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Case Law Of Note

By on March 8, 2016 in Corrupt Intent, Dmitrij Harder, FCPA Jurisprudence, Foreign Official, Knowledge, Public International Organization
Judicial Decision

Judicial opinions construing the Foreign Corrupt Practices Act are rare. Thus, when they occur (even if only a trial court opinion on a pre-trial motion to dismiss) FCPA judicial opinions are worthy of note.

As highlighted in this prior post, in January 2015 the DOJ criminally charged Dmitrij Harder, the former owner and President of Chestnut Consulting Group Inc. and Chestnut Consulting Group Co., for allegedly bribing an official with the European Bank for Reconstruction and Development (“EBRD”).

The enforcement action was notable in that it invoked the rarely used “public international organization” prong of the FCPA’s “foreign official” element.

As highlighted here, in October 2015, Harder filed this motion to dismiss:  In summary fashion it stated:

“The Indictment fails to accurately allege the elements of a violation under the Foreign Corrupt Practices Act (“FCPA”) – it is devoid of any allegations that Mr. Harder paid an allegedly corrupt payment to a “foreign official,” fails to state required allegations when an allegedly corrupt payment is made to a third party, and impermissibly substitutes “public international organization” in the charging language against Mr. Harder. The FCPA counts should also be dismissed because the provision permitting the President to expand the term “foreign official” by identifying “public international organizations” as authorized by 15 U.S.C. § 78dd-2(h)(2)(B) is unconstitutional.”

In an unsurprising development given the procedural posture of the motion, last week Judge Paul Diamond (E.D. Pa.) denied the motion. It is believed to be the first judicial decision in FCPA history construing the rarely implicated “public international organization” prong of the FCPA’s “foreign official” definition.

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FIFA – A Beautiful Cesspit Of Corruption?

By on October 28, 2015 in FCPA Reform, FIFA, Foreign Official, Guest Posts, Public International Organization
FIFA

Today’s post is from Professor Bruce Bean (Michigan State University College of Law). Professor Bean, who had a diverse practice career including at various law firms and in-house counsel positions, will be leading a panel discussion about the FIFA bribery scandal at International Law Weekend at Fordham University in New York City on November 7th.  (See here for more information).

*****

FIFA, the organization controlling the world’s most popular sport, “football,” (“soccer” to those in North America), is formally known as Fédération Internationale de Football Association. FIFA is very big business. 209 national and other football associations from Andorra to Russia and the Faroe Islands to Australia make up FIFA membership. See here.  In the past three decades television and other broadcast rights, plus corporate sponsorships by international brands like Nike, Coca Cola and Visa have vastly increased the resources now involved in global football and, in particular, its quadrennial world championship, the FIFA World Cup. Between 2007 to 2014 FIFA had $10 billion in revenues and, as a Swiss registered NGO, it paid no taxes on its $969 million in profits.

Perhaps the greatest player of all time, Brazil’s legendary Pelé, published My Life and the Beautiful Game in 1977. The phrase the “beautiful game” is still synonymous with football.  In 2014, however, a whistleblower leaked “hundreds of millions” of FIFA documents to journalists at the London Sunday Times. Early in 2015 Heidi Blake and Jonathan Calvert published The Ugly Game: The Corruption of FIFA and the Qatari Plot to Buy the World Cup, describing a decidedly not very beautiful game.

In fact, FIFA has a decades-long, undistinguished, undisturbed history of involvement in scandals, bribery and corruption. In 2009, the Financial Action Task Force, the international anti-money laundering organization, released a report describing FIFA’s role in money-laundering, game-fixing, illegal gambling, and more. See here. Despite the great popularity of football in Europe and the rest of the world, and unending reports of FIFA corruption, no significant action had ever been taken against FIFA and its allegedly corrupt officials by a nation where football reigns supreme.  In the United States, international football is a minor sport, although there is a growing number who participate.  Nevertheless, on May 20, 2015 the United States Department of Justice an indictment in the U.S. District Court for the Eastern District of New York.  See here.  A Brooklyn Grand Jury returned the Indictment against nine current and former FIFA officials and five businessmen involved with FIFA. The release of the Indictment was coordinated with simultaneous raids and arrests by U.S. and Swiss officials at FIFA facilities in Miami and FIFA headquarters in Zurich. In addition to 14 defendants specifically charged, the Indictment refers to 25 unnamed co-conspirators.

The Indictment details $150 million in bribes paid on behalf of privately-held sports marketing companies to secure broadcast and marketing rights from FIFA for its various regional competitions and for the FIFA World Cup.  The charges filed include racketeering, conspiracy, wire fraud, money laundering, obstruction of justice, tax evasion, and, in one case, the unlawful procurement of naturalization.

Shortly after the US Department of Justice intruded into the world’s most popular sport by announcing the Indictment, Russia’s President Putin declared “This is another blatant attempt to extend [U.S.] jurisdiction to other states.” See here.  Offering a decidedly differing view, the Economist commented on the fact that it was the United States, where football is not that popular, that had finally taken steps regarding FIFA.  “America has a long history of being tougher on white collar crime and corruption than other countries….   Most of Europe is happy [with the U.S. bringing this action], believing that FIFA has long been a cesspit of corruption in desperate need of fresh faces and reform.”   See here.

Strangely, notwithstanding the fact that the U.S. has both the FCPA and the best record of prosecuting international bribery, there are no FCPA allegations in the entire 161 pages of the Indictment.  Why does this year’s highest profile bribery and corruption case not include a single allegation of an FCPA violation?  See this prior FCPA Professor post. FCPA charges were not eliminated because the Department of Justice suddenly decided to abandon its (over)broad view of the jurisdictional nexus required to apply U.S. law to foreigners.  See here.

Rather, there are no FCPA allegations because the FIFA officials allegedly involved with the bribes the Indictment describes are not “foreign officials” as described in the FCPA.  The FCPA defines the “term “foreign official” [as] any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization….”  The FCPA further provides that “’public international organization’ means any … 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.”   See here.

The current list of public international organizations includes 80 entities, ranging from the United Nations to the International Fertilizer Development Institute and the Pacific Salmon Commission.  Adding FIFA by Executive Order seems logical and straight-forward.  While FIFA is a private organization, it is responsible to no one and exercises extraordinary power over sovereign nations.  For instance, in October 2015 FIFA banned the Kuwaiti national football team from international play because of a dispute over a Kuwaiti law. See here.  In connection with the FIFA World Cup held in Brazil in 2014, FIFA insisted that Brazil exempt all twelve Brazilian World Cup venues from a 2003 national law prohibiting the sale of alcohol at football matches.  As the FIFA General Secretary announced on a trip to Brazil prior to the commencement of World Cup activities,  “Alcoholic drinks are part of the FIFA World Cup, so we’re going to have them. Excuse me if I sound a bit arrogant but that’s something we won’t negotiate.” See here .

Given the supreme importance of the sport of football in most countries, the long history of scandalous allegations about FIFA and the fact that FIFA is entirely self-governing, responsible to absolutely no one outside itself, there is a strong argument that FIFA should be added to our list of international public organization.

This is not necessarily an easy task, however.

When concerns about corruption possibly related to the Salt Lake City Olympics arose in the late 1990s, three bills were introduced in Congress seeking to bring the International Olympic Committee within the FCPA.  As the FCPA Professor has previously noted, “None of these bills made it out of committee.”  See here.

Given that Congress has been unable to accomplish anything recently, let’s hope the President will act.  He (or perhaps she in the near future) has the authority under 22 USC 288 to designate “public international organizations.”  Adding FIFA to this list will finally bring the ultimate power over international football within the scope of the FCPA.  

Harder Files Motion To Dismiss

By on October 22, 2015 in Dmitrij Harder, Foreign Official, Public International Organization, Third Parties
Harder

As highlighted in this previous post, in January 2015 the DOJ criminally charged Dmitrij Harder (pictured), the former owner and President of Chestnut Consulting Group Inc. and Chestnut Consulting Group Co., for allegedly bribing an official with the European Bank for Reconstruction and Development (“EBRD”).

The enforcement action was notable in that it invoked the rarely used “public international organization” prong of the FCPA’s “foreign official” element.

Recently, Harder filed this motion to dismiss:  In summary fashion it states:

“The Indictment fails to accurately allege the elements of a violation under the Foreign Corrupt Practices Act (“FCPA”) – it is devoid of any allegations that Mr. Harder paid an allegedly corrupt payment to a “foreign official,” fails to state required allegations when an allegedly corrupt payment is made to a third party, and impermissibly substitutes “public international organization” in the charging language against Mr. Harder. The FCPA counts should also be dismissed because the provision permitting the President to expand the term “foreign official” by identifying “public international organizations” as authorized by 15 U.S.C. § 78dd-2(h)(2)(B) is unconstitutional. Finally, the Travel Act counts fail to state an offense under the Pennsylvania anti-bribery statute and because the Travel Act does not apply extraterritorially to the facts of this case.”

As relevant to the FCPA’s third-party payment provisions, the motion states:

“Under the FCPA, when an allegedly corrupt payment is made to a person who is not a “foreign official” (like “EBRD Official’s Sister”), it is a crime only if the payment is made by the defendant “while knowing that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly, to any foreign official.” 15 U.S.C. § 78dd-2(a)(3). The statutory language of the FCPA does not mention the phrase “for the benefit of.” The Indictment therefore fails in two ways: (1) it purports to expand the statute’s reach and criminalize payments made “for the benefit” of a foreign official; and (2) it fails to set forth any factual allegations that the allegedly corrupt payments were made by Mr. Harder “while knowing that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly, to any foreign official.” The Indictment also fails to state an offense because it charges Mr. Harder with inducing a foreign official to use his influence with a public international organization under 15 U.S.C. § 78dd-2(a)(3)(B), but that prong of the FCPA only addresses acts intended to influence a “foreign government” and not a “public international organization.”

As relevant to the FCPA’s “foreign official” element and specifically the “public international organization” component of the “foreign official” definition, the motion states:

“The FCPA counts in the Indictment (Counts One through Six) should be dismissed because the FCPA statute is unconstitutional to the extent criminal liability is premised upon allegedly corrupt payments in connection with “public international organizations.” In this regard, the FCPA states, without any explanation or limitation, that the President of the United States is empowered to designate entities as “public international organizations,” whose employees are then considered to be “foreign officials” covered by the FCPA. But Congress cannot delegate its legislative powers to the President in criminal matters without providing some direction (such as policy, scope, or limitations), and Congress failed to do this in the FCPA. Further, because the FCPA is vague as to what conduct is criminal – because the term “public international organization” is not clearly defined nor are the designated entities so easily identified – this portion of the FCPA is void for vagueness, particularly because an individual can be convicted without proof that the defendant knew that the entity in question was a “public international organization” and therefore covered by the FCPA. Mr. Harder believes this to be the first case where the government has charged anyone under the “public international organization” prong of the FCPA, and the constitutional defects arising from that portion of the statute are readily apparent.

Mr. Harder has not found any case that has reviewed the constitutionality of the definition of “public international organization” for purposes of the FCPA – the key element to the government’s case against Mr. Harder. The term “public international organization” was not in the FCPA when it was originally enacted in 1977. Only when the FCPA was amended as of November 10, 1998, was the term “public international organization” inserted into the FCPA. See PL 105-366 (Nov. 10, 1998). This term, as utilized in the FCPA, violates two important constitutional doctrines: the non-delegation doctrine and the void for vagueness doctrine.

[…]

Congress cannot delegate its legislative powers to the President in criminal matters without providing some direction (such as policy, scope, or limitations), and Congress failed to do this in the FCPA. Further, because the FCPA is vague as to what conduct is criminal – because the term “public international organization” is not clearly defined nor are the designated entities so easily identified – this portion of the FCPA is void for vagueness, particularly because an individual can be convicted without proof that the defendant knew that the entity in question was a “public international organization” and therefore covered by the FCPA. Mr. Harder believes this to be the first case where the government has charged anyone under the “public international organization” prong of the FCPA, and the constitutional defects arising from that portion of the statute are readily apparent.4 Mr. Harder has not found any case that has reviewed the constitutionality of the definition of “public international organization” for purposes of the FCPA – the key element to the government’s case against Mr. Harder. The term “public international organization” was not in the FCPA when it was originally enacted in 1977. Only when the FCPA was amended as of November 10, 1998, was the term “public international organization” inserted into the FCPA. See PL 105-366 (Nov. 10, 1998). This term, as utilized in the FCPA, violates two important constitutional doctrines: the non-delegation doctrine and the void for vagueness doctrine.”

Harder is represented by Ian Comisky (Blank Rome) and Stephen LaCheen (LaCheen, Wittels & Greenberg).

U.S. District Court judge Paul Diamond (E.D. Pa.) is presiding over the case.

DOJ Brings First FCPA Enforcement Action Of 2015

By on January 7, 2015 in 2015 Enforcement Actions, Chestnut Consulting, DOJ Enforcement Action, European Bank for Reconstruction and Development, Executive Enforcement Action, Individual Enforcement Action, Public International Organization
European Bank

February 2014 post foreshadowed a future FCPA enforcement action against Dmitrij Harder in connection with a notable Third Circuit grand jury proceeding.

Yesterday, the DOJ announced the enforcement action against Harder, the former owner and President of Chestnut Consulting Group Inc. and Chestnut Consulting Group Co. (together “Chestnut Group”), for allegedly bribing an official with the European Bank for Reconstruction and Development.

The enforcement action is notable in that it invokes the rarely used “public international organization” prong of the FCPA’s “foreign official” element.

In the indictment, Harder is described as “Russian national, naturalized German citizen and permanent resident alien of the United States” who purportedly used the Chestnut Group entities to “provide, among other things, consulting services to companies seeking financing from multilateral development banks.”

According to the indictment:

“Between in or around 2007 through in or around 2009, Harder engaged in a scheme to pay approximately $3.5 million in bribe payments for the benefit of a foreign official to corruptly influence the foreign official’s actions on applications for financing submitted to the European Bank for Reconstruction and Development (“EBRD”) by the clients of Harder and the Chestnut Group, and to corruptly influence the foreign official to direct business to Harder and the Chestnut Group, and others.”

The EBRD is described as follows.

“The EBRD was a multilateral development bank headquartered in London, England, and was owned by over 60 sovereign nations. Among other things, the EBRD provided debt and equity financing for development projects in emerging economies, primarily in Eastern  Europe. On or about June 18, 1991, the President of the United States signed Executive Order 12766 designating the EBRD as a “public international organization.” The EBRD was thus a “public international organization,” as that term is defined in the FCPA.”

The EBRD Official is described as follows.

“EBRD Official” was a Russian and United Kingdom national residing in or around London, England, and was a senior banker working in the Natural Resources Group at the EBRD. As a senior banker, EBRD Official served as an Operations Leader in the Natural Resources Group and was responsible for leading the review of applications submitted to the EBRD for project financing, including loans and equity investments. EBRD Official thus had the authority to influence the process for approving project financing, and setting the terms and conditions for that financing. EBRD Official was a “foreign official,” as that term is used in the FCPA.  […] Harder  knew EBRD Official from business associations dating back to at least 1999.”

The indictment also described the EBRD Official’s Sister as follows.

“EBRD Official’s Sister” was a Russian and United Kingdom national residing in or around London, England, and was the sister of EBRD Official. EBRD Official’s Sister purportedly provided consulting and other business services for the Chestnut Group. In reality, however, EBRD Official’s Sister provided no such services to the Chestnut Group or Harder.”

According to the indictment:

“Between in or about 2007 and in or about 2009, Harder, through the Chestnut Group, worked as a financial consultant to companies seeking project financing from the EBRD. For at least four of these applications, including those of Company A [a Russian independent oil and gas company] and Company B [an oil and gas company incorporated in the United Kingdom with operations in Russia] EBRD Official was the Operations Leader responsible for leading the management of the application process and negotiating the terms and conditions of any financing provided by the EBRD. Chestnut Inc. was retained by Company A and Company B despite its relatively small size, distant location from the EBRD, and unproven track record as a financial advisor. […] [T]he EBRD ultimately approved the applications for project financing for Company A and Company B.”

[…]

In all, Chestnut Inc. received payments from Company A totaling approximately $2.9 million, and Harder caused payments to be made to EBRD Official’s Sister totaling approximately $1.06 million. While EBRD Official’s Sister purportedly received these payments as a result of providing consulting and other business services to the Chestnut Group, in reality, EBRD Official’s Sister provided no such services. Instead, EBRD Official’s Sister received these payments for the benefit of EBRD Official, to corruptly influence the foreign official’s actions on applications for financing by the clients of Harder and the Chestnut Group, and to corruptly influence the foreign official to direct business to Harder and the Chestnut Group.”

[…]

“[A]fter Chestnut Inc. received the success fees from Company B, Harder caused a payment of approximately $2,478,580.89 to be made to EBRD Official’s Sister. Although EBRD Official’s Sister purportedly received these payments as a result of providing consulting and other business services to the Chestnut Group, in reality, EBRD Official’s Sister provided no such services. Instead, EBRD Official’s Sister received these payments for the benefit of EBRD Official, to corruptly influence the foreign official’s actions on applications for financing by the clients of Harder and the Chestnut Group, and to corruptly influence the foreign official to
direct business to Harder and the Chestnut Group.”

Under the heading “concealment of the bribe payments,” the indictment alleges:

“Through the Chestnut Group, Harder paid EBRD Official’s Sister approximately $3.5 million in bribe payments for the benefit of EBRD Official. To conceal and cover up these bribe payments, Harder and EBRD Official’s Sister created false paperwork to make it appear that EBRD Official’s Sister had provided services to the Chestnut Group for these payments, when in fact no such services were provided.”

Based on the above allegations, the indictment charges Harder with one count of conspiracy to violate the FCPA and Travel Act, five counts of violating the FCPA, five counts of violating the Travel Act, one count of conspiracy to commit international money laundering, and two counts of money laundering.

In the DOJ’s release, Assistant Attorney General Leslie Caldwell stated:

“We are committed to combating foreign corruption, across the globe and across all industries, through enforcement actions and prosecutions of companies and the individuals who run those companies. As alleged, in this case, the owner and chief executive of a Pennsylvania financial consulting firm secured hundreds of millions of dollars in business by bribing a European banking official. He now faces an indictment for corruption in federal court.  Bribery of foreign officials undermines the public trust in government and fair competition in business.  The charges returned today reflect the clear message that we will root out corruption and prosecute individuals who violate the Foreign Corrupt Practices Act.”

U.S. Attorney Zane Memeger of the Eastern District of Pennsylvania stated:

“We will aggressively investigate and prosecute individuals in our district who use corrupt means like bribery to influence foreign officials.  Our criminal statutes in this arena must be enforced to ensure fair dealing in a competitive global marketplace where foreign officials often hold significant decision-making authority.  The alleged conduct here was particularly reprehensible because it undermined the legitimacy of a process designed to support businesses for the citizens of developing nations.”

Special Agent in Charge Edward Hanko of the FBI’s Philadelphia Division stated:

“This is a great example of the FBI’s ability to successfully coordinate with our international law enforcement partners to tackle corruption. Bribery – foreign or domestic – cripples the notion of fair competition in the marketplace.”

For more information on the conduct alleged in the enforcement action, see this 2012 Bloomberg article.

FCPA Reform And The Olympics

By on February 11, 2014 in FCPA Reform, Foreign Official, Legislative History, Olympics, Public International Organization

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.

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