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In An FCPA Issue Of First Impression, Judge Rules That Separate E-mails In Furtherance Of The Same Alleged Bribery Scheme Are Separate “Units Of Prosecution”

McNulty

As highlighted in this prior post, in connection with the Cognizant Technology Solutions Foreign Corrupt Practices Act enforcement action concerning obtaining various permits in India, the DOJ (and SEC) also charged Gordon Coburn (former President and CFO of the company) and Steven Schwartz (former Executive Vice President and Chief Legal and Corporate Affairs Officer) with various FCPA offenses.

Coburn and Schwartz are putting the government to its burden of proof and recently U.S. District Court Judge Kevin McNulty (D.N.J. – pictured) denied the defendants’ motion to dismiss. (See here). In doing so, the judge ruled on an FCPA issue of first impression – that being what is the appropriate “unit of prosecution” under the FCPA’s anti-bribery provisions. As discussed below, the judge concluded that separate e-mails – even if in connection with the same alleged bribery scheme – constitute separate violations of the FCPA’s anti-bribery provisions.

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Issues To Consider From The Panasonic Enforcement Action

Issues

This prior post went in-depth into the $280 million Foreign Corrupt Practices Act enforcement action against Japan-based Panasonic Corp.  and a U.S. subsidiary Panasonic Avionics Corp. (PAC).

This post continues the analysis by highlighting additional issues to consider.

Timeline

As highlighted in this prior post, Panasonic’s FCPA scrutiny appears to have begun in early 2013. Thus from start to finish, the company’s FCPA scrutiny lasted approximately 5.5 years.

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Once Upon A Time, The DOJ Did Specifically Identify “Foreign Officials” And Rep. Ros-Lehtinen Is Miffed That It Doesn’t Now

Ros

There are several material differences between how the DOJ enforces the Foreign Corrupt Practices Act in the modern era compared to the past.

For instances, as highlighted in this previous post, in the modern era the vast majority of corporate FCPA enforcement actions do not result in related individual charges against company employees. Between 1977 – 2004, the exact opposite was true – most corporate FCPA enforcement actions did result in related individual charges.

For most of the FCPA’s history, the DOJ either charged a business organization suspected of FCPA violations with an offense or did not charge the organization. In the modern era, the DOJ has created a buffet of options (non-prosecution agreements, deferred prosecution agreements) and added “declinations with disgorgements” to the buffet line in September 2016 (see here for the prior post).

As highlighted in this post, for many years the DOJ specifically identified “foreign officials” implicated in an FCPA enforcement action. However, in the modern era of FCPA enforcement the DOJ does not and Rep. Ileana Ros-Lehtinen (R-FL)(pictured) is rightfully miffed.

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Worth Noting From Canada’s First CFPOA Decision

This previous guest post highlighted Canada’s first individual conviction for a bribery offense under the Corruption of Foreign Public Officials Act (“CFPOA”), including the specific facts in the action against Nazir Karigar.

Given the general dearth of Foreign Corrupt Practices Act case law, you ought to have the urge to digest any form of judicial scrutiny of “FCPA-like” cases and the judicial opinion in the Nazir Karigar case makes for an interesting and worthwhile read.

For starters, the judge found that Air India officials were “foreign public officials” under the CFPOA.

This is hardly surprising.

Why?

Because the CFPOA, unlike the FCPA, defines the targeted recipient category, in pertinent part, as follows.

“a person who performs public duties or functions for a foreign state, including a person employed by a board, commission, corporation or other body or authority that is established to perform a duty or function on behalf of the foreign state, or is performing such a duty or function”

As noted in my “foreign official” declaration (which has been cited by the defense in the pending 11th Circuit “foreign official” appeal in the Joel Esquenazi and Carlos Rodriguez action), despite being aware of state-owned enterprises (SOEs) during the FCPA’s legislative process, despite exhibiting a capability for drafting a foreign official definition that expressly included SOEs in other bills, and despite being provided a more precise way to describe SOEs during the legislative process, Congress chose not to include such definitions or concepts in FCPA.

Back to the Karigar decision.

The first take-away point is that the bribery attempt was unsuccessful in that the contract at issue was never awarded.  There have been FCPA enforcement actions consistent with this theory as well.  (See, among other actions, the 2005 FCPA enforcement action against Monsanto – here and here).

A disputed legal issue in Karigar was whether the prosecution needed to prove that the actual bribes were paid and the specific identity of the foreign public officials allegedly bribed.  Summarizing the argument of defense counsel, the opinion states:

“[I]n the submission of counsel for the accused, [counsel argues] that the court cannot know whether any foreign public official was actually offered or received a bribe or other inducement, whether any such official was induced to use his or her position to influence any act or decision and whether any such official had any duties or functions which could be influenced by any such inducement.  In short, in the absence of any evidence that a bribe was actually offered or paid to any official, how can the Crown have proven the requisites of the offense charged beyond a reasonable doubt?”

The opinion then states:

“I agree that there was no evidence as to what became of the two payments … after the amounts were transferred from the bank account of Cryptometrics Inc. in New York to the accused’s account in India.  It is correct so say that there was no evidence as to what subsequently became of those two sums of money and in particular whether these funds were offered or paid to anyone who qualified as a foreign public official under the Act.”

“The position of the Crown is that no evidence of what actually became of the money is necessary to establish a violation of the CFPOA.  The Crown argues that incoate offenses, in particular a conspiracy to pay bribes, as exists here, constitutes a violation of the Act.  […]

[…]

“There would appear to be no jurisprudence interpreting the CFPOA.  This is the first prosecution under this Act which has proceeded to trial.”

“In any event, I am satisfied that a conspiracy or agreement to bribe foreign public officials is a violation of the Act.  The actus reus of this offense is the agreement to pursue an unlawful object.  […]

[…]

“I also reject the accused’s submission on a policy basis.  In my opinion if the word ‘agrees’ in the Act is restricted to the act of essentially two parties, ‘one to pay the bribe and one to receive the bribe,’ the scope of the Act would be unduly restricted and its objectives defeated.  Moreover, to require proof of the offer of or receipt of a bribe and the identity of a particular recipient would require evidence from a foreign jurisdiction, possibly putting foreign nationals at risk and would the legislation difficult if not impossible to enforce and possibly offend international comity.”

If the above sounds familiar to you, it should.  Similar issues have been contested in recent FCPA enforcement actions.

In U.S. v. O’Shea, the DOJ alleged that the defendant violated the FCPA by making payments to officials at a Mexican utility allegedly owned or controlled by the Mexican government.  The judge granted a motion for acquittal after the DOJ’s evidence.  In doing so, and as relevant to the identity of a “foreign official” issue, the judge stated:

“You can’t convict a man promising to pay unless you have a particular promise to a particular person for a particular benefit. If you call up [somebody] and say, look, I’m going to send you 50 grand, bribe somebody, that does not meet the statute.”

However, the notion that the specific identity of a “foreign official” must be proven by the enforcement agencies has been rejected by two other trial courts in individual FCPA enforcement actions.  In SEC v. Jackson, the court concluded, in ruling on a pre-trial motion to dismiss, that the “government does not have to connect the payment to a particular official.”  The court stated:

“The language of the statute does not appear to require that the identity of the foreign official involved be pled with specificity. […] Nothing in the legislative history of the FCPA suggests that Congress intended to limit the application of [the FCPA] to those cases where the government could show that a defendant knew, either by name or job description, precisely which foreign officials would be receiving the illicit payments he had authorized. […] It would be perverse to read into the statute a requirement that a defendant know precisely which government official, or which level of government official, would be targeted by his agent; a defendant could simply avoid liability by ensuring that his agent never told him which official was being targeted and what precise action the official took in exchange for the bribe.”

Likewise in SEC v. Straub, the court agreed with the above Jackson decision in the context of a pre-trial motion to dismiss and stated that “the language of the [FCPA] does not appear to require that the identity of the foreign official involved be pled with specificity.”  The court stated:

“Such a requirement would be at odds with the statutory scheme, which targets actions (such as making an ‘offer’ or ‘promise’) without requiring that the ‘foreign official’ accept the offer or reveal his specific identity to the payer.  Indeed, the fact that the FCPA prohibits using ‘any person’ or an intermediary to facilitate the bribe to any ‘foreign official’ or ‘any foreign political party’ suggests that the statute contemplates situations in which the payer knows that a ‘foreign official’ will ultimately receive a bribe but only the intermediary knows the foreign official’s specific identity.”

Another interesting aspect of the Karigar is asking the obvious question – will there be a related FCPA enforcement action(s)?

Karigar was a paid agent for Cryptometrics Canada and acted on behalf of related entities including Cryptometrics USA.  According to the opinion, $200,000, was transferred from Cryptometrics USA to Karigar’s bank account in furtherance of the bribery scheme.  The opinion further references a relevant letter agreement between Kairgar and the CEO of Cryptometrics USA as well as specific conduct in furtherance of the bribery scheme that took place at Cryptometrics’s office in New York.  In addition, the opinion references an additional $650,000 that was transferred from Crytometrics USA’s bank account in furtherance of the scheme.

Moreover, as noted in the opinion, Karigar corresponded with the DOJ regarding the conduct at issue.  Specifically, the opinion states “that on August 13, 2007, Karigar  – using an alias – “sent an e-mail to the Fraud Section (FCPA) of the U.S. Department of Justice stating that he had information about U.S. citizens paying bribes to foreign officers and inquired about reporting the matter.”  The opinion also references two other e-mails Karigar sent to the DOJ.

Friday Roundup

Simply inexcusable, tell us who, an interesting case study, and for the reading stack.  It’s all here in the Friday roundup.

Simply Inexcusable

The government holds those subject to the FCPA to high standards.  If the proverbial “right hand” in a company doesn’t know what the “left hand” is doing, the government is likely to call that an internal control failure.

Ought not the government be held to the same standard?

What follows is simply inexcusable.

In February 2012, Judge Lynn Hughes (S.D.Tex.) signed this final dismissal of the FCPA enforcement action against John O’Shea.  The motion followed Judge Hughes granting O’Shea’s motion for acquittal after the DOJ’s case in chief in the FCPA trial.  (See here for the prior post).  During the case, Judge Hughes stated, among other things, as follows.  “The problem here is that the principal witness against Mr. O’Shea . . . knows almost nothing. . . .;  The government should have been prepared before they brought the charges to the Grand Jury. . . . You shouldn’t indict people on stuff you can’t prove.’’

Following the acquittal and dismissal, O’Shea has attempted to resume a normal life without the specter of criminal charges and possible jail time occupying his mind.  It is understandable that O’Shea wants his reputation and “old” life back.  But removing the taint of being labeled a criminal law violator by the government has not come easy for O’Shea.

Case in point is the following story.

O’Shea was recently hired by a company and traveled to Canada for a business trip.  The trip was uneventful until O’Shea tried to enter Canada.  It turns out the relevant government databases were not updated to reflect the disposition of his case – something that happened 14 months ago!

O’Shea indicated that he spent the entire afternoon with officials of the Canadian government to persuade them that he should not be put on the next plane back to the U.S. with U.S. marshals.  O’Shea reports that the Canadian official was open-minded enough to visit internet sites suggested by O’Shea (including FCPA Professor) as proof that he was no longer a criminal defendant in the U.S.

After his business trip to Canada, O’Shea also had problems re-entering the U.S. from Canada and could not help but wonder whether someone would be waiting for him upon arrival in Houston.  O’Shea reports that thankfully his fears were not realized, but he can not help but wonder what would have happened if his business trip was to some country other than Canada.

In short, the government’s internal control failure was simply inexcusable.

Tell Us Who

In the aftermath of this week’s Ralph Lauren enforcement action (see here for the prior post) alleging payments to Argentine customs officials, the Argentine government wants to know who the customs officials are.

As noted in a Law360 article, “in a letter to U.S. Ambassador to Argentina Vilma Martinez, the head of Argentina’s tax agency, Ricardo Echegaray, said that it was necessary for the Argentine government to have names and more detailed information about the alleged bribery to aid in a newly launched criminal investigation into the matter.”  The article further stated as follows.  “While seeking the names of Argentine officials implicated in the scheme, Echegaray also put the blame on Ralph Lauren’s customs brokers, who are not government officials, but rather private professionals hired to deal with trade matters. Echegaray likened these brokers’ roles to those of a tax adviser or accountant which companies hire for assistance.”

The question asked by the Argentine official is obviously a legitimate question.

But query whether the DOJ and/or SEC even know who the officials are.

As noted in this previous post concerning the SEC’s briefing in the Jackson and Ruehlen case involving alleged payments to Nigerian customs officials, the SEC argued that the name, titles and exact positions of foreign officials allegedly bribed need not be known in order to state a claim under the FCPAs anti-bribery provisions.

As highlighted in this previous post, in ruling on Jackson and Ruehlen’s motion to dismiss, Judge Keith Ellison (S.D.Tex.) noted in a footnote as follows.

“[T]he Court must disagree with Judge Hughes’s oral statements in a recent criminal FCPA prosecution. [U.S. v. O’Shea] (“You can’t convict a man promising to pay unless you have a particular promise to a particular person for a particular benefit. If you call up the Basurtos and say, look, I’m going to send you 50 grand, bribe somebody, that does not meet the statute.”). This Court holds that asking a third-party to bribe a government official, in order to induce that official to act in one of the proscribed ways detailed in [the FCPA], would meet the statute. The government does not have to “connect the payment to a particular official.”
Case Study

This post earlier this week regarding Wal-Mart noted that savvy investors should have recognized the NY Times induced “FCPA dip” of the company’s stock as a buying opportunity because the market often overreacts to FCPA issues.

In this post earlier this week regarding Ralph Lauren Corp.’s (RLC) FCPA enforcement action, it was noted that the RLC enforcement action was a rare instance of an issuer not previously disclosing its FCPA scrutiny.  Thus, the first instance of public scrutiny appears to have been announcement of the enforcement action on Monday morning.  RLC’s stock dipped approximately 2% on the news and closed at $165.93.  The “FCPA dip” lasted only a day, as Tuesday the stock rebounded and then some and closed yesterday at $175.38.

Reading Stack

Miller & Chevalier’s seasonal FCPA alerts are always information reads.  The firm recently released its FCPA Spring Review 2013.

Is sex as a “thing of value”?   See here from Wendy Wysong (Clifford Chance) – with a particular focus on Asia.

Should you be looking for further citations that more FCPA enforcement is good for FCPA Inc., see this recent article in Lawyers Weekly, an Australian publication.  The article begins as follows.   “A crackdown on foreign bribery has created “a mountain of work” for lawyers, a Jones Day partner has said ahead of a major international anti-corruption conference.”

*****

A good weekend to all.

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