Foreign Corrupt Practices Act and the elusive question of intent.

• Author: Lipper, Gregory M.

INTRODUCTION

Among analysts of the Foreign Corrupt Practices Act ("FCPA" or "Act"), the case is seen as "a game-changer." (1) During the 1990s, handbag magnate Frederick Bourke invested $8 million in an effort led by Czech promoter Viktor Kozeny to purchase the state-owned oil company from the government of Azerbaijan. (2) Other investors in the deal included the hedge fund Omega Advisors Inc. and the insurance giant AIG. (3) The deal fell through amid allegations that Kozeny had bribed Azeri President Aliyev, and investors came to believe that funds had been misappropriated by Kozeny, nicknamed the "Pirate of Prague" after shady dealings in his former home. (4) Bourke "blew the whistle--complaining first to the president of Azerbaijan and then to law enforcement agencies in the U.S." (5) The State of New York indicted Kozeny for stealing over $180 million from investors, including $8 million from Bourke himself. (6) Kozeny remains in the Bahamas, which has refused U.S. requests for his extradition. (7)

Meanwhile, the Department of Justice indicted--Bourke. The government alleged that, among other things, he conspired to violate the FCPA by investing in a scheme to bribe senior Azeri government officials, including President Aliyev. (8) Prosecutors admitted that Bourke didn't pay bribes and only knew of them, (9) but argued that he "made these investments based in part on his understanding that Kozeny had paid and would pay bribes to Azeri officials to ensure [the company's] privatization and the investment consortium's participation in the privatization." (10)

The trial featured tales of international intrigue and organized rackets. The government argued that Bourke knew of the bribes and, in the alternative, that he consciously took steps to avoid learning of them. (11) Prosecution witnesses "told of plane flights into Azerbaijan with millions of dollars stuffed into suitcases, of shakedowns in government offices, and of dealings with Chechen mobsters who provided protection to Kozeny's operation." (12) Both Kozeny's former aide and his former lawyer testified that they told Bourke of the illicit payments. (13) Bourke argued that he neither knew of illicit payments nor intended to facilitate them; defense witnesses included former Senate Majority Leader George Mitchell, who invested in the deal and testified that he did not know about the bribes even after he met with President Aliyev. (14)

The jury convicted Bourke of conspiring to violate the FCPA. (15) But posttrial statements by the foreman left it unclear whether the jury condemned Bourke for acting knowingly or merely negligently: "It was Kozeny, it was Azerbaijan, it was a foreign country.... We thought he knew and definitely could have known. He's an investor. It's his job to know." (16) And even as the trial judge sentenced Bourke to a year in prison, she admitted that "'it's still not entirely clear to me whether Mr. Bourke is a victim or a crook or a little bit of both.'" (17) As of this writing, Bourke's appeal is pending. (18)

Although questions of knowledge and intent pervade white-collar prosecutions, they are especially important in the context of the FCPA. Many developing nations are increasingly ripe for investment and rife with corruption. (19) Much of their industry is (or until recently was) state owned or operated. (20) Investors in those countries typically require the services of local agents, who possess government contacts and knowledge of local customs, but who can be difficult to supervise. So bribes happen. The FCPA then asks whether those bribes happened at the direction or with the knowledge of the U.S.-based investors, and whether the U.S.-based investors acted with the necessary wrongful intent.

That question arises more and more often. Federal efforts to enforce the FCPA are ballooning. In January 2009, the DOJ announced that "enforcement of the FCPA was [its] top priority, second only to fighting terrorism," and "the DOJ and SEC filed twenty-three FCPA enforcement actions from January through November 2009--which is more than in 2008 (twenty-one), nearly as many as in 2007 (twenty-eight, the highest year on record), and is second highest ever for an individual year since the FCPA's enactment in 1977." (21) As of spring 2010, the DOJ had over 130 open FCPA investigations and also suggested that the total could rise by the end of the year. (22) Criminal enforcement of the FCPA "is expected to remain a top priority in the Obama administration and thus a prominent feature on the legal landscape throughout this decade." (23)

Among other things, the DOJ is more aggressively pursuing individuals. In March 2010, the Assistant Attorney General for the Criminal Division stated that "prosecution of individuals is a cornerstone of [the DOJ's] enforcement strategy" and warned that "the prospect of significant prison sentences for individuals should make clear to every corporate executive, every board member, and every sales agent that we will seek to hold you personally accountable for FCPA violations." (24) In 2009, twenty-four individuals were indicted, and four were convicted of FCPA violations; both are record numbers. (25) Whereas corporations almost always cooperate and settle with the government, lest they face the harsh collateral consequences that accompany indictment (26)--recall the fate of Arthur Andersen (27)--individual defendants are far more likely to contest the charges. (28) As a result, the increase in individual prosecutions has propelled more cases to trial, with summer 2009 "the most active trial period in the history of the FCPA." (29) With more cases going to trial, key factual and legal issues, including questions of intent, will arise more often. (30)

First, there is the question of legal intent. The FCPA requires that the prohibited acts be committed "corruptly" and individuals face criminal penalties only if they have acted "willfully." Both requirements signal exceptions to the maxim that "ignorance of the law is no excuse" and require courts to determine whether and to what extent the Act requires the government to prove the defendant's knowledge that his conduct was illegal. Whereas interpreting the term "corruptly" has proven relatively straightforward, the term "willfully" has proven more difficult to define.

Second, there is the question of factual intent. The Bourke case illustrates that when it prosecutes individuals, the DOJ will rely on an ostrich offense: the argument that even if investors did not know of illicit payments to foreign officials, they remained willfully blind to or consciously avoided learning of them. In the words of one former Deputy Attorney General, "[a]ggressive use of the concept of 'willful blindness' as a basis for criminal liability is clearly at the forefront of enforcement officials' intentions." (31) Less charitably, a leading FCPA commentator announced that, following the Bourke verdict, "merely investing in an overseas deal that might be tainted with bribery[] is now illegal" and warned investors: "If there's a hint of bribery, run." (32)

With enforcement activity accelerating, the FCPA has received increasing amounts of academic attention. (33) Yet the scholarly literature lacks a comprehensive analysis of the FCPA's mens rea requirements.

In seeking to fill this gap, I proceed in three parts. Part I sketches the FCPA's key criminal provisions, including its multiple layers of intent requirements. Part II describes how courts have yet to meaningfully grapple with the textual and practical implications of the FCPA's requirement that individual criminal violations be committed "willfully"--and thus have yet to give sufficient effect to this provision. Part III explains that Congress's attempt to protect investors from negligence-based prosecutions risks falling short; whereas the legal standard of "knowingly" is sufficiently clear, courts must police the government's evidence more rigorously to protect defendants from criminal responsibility for mere negligence.

1. THE FCPA AND ITS MENS REA REQUIREMENTS

   The FCPA seeks to prevent and punish the bribery of foreign officials to obtain business and other concessions. It was enacted in 1976, after "[m]ore than 400 corporations ... admitted making questionable or illegal payments ... in excess of $300 million to ... foreign government officials, politicians, and political parties." (34) Congress amended the Act in 1988 and again in 1998. (35) (Certain of these amendments are discussed further in Sections II and III.)

   1. The Act's Core Provisions

      The FCPA's basic anti-bribery provisions target the "use of the mails or any means or instrumentality of interstate commerce corruptly in furtherance of an offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving or anything of value." (36) These prohibitions apply to payments made to a (1) "foreign official," or (2) "foreign political party or official thereof or any candidate for foreign political office"--for the purpose of influencing such individuals' or entities' acts or decisions. (37) The FCPA does not cover bribe-takers, who cannot be prosecuted either directly or as co-conspirators. (38)

      In addition to prohibiting direct bribes, the Act criminalizes payments to intermediaries for the purpose of improper payments to foreign officials. Specifically, the Act prohibits payments 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, to any foreign political party or official thereof, or to any candidate for foreign political office," for purposes of influencing the decisions or actions of such officials, parties, or candidates. (39)

      Not all bribes or bribe-like payments are forbidden. First, the Act permits a "facilitating payment," defined as "[a] payment to a foreign...