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FCPA Ambiguity

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There are some FCPA commentators (see here and here for prior examples) who insist that it is “flawed” to suggest that the Foreign Corrupt Practices Act is vague or ambiguous and that “there’s no evidence in the record that judges or juries have any trouble understanding the FCPA.”

These suggestions are so incredibly uninformed as to be laughable.

Given how the DOJ and SEC have chosen to enforce the FCPA (that is largely through resolution vehicles not subjected to any meaningful judicial scrutiny), judicial scrutiny of FCPA enforcement theories is rare.

But when judicial scrutiny does occur in individual enforcement actions (every single substantive FCPA judicial decision has concerned individual defendants), a common thread is federal court judge finding portions of the FCPA vague and ambiguous and thus often resorting to the FCPA’s legislative history to give meaning to the law.

As highlighted in this post, the most recent example occurred when a federal court judge dismissed FCPA (and related) criminal charges against Daisy Rafoi-Bleuler (a citizen of Switzerland and partner in a Swiss Wealth Management firm) for allegedly participating in a bribery scheme involving various individuals at PDVSA (Venezuela’s state-owned and state-controlled energy company).

Under the heading “Vagueness Renders the Term Agent Unconstitutional,” Judge Kenneth Hoyt (S.D. Tex.) stated:

“Apart from the Court’s determination that it lacks jurisdiction over the defendant under the FCPA and the MLCA, the Court finds merit in the defendant’s claim that both the FCPA and the MLCA are unconstitutionally vague as applied to her. It is clear that Congress did not intend that criminal jurisdiction for charges under either the FCPA or the MLCA be established simply by proof of the elements of the offense. To prosecute the defendant, the government must show either that the defendant was intimately and separately connected to a domestic concern in the United States such as by employment, as an officer, director or shareholder, or by an established agency relationship that occurred in the United States.

Because none of the above relationships has been established, the defendant argues that the term “agent” is so vague that, as applied to her, it is unjustified and violative of the “due process” clauses of the federal Constitution. To prevail on an “as applied” challenge to the constitutionality of a statute, the defendant must show that the statute is unconstitutional, by its scope or as applies to her conduct. The defendant’s challenge raises the issue of vagueness as to what constitutes an agent.

Under the vagueness doctrine, courts are forbidden from enforcing “a statute which either forbids or requires the doing of act in terms so vague that [a woman] of common intelligence must necessarily guess at its meaning [and where courts may] differ as to its application.” That principle is also relevant in instances where the accused’s conduct is not prosecutable in the accused’s own country. The application of the term “agent” to the defendant, as a basis for jurisdiction, is such a novel application that no court has interpreted the statute or rendered a judicial decision that fairly discloses the manner in which the term may be applied to establish jurisdiction. That fact alone establishes the vagueness of the term.”

Set forth below are numerous other examples in which federal court judges have found portions of the FCPA to be vague or ambiguous and/or consulted the legislative history to give meaning to the law.

In U.S. v. Hoskins, 123 F.Supp.3d 316 (D. Conn. 2015), Judge Janet Bond Arterton trimmed the DOJ’s FCPA enforcement action against Lawrence Hoskins by granting in part his motion to dismiss and denying a DOJ motion in limine based primarily on the FCPA’s legislative history and what it revealed about Congress’s intent in capturing a certain category of defendant. Likewise, the Second Circuit’s opinion in the case (902 F.3d 69) – in which it rejected the DOJ’s expansive theory of jurisdiction – was based primarily on the FCPA’s legislative history. As stated by the court: “In evaluating ambiguity we look to the statutory scheme as a whole and place the particular provision within the context of that statute. As a general matter, we may consider reliable legislative history where, as here, the statute is susceptible to divergent understandings and, equally important, where there exists authoritative legislative history that assists in discerning what Congress actually meant.” (Internal citations omitted).

In SEC v. Straub,  921 F.Supp.2d 244 (S.D.N.Y. 2013) Judge Richard Sullivan (see here for the prior post) found the FCPA’s jurisdictional element ambiguous and thus consulted the legislative history.

In SEC v. Jackson, 908 F.Supp.2d 834 (S.D.Tex. 2012)Judge Keith Ellison consulted the FCPA’s legislative history regarding: the need to identify the “foreign official,” the facilitation payments exception, and the corrupt intent element. In the words of Judge Ellison:

“I have such trouble understanding the facilitating payment exception.  […] I mean, it almost swallows the rest of the statute.  And I know it’s in the legislative history that these, I think reference is made to grease payments, somehow to grease the skids.  How do I separate those payments, which do seem to be contemplated, from the payments that [the SEC] alleges were made in this case, which you think are squarely within the FCPA’s prohibition?  […] And I don’t understand it.  Whether we make the distinction based on size of payments, regularity of payments, purpose of payments, nature of the — of the favorable conduct elicited.  I just really struggle with it.”

In U.S. v. Jensen, 532 F.Supp.2d 1187 (N.D. Cal. 2008), Judge Charles Breyer stated as follows regarding  § 78m(b)(5) which makes “knowing” violations of the FCPA books and records and internal control provisions a crime.  “Because the plain language of § 78m(b)(5) is not unambiguous, the Court turns to legislative history.”

In U.S. v. Kozeny, 582 F.Supp.2d 535 (S.D.N.Y. 2008), Judge Shira Scheindlin consulted the legislative history in a decision concerning the FCPA’s local law affirmative defense.

In U.S. v. Kozeny, 493 F.Supp.2d 693 (S.D.N.Y. 2007), Judge Scheindlin stated as follows concerning the statute of limitations applicable to FCPA criminal violations.  “I find that [18 U.S.C. § 3282] is ambiguous, and turn to its legislative history for guidance on its proper interpretation.”

In U.S. v. Bodmer, 342 F.Supp.2d 176 (S.D.N.Y. 2004), Judge Scheindlin addressed the question “whether prior to the 1998 amendments, foreign nationals who acted as agents of domestic concerns, and who were not residents of the United States, could be criminally prosecuted under the FCPA.”  Judge Scheindlin concluded that the FCPA’s language, as it existed prior to the 1998 amendments, was ambiguous and she thus resorted to legislative history.  Judge Scheindlin further commented in dismissing the FCPA charges against Bodmer as follows.  “After consideration of the statutory language, legislative history, and judicial interpretations of the FCPA, the jurisdictional scope of the statute’s criminal penalties is still unclear.”

Speaking of Judge Scheindlin in this exclusive FCPA Flash podcast, she talks about the difficulty of interpreting the “ambiguous” FCPA. No other federal court judge has issued more FCPA judicial decisions than Judge Scheindlin and in the podcast  she talks about the number of inherent ambiguities in the FCPA and thinks that “Congress could have done a better job to clarify a number of the terms that [she] think[s] are vague [in the FCPA].”

In Stichting v. Schreiber, 327 F.3d 173 (2d Cir. 2003), the Court stated as follows.  “It is difficult to determine the meaning of the word “corruptly” simply by reading it in context. We therefore look outside the text of the statute to determine its intended meaning. […]  (“Legislative history and other tools of interpretation may be relied upon only if the terms of the statute are ambiguous.”

In U.S. v. Kay, 200 F.Supp.2d 681 (S.D. Tex. 2002), Judge David Hittner concluded that the FCPA’s “obtain or retain business” element was ambiguous and thus turned to an analysis of the legislative history.  On appeal, the Fifth Circuit (see 359 F.3d 738 (5th Cir. 2004)) likewise stated as follows prior to an extensive review of the FCPA’s legislative history.

“[T]he district court concluded that the FCPA’s language is ambiguous, and proceeded to review the statute’s legislative history.  We agree with the court’s finding of ambiguity for several reasons. Perhaps our most significant statutory construction problem results from the failure of the language of the FCPA to give a clear indication of the exact scope of the business nexus element; that is, the proximity of the required nexus between, on the one hand, the anticipated results of the foreign official’s bargained-for action or inaction, and, on the other hand, the assistance provided by or expected from those results in helping the briber to obtain or retain business. Stated differently, how attenuated can the linkage be between the effects of that which is sought from the foreign official in consideration of a bribe (here, tax minimization) and the briber’s goal of finding assistance or obtaining or retaining foreign business with or for some person, and still satisfy the business nexus element of the FCPA?”

In U.S. v. Blondek, 741 F.Supp. 116 (N.D.Tex 1990), Judge Harold Sanders consulted the FCPA’s legislative history in concluding that “foreign officials” can not be charged with conspiracy to violate the FCPA.

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