The FCPA: The New SEC and DOJ Enforcement Priority – Part V, Recent Court Decisions
Although the FCPA is now thirty years old, there are relatively few court decisions interpreting its provisions. Last year however there were three decisions, one defining a key anti-bribery element while two others construed defenses.
First, in two decisions in the same case the Fifth Circuit Court of Appeals gave an expansive reading to the key anti-bribery element of “obtaining or retaining” business. The indictment alleged that the defendants had bribed Haitian customs officials to accept false documents to understate shipments by about one third to reduce taxes. The district court dismissed the indictment which, as to the “obtain or retain” business element pled only the statutory language. The district court concluded that payments to reduce taxes were not prohibited by the statute.
The Fifth Circuit reversed. U.S. v. Kay, 359 F. 3d 738 (2004)(Kay I). The circuit court reasoned that the FCPA only criminalizes certain payments, essentially those where there is a “quid pro quo.” After an extensive review of the legislative history the court concluded that “Congress intended for the FCPA to apply broadly to payments intended to assist the payor . . . “ in business. While not every bribe to reduce taxes is prohibited and increased profit margins by themselves are insufficient, when tax savings and other facts are coupled with other facts the conduct may come within the meaning of obtaining or retaining business. Accordingly the case was remanded to the district court.
After conviction the case came back to the Fifth Circuit based on claims of a lack of fair notice as to what conduct is prohibited, among others. The Circuit Court again rejected the appeal. 2007 WL 3088140 (5th Cir. Oct. 24, 2007)(Kay II). On the key question of obtaining/retaining business the court held that “Paying taxes and customs duties is inherent to foreign business, and decreasing these payments through bribery, as defendants have admitted, was common practice in Haiti. If bribery to obtain favorable tax and customs obligations was as common as established in the record, then it is reasonable to imply that businesses viewed these practices as one of the only guarantees of maintaining a successful business in Haiti in the 1990’s. It is not therefore a novel application of the law for the district court to find that defendants made these payments for the purpose of ‘retaining business.’”
The expansive view of the Fifth Circuit appears to be shared by the SEC. See, e.g., In the Matter of Bristow Group, Inc., Admin. Proc. File No. 3-12833, SEC Release 56533 (Sept. 26, 2007)(Settled administrative proceeding where the Order alleged the Bristol Group made improper payments to Nigerian state government officials in return for a reduction in employment taxes. Respondent consented to a cease and desist order as to the anti-bribery, books and records and internal control provisions).
A second decision last year involved the statute of limitations defense. In U.S. v. Kozeny, the defendants were indicted for engaging in a scheme to bribe officials in Azerbaijan to ensure that the state-owned oil company would be privatized so they could share in the profits from the transaction.
DOJ had sought assistance from two foreign governments in gathering evidence. After the five year limitation period expired the department obtained an order under 18 U.S.C. Section 3292 extending the limitation period.
The district court dismissed the indictment as time barred. In making this ruling the court held that the general five-year limitation period applies to FCPA cases. In seeking to extend that period under Section 3292 the court concluded that the time of the order, not the request is key. Since the order followed the expiration of the time period the claims were time barred. 493 F. Supp. 2d 518 (S.D.N.Y. 2007). Subsequently, on reconsideration the court reinstated three counts where it appeared that there may have been conduct within the limitation period. 493 F. Supp. 2d 693 (S.D.N.Y. 2007). Kozeny is currently pending before the Second Circuit on appeal by the government.
Finally, U.S. v. Griffen, 473 F. 3d 30 (2nd Cir. 2007) concerns the public authority defense. In this case the Second Circuit Court of Appeals dismissed a government appeal from what it claimed was the denial of a motion in limine in and FCPA case where the defendant appeared to be raising a public authority defense.
Although the Court held it had no jurisdiction to hear the case, it made certain “observations” about the defense. In what is essentially an advisory opinion the court noted that the “public authority” defense has two branches, actual authority and one based on estoppel.
The actual authority branch “exists where a defendant has in fact been authorized by the government to engage in what would otherwise be illegal activity.” A proffer must disclose facts establishing actual or apparent authority.
In contrast the entrapment by estoppel branch of the defense “can be established without the defendant having received actual authorization. It depends on the proposition that the government is barred from prosecuting a person for his criminal conduct when the defendant, by its own actions, induced him to do those acts and led him to rely reasonably on his belief that his actions would be lawful by reason of the government’s seeming authorization.” Again specific facts must be presented in a proffer.
Finally, the court noted that a related doctrine of negation of intent is not an affirmative defense. Rather, it is an attempt to negate the government’s proof of intent, demonstrating that the defendant acted in good faith. Only the Eleventh Circuit has adopted this position. While the court indicated it had great difficulty with this theory, it “assumed” that there are some circumstances where it might apply.
Next: A year of record fines