A basic cannon of statutory construction is that all words in a statute are to be given effect so that no words are void, superfluous, or redundant. Stated differently, every word in a statute matters.
The FCPA’s anti-bribery provisions contain many words. However, in the four FCPA enforcement actions principally focused on internship and hiring practices as a form of bribery (BNY Mellon see here and here; Qualcomm see here and here; JPMorgan see here, here, and here; and Credit Suisse see here and here), the enforcement agencies (in yet another example of converting the FCPA into an all-purpose corporate ethics statute) seem to ignore a very basic, yet important, word in the FCPA’s anti-bribery provisions.
Cannons of statutory construction tend to matter most when an enforcement theory is subjected to judicial scrutiny and the four FCPA enforcement actions mentioned above (like most corporate enforcement actions) were not subjected to any meaningful judicial scrutiny. Perhaps in a sign of how flimsy the enforcement theory is that hiring family members of alleged foreign officials constitutes a violation of the FCPA’s anti-bribery provisions, none of the four enforcement actions involved any individual prosecutions.
Generally speaking, the FCPA’s anti-bribery provisions prohibit the “offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value to a foreign official …”. (emphasis added).
The FCPA also contains third-party payment provisions which prohibit the”offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value” to “any person, 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 …”. (emphasis added).
Internship and jobs are obviously something of value offered or given to the intern or employee. But were the internships and jobs at issue in the above referenced enforcement actions something of value to the alleged foreign officials?
The government at least seemed to be cognizant of the word “to” in the FCPA’s anti-bribery provisions and in the BNY Mellon enforcement action (the first of the four) the SEC creatively stated:
“The internships were valuable work experience, and the requesting officials derived significant personal value in being able to confer this benefit on their family members.”
The dictionary definition of confer is to give, grant or bestow and the deficiency of the above finding is that the companies – and not the alleged foreign officials – were the ones giving, granting, or bestowing the thing of value.
Whether a court would agree with the government’s dubious enforcement theory of the anti-bribery provisions in the above enforcement actions is of course an open question. However, it is worth noting (as highlighted in prior posts here and here) that a similar enforcement narrative was rejected in two cases when subjected to judicial scrutiny.
In the first case, the Libyan Investment Authority (LIA) brought a civil action in a United Kingdom court against Goldman Sachs to rescind certain transactions and to obtain the repayment of premiums from Goldman Sachs. The LIA’s main claim asserted that Goldman Sachs procured the LIA to enter into the transactions by the exercise of undue influence and as to a certain transaction (the so-called April Trades) the LIA alleged that ‘‘Goldman Sachs improperly influenced the deputy chairman of the LIA, Mustafa Zarti, to cause the LIA to agree to the trades by offering his younger brother, Haitem Zarti, a prestigious internship at the bank.’’
Nearly nine pages of the lengthy U.K. legal decision rejecting the LIA’s claim concerned the internship issue and the judge summarized the parties’ positions as follows: The LIA allege that the offer of the internship was improper in various ways; it was not offered to Haitem because of his own merits as a potential investment banker; it was offered in contravention of Goldman Sachs’ own internal policy about recruitment of interns and Goldman Sachs knew or intended that it would encourage Mr Zarti to put more of the LIA’s business with Goldman Sachs. [. . .] Goldman Sachs say[s] there is no evidence that there was anything improper about the offer of the internship and it is unrealistic to suppose that the offer of a few months’ training and work experience would have had any material influence on Mr Zarti’s decision to go ahead with the April Trades.
The judge concluded:
“In my judgement it is going much too far to say that the internship influenced Mr. Zarti to place more business with Goldman Sachs than he otherwise would have done or that the offer had a material influence over the LIA’s decision to enter into the April Trades. [. . .] I find that Mr Mustafa Zarti was keen for his younger brother to work as an intern, though there is no evidence as to why he thought this was important. Although the offer of the internship may have contributed to a friendly and productive atmosphere during the negotiation of the April Trades, it did not have a material influence on the decision of Mr Zarti and the LIA to enter into the April Trades.”
In the second case, United States v. Tavares, the government alleged that defendants ran a corrupt hiring scheme at the Massachusetts Office of Probation (OCP) by catering to the hiring requests from members of the state legislature with the hope of obtaining favorable legislation for the Department of Probation and OCP. (See 844 F.3d 46 (1st Cir. 2016)). The defendants were criminally charged with RICO conspiracy, substantive RICO violations and numerous mail fraud offenses. The substantive RICO count was based on the predicate acts of mail fraud and Massachusetts gratuities and bribery violations. As stated by the court: The Massachusetts gratuities statute penalizes those who give illegal gratuities to officials as well as officials who receive illegal gratuities. Here the Government sought to prove that [defendant] ‘knowingly . . . offered or promised anything of substantial value’ to a public official ‘for or because of any official act performed or to be performed’ by that official. (Id.)
At trial, the defendants were convicted of various criminal offenses and an appeal followed. The First Circuit began its opinion by noting that the defendants ‘‘misran the Probation Department and made efforts to conceal the patronage hiring system.’’ However, the court noted ‘‘bad men, like good men, are entitled to be tried and sentenced in accordance with the law’’ and that ‘‘not all unappealing conduct is criminal.’’
In short, the First Circuit found that the ‘‘government has not in fact demonstrated that the conduct satisfies the appropriate criminal statutes.’’ Citing the U.S. Supreme Court’s 1999 opinion in United States v. SunDiamond Growers of Cal. (526 U.S. 398), the court stated that the ‘‘government must prove a link between a thing of value conferred upon a public official and a specific official act for or because of which it was given.’’ The court next stated:
“In that vein, the Government cannot show the requisite linkage merely be demonstrating that the gratuity was given ‘to build a reservoir of goodwill that might ultimately affect one or more of a multitude of unspecified acts, now and in the future. [. . .] The Government’s evidence as to the gratuities predicates does not show adequate linkage between the thing of ‘substantial value’ conferred by [defendant] (the jobs) and an ‘official act’ performed or to be performed. [. . .] Many of the Government’s arguments are predicated on bootstrapping: because [defendant] was constantly conferring with legislators and hiring based on legislative preferences, any ‘official act’ taken by an affected legislator must satisfy the nexus requirement. But we do not read the gratuities statute so broadly: the Supreme Court in Sun–Diamond ‘offered a strictly worded requirement that the government show a link to a ‘‘specific official act’’ to supply a limiting principle that would distinguish an illegal gratuity from a legal one,’ a principle unnecessary ‘in the extortion or bribery contexts.’ Given a choice between treating a gratuities statute as ‘a meat axe or a scalpel,’ the Supreme Court chose the latter, and we follow suit.”
Just because two courts rejected narratives similar to the narrative in recent FCPA enforcement actions concerning internships and employment decisions does not of course definitely prove that the government, if subjected to judicial scrutiny, would have failed to establish an FCPA anti-bribery violation.
However, it is hard to ignore the parallels from the two similar contested actions including the First Circuit’s reminder that ‘‘not all unappealing conduct’’ is in violation of potentially relevant statutes. Yet, it sure seems that the enforcement agencies have transformed FCPA enforcement into a free-for-all corporate ethics statute in which any conduct the enforcement agencies find objectionable is fair game to extract a multi-million dollar settlement from a risk-averse corporation.
Because the DOJ or SEC rarely face the prospect of judicial scrutiny in FCPA enforcement actions they have, in certain circumstances, used the FCPA as a meat axe rather than a scalpel. The cure for ‘‘meat axe’’ enforcement is judicial scrutiny, but because of how the DOJ and SEC has chosen to enforce the FCPA (largely through resolution vehicles not subjected to any meaningful judicial scrutiny) and given the dynamics of corporate settlements, the meat axe approach to FCPA enforcement prevails regardless of: Congressional intent in enacting the FCPA; the FCPA’s statutory provisions; other relevant legal principles, and whether or not a court would agree.
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