Venezuela continues to be an attractive target for federal prosecutors investigating bribery and corruption. And, most, if not all, defendants in Venezuela FCPA cases have plead guilty opting against a trial. Months ago though, in a series of surprising opinions (here and here), a federal judge dismissed all counts in an indictment in a complex Foreign Corrupt Practices Act or “FCPA” and money laundering case involving Venezuela and Petroleos De Venezuela, SA (or PDVDSA). The defendants who benefitted from those dismissals were a Swiss national, Daisy Teresa Rafoi Bleuler, and a Swiss/Portuguese national, Paulo Jorge Da Costa Casquiero Murta.
Then, recently, the Fifth Circuit Court of Appeals nullified each of the dismissals. (See here for the prior FCPA Professor post).
The true lesson of those reversals is that when lawyers take on FCPA cases and individual FCPA clients they need to be ready and willing for a potential trial on FCPA charges and, certainly, money laundering counts and money laundering conspiracy counts. We can file motions to dismiss for failure to state an offense. We can argue vagueness. And we can even home in, as the lawyers did in Murta, on technical linguistic issues which the courts have not conclusively decided.
Yet, as the Fifth Circuit’s decision reinforces, the incredibly lenient standard afforded to federal prosecutors for stating an offense in federal criminal cases will almost certainly win the day. In practice, that signifies that a motion to dismiss should be filed but will not conclusively resolve the indictment and that the challenges lodged in Murta and Rafoi about whether a defendant fits into one of the enumerated categories of the FCPA (discussed below) are best suited for Rule 29 motions for judgment of acquittal either (a) after the government rests and/or (b) after the defense rests. This is precisely what happened in the often cited and frequently analyzed Hoskins case in the District of Connecticut – Hoskins prevailed after trial after the court reasoned that there was insufficient evidence for a reasonable jury to conclude that Hoskins was an agent of a domestic concern thus warranting a judgment of acquittal on the FCPA count in the indictment.
In the indictment, the government alleged that PDVSA is an oil company controlled by the government of Venezuela which is responsible for the exportation, production, refining, transportation, and trade of energy resources throughout the world. PDVSA Services, Inc. (“PDVSA-S”), is a United States based and wholly-owned affiliate of PDVSA in Houston, Texas. The government also alleged that PDVSA-S (the Houston Company) and Bariven, another wholly-owned subsidiary of PDVSA, were “instrumentalities” of PDVSA, responsible for purchasing equipment, soliciting vendors, and providing various services abroad associated with the petroleum industry in Venezuela. The word “instrumentalities” is important to the government’s case because, absent that theory, the government could not allege that four of the defendants in the case were “foreign officials” who held executive-level roles at either PDVSA or Bariven.
Turning to the government’s main theory of the bribery in Venezuela in violation of the FCPA, the government alleges that the defendants (four of whom were foreign officials according to the government) agreed to solicit PDVSA vendors for bribes and kickbacks in return for aiding those vendors in connection with their PDVSA business including assisting them in obtaining PDVSA contracts and assisting them in receiving payment priority over other vendors for outstanding PDVSA invoices during the liquidity crises in Venezuela.
Ms. Rafoi-Bleuler is a resident and citizen of Switzerland who owns a wealth management company and was never physically present in the U.S. during the alleged conspiracy. Mr. Murta is a citizen of Portugal and Switzerland who owned another wealth management business. Neither of them worked for PDVSA nor were either of the defendants’ employees or officers of any PDVSA affiliate or subsidiary. Instead, the government alleges that they both developed financial structures to help launder the proceeds of the scheme described above.
So how could they violate the FCPA as a matter of law?
Challenging Whether the Client Fits into One of the FCPA’s Enumerated Categories
The FCPA applies to three enumerated categories: issuers, domestic concerns and their agents, and persons who commit certain corrupt conduct in furtherance of FCPA violations while physically present in the U.S. The FCPA defines a domestic concern as “any individual who is a citizen, national, or resident of the United States, and any corporation, partnership, or other business entity which has its principal place of business in the United States, or which is organized under the laws of a state of the United States or its territory.” See 15 U.S.C. § 78dd-2(h).
Daisy and Murta- “Domestic Concern/Agent of Domestic Concern”
The government alleged that Ms. Rafoi-Bleuler and Mr. Murta were agents for PDVSA-US, which is a domestic concern, because PDVSA-US and persons working on their behalf, engaged Ms. Rafoi-Bleuler and Mr. Murta to establish bank accounts in Switzerland and other foreign locations to launder the ill-gotten gains.
In deciding this issue, the Fifth Circuit found that conclusory terms “agent of a domestic concern” without describing the evidentiary details of the agent relationship was sufficient to allege an FCPA violation.
Murta- 78dd-3 “while in the territory of the United States”
Similarly, the Fifth Circuit found that because Murta had attended meetings in the United States (Miami, Florida) with co-conspirators and therefore the government had sufficiently alleged that Murta committed conduct in furtherance of the FCPA violation while he was physically present in the United States.
The net-net of this part of the decision is that attorneys should be ready and willing to try these legal issues and, as part of any trial strategy, cross-examine witnesses to bolster a Rule 29 on these technical issues. Among other things, lawyers should consider requesting travel records from U.S. Customs and Border Protection or the Department of State through a Tuohy subpoena to eviscerate any “territorial” theory. Attorneys should also develop as many facts to undermine the government’s agency theory. In Murta and Rafoi for example both defendants are undeniably not employees or officers of any of the U.S. subsidiaries or affiliates associated with PDVSA. How did PDVSA control their actions if they were independent wealth managers? How can the government prove otherwise?
Finally, each of these strategies is critically important to any challenge to any money laundering count where, as in Murta and Rafoi and many other FCPA prosecutions, the conduct upon which the money laundering is premised are FCPA violations. This is because, absent proof that a person was an “enumerated actor” under the FCPA, there is no legal basis for a money laundering charge which is premised on the FCPA.
Three Other Major Issues Addressed (or Not Addressed)
The Fifth Circuit punted on two significant issues in its decision and addressed another major legal issue which frequently arises in FCPA/money laundering prosecutions.
First, whether Rafoi was able to even file a motion to dismiss as a “fugitive” under the fugitive disentitlement doctrine because Mrs. Rafoi had never appeared in the U.S. when she filed the motion. Courts have grappled with this issue. Courts have even gone so far (recently) as to preclude “fugitive” defendants from gaining access to discovery including interview reports. Thus, the application of the fugitive disentitlement doctrine in these cases remains an open issue that is subject to future litigation challenges.
Second, the court did not decide whether either Rafoi or Murta were “secondarily liable” as persons who do not fall into any of the enumerated FCPA categories but conspire with persons who qualify under one of the enumerated categories. The government raised this issue during oral argument before the Fifth Circuit and argued that Hoskins was wrongly decided. Thus, practitioners should anticipate that the government will continue to fight any broader applications of Hoskins to include as many co-conspirators possible in FCPA cases.
Third, the court decided whether a money laundering conspiracy was sufficiently alleged where none of the agreements occur in the United States. Section 1956(f) states that “there is extraterritorial jurisdiction over the conduct prohibited by this section if – (1) the conduct is by a United States citizen or, in the case of a non-United States citizen, the conduct occurs in part in the United States.” The court cited to a number of other appellate decisions – none of which focuses on the FCPA – where the courts found that there was extraterritorial jurisdiction over the conduct (the agreement) because part of the agreement included a conspirator transacting with a U.S. person, or communications with a U.S. person in furtherance of the underlying offense. Importantly, the court noted that “[w]hether there is proof that Defendants did, in fact, engage in conduct that took place in part in the United States is surely a fair subject for a trial defense.”
And, that one-liner should be an eye opener to attorneys representing foreign nationals accused of or under investigation for foreign corruption offenses.