Traditionally, “corruption” investigations—whether domestic political corruption or foreign corruption under the Foreign Corrupt Practices Act—have involved bribes or kickbacks paid to public officials. But in a series of recent prosecutions, the Department of Justice has reimagined “corruption” to target private, commercial conduct. In doing so, the government may have expanded the definition of the term “corruption” to include behavior that has previously been handled civilly or otherwise within the context of the employee-employer relationship, and created a whole new set of legal risks for employers to evaluate.
Brief History of Corruption Prosecutions
The prosecution of “corruption” has long been a focus of the Department of Justice. Historically, that has meant public corruption: the prosecution of politicians and other public officials who took bribes or kickbacks in exchange for the corrupt exercise of their governmental authority. Bribery of federal officials has been a specific federal offense since at least 1789, when the First Congress made it a crime for “any officer of the customs [to] take or receive any bribe, reward or recompense for conniving … .” Act of July 31, 1789, ch. 5, §35. Since then, Congress has enacted a number of laws that explicitly target public corruption, or are frequently employed by prosecutors in corruption cases. They include the federal bribery statutes, 18 U.S.C. §§201 and 666, so-called “honest services” fraud, 18 U.S.C. §§1343 and 1346, and the federal extortion statute (which criminalizes extortion not only by force, but also “under color of official right), 18 U.S.C. §1951.
Over the last several years, public corruption prosecutions have continued to be a particular emphasis of the Justice Department. High-profile examples of public corruption prosecutions have abounded, and have included at least two state governors, several members of Congress, numerous state legislators, and countless local officials. Last month, juries weighed the evidence of corruption against a sitting U.S. Senator and, separately, the head of a public employee union (and in each case, were unable to reach a verdict). Meanwhile, over the last few weeks alone, the Justice Department secured a prison sentence for a corrupt defense contractor who accepted kickbacks in exchange for wrongfully arranging government contracts; a guilty plea from a Homeland Security officer who accepted bribes from a drug trafficker in exchange for having an indictment against the trafficker dismissed; and an indictment against a Veterans Affairs official who allegedly accepted kickbacks in exchange for making improper payments of VA benefits.
In the mid-1970s, the focus on corruption prosecutions turned overseas. The Justice Department having established a dedicated Public Integrity Unit to investigate and prosecute domestic corruption the previous year, Congress in 1977 passed the Foreign Corrupt Practices Act, or FCPA, which criminalizes foreign corruption. 15 U.S.C. §78dd-1, et seq. As many others have examined at length, FCPA investigations and prosecutions have boomed over the last ten years or so. Fiscal year 2016 represented the second-most active year for FCPA enforcement cases ever, by number; for SEC (as opposed to criminal) cases, it was tied for the most active year ever. And by dollars, 2016 was by a wide margin the most aggressive year ever for FCPA enforcement, with a total of approximately $2.5 billion paid in financial penalties. FCPA cases have spanned virtually every industry, and have concerned alleged corruption on five continents.
More recently, the Department of Justice created its so-called Kleptocracy Initiative. Formed by Attorney General Holder in 2010, the Kleptocracy Initiative targets the assets of corrupt foreign officials who have allegedly stolen from their own people, with the goal of repatriating those assets. Cases brought under this Initiative have resulted in the recovery of millions of dollars, and have involved close coordination between the United States and numerous foreign law enforcement agencies likewise focused on official corruption.
Whether foreign or domestic, corruption investigations and prosecutions have historically focused on official corruption. More recently, however, the Department of Justice has turned its attention to other forms of corruption in a series of aggressive and high-profile cases.
The most significant example of this phenomenon is likely the DOJ’s crackdown on corruption in international soccer, including the international body FIFA. Last month, the first criminal trial in the wide-ranging investigation started, against the former heads of major soccer federations—private professional sports organizations—in Brazil, Paraguay, and Peru. (The case is United States v. Napout, Burga, and Marin, pending in the Eastern District of New York; numerous others have already pleaded guilty). Prosecutors are explicitly calling this a “corruption” case. In opening arguments, jurors were told that the defendants “abused the system” and “cheated the sport in order to line their own pockets with money that should have been spent to benefit the game.” Legally, the FIFA indictments charged the same statutes that the DOJ has historically employed in corruption cases: “honest services” wire fraud, along with other charges such as racketeering, money laundering, and violations of the so-called Travel Act that rely on an underlying corruption violation.
But the alleged FIFA corruption scheme involved no public officials or acts. Instead, the cases concern commercial bribery: the defendants and others allegedly received corrupt payments in order to favor certain sports marketing companies over others, award events and contracts to certain countries over others, and otherwise to prioritize their personal enrichment over the proper functioning of the enterprise.
More recently, the U.S. Attorney’s Office for the Southern District of New York charged numerous individuals in connection with what was, as alleged, a broad corruption scheme in NCAA collegiate athletics in which young student-athletes were steered to financial advisors, business managers, and others in exchange for bribes to their college coaches and others; and in which high school athletes and their families were “bribed” (the government’s word) to attend one college over another. The press release issued by the Department of Justice announcing the arrests referred to “corruption” no fewer than ten times, including twice in the headline alone. (The cases are United States v. Evans, United States v. Gatto, and United States v. Person).
As in the FIFA case, the government in the NCAA prosecutions employed many of the same legal theories that it traditionally uses in public corruption cases, including “honest services” wire fraud and violations of the Travel Act. But also as in the FIFA case, virtually all of the conduct alleged in the indictments concerns purely private parties. (Because some of the college coaches worked for state schools, the government was also able to charge certain defendants under the federal bribery statutes, 18 U.S.C. §666), but the DOJ’s overall legal theory does not rely upon the quasi-official nature of coaches at state schools).
The FIFA and NCAA cases, and other smaller cases like them, represent a significant potential shift in the Department of Justice’s enforcement of the laws against “corruption.” Unlike traditional public or foreign corruption cases, which involve officials who are alleged to have abused their political power for personal gain, these cases involve commercial actors who failed to act in the best interests of their organizations or clients for personal gain. In many ways, these cases constitute federal criminal prosecutions for alleged breach of fiduciary duty. Indeed, some of the charges say so explicitly. For example, one of the FIFA indictments charges that “[a]lthough they also helped pursue the principal purpose of the enterprise [i.e., FIFA and its constituents], the defendant and their co-conspirators corrupted the enterprise,” including “by conspiring with and aiding and abetting their co-conspirators in the abuse of their positions of trust and the violation of their fiduciary duties.” And the FIFA prosecutors dedicated substantial time on the very first day of the Napout trial to evidence that purports to establish the fiduciary duties the defendants owed the soccer federations in question.
The Justice Department’s use of traditional corruption statutes to target commercial actors is by no means novel. Most famously, the government prosecuted Enron chief executive officer Jeffrey Skilling under the honest services fraud statutes in connection with his alleged scheme to manipulate Enron’s share price. The Supreme Court reversed Skilling’s conviction, but not because the honest services fraud statute does not apply to private actors. To the contrary, the majority recognized that while not common, since at least the 1940s, courts had recognized that a private employee could be convicted of depriving his or her employer of the employee’s honest services, if he or she accepted bribes or kickbacks. Instead, the court reversed because Skilling’s alleged crime did not involve bribes or kickbacks. See 561 U.S. 358 (2010).
But the schemes alleged in the FIFA and NCAA cases come close to relying on a theory that the Supreme Court explicitly rejected in Skilling. There, the government asked the court to find a violation of the honest services fraud statutes not only where bribes and kickbacks are involved, but also in cases involving “undisclosed self-dealing by a public official or private employee—i.e., the taking of official action by the employee that furthers his own undisclosed financial interests while purporting to act in the interests of those to whom he owes a fiduciary duty.” The court rejected the government’s argument, holding that “a reasonable limiting construction of [the honest services statute] must exclude this amorphous category of cases.”
As alleged, the government’s recent prosecutions seem animated by the defendants’ perceived breach of their fiduciary duties. At the same time, there are allegations that as part of the offense, money changed hands in the form of what the government characterizes as bribes or kickbacks. Whether these indictments are legally sufficient is a question that the courts will ultimately need to decide. But in the meanwhile, employees and employers alike face a significant new set of risks, with the specter that putting oneself ahead of one’s employer or clients—even in professions that do not traditionally entail a fiduciary relationship—may be not only a fireable offense, but a federal crime.
Matthew L. Schwartz and John T. Zach are partners in Boies Schiller Flexner’s New York City office, and members of its global investigations and white-collar defense group. Previously, Mr. Schwartz and Mr. Zach were both Assistant U.S. Attorneys in the Southern District of New York.