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The Foreign Corrupt Practices Act (FCPA) prohibits an issuer of securities and its employees, agents and stockholders from, inter alia, using interstate commerce corruptly to give something of value to a foreign official for purposes of influencing an act or decision of the foreign official in his or her official capacity “in order to assist such issuer in obtaining or retaining business for or with, or directing business to, any person.” 15 U.S.C. 78dd-1(a).

The statute exempts so-called “grease payments,” made “to expedite or to secure the performance of a routine governmental action.” § 78dd-1(b). It also creates affirmative defenses where the conduct was lawful under the written law of the foreign official’s country, and in certain other situations involving “reasonable and bona fide expenditures.” § 78dd-1(c).

Charged with making improper payments

Does this statute prohibit corrupt payments to foreign officials to reduce customs duties and sales taxes? In United States v. Kay, No. 02-20588 (5th Cir. Feb. 4, 2004), the 5th U.S. Circuit Court of Appeals held that it may.

David Kay and Douglas Murphy were officers of American Rice Inc. (ARI). They were charged with having made improper payments to Haitian officials to reduce customs duties and sales taxes payable by ARI on rice shipped to Haiti. The district court dismissed the indictment on the ground that payments for those purposes were not for the purpose of obtaining, retaining or directing business, and so were outside the statute. The 5th Circuit reversed.

The court found the statutory text ambiguous, and decided the legal issue on the basis of legislative history, which it interpreted as supporting the attribution to Congress of a broad purpose “to prohibit the type of bribery that (1) prompts officials to misuse their discretionary authority and (2) disrupts market efficiency and United States foreign relations.” Slip Op. 17. Consequently, the court concluded that the statute prohibits payments that the defendant intended to have the effect of lowering the issuer’s cost of doing business and thereby assist the issuer in obtaining or retaining business of any kind (not only government contracts).

On the court’s view, any corrupt payment by an issuer to a foreign official is covered by the FCPA if the issuer intended that the action to be taken by the official would in any way, even if very indirectly, assist the issuer in obtaining or retaining any business.

Thus, for example, bribing a foreign official to reduce a regulatory requirement (in a way that would lower the issuer’s cost of manufacturing), or to impose on potential customers a regulatory requirement (which the issuer’s product would enable them to satisfy), or to redirect a highway (in a way that would lower the issuer’s transportation costs) might be covered.

If Congress intended the FCPA to reach all such corrupt payments to foreign officials, it is difficult to see why it included in the statute the limiting language, “in order to assist such issuer in obtaining or retaining business for or with, or directing business to, any person.”

Virtually any corrupt payment that an American issuer or anyone acting for it is likely to make to a foreign official will be intended to obtain some business advantage that, in some way, however indirectly, may assist the issuer in obtaining or retaining business.

Moreover, the court’s review of the statutory text treated that clause as if it read “in order to obtain or retain business.” The court thus overlooked the possibility that the statute requires not only that the defendant intend the payment to aid the issuer in obtaining or retaining business, but also that the corrupted foreign official intend to assist the issuer in obtaining or retaining business.

If Congress had intended the statutory reference to assistance in obtaining or retaining business to refer solely to the intent of the issuer or its employee or agent, the natural way to have expressed that intent would have been to say: “in order to obtain or retain business” or “in order to obtain assistance in obtaining or retaining business.”

As a matter of English usage, it is unnatural to refer to an issuer obtaining assistance for itself by saying: “in order to assist such issuer.” That the statute also covers classes of individuals acting for an issuer does not entirely remove the unnaturalness.

The most natural way to read the words Congress used is as referring to the corrupted foreign official having been influenced in an act or decision, or having been induced to use influence, “in order to assist” the issuer, etc.

That is, the effect the defendant must have intended the corrupt payment to have on the foreign official is to induce that official to take some action that the official intends will assist the issuer to obtain or retain business. Thus, for the crime to occur, the defendant must intend that the foreign official become a knowing participant in the scheme to obtain or retain business for the issuer.

This interpretation gives real, and arguably appropriate, significance to the actual wording of the “in order to assist” clause. That clause distinguishes the FCPA from a general bribery statute in aid of the integrity of all dealings between American issuers and foreign governments, and focuses it strongly on corruption of those dealings for the purpose of obtaining or retaining business.

The interpretation does not arguably narrow statute

Does the interpretation unduly narrow the statute? Arguably not. It covers the core FCPA violations that relate to government contracts, and the word “business” retains its full scope, including business wholly in the private sector.

The proposed interpretation would make the corrupt assistance in obtaining or retaining business the heart of the matter, as the statutory text suggests it should be. It would not suffice that, although the obtaining or retaining of business was intended by the defendant, it was not intended by the foreign official, and was merely an incidental consequence of the official’s corrupted act or decision.

Interpretation avoids oddity under 5th Circuit version

This interpretation also avoids an oddity under the 5th Circuit’s interpretation. Under that interpretation, the prosecution must prove (of course, beyond a reasonable doubt) that the defendant made the corrupt payment with intent to obtain or retain business for the issuer.

Thus, if Kay and Murphy made the alleged payments solely with intent to increase ARI’s profits and dividends and not with intent to obtain new business or retain existing business, they did not violate the FCPA.

If they intended to obtain reduction of ARI’s customs duties and sales taxes, but had no intent as to what ARI would do with its resulting savings, they also did not violate the FCPA. Criminality would depend on the possibly attenuated distinctions among these states of mind, which seem equivalent morally but not in their degree of connection to the statutory element of assistance in obtaining or retaining business.

Generally, intent of both parties inferred from the act

In practice, the act or decision intended to be procured by the bribe would have to be much more closely related to the obtaining or retaining of business under the proposed interpretation than under the court’s interpretation. Under the former, the evidence would have to be robust enough to prove that both the defendant and the foreign official intended to assist the issuer in the gaining or retaining of business.

Generally, the intent of both parties can be inferred from the nature of the act, decision or exercise of influence that the defendant sought through the payment.

The inferences would be obvious and easy where, for example, the act was the awarding of a government contract to the issuer, or the changing of a bidding specification so as to favor the issuer, or the using of an official position to influence a local private firm to buy from the issuer. The inference would be more difficult where, as in the Kay case, the foreign official’s act has no necessary relationship to the obtaining or retaining of business.

The indictment recited no particularized facts to satisfy the “assist” element of the offense because it pleaded this element merely in the abstract words of the statute and failed to allege any specific factual nexus between ARI’s savings on customs duties and taxes and ARI’s obtaining or retaining of business.

The court noted that there are many ways such savings can help in obtaining or retaining business, “but that is not to say that such a diminution [in duties and taxes] always assists in obtaining or retaining business. There are bound to be circumstances in which such a cost reduction” merely increases profits of an already profitable business or ensures profitability of a start-up. Slip Op. at 43-44.

The court nevertheless held the indictment sufficient under Russell v. United States, 369 U.S. 749 (1962), because the “assist” element does not go to “the very core of criminality.”

The court viewed the core of the FCPA as the bribing of a foreign official to perform an official duty corruptly, not the recruiting of a foreign official into a corrupt scheme to obtain or retain business. Slip Op. at 47.

This holding necessarily followed from the court’s general view of the statute.

On remand, however, the government will still have to prove that Kay’s and Murphy’s intent was to obtain or retain business for ARI.

Richard Cooper is a partner at Williams & Connolly in Washington. He can be reached by e-mail at [email protected].

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