Lindsey Defendants Move to Strike State Department “Foreign Official” Declaration *UPDATE* Judge Strikes State Department Declaration
Monday’s post (here) detailed the recent declaration by Clifton Johnson, Assistant Legal Adviser for Law Enforcement and Intelligence in the Legal Adviser’s Office of the United States Department of State in the Lindsey “foreign official” challenge pending in the Central District of California.
The Lindsey defendants have moved (here) to strike the State Department declaration. Among other arguments made, the Lindsey defendants state as follows.
“The opinion of one employee of the Department of State, or even of the Department of State as a whole, on the terms of the Convention and what the treaty required of the United States, as well as the meaning of the FCPA, a United States criminal statute, has no bearing on the matter before the Court. In any event, it is the job of the federal courts, not the executive branch, to be the final arbiter of what the FCPA actually provides. See generally Marbury v. Madison, 1 Cranch 137, 177 (1803) (“It is emphatically the province and duty of the judicial department to say what the law is.”).”
“On the other hand, the foreign policy implications of a particular interpretation, and how to deal with them, are the business of Congress and the President to address. Mr. Johnson’s suggestion to this Court to decide foreign policy is inappropriate. Courts concern themselves with the interpretation of the law as written. Congress is perfectly capable of amending the statute if it decides it is necessary to do so in light of a court’s decision. See generally McNally v. United States, 483 U.S. 350, 360 (1987) superseded by statute, Anti-Drug Abuse Act of 1988, Pub. L. No. 100-690, 102 Stat. 4181 (“If Congress desires to go further, it must speak more clearly.”).”
Alternatively, the Lindsey defendants argue that if the Court is inclinded to consider the State Department declaration, that it should order Mr. Johnson to appear at the March 24th motion hearing. As noted in an exhibit to the motion to strike, the DOJ has stated that it “will not voluntarily produce Mr. Johnson as a witness at that hearing.”
*UPDATED*
In an order yesterday, presiding judge Howard Matz ordered (here) the State Department declaration be stricken.
For additional coverage see here.
State Department Declaration in Lindsey “Foreign Official” Challenge
In its opposition brief (here) in the Lindsey “foreign official” challenge, the DOJ states at footnote 5:
“If this Court were to interpret the FCPA in such a way that officials of state-owned and state-controlled enterprises could not be foreign officials, the United States would be out of compliance with its treaty obligations under the OECD Convention. The government has requested a declaration from the State Department confirming this assessment and explaining its implications for U.S. foreign policy. Given the short response period, the declaration could not be finalized, but the government will endeavor to secure the declaration before argument on this motion and will file it if and when it is received.”
Last Friday, the DOJ filed a declaration by Clifton Johnson, Assistant Legal Adviser for Law Enforcement and Intelligence in the Legal Adviser’s Office of the United States Department of State – see here.
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Readers may also be interested in reviewing the OECD Convention (here) including commentary 15; a previous post (here) on the OECD Convention and U.S. positions; and a previous post (here) on how another OECD signatory country views the term “foreign public official.”
“Foreign Official” Issue Fully Briefed in Lindsey Matter
Yesterday, Lindsey Manufacturing Company, Keith Lindsey, and Steve Lee – defendants in an FCPA case pending in the Central District of California – filed a reply brief (here) to the DOJ’s opposition to defendants’ motion to dismiss challenging the DOJ’s interpretation that employees of alleged state-owned or state-controlled enterprises are “foreign officials” under the FCPA.
See here for the prior post on the defendants’ motion to dismiss.
See here for the prior post on the DOJ’s opposition brief.
Other “foreign official” challenges pending (although not as far along in terms of briefing) include the Carson matter (also in the C.D. of California – see here) and the O’Shea matter (in the S.D. of Texas – see here).
Prosecutorial Common Law
A guest post today from Michael Levy (see here), co-chair of the White Collar Investigations and Enforcement Group at Bingham McCutchen. Levy, a former Assistant United States Attorney in the District of Columbia and law clerk to U.S. Supreme Court Justice Lewis F. Powell Jr., expounds on what he has called “prosecutorial common law” (see here for the recent Corporate Crime Reporter article).
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We have seen this movie before, and it ends with the government’s interpretation of a federal criminal statute knocked down, 9-0, by the United States Supreme Court.
Prosecutors don’t set out deliberately to interpret criminal statutes in ways that convict hundreds of people on the basis of a standard that not a single Supreme Court Justice finds supportable, but it has happened already and may well happen again in the context of the Foreign Corrupt Practices Act because of a phenomenon I’ve referred to for a number of years as “prosecutorial common law” (see here).
There are no law school classes or scholarly papers on prosecutorial common law, yet it governs, as a practical matter, an enormous amount of the daily life of the criminal justice system in white collar cases. Prosecutorial common law can be thought of as the “common law of settlement.” In areas, such as complex white collar crime, in which prospective defendants either are highly unlikely to challenge the government in court (e.g., corporations) or highly unlikely to have both the fortitude and the personal wealth or strong support of another entity advancing fees to be able to challenge the government thoroughly and completely (e.g., most individuals), almost all cases are settled.
But settling cases creates very different incentives for the two sides. The government has a long-term interest in developing the law because it is charged with enforcing that law not just against the settling party, but also against other parties in the future. Thus, the government has a strong institutional interest in pushing ever more aggressive interpretations of the governing criminal statute. On the other hand, the defendant, whether a corporation or an individual, is not particularly concerned about the scope of the statute as it might be applied to others in the future. The defendant wants the least possible punishment, right now.
So, in many white collar cases, the government pushes hard for the defendant to plead guilty pursuant to expansive interpretations of a statute’s jurisdiction and/or scope of liability, and defendants readily accept those interpretations in exchange for what they perceive to be the lowest available penalty.
But what happens next?
In the absence of much decided case law in the area — because so many defendants strike plea agreements rather than litigating their cases — prosecutors start to believe that the law means whatever they have been able to get defendants to agree to in earlier plea agreements. After all, they reason (ignoring the parties’ different interests in settlements), “Why would Global MegaCorp have agreed to plead guilty on this very same theory of liability if it didn’t believe that (1) we had jurisdiction and (2) the conduct clearly violated the criminal statute?”
And when the next case comes around, the government stretches the theory of liability or jurisdiction a little bit further. Again, nobody sets out to develop a statutory interpretation that goes beyond what any Supreme Court Justice would conclude was intended by Congress, but that is consistently what winds up happening because prosecutors (rather than judges) and settlements (rather than well-reasoned judicial opinions) wind up creating the “common law” that prosecutors use to interpret these statutes.
We have seen this before in connection with the interpretation of the honest services fraud and obstruction of justice statutes, and it is certainly happening today with the FCPA. In the honest services context, prosecutors pressured numerous employees to plead guilty to committing or conspiring to commit honest services fraud (18 U.S.C. § 1346) even though they did not personally benefit from the alleged fraud and, indeed, acted at the direction of their corporation’s management. See, e.g., United States v. Calger, No. 05-286 (S.D. Tex. July 13, 2005). So, for the Department of Justice, honest services fraud clearly prohibited such conduct — after all, people had agreed to go to jail under that theory. It took very well-financed and steadfast individuals — Jeffrey Skilling and Conrad Black — both of whom lost in the trial court and the Court of Appeals, to challenge DOJ’s interpretation all the way to the Supreme Court. And, when the Supreme Court looked at the interpretation DOJ over time had come to take for granted, it ruled 9-0that such an expansive interpretation of the statute would render honest services fraud unconstitutional and emphatically rejected the government’s interpretation.
Likewise, DOJ used its own expansive interpretation of the scope of liability for obstruction of justice under 18 U.S.C. § 1512(b) to put Arthur Andersen out of business and thousands of its employees out of work. Yet, once again, when that statutory interpretation was put to the test of nine Supreme Court Justices — rather than a single, scared defendant willing to settle at almost any cost — all nine Justices flatly rejected the government’s interpretation of the statute.
By now, you see where I’m going with this.
Notwithstanding the Andersen and Skilling warning signs, prosecutorial common law appears to be alive and well and indeed thriving in the FCPA context. For example, the government has persuaded a number of corporations and individuals to admit liability under the FCPA for bribing a foreign official even though that official was not employed by the government but was merely an employee of a company in which the government held a financial interest. United States v. Control Components Inc., No. 09-00162 (C.D. Cal. 2009) (“foreign officials” were employees of state-owned companies in China, South Korea, Malaysia, and the United Arab Emirates); United States v. Lindsey Mfg., No. 10-1031 (A)-AHM (S.D. Tex. 2010) (“foreign officials” were employees of a Mexican state-owned entity); United States v. ABB Inc., No. H-10-664 (S.D. Tex. 2010) (same). In recent years, corporations even have settled FCPA enforcement actions with DOJ and the SEC premised on alleged corrupt payments made to employees of business enterprises that were only minority-owned by a foreign government. See, e.g., United States v. Kellogg Brown & Root LLC, No. H-09-071 (S.D. Tex. 2009); United States v. Alcatel-Lucent, S.A., Crim. No. 10-20907 (S.D. Fla. 2010).
Similarly, DOJ also has used prosecutorial common law to stretch the purported reach of the FCPA’s jurisdiction. For example, a foreign company or person is subject to the antibribery provisions of the FCPA if it causes, directly or through agents, an act in furtherance of the corrupt payment to take place “while in the territory of the United States.” See 15 U.S.C. § 78dd-3(a). Although this section has not yet been interpreted by any court, DOJ has persuaded significant foreign companies to settle FCPA cases on the theory that this provision confers jurisdiction whenever a foreign company or person causes any act to be done within the territory of the United States, by any person acting as that company’s or person’s agent. See United States v. SSI Int’l Far East Ltd., No. 06-CR-398 (D. Or. Oct. 10, 2006) (only link to the United States was a request to approve a wire transfer submitted to an affiliate’s office in Portland, Oregon).
Because the stakes of corporate prosecution are so high, because the abilities of most individuals to challenge the government are so limited, and because DOJ and the SEC want to pursue ever more aggressive interpretations of the scope of both liability and jurisdiction, we see an enormous number of FCPA cases settled on grounds that are mutually beneficial to the government and the particular settling defendants. The defendants get certainty and what they perceive to be a lesser penalty; the government gets a major international corporation or other defendant to agree that the FCPA means what DOJ and the SEC want it to mean — and the government then can point to that agreement when negotiating with the next defendant.
When the government for many years, for almost every prospective defendant, for all practical purposes, uses plea negotiations to develop prosecutorial common law, it erodes the ability of the judiciary to do its job and skews the balance of power in the criminal justice system heavily in favor of prosecutors and away from defendants and the courts. Nevertheless, at some point, at some time, one or more well-funded, steadfast defendants will rise up and aggressively challenge the government’s interpretations of the FCPA. Indeed, some defendants finally are testing DOJ’s interpretation of ‘foreign official’ in the courts. See Motion to Dismiss, United States v. Carson, No. 09-00077-JVS (C.D. Cal. Feb. 21, 2011); Motion to Dismiss, United States v. Lindsey Mfg., No. 10-1031(A)-AHM (S.D. Tex. Feb. 28, 2011); Motion to Dismiss, United States v. O’Shea, No. H-09-629 (S.D. Tex. Mar. 7, 2011). At some point, someone will take one of these statutory or constitutional challenges to the FCPA all the way to the Supreme Court.
We know how this movie will end. We’ve seen it before. The Supreme Court will reject the government’s expansive interpretation of the FCPA. The well-funded indefatigable defendant ultimately will prevail.
But how many other defendants, for how long, will spend how many years in jail or pay how many millions of dollars in fines before that day comes?
DOJ Files “Foreign Official” Opposition Brief In Lindsey Matter
Yesterday, the DOJ filed its opposition brief (here) in the Lindsey matter pending in the C.D. of California.
As noted in this prior post, the defendants filed a motion to dismiss challenging the DOJ’s interpretation that employees of alleged state-owned or state-controlled enterprises are “foreign officials” under the FCPA.
Other “foreign official” challenges pending include the Carson matter (also in the C.D. of California – see here) and the O’Shea matter (in the S.D. of Texas – see here).