. “That’s not a good answer,” Jordan responded. “What about 25% ownership? 15% ? 10% ?” Heller stood her ground – “yes, that would satisfy our definition.” Judge Jordan asked “How far does the control principle go? We don’t have the luxury of not worrying about writing a definition ….”
Heller admitted having a problem answering that question, and that it is not simply and ownership issue. She went on to call the General Motors example in the defense brief “absurd,” saying the government would not consider that an instrumentality.
Judge Jordan then went all temporal: “ so you’ve got to look at how long the government has been in the market/entity?” Heller started to say “ permanent or temporary is …,” but Judge Jordan cut her off: “ so if they acted [the defendants] a week after the entity was seized, would that be difficult for the government to prove?” Heller unfortunately could only say “I believe we could defend it on a rule 29.” Judge Jordan would have none of it: “No, no: would you charge it?”
Judge Jordan asked “What if the government barely gets in and then there is a bribe?” Heller responded that she would look at other factors, like control, profits, board of director appointments and if those all reflected government control then yes, the government definition fits. She spent a few minutes discussing the 1998 amendment as “clear evidence” that the FCPA statute was meant to apply to foreign officials like those at Teleco.
Funk’s rebuttal was strong. He challenged the panel to try to think of an entity that would not qualify under the government’s definition if it was owned or controlled by the government, regardless of its function. He looped back to the jury instructions and stated that the government’s definition at oral argument was not what was given in the jury instruction.
Funk spent a minute or so on the Brady issue and the dueling declarations of Haitian Prime Minister Jean Max Bellerive. Judge Martin asked how he could meet a Brady analysis since the initial declaration was obtained by a co-defendant and thus was not suppressed by the government. Funk did real well here. He said it is not the declaration but the content memorialized in it and “the answer to your question lies in the second Bellarive declaration the U.S. government obtained” which indicates “at least circumstantially that the U.S. government knew or should have known” that the by-laws were recently changed and the resultant problems with its expert’s testimony at trial.”
Simon again played off of Funk well, hitting on his rebuttal the irrefutable private ownership of Teleco and the subsequent murky ownership issues, noting the government’s own expert witness testified generally that “we don’t really know how the government came to own…maybe it was from debt…” “There is a level of confusion on the issue that should give us all pause.”
Judge Suhrheinrich ended by asking if the argument is not that the statute is vague? Simon responded “No, we choose our definition – a unit of government.”
How is the court going to formulate “the” definition of instrumentality, when the statute contains no definition, and there is as much ambiguity as reflected by the court’s questions?
[Paul Calli represented Patrick Joseph, a co-defendant in the Haiti Teleco case, after the government unsealed the indictment against him. Calli presented the Department of Justice with the first declaration from Haitian Prime Minister Jean Max Bellerive, in which Bellerive represented that Haiti Teleco “…had never been and until now is not a state enterprise. Since its formation to date, it has and remains a Company under common law.” After Calli provided the declaration, Joseph hired another lawyer. A review of the docket reflects that upon this lawyer entering the case, Calli withdrew virtually immediately from representing Joseph and that the other lawyer’s motion for admission pro hac vice into the United States District Court for the Southern District of Florida was denied. According to media reports, Joseph was then represented by a local Miami attorney and struck a cooperation deal. Media reports reflect that days after a local Miami paper leaked Joseph’s cooperation with U.S. authorities, his father, a former president of Haiti’s central bank under former Haitian President Jean-Bertrand Aristide, was shot and killed in the Haitian capital, Port-au-Prince. Joseph was subsequently sentenced to a year and a day in federal prison.]