A Focus on Korea
Today’s post is from Nathan McMurray (an attorney with Barun Law in Seoul, South Korea). In the post, McMurray discusses “Korea’s FCPA” and an important recent case in which the court held that the prosecution failed to meet its burden and prove beyond a reasonable doubt that China Eastern Airlines was a state owned enterprise, and, therefore, the president of the Korean subsidiary was a foreign public official. McMurray previously touched upon these issues on his Korea Law Today website (see here).
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Korea’s FCPA
In 1999, the Republic of Korea (South Korea) enacted the Act on Preventing Bribery of Foreign Public Officials in International Business (FPBA) (see here for the English translation). It is Korea’s version of the Foreign Corrupt Practices Act (FCPA). But unlike the FCPA, not many people gave much attention to the FPBA, at least until recently.
As Korea has taken steps to increase transparency and stamp out corruption, Korean prosecutors have started pursuing those who have allegedly violated the FPBA. In particular, in May, the Incheon District Court (Incheon is an important port city close to Seoul) heard a case involving two men who were charged with violating the FBPA. This was the first trial ever under the FPBA, but it is not likely to be the last.
Because of the sudden interest in the FPBA and the passage of the U.S. – Korea Free Trade Agreement, it seems like this is the right time to take a closer look at the act and at this recent case. Focusing first on the text of the act, you may notice that its long name belies its brevity. The FBPA is only a short five articles long (two pages).
What’s in the FPBA.
Article 1 summarizes the purpose of the act, namely “the establishment of sound practice in international business transactions” and “criminalizing the act of bribery of foreign public officials.” In other words, the act prevents you from bribing foreign public officials to gain an improper business advantage.
Article 2 defines the term “foreign public official.” Specifically, a foreign public official is any person who:
- is engaged in a legislative, administrative, or judicial work for a foreign government (including local government);
- conducts official business on authority delegated by a foreign government;
- conducts the business of a public organization or agency established by a foreign government to engage in a specific business;
- is an executive or employee of an enterprise into which a foreign government has contributed more than 50% of the paid-in-capital or a foreign government exercises substantial control over the management (not including enterprises that operate on a competitive basis in the private economy without preferential treatment); or
- conducts the business of a public international organization.
Article 3 specifically defines the crime under the FBPA. It says that any person (meaning a natural person) may be liable for offering a bribe to a foreign official in relation to their official business to gain an improper advantage for the conduct of international business. The penalty for the crime may be up to 5 years’ imprisonment and a fine of up to 20 million Korean Won (KRW). If the profit obtained through the offense exceeds 10 million KRW, the penalty may be higher: up to five years’ imprisonment and a fine of up to twice the amount of profit.
There are a few exceptions in Article 3, which are similar to the FCPA exceptions. Payments that are lawful under the law of the foreign public official’s home country are permitted as well as facilitation or grease payments used to speed up the process of obtaining something from a foreign official that a person is already entitled to receive, such as (depending on the circumstances) getting a utility turned on.
Article 4 addresses the responsibility of the company (legal person) for which the person offering the bribe either works or represents. The company may be subject to a fine of up to 1 billion KRW. If the profit obtained through the offence exceeds 500 million KRW, the fine may be up to twice the amount of the profit. But there is another exception, if a company has “paid due attention or exercised proper supervision to prevent the offence” (i.e., reasonable care), it can escape liability.
Article 5 says that the authorities can confiscate any bribe amount still in the possession of the person who committed an offence. There is also a short addendum to the FBPA that says it came into force at the same time as Korea’s OECD obligations under the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, which indicates when and how the FBPA was originally enacted.
What the Recent Case Teaches About the FPBA.
As referred to above, last year the Incheon Prosecutor’s Office charged two individuals with bribing a foreign public official under the FBPA. The president of the Korean subsidiary of China Eastern Airlines was offered the bribes. The two men charged were the president of a shipping company and the president of a travel agency. The shipping company president wanted more favorable rates, and the travel company president wanted China Eastern Airlines to assign it more tickets for sale.
A key issue in the case was whether the Korean president of China Eastern Airlines was a “foreign official” under Article 2 of the FBPA. The prosecution argued the government of the People’s Republic of China controls China Eastern Airlines. Apparently, the key evidence it offered for this claim was certain documents linking China Eastern Airlines to the Chinese government. The defense used employee testimony to challenge the truth, accuracy, and relevance of the documents.
The court held that the prosecution failed to meet its burden and prove beyond a reasonable doubt (or more precisely the Korean equivalent, which is the relevant standard in criminal trials in Korea) that China Eastern Airlines was a state owned enterprise, and, therefore, the president of the Korean subsidiary was a foreign public official. The court based its reasoning in part on the exception in Article 2 of the FBPA regarding enterprises that operate on a competitive basis in the private economy without preferential treatment.
The Ruling and Its Aftermath.
Because the prosecution was unable to prove that the president of China Eastern Airlines was a foreign public official, the two men were found not guilty under the FBPA. But unfortunately for all three men, they were found guilty of bribery under Article 357 of the Korean Criminal Code. The prosecutors, perhaps looking to establish a precedent, have appealed the court’s ruling on the FBPA charges.
This was a test case involving small companies and a prosecution team that seemed unprepared to prove a key element of the crime. But as we await the appeal and anticipate additional cases, what seems clear is that this once overlooked law is not going vanish into obscurity once again.
Many in the business community here are uncomfortable about where this may eventually lead. Korea is an exporting nation with limited natural resources. Major Korean companies (chaebols) have invested in nearly every corner of the world. You cannot help but wonder if Korean prosecutors are contemplating eventually applying the FPBA to these big fish, rather than smalltime operators looking for petty favors and extra tickets.
Also, it is unclear why in the China Eastern Airlines case the prosecution decided to focus on the individuals only and not the companies involved. Does their decision mean that the reasonable care exception for company liability applied, that the two companies were simply too small to focus on, or that the prosecution was concerned that the applying the FBPA to the companies would not withstand court scrutiny for some other reason? We can only speculate.
About Korean Court Precedents.
This post was produced with the help of my Korean colleagues, and the information about the court case summarized above was obtained from publically available sources. The case, however, was never officially published by the court, so we cannot verify all of the facts. Indeed, only Supreme Court cases are regular published in Korea. Lower court cases are sometimes published, but not always. This is in part because Korea is a civil law country. So although court precedent is an important source of law, it is still not treated the same way as it is in the U.S or other common law countries.
Still, court precedents are increasingly important to lawyers trying to understand the application of law. The courts have an internal record keeping system, and there are legal databases like West Law or Lexis Nexis in Korean. The website www.scourt.gov.kr is run by the Korean Supreme Court and is considered official. The site www.lawnb.com is a commercial reporter that provides more data than the official site. You can read more about this and many other issues in English on my blog at www.korealawtoday.com.
“Foreign Official” Is A “Significant Claim of First Impression” Not Merely An “Academic Discussion”
It is tough to distill the logic of this post yesterday on the FCPA Blog.
Of course, as stated in the post, “putting any law to the test … always requires ‘putting human beings through the trial and error of our criminal justice system.'” This is to state the obvious. But to question challenging (in the absence of any case law of precedent) a key element of the most important U.S. law governing international business transactions – and in the process advancing false information regarding FCPA enforcement – is off-base.
The FCPA Blog states as follows. “Other FCPA defendants have gone to trial and won. That’s a sign of health in our criminal justice system. But — and here’s our point today — those victorious defendants always won on grounds other than defects in the FCPA itself.”
“Always won on grounds other than defects in the FCPA itself?”
When a judge grants a motion to dismiss or a motion for acquittal or when a jury returns a not guilty verdict or fails to reach a verdict, by definition the judge or jury has concluded that the DOJ has not satisfied its burden of proof as to the FCPA elements. In the Africa Sting case alone, Judge Leon (as noted in this prior post) dismissed charges against a defendant under 78dd-3 and called the DOJ’s position “novel.” Also in the Africa Sting case and as demonstrated by this prior post from the jury foreman, one defendant – in the eyes of most of the jurors – was “clearly innocent” and the jury had significant concerns with the corrupt intent element as to the other defendants found not guilty or on which the jury failed to reach a verdict.
As noted in this prior post, the scorecard when an enforcement agency is put to its burden of proof on the enforcement theory that payments outside the context of foreign government procurement fall under the FCPA’s anti-bribery provisions is: US – 1; Defendants – 3; or if you prefer US – .5; Defendants – 3.5 (recognizing that the 5th Circuit decision in Kay is equivocal). As noted in this previous post, several other FCPA defendants have prevailed when putting the enforcement agencies to their burden of proof.
And it is not just individual FCPA defendants who have prevailed in trials when putting the DOJ to its burden of proof. Dismiss the Lindsey Manufacturing end-result if you like given that Judge Matz threw out the case on prosecutorial misconduct grounds (see here for the prior post). However, as noted in this prior post, in the other only apparent instance in FCPA history of a corporate defendant putting the DOJ to its burden of proof, Harris Corp. (and certain of its executives) prevailed when the judge granted their motion of acquittal after the DOJ’s case. As noted in the prior post, the judge reportedly stated that the DOJ failed to show any intent by the defendants to enter into a criminal conspiracy.
In short, while I have respect for the FCPA Blog and much of its writing, it is just plain wrong to assert that “victorious [FCPA] defendants always won on grounds other than defects in the FCPA itself.”
Sure, challenging the DOJ and testing one’s innocence (see here for the prior post) involves an element of risk and can impact real lives. But is the answer – as the FCPA Blog seems to advance – for FCPA individual defendants (like the vast majority of corporate defendants) to roll over and play dead regardless of the intent of Congress (the law maker) in passing the FCPA? If your answer is yes, I submit that answer leads to broader harm and more significant policy concerns than specific individuals testing innocence claims.
The FCPA Blog is similarly off-base when it stated, not once but twice in the past few days (see here and here) that in the Carson case Judge Selna “found” that neither side could support its position about foreign officials in the FCPA’s legislative history. The FCPA Blog is correct that Judge Selna in his ruling (see here) declined to review the FCPA’s legislative history. However, the FCPA Blog then states that Judge Selna “in a footnote [said] that neither the DOJ nor the defendants could point to any quotes in the legislative history that supported their arguments.”
The relevant footnote (13) states as follows.
“Defendants include a comprehensive review of the legislative history of the FCPA with their motion. (See Decl. of Prof.Michael J. Koehler, Feb. 2, 2011, ECF No. 305.) The Government argues that “nowhere in the vast review of legislative history can the defendants point to a single quote that supports the position that the FCPA should not apply to employees of [state-ownedenterprises].” (Opp’n at 35.) Defendants reply that “the inverse is equally true, that is, the Government ‘cannot point to a singlequote’ from a member of Congress that supports the position that the FCPA should apply to employees of [state-owned enterprises] (Reply at 17).”
Where in this footnote is there a judicial finding?
Yesterday’s FCPA Blog post concludes as follows.
“How will the 11th Circuit rule when it becomes the first appellate court to consider who’s a ‘foreign official’ under the FCPA? No one knows. But Esquenazi and Rodriguez face long odds. Few federal criminal defendants win on appeal — only about 5%. There’s no existing appellate record that points to potential success. And there’s nothing from any FCPA trial to give Esquenazi and Rodriguez (or any other defendants) much hope of winning on the ‘foreign official’ question. Maybe they’ll somehow beat the odds. We hope that happens. Not because we believe the FCPA is defective. But because Esquenazi and Rodriguez are more than part of an academic discussion about who’s a ‘foreign official.’ They’re real human beings.”
I will conclude as follows.
“There’s nothing from any FCPA trial to give Esquenazi and Rodriguez (or any other defendants) much hope of winning on the ‘foreign official’ question.”?
Perhaps the FCPA Blog is unaware (as noted in this prior post) that in the Carson “foreign official” challenge, Judge Selna issued an order (here) regarding certain jury instructions including “knowledge of status of foreign official” in which he instructed as follows – “the payment or gift at issue … was to (a) a person the defendant knew or believed was a foreign official or (b) any person and the defendant knew that all or a portion of such money or thing of value would be offered, given, or promised (directly or indirectly) to a person the defendant knew or believed to be a foreign official. Belief that an individual was a foreign official does not satisfy this element if the individual was not in fact a foreign official.” Prior to the Carson “foreign official” challenge, I don’t believe that jury instruction (or anything close to it) had ever been given.
Perhaps the FCPA Blog overlooked the transcripts in the O’Shea trial in which Judge Hughes (as will be explored in a future post) allowed evidentiary testimony as to the nature and status of the Mexican entity at issue in the case and incorporated OECD Commentary 15 issues into the jury instructions. After the testimony, Judge Hughes stated as follows. “The Government can’t say the Convention is part of American law; but when we don’t like it, we are going to ignore it. It has to bind the Government, or it can’t.” Prior to the O’Shea “foreign official” challenge, I don’t believe that a Judge ever incorporated OECD Commentary 15 issues into a jury instruction.
[Commentaries 14 and 15 to the OECD Convention are set forth below.
14. A “public enterprise” is any enterprise, regardless of its legal form, over which a government, or governments, may, directly or indirectly, exercise a dominant influence. This is deemed to be the case, inter alia, when the government or governments hold the majority of the enterprise‟s subscribed capital, control the majority of votes attaching to shares issued by the enterprise or can appoint a majority of the members of the enterprise‟s administrative or managerial body or supervisory board.
15. An official of a public enterprise shall be deemed to perform a public function unless the enterprise operates on a normal commercial basis in the relevant market,i.e., on a basis which is substantially equivalent to that of a private enterprise, without preferential subsidies or other privileges.]
As the academic who has been most vocal on the “foreign official” issue in my writing, scholarship and in my “foreign official” declaration (here), I have raised this issue precisely because it is affecting real human beings. One can only assume that various members of Congress (from both parties) have raised questions about the “foreign official” issue not because Congress occupies itself with “academic discussions,” but because Congress is concerned about how law enforcement affects real human beings.
Moreover, the implicit suggestion from the FCPA Blog post that real human beings are being used as pawns in an “academic discussion” ignores the obvious fact that those real human beings who have challenged the DOJ’s position on “foreign official” have engaged real lawyers who have real fiduciary duties to their real clients and that those real lawyers and their real clients are the ones making the real decisions as to litigation strategy.
“Foreign official” as an “academic discussion”?
Apparently not in a joint motion filed earlier this week by the defendants and the DOJ in the Haiti Teleco appeal in which the parties jointly request additional time for briefing. The joint motion says that the foreign official issue is a “significant claim of first impression.”
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.”
Historic “Foreign Official” Appeals Filed
For the first time in FCPA history, “foreign official” is headed to an appellate court.
Yesterday, Carlos Rodriguez and Joel Esquenazi filed appeals (here) and (here) in the 11th Circuit challenging their convictions. As noted in this previous post, in August 2011 a federal jury (after a two week trial) convicted Esquenazi and Rodriguez on all counts for their roles in a scheme to pay bribes to alleged Haitian officials at Haiti Telecom. In the prior post discussing the verdict, I noted that given the “foreign official” jury instructions at trial, the defendants have a good chance to challenge the instruction on appeal should they so choose. This was before the strange developments concerning the existence of Haiti Teleco – see here, here and here for prior posts.
As noted in this DOJ release announcing the jury verdict, Esquenazi and Rodriguez were convicted of one count of conspiracy to violate the FCPA and wire fraud; seven counts of FCPA violations; one count of money laundering conspiracy; and 12 counts of money laundering. In October 2011, Esquenazi was sentenced to an FCPA record 15 years in prison and Rodriguez was sentenced to 7 years in prison – see here for the prior post.
The remainder of this post summarizes the initial briefs of Rodriguez and Esquenazi.
Rodriguez Brief
Representing Rodriguez in his appeal are Foley & Lardner attorneys David Simon (here), Michael Halfenger (here), James Cirincione (here), Pamela Johnson (here), Jaime Guerrero (here), Kenneth Winer (here), and Lauren Valiente (here).
The brief presents the following issues.
“1. Whether the District Court erred as a matter of law in its jury instruction regarding what constitutes an “instrumentality” of a foreign government for purposes of construing the counts, including the money laundering counts, that were dependent upon the Foreign Corrupt Practices Act (“FCPA”).
2. Whether the District Court abused its discretion when it refused to hold an evidentiary hearing concerning the circumstances and history regarding a declaration from the current Haitian Minister of Justice that stated that Telecommunications D’Haiti (“Teleco”) was not an “instrumentality” of the Haitian government that the Government turned over just after the jury’s verdict followed by a second declaration that the United States Government was involved in procuring that reversed the first declaration, which contained clear exculpatory evidence .
3. Whether the District Court erred as a matter of law in its “knowledge” jury instruction regarding the FCPA-dependent counts, including the money laundering counts.
4. Whether there was sufficient evidence to support jury’s verdicts as to the FCPA counts.
5. Whether the District Court plainly erred when it submitted the wire fraud-dependent counts, including the money laundering counts, to the jury based on an erroneous jury instruction that failed to require proof that of the jurisdictional facts necessary for federal wire fraud, that is that the wire communications crossed state lines (i.e., inter-state communications).
6. Whether the District Court plainly erred in its mens rea instruction to the jury regarding the wire fraud-dependent counts, including the money laundering counts, because the jury was not asked to find intent to defraud for the wire fraud-dependent counts.
7. Whether there was sufficient evidence to support the jury’s verdicts as to the wire fraud-dependent counts.
8. Whether the Government’s attempt to change the basis of its wire fraud theory from wire transfers to facsimiles constitutes an impermissible variance from its initial theory of the case.
9. Whether the District Court erred as a matter of law in its jury instruction of what constituted a violation of the Haitian bribery law as proper predicate for the money laundering counts.
10. Whether the District Court abused its discretion in not granting a motion to dismiss the money laundering counts where the “proceeds” of the predicate crimes were the same transfers of money that were charged as the money laundering transactions, thereby violating the merger rule, and whether there was sufficient evidence to support jury’s verdicts as to the money laundering counts for the same reason.
11. Whether Mr. Rodriguez’s sentence must be vacated.
12. Whether the forfeiture order and the forfeiture aspect of the amended judgment and commitment order must be vacated because the oral sentence pronounced by the District Court did not order forfeiture.”
In summary, the brief argues as follows (internal citations omitted).
“1. The District Court abused its discretion by refusing to charge the jury using Mr. Rodriguez’s proposed instructions as to the terms “foreign official” and “instrumentality.” The interpretation of these terms under the FCPA is an issue of first impression in this Court. However, the District Court’s instructions conflict with this Court’s existing precedent. The District Court instructed the jury that an instrumentality of the Haitian government “is a means or agency through which a function of the foreign government is accomplished.” This Court explicitly rejected such a definition while interpreting another statute that contains the term “instrumentality” in a virtually identical statutory context. Addressing whether a private corporation that operated a prison system on behalf of the State of Florida was an “instrumentality of a state,” this Court held that the term “instrumentality of a state” referred to “governmental units or units created by them,” and rejected the functionality test incorporated into the instructions given by the District Court.. Mr. Rodriguez’s proposed instructions were consistent with this Court’s precedent. Because this Court rejected the functionality test in the context of another statute, the District Court abused its discretion by giving such an instruction in this case, in which Mr. Rodriguez may lose his liberty for seven years.
2. The District Court abused its discretion by denying Mr. Rodriguez’s motion for an evidentiary hearing regarding two contradictory declarations executed by Jean Max Bellerive, the Minister of Justice and Public Safety for Haiti (the Haitian government’s analog to the United States Attorney General). During the course of Mr. Rodriguez’s trial, Bellerive signed a declaration stating that Teleco “has never been and until now is not a State enterprise. Since its formation to date, it has and remains a Company under common law.” The Government disclosed this declaration five days after Mr. Rodriguez had been convicted. In opposing Mr. Rodriguez’s motion for an evidentiary hearing, the Government produced a second declaration signed by Bellerive that “clarified”several of the declarations key statements about Teleco’s status under Haitian law. The United States government substantially assisted the Minister in preparing the second, “clarifying” declaration. Despite the confusion created by the conflicting declarations, the District Court declined to hold an evidentiary hearing on the potential Brady issues posed by these events. That was an abuse of discretion.
3. The District Court also abused its discretion by rejecting Mr. Rodriguez’s requested jury instructions as to the “knowledge” requirement of the FCPA and by giving a deliberate ignorance instruction with no basis in the evidence.
4. The District Court erred by denying Mr. Rodriguez’s motion for acquittal, because the evidence is insufficient to support the jury’s determination that Teleco was an “instrumentality” of the Haitian government under the FCPA, and because no evidence was admitted at trial establishing that Teleco performed a function of the Haitian government.
5. The District Court erred by denying Mr. Rodriguez’s motion for acquittal based on the insufficiency of the evidence. Most of the trial testimony centered on Mr. Rodriguez’s co-defendant, Esquenazi, who had been the CEO of the small telecommunications company at issue here. He, not Mr. Rodriguez, had direct contacts with Haitian citizens. The Government’s evidence against Mr. Rodriguez amounted to the fact that he signed Terra’s checks and Terra’s former Comptroller, Perez, thought Mr. Rodriguez was in one meeting where bribes were discussed. Perez’s testimony was uncorroborated, contradicted by his earlier statements to the Government, and inherently unreliable. The evidence is insufficient to support the jury’s verdict that Mr. Rodriguez conspired to violate any federal law.
6. The District Court erroneously instructed the jury as to the jurisdictional element for the interstate wire fraud communication counts and the elements of money laundering, because the jury was not instructed that the wires must cross state lines, and the jury was not instructed that Government had to prove that the proceeds of the specified unlawful activity resulted from a felony under Haitian law to support a money laundering conviction.
7. The evidence does not support the jury’s determination that Mr. Rodriguez committed wire fraud, because there is no evidence that any interstate wires were sent. The District Court evidence adduced at trial does not support the jury’s verdict as to any count of conviction, even when the evidence is construed in favor of the Government.
8. Finally, the District Court’s Amended Judgment and Commitment Order imposed an invalid sentence by including forfeiture because the District Court did not announce an order of forfeiture as part of Mr. Rodriguez’s orallyimposed sentence.”
Esquenazi Brief
Representing Esquenazi in his appeal are Perkins Coie attorneys Markus Funk (here) and Michael Sink (here) and Michael Rosen (Michael Rosen P.A.).
Esquenazi adopted portions of co-appellant Rodriguez’s brief relating to the FCPA, intra-state wire fraud issues, and the Haitian bribery and in addition the brief presents the following issues.
1. “Whether the district court erred by refusing to conduct an evidentiary hearing on Brady issues.”
2. “Whether Esquenazi is entitled to an acquittal because employees of Haiti Teleco were not “foreign officials” within the meaning of FCPA simply because the National Bank of Haiti owned shares of Haiti Teleco and the Haitian government appoints board members and directors.”
3. “Whether the FCPA jury instructions adequately conveyed the requisite governmental function necessary to establish that Haiti Teleco was an “instrumentality” of the Haitian government and Esquenazi’s knowledge of the same.”
4. “Whether the district court erred by improperly applying the sentencing guidelines as to leadership role, perjury and loss amount.”
In summary, the brief argues as follows (internal citations omitted).
“Although the FCPA is aimed at corrupt payments made to “foreign officials,” the Government never established that Haiti Teleco performed government functions similar to a governmental department or agency, such that Haiti Teleco’s employees would qualify as “foreign officials.” Instead, the Government relied on the National Bank of Haiti’s ownership of stock in Haiti Teleco and the Haitian government’s appointment board members and directors. Six days after the jury reached its verdict, however, the Government disclosed the existence of a declaration from the then-current Prime Minister of Haiti, Jean Max Bellerive, prepared ten days prior to the case going to the jury. The declaration stated that Haiti Teleco “has never been and is not a State enterprise,” and that the by-laws of the company had never been changed as required by law to make Haiti Teleco a government-owned entity.
Under Brady v. Maryland, the Government has an affirmative obligation under the Due Process Clause of the Fifth Amendment to “learn of any favorable evidence known to others acting on the government’s behalf in the case” and disclose any potentially exculpatory evidence to the defendant. Esquenazi requested a Brady hearing to determine if and when the Government knew of the contents of this critical declaration. The district court erred in refusing to hold an evidentiary hearing under the circumstances.
Esquenazi is also entitled to an acquittal on all FCPA-based counts because the term “instrumentality” in the FCPA should be construed to encompass only foreign entities performing governmental functions similar to departments or agencies. Here, the Government failed to establish that Haiti Teleco performed a governmental function. Despite the Government’s continued reliance on the premise that state-ownership or state-control of a business entity makes that entity and “instrumentality” of the government under the FCPA, that theory was explicitly considered by the drafters of the FCPA, but not included in the statute, and is inconsistent with the language of the statute as drafted. Because so many individuals and companies prosecuted by the Government prefer to resolve their cases prior to trial, the validity of the Government’s theory has seldom been tested in court, and never before by a United States Court of Appeals. This case presents an opportunity to review the Government’s aggressive enforcement of a less-than-clear federal statute and properly limit its scope to corrupt payments made to “foreign officials,” including employees of “instrumentalities” that perform governmental functions similar to governmental departments and agencies.
Esquenazi is also entitled to an acquittal or a new trial because the jury instructions failed to require that the jury determine whether Haiti Teleco ever exercised a government function akin to a department or agency, or even define “governmental function.” Because the jury could have reached its verdict without any consideration of the function of Haiti Teleco, the jury instructions were deficient.
Finally, the district court improperly calculated Esquenazi’s sentence. Esquenazi’s leadership role should have been that of an organizer or manager rather than a leader. Further, his enhanced sentence for perjury was improper both as to the substance of the district court’s findings and the procedure by which it made the determination.”
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.”
*****
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.