The U.S. Department of Justice’s (DOJ’s) criminal enforcement of the U.S. Foreign Corrupt Practices Act (FCPA) in 2013 led to significant headlines and significant resolutions, including hundreds of millions of dollars in recoveries as well as guilty pleas by companies and individuals alike following DOJ investigations.
One of the drivers of FCPA settlements and pleas continues to be the prospect of long-tail criminal liability under the general conspiracy statute, 18 U.S.C. §371, which the DOJ has employed to prosecute conduct stretching many years into the past, taking advantage of the “last overt act” rule for computing the limitations periods in conspiracy cases. Put simply, the rule means that the limitations period for a conspiracy begins to run with the last affirmative act in furtherance of the scheme. Most recently, a subsidiary of Archer Daniels Midland pleaded guilty to FCPA-related conspiracy charges,1 while within the past decade such charges have been lodged against subsidiaries of Siemens,2 Daimler,3 and numerous other firms and individuals, including Frederic Bourke,4 who is now serving a federal prison sentence of one year and a day as a result of his FCPA conspiracy conviction.
Given that the benefits of corrupt conduct can continue for years if not decades after the corrupt acts are completed, a critical issue for both potential defendants and the government alike has been how, if at all, future revenue that derives from improper activity figures into the statute of limitations analysis. Could, for example, a license, certification, permit, or long-term supply contract extending decades into the future and procured by paying a bribe to a foreign government official mean potentially unlimited conspiracy liability until the last benefit of the bribe was received? Although common sense suggests the answer should be no, a recent decision by the Court of Appeals for the Second Circuit provides greater certainty that the answer is no, at least in that circuit.
In its decision late last year in United States v. Grimm, 2013 WL 6403072 (2d Cir. Dec. 9, 2013), a divided panel reversed conspiracy convictions on the ground that the overt acts necessary to bring the case within the limitations period could not legally encompass “indefinite payments” that were received as a result of the conspiratorial activity—in Grimm, a price fixing scheme for financial products sold by the defendants to municipalities seeking temporary income streams from municipal bond sale proceeds.
Although arising in an esoteric corner of municipal bond finance and federal tax law, Grimm may put a damper on certain prosecutions of historical conduct, including, perhaps most prominently, those involving foreign bribery schemes too old to charge directly under the criminal provisions of the FCPA but—until Grimm—arguably within range of the conspiracy statute and the “last overt act” doctrine.
In this article, we discuss the holding in Grimm and then address its importance to FCPA conspiracy prosecutions that form an important component of FCPA enforcement.
Grimm arose out of a scheme by three employees of General Electric Company (GE) who were indicted on July 27, 2010 for conspiring to rig the returns that the GE financing subsidiary for which they worked (and later another company to which one of the employees transferred) paid government entities seeking to earn interest on municipal bond sale proceeds in the interim between the sale of the bonds and the time those funds were used for public purposes. The financial products used to achieve these interim payments, guaranteed investment contracts (GICs), were subject to regulation by Internal Revenue Code, which required returns in excess of the interest rates earned on the underlying tax-free municipal securities to be paid to the Treasury.5
The goal of the IRS regulation was to prevent municipalities from engaging in arbitrage by borrowing via tax-free bond sales and then lending in the taxable market. But the regulation went further, providing only limited means for establishing for tax purposes the fair market value of GICs on the date of purchase, enabling bond issuers to fix their tax liability with certainty only if they engaged in a competitive bidding process requiring sealed bids from at least three brokers. Defendants were convicted of conspiring to corrupt this process by scheming to rig GIC contract bids by three brokers who stood between the defendants’ employers and winning specific GIC business. Thus, the convictions encompassed defrauding the municipalities in some cases of income from GICs paying less than the bond interest rates and in other cases defrauding the Treasury of tax revenue for GIC income that exceeded that which was paid, tax-free, pursuant to the underlying bonds.6
Because the conspiracy charges pertained in part to an alleged fraud on the United States, the six-year statute of limitations rather than the general five-year limitations period set forth in 18 U.S.C. §3282 applied; thus, to sustain a conviction the government was required to prove an overt act after July 27, 2004 by one of the conspirators in furtherance of the conspiracy. As the underlying kickbacks had been paid only from August 1999 to and including May 2004, the government was required to invoke, as “overt acts,” the “periodic interest payments made by providers to issuers pursuant to the GICs”—that is, the below-market payments under the rigged GIC broker-bid processes.7
On appeal from defendants’ conspiracy convictions, the Second Circuit reversed. Although the government relied on language from the Second Circuit’s decision in United States v. Salmonese8 to the effect that “where a conspiracy’s purpose is economic enrichment, the jointly undertaken scheme continues through the conspirators’ receipt of ‘their anticipated economic benefits,’”9 the panel decision, by Judge Dennis Jacobs and joined by Judge Chester Straub, noted that Salmonese had qualified its holding by observing that “a conspiracy ends notwithstanding the receipt of anticipated profits ‘”where  the payoff merely consists of a lengthy, indefinite series of ordinary, typically noncriminal, unilateral actions … and there is no evidence that any coerced activity posing the special societal dangers of conspiracy is still taking place.”‘”10
Contrasting the payments in Salmonese, which “were completed within ten weeks of [a] public offering and were ‘hardly “indefinite” in number or “lengthy” in duration,’” the majority concluded that the GIC payments in Grimm were precisely the opposite—the result of “ordinary commercial obligations, made pursuant to a common form of commercial arrangement; they are noncriminal in themselves; they are made unilaterally by a singe person or entity; and they are made indefinitely, over a long time, typically up to 20 years or more.”11 The court concluded by noting that “[a] conspiracy to corrupt the rent payable on a 99-year ground lease would, under the government’s theory, prolong the overt acts until long after any conspirator or co-conspirator was left to profit, or to plot.”12 Judge Amalya Kearse dissented, reasoning that the rigged bidding scheme reflected the requisite “continuity of action to produce the unlawful result” beyond the dates the kickbacks ceased, and observed that the majority’s conclusion that, after the bribes ceased, there was “no evidence of any continued concerted activity posing the special dangers” of conspiracy was “misguided.”13 On Jan. 22, 2014, the United States petitioned for panel rehearing, or, in the alternative, for en banc review, and that petition is pending.14
Impact FCPA Enforcement
Grimm provides an important interpretation of the Supreme Court’s observation in 1946 that “[t]hough the result of a conspiracy may be continuing, the conspiracy does not thereby become a continuing one,” for “[c]ontinuity of action to produce the unlawful result, or … ‘continuous co-operation of the conspirators to keep it up’ is necessary.”15 Perhaps nowhere is such an interpretation more important than in FCPA cases, in which misconduct, often thousands of miles away in a high-risk country (from a corruption perspective), and long hidden from corporate headquarters (and the government) can have an enormously long economic impact—in the case of permits, certifications, supply contracts, concessions, land deals, privatizations and other long-term government actions, potentially as long as or longer than the 99-year period hypothesized in Grimm.
By drawing lines between underlying misconduct and the natural results of that conduct, the Second Circuit’s decision brings greater certainty and consistency to the law pertaining to FCPA enforcement, in which conspiracy charges hold the potential to lengthen materially the period in which charges may be brought. This is so given that anti-bribery offenses under the FCPA, like domestic bribery and similar offenses, are “completed crimes” and, hence, limitations periods pertaining to them begin to run when all the elements of the offense are first present.16
Although the government may well try in future cases to plead around Grimm‘s holding by focusing their investigations (and the resulting alleged overt acts in FCPA-related conspiracy cases) on the efforts of defendants to hide the ill-gotten gains of corruption-tainted arrangements, Grimm will likely pose a meaningful hurdle for the government in at least some prosecutions. Indeed, the structure of the financial product at issue in Grimm, one in which the defendants would be generating payments for years after the underlying bribes occurred, arguably representing that each one was legitimate, makes Grimm solid precedent for the notion that mere receipt of ill-gotten gains is insufficient to give rise to an “overt act” that somehow furthers a bribery conspiracy.17
That said, even after Grimm, the government’s arsenal to extend the time for charging FCPA and FCPA-related offenses remains considerable. Among the tools available are tolling agreements and the ability to seek an extension of the limitations period for up to three years while evidence is sought overseas pursuant to a mutual legal assistance treaty request.18 Nor should either companies or individuals be sanguine that acts other than mere receipt of tainted benefits will necessarily fall within Grimm‘s ambit and the “indefinite payments” rule it enunciates for purposes of defining the scope of conspiracy liability. And Grimm does not speak directly to some of the most potent charges that can be brought under the FCPA, namely, charges under the books and records and internal controls provisions applicable to issuers under the Securities Exchange Act of 1934, as well as related control person and aiding-and-abetting laws.19
Proper analysis of the limitations period applicable to bribery, including FCPA, violations has an important impact on matters ranging from whether a company has a compliance event that may trigger reporting obligations to whether the company has a document retention policy sufficient to enable the company to defend itself against FCPA allegations. In that respect, Grimm‘s impact in limiting the risk of conspiracy charges in FCPA (and other bribery) cases is particularly important not only for the private sector, but also for the government, whose actions in initiating investigations—and promptly terminating them once it is clear a criminal matter cannot be timely brought—can have enormous effect on the allocation of scarce legal and compliance resources.
More basically, Grimm returns the law to first principles when it comes to the importance of statutes of limitations in criminal cases. As the Supreme Court has held, “[t]he purpose of a statute of limitations is to limit exposure to criminal prosecution to a certain fixed period of time following the occurrence of those acts the legislature has decided to punish by criminal sanctions,” protecting individuals from the “danger of official punishment because of acts in the far-distant past.”20 These interests dictate “‘the principle that criminal limitations statutes are ‘to be liberally interpreted in favor of repose.’”21
Coming in the wake of the Supreme Court’s 2013 decision in Gabelli,22 holding that SEC penalty proceedings are governed by a limitations period triggered by an SEC-regulated entity’s wrongful acts—and not when the SEC reasonably should have discovered those acts23—Grimm reinforces the importance of statutes of limitations in FCPA (and other) bribery matters, and, at a deeper level, reflects as well the hostility of the law to imposing liability based on inaction absent a clear statutory directive.24 Although companies and individuals alike still must recognize that statutes of limitations do not govern civil equitable relief, such as disgorgement, which is governed by the doctrine of laches,25 and that corruption cases can give rise to an enormous array of collateral consequences even when no charges are filed, Grimm provides considerable balance to the law as well as an important framework for reducing the potential for the draconian risk of long-tail criminal liability in FCPA enforcement.
Sean Hecker and Andrew M. Levine are partners and Steven S. Michaels is counsel in the white-collar litigation practice at Debevoise & Plimpton.
1. United States v. Alfred C. Toepfer Int’l (Ukraine), No. 13-cr-20062, Plea Agreement (C.D. Ill. Dec. 20, 2013), http://www.justice.gov/criminal/fraud/fcpa/cases/alfred-c-toepfer-international/acti-plea-agreement.pdf.
2. DOJ Press Rel. 08-1105, Siemens AG and Three Subsidiaries Plead Guilty to Foreign Corrupt Practices Act Violations and Agree to Pay $450 Million in Combined Criminal Fines (Dec. 15, 2008), http://www.justice.gov/opa/pr/2008/December/08-crm-1105.html.
3. DOJ Press Rel. 10-360, Daimler AG and Three Subsidiaries Resolve Foreign Corrupt Practices Act Investigation and Agree to Pay $93.6 Million in Criminal Penalties (April 1, 2010), http://www.justice.gov/opa/pr/2010/April/10-crm-360.html.
4. United States v. Kozeny (Bourke), 667 F.3d 122, 127-134 (2d Cir. 2011).
5. Grimm, 2013 WL 6403072 at *1.
6. Id. at *1-2.
7. Id. at *3.
8. 352 F.3d 608 (2d Cir. 2003).
9. Id. at 615.
10. Grimm, 2013 WL 6403072 at *3-4 (quoting 352 F.3d at 616).
12. Id. at *4.
13. Id. at *10.
14. Pet. for Reh. and En Banc Rev., No. 12-4310 (2d Cir. filed Jan. 22, 2014).
15. Fiswick v. United States, 329 U.S. 211, 216 (1946).
16. Pendergast v. United States, 317 U.S. 412, 418 (1943). The five-year limitations periods provided by 18 U.S.C. §3282 and 28 U.S.C. §2462 apply to substantive FCPA criminal proceedings and SEC FCPA civil penalty actions, respectively.
17. Grimm, in this respect, raises significant doubts about those cases in which submission of billing documents following the making of corrupt payments is alleged as an “overt act” in further of an FCPA conspiracy. See, e.g., United States v. Bigelow, Crim. No.: 09-cr-346-RJL, (D.D.C. 2009) (overt acts included mailing a copy of a corrupt purchase agreement following the payment of a commission).
18. See 18 U.S.C. §3292.
19. See 15 U.S.C. §§78m(b)(2)(A) and (B); 15 U.S.C. §78t.
20. Toussie v. United States, 397 U.S. 112, 114-15 (1970) (citations omitted).
22. Gabelli v. SEC, 133 S.Ct. 1216 (2013).
23. See id.
24. See United States v. Peoni, 100 F.2d 401 (2d Cir. 1938) (L. Hand, J.) (aiding and abetting); see also Janus Capital Group v. First Derivative Traders, 133 S.Ct. 2296 (2011) (limiting the scope of liability for “making” false statements).
25. The five-year statute governing SEC penalty claims, i.e., 28 U.S.C. §2462, does not apply to civil enforcement actions in which the SEC seeks “to restore the status quo ante.” See Johnson v. SEC, 87 F.3d 484, 490-91 (D.C. Cir. 1996).