University of Miami Law School Institutional Repository University of Miami Inter-American Law Review 10-1-2012 US v. Aguilar and the Foreign Corrupt Practices Act: Sending an S.O.S. to Congress Jared Chaykin Follow this and additional works at:http://repository.law.miami.edu/umialr Part of theLaw Commons Recommended Citation Jared Chaykin,US v. Aguilarand the Foreign Corrupt Practices Act: Sending an S.O.S. to Congress, 44U. Miami Inter-Am. L. Rev.63 (2012) Available at: http://repository.law.miami.edu/umialr/vol44/iss1/5 This Student Note/Comment is brought to you for free and open access by Institutional Repository. It has been accepted for inclusion in University of Miami Inter-American Law Review by an authorized administrator of Institutional Repository. For more information, please contact [email protected]. \\jciprod01\productn\I\IAL\44-1\IAL105.txt unknown Seq: 1 1-NOV-13 11:28 63 STUDENT NOTES/COMMENTS US v. Aguilar and the Foreign Corrupt Practices Act: Sending an S.O.S. to Congress Jared Chaykin1 I NTRODUCTION When Congress passed the Foreign Corrupt Practices Act (“FCPA”) in 1977, United States citizens and people across the world were disgusted with the U.S. political system and the cor- rupt business practices of American companies in other countries.2 However, since Congress enacted the popularly-demanded regula- tion to curb American businesses’ abusive behavior, arguments over the FCPA have recently devolved into a minefield. This note will address one area of contention—the definition of an “instru- mentality” and “foreign official” in light of U.S. v. Aguilar3 and U.S. v. Carson.4 This note begins by outlining the FCPA, including the events that brought about its genesis, as well as the limited case law interpreting the FCPA. The discussion will then turn to the meaning of the terms “foreign official” and “instrumentality” as used in the FCPA, and the controversy surrounding these defi- nitions. This note will also provide an overview and analysis of U.S. v Aguilar and U.S. v. Carson, concluding that the Aguilar and Carson decisions provide some guidance to businesses regard- ing what constitutes unlawful business practices, although Con- gress must provide U.S. businesses with better guidance to enable such companies to abide by FCPA’s provisions. 1. B.A., University of Miami, 2007; J.D., University of Miami School of Law, 2013. When I met you in tennis camp fifteen years ago, Livia, I knew you were on a path to unbridled success, but little did I know, you would take me with you, and give me the greatest gifts of all: your parents and our son, Garyd. 2. See generally Michael B. Bixby, The Lion Awakens: The Foreign Corrupt Practices Act-1977 to 2010, 12 SAN DIEGO INT’L L.J. 89, 92-93 (2010) (noting that the FCPA was a product of the Watergate era). 3. 783 F. Supp. 2d 1108, 1108 (C.D. Cal. 2011). 4. No. SACR 09-00077-JVS, 2011 WL 5101701, at *12 (C.D. Cal. May 18, 2011). \\jciprod01\productn\I\IAL\44-1\IAL105.txt unknown Seq: 2 1-NOV-13 11:28 64 INTER-AMERICAN LAW REVIEW [Vol.44:1 I. T FCPA HE A. Events Preceding the Enactment of the FCPA Most associate the Watergate scandal with the attempted burglary of the Democratic National Committee’s headquarters in 1972.5 Behind the burglary drama, the Securities and Exchange Commission’s (“SEC”) enforcement chief, Stanley Sporkin, investi- gated the Nixon campaign’s financial documents and discovered that many public companies illegally contributed to U.S. political campaigns.6 This finding led Sporkin and the SEC to investigate the companies that contributed to the Nixon campaign to deter- mine how the companies accounted for these illegal cash exchanges.7 An analysis of the contributions revealed secret accounts maintained by companies that were used to bribe and pay illegal political contributions.8 After Sporkin’s investigation, the SEC conducted additional formal investigations, which revealed that companies were mak- ing illegal contributions via cash slush funds maintained in for- eign countries.9 Further analysis revealed that U.S. companies were paying foreign officials in Japan, Italy, and Mexico.10 In 1977 the SEC issued a report based on volunteered information from public companies, which were in return offered leniency from the SEC regarding questionable payments made to foreign govern- ments.11 From the self-reported information the companies pro- vided, the SEC reported that American businesses, like Exxon- Mobil and Boeing, made hundreds of millions of dollars in “ques- tionable” but legal payments to foreign government officials.12 B. Enactment of the FCPA In response to U.S. companies’ actions, Congress passed the Foreign Corruption Practices Act of 1977.13 The FCPA, which amended the Securities and Exchange Act of 1932, changed how 5. Bixby, supra note 2, at 92. 6. Id. 7. Id. at 92-93. 8. Id. at 93. 9. Cortney C. Thomas, The Foreign Corrupt Practices Act: A Decade of Rapid Expansion Explained, Defended, and Justified, 29 REV. LITIG. 439, 442-43 (2010). 10. International Anti-Bribery Act of 1998, in FOREIGN CORRUPT PRACTICES ACT REPORTER, Appx. D, at 3 (2d ed. 2012). 11. H. Lowell Brown, Parent-Subsidiary Liability Under the Foreign Corrupt Practices Act, 50 BAYLOR L. REV. 1, 3 (1998). 12. Thomas, supra note 9, at 443. 13. 15 U.S.C. §78dd-1 (1998). \\jciprod01\productn\I\IAL\44-1\IAL105.txt unknown Seq: 3 1-NOV-13 11:28 2012] SENDING AN S.O.S. TO CONGRESS 65 companies may conduct business in foreign countries in two ways: pursuant to the FCPA, companies (1) must maintain transparent accounting methods, and (2) cannot make corrupt bribery pay- ments to foreign officials.14 However, the anti-bribery sections of the FCPA, located in 15 U.S.C. §§ 78 dd-1–dd-3,15 did not completely abolish payments made to foreign officials.16 A company, or any agent acting on behalf of a U.S. company, violates the FCPA when “act[ing] in fur- therance of an offer, payment, promise to pay, or authorization of the payment of something of value [to] any foreign official.”17 The term “foreign official” includes an official of a public international organization, a political candidate, or a political party. To violate the FCPA, an agent must also act with mens rea, with the intent to “corruptly induce or influence the official to act or refrain from acting, or to gain any improper advantage,18 [in order] to assist the company in obtaining, retaining, or directing business to any person.”19 The FCPA permits U.S. businesses to make three types of payments to foreign officials: “(1) facilitating payments, (2) promo- tional expenses, and (3) payments permitted under the written laws of the host country.”20 The first type of payment, facilitating payments, may only be made to foreign officials for the purpose of “secur[ing] the performance of a routine government action . . .”21 Moreover, payments made to an official can only be for the pur- poses of “expediting or facilitating” routine government action.22 Routine government actions include issuing licenses that are nec- 14. Brown, supra note 11, at 4. 15. Rebecca Koch, Note, The Foreign Corrupt Practices Act: It’s Time to Cut Back the Grease and Add Some Guidance, 28 B.C. INT’L & COMP. L. REV. 379, 383 (2005) §78 dd-1 pertains to “issuers;” §78 dd-2 relates to “domestic concerns;” and §78 dd-3 governs parties that are neither issuers or domestic concerns. 16. Jacqueline L. Bonneau, Combating Foreign Bribery: Legislative Reform in the United Kingdom and Prospects for Increased Global Enforcement, 49 COLUM. J. TRANSNAT’L L. 365, 381 (2011) (noting that the exceptional payments is a “concession to the culture of bribery”). 17. Gary Eisenberg, Foreign Corrupt Practices Act, 37 AM. CRIM. L. REV. 595, 602- 03 (2000). 18. Id. at 604 (citations omitted). Foreign Corrupt Practices Act: Hearing before the Subcom. on Crime, Terrorism, and Homeland Security of the H. Comm. on the Judiciary, 112th Cong. 74 (2011) [hereinafter Hearings] (statement of Shana-Tara Regon, Dir., White Collar Crime Policy, Nat’l Ass’n of Criminal Def. Lawyers). 19. Eisenberg, supra note 17, at 603 (citations omitted). 20. RICHARD L. CASSIN, BRIBERY ABROAD: LESSONS FROM THE FOREIGN CORRUPT PRACTICES ACT 31 (1998). 21. 15 U.S.C. §78dd-2 (b) (1998). 22. Frank W. Blue, A Challenge to Multinational Corporate Counsel: Foreign \\jciprod01\productn\I\IAL\44-1\IAL105.txt unknown Seq: 4 1-NOV-13 11:28 66 INTER-AMERICAN LAW REVIEW [Vol.44:1 essary for a business to operate in a foreign country and providing police protection and mail pick-up/delivery, which is “associated with contract performance . . . related to transit of goods across country.” Moreover, “protecting perishable items . . . from deterio- ration,” providing power, phone, or water, are also routine govern- ment actions.23 A “routine government action” is an action by a government official that does not entail the official making a deci- sion about whether “to award new business to or continue busi- ness with a particular party.”24 The second type of permissible payment, a “promotional pay- ment,” is the payment of “reasonable and bona fide expendi- ture[s].”25 Bona fide expenditures, such as travel and lodging expenses, are costs “directly related to the promotion, demonstra- tion, or explanation of products or services; or the execution or performance of a contract with a foreign government or agency thereof.”26 “Many of the FCPA’s detractors bemoan the usefulness of these exceptions27 because the Department of Justice (“DOJ”) narrowly interprets this provision.28 For example, a business expenditure is deemed unlawful if a foreign official is treated extravagantly or a business pays the costs associated with the travel of a foreign official’s family or friends.29 Both the SEC and the DOJ are tasked with enforcing the FCPA. The SEC levies civil fines against those who violate the FCPA’s accounting provisions,30 while the DOJ prosecutes those who violate its anti-bribery provisions.31 The Attorney General Corrupt Practices Act Compliance and the Federal Sentencing Guidelines, 33 TEX. J. BUS. L. 2, 10 (1996). 23. 15 U.S.C. §78dd-1 (f)(3)(A)(i)-(v) (1998). 24. 15 U.S.C. §78dd-1 (f)(3)(B) (1998). 25. 15 U.S.C. §78dd-2 (c)(2) (1998). 26. 15 U.S.C. §78dd-2 (c)(2)(A)-(B) (1998). 27. See generally Hearings, supra note 18, at 76 (statement of F. James Sensenbrenner, Jr., Chairman, S. Comm. On Crime, Terrorism, and Homeland Security). 28. Bonneau, supra note 16, at 381. 29. Todd Swanson, Greasing the Wheels: British Deficiencies in Relation to American Clarity in International Anti-Corruption Law, 35 GA. J. INT’L & COMP. L. 397, 413 (2007) (citing DONALD R. CURVER, COMPLYING WITH THE FOREIGN CORRUPT PRACTICES ACT: A GUIDE FOR U.S. FIRMS DOING BUSINESS IN THE INTERNATIONAL MARKETPLACE 22 (2d ed. 1999)). 30. James W. Chang, Legal Issues Relating to Transacting Business Abroad: What Every Lawyer Should Know About the Foreign Corrupt Practices Act, 35 HOUS. L. 16, 17 (1997); Amy Deen Westbrook, Enthusiastic Enforcement, Informal Legislation: The Unruly Expansion of the Foreign Corrupt Practices Act, 45 GA. L. REV. 489, 508-09 (2011). 31. CASSIN, supra note 20, at 13. \\jciprod01\productn\I\IAL\44-1\IAL105.txt unknown Seq: 5 1-NOV-13 11:28 2012] SENDING AN S.O.S. TO CONGRESS 67 responds to requests by U.S. companies regarding whether speci- fied conduct violates the FCPA.32 The FCPA cautions that the DOJ’s responses correspond to the “specific conduct” conveyed in a company’s opinion request.33 FCPA violations can result in both individual and company-wide criminal sanctions. For example, a violation of the accounting provisions could result in a twenty- year prison sentence, while anti-bribery provision violations could result in a five-year prison sentence.34 The SEC can fine compa- nies and impose non-monetary penalties, such as loss of export privileges and restrictions on the ability to obtain government contracts. As a result, both companies and individuals suffer from incalculable reputational damages.35 C. Issues Surrounding the FCPA Perhaps one of the greatest issues surrounding the FCPA has been the resurgence in enforcement. Over the FCPA’s first twenty-five years, the SEC and the DOJ pursued only sixty cases against corporations.36 While the reason for such limited action is unclear, some argue that the FCPA was “underutilized,” while others argue that the FCPA, as initially passed, was ambiguously worded such that it frightened businesses away from venturing into foreign markets.37 Some have even noted that the 1988 amendments to the FCPA were a reaction to corporate complaints that the FCPA was “too vague and wide in scope.”38 Recently, the number of individuals fined and prosecuted for FCPA violations has dramatically increased. Initially, the busi- ness world deemed the FCPA to be a statute that only threatened 32. 15 U.S.C. §78dd-2 (e)(1) (1998). 33. Id. 34. Id. 35. Id. 36. Bixby, supra note 2, at 103. 37. Id. 38. Id. For example, before 1988 the FCPA excluded from the definition of foreign official those individuals who performed “ministerial or clerical” work. Adam Fremantle & Sherman Katz, The Foreign Corrupt Practices Act Amendments of 1988, 23 INT’L L. 755, 761 (1989). The purpose of the initial exclusion was to allow certain “grease payments” that would allow for the expedited performance of “ministerial or clerical” functions that would have been performed in any event. Id. at 762. The 1988 amendment allows for the payment to be directed at “any foreign official,” as long as the action is “ordinarily and commonly performed” by that foreign official. Id. Thus, this was an attempt to clarify a “facilitating payment” by focusing on the underlying purpose of the payment rather than focusing on the person who actually receives the payment. \\jciprod01\productn\I\IAL\44-1\IAL105.txt unknown Seq: 6 1-NOV-13 11:28 68 INTER-AMERICAN LAW REVIEW [Vol.44:1 corporations.39 Over the last decade, however, the DOJ has made it clear that individuals will be held accountable for foreign brib- ery.40 The DOJ adopted this practice under the belief that the most powerful deterrent to bribery is prison time for corporate officers. Numerous DOJ officers have opined 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.”41 Accordingly, the DOJ and the SEC zealously devised a plan to hold corporate officers accountable for FCPA violations. The DOJ strategically partnered with the Internal Revenue Service’s (“IRS”) Crimes Division as well as the U.S. Attorney’s office.42 Moreover, in 2009 the SEC authorized a separate FCPA-violations division that would “focus on new and proactive approaches to identifying violations by being more proactive in investigations, working more closely with [its] foreign counterparts, and taking a more global approach to these violations.”43 Some believe this unprecedented resurgence in enforcement is indirectly a result of the Sarbanes-Oxley Act (“SOX”).44 To com- ply with SOX, corporate officers must conduct internal investiga- tions and publish their findings to the SEC or DOJ to gain leniency for any wrongdoing.45 Such internal investigations, as one may expect, have led to the discovery of FCPA violations.46 Others find that the issues surrounding the enforcement of the 39. Bixby, supra note 2, at 111; see STUART H. DEMING, THE FOREIGN CORRUPT PRACTICES ACT AND THE NEW INTERNATIONAL NORMS 81 (2d ed. 2010) (noting that prior to 1994 there had been no incarcerations relating to FCPA violations). 40. Bixby, supra note 2, at 111. 41. Mike Koehler, The Foreign Corrupt Practices Act in the Ultimate Year of Its Decade of Resurgence, 43 IND. L. REV. 389, 404 (2010) (citing Lanny A. Breuer, Assistant Attorney General); see also Drury D. Stevenson & Nicolas J. Wagoner, FCPA Sanctions: Too Big to Debar, FORDHAM L. REV. 775, 794 n.130 (2011) (citing former FCPA chief prosecutor, Mark Mendelsohn, who stated that the increased number of individual prosecutions is intentional because “to have a credible deterrent effect, people have to go to jail”). 42. Stevenson & Wagoner, supra note 41, at 784. 43. Id. 44. 18 U.S.C §1514A (2010). 45. CASSIN, supra note 20, at 11; Priya Cherian Huskins, FCPA Prosecutions: Liability Trend to Watch, 60 STAN. L. REV. 1447, 1449 (2008); Bixby, supra note 2, at 116; Stevenson & Wagoner, supra note 41, at 787 (“The DOJ and SEC, realizing the incentive-altering force of massive sanctions, have parlayed a handful of highly publicized multi-million dollar prosecutions into many more self-disclosures by companies hoping for more lenient sentencing.”). 46. Bixby, supra note 2, at 116. \\jciprod01\productn\I\IAL\44-1\IAL105.txt unknown Seq: 7 1-NOV-13 11:28 2012] SENDING AN S.O.S. TO CONGRESS 69 FCPA, such as the “appropriateness of legislating morals,” disap- peared with the corrupt corporate culture of the 1990s.47 The issue faced by companies and agents as a result of increased enforcement of the FCPA is the lack of guidance pro- vided by both the DOJ and the courts as to interpreting the FCPA’s provisions. The DOJ has notoriously provided companies with limited guidance regarding FCPA compliance.48 The DOJ is generally uncomfortable with issuing advisory opinions to compa- nies because such preemptory guidance is unique to the DOJ.49 As of December 22, 2011, the DOJ had only issued one opinion for the 2011 calendar year.50 One may, therefore, deduce that so few opin- ions were issued because companies found the opinions unhelpful and disconcerting.51 Companies, which find divulging sensitive information to be risky, are uncomfortable with the opinion process.52 There are FCPA provisions that corroborate this fear. Notably, the DOJ will only respond to prospective transactions rather than hypotheti- cals.53 Moreover, the opinions only bind the DOJ and the request- ing party; however, the SEC is not bound to the opinion.54 If the DOJ’s opinion concludes that the requesting party’s actions did not violate the FCPA, the opinion only creates a rebuttable pre- sumption that the requesting company did not violate the FCPA.55 The DOJ can still overcome such a presumption and prosecute the requesting party for the given action upon which it based its opin- 47. Justin F. Marceau, A Little Less Conversation, A Little More Action: Evaluating and Forecasting the Trend of More Frequent and Severe Prosecutions Under the Foreign Corrupt Practices Act, 12 FORDHAM J. CORP. & FIN. L. 285, 286-87 (2007) (citations omitted). 48. Comm. on Int’l Bus. Transactions, The FCPA and its Impact on International Business Transactions – Should Anything be Done Minimize the Consequences of the U.S.’s Unique Position on Combating Offshore Corruption?, N.Y. CITY B ASS’N 19 (2011), available at http://www2.nycbar.org/pdf/report/uploads/FCPAImpacton InternationalBusinessTransactions.pdf (noting that one of the needs to improve the FCPA is to alter the DOJ’s opinion writing function). 49. James R. Doty, Toward A Reg. FCPA: A Modest Proposal for Change in Administering the Foreign Corrupt Practices Act, 62 BUS. LAW. 1233, 1238 (2007). 50. See Opinion Procedure Release from the United States Dep’t of Justice Foreign Corrupt Practices Act Review (Jun. 30, 2011), available at http://www.justice.gov/ criminal/fraud/fcpa/opinion/. 51. Juscelino F. Colares, The Evolving Domestic and International Law Against Foreign Corruption: Some New and Old Dilemmas Facing the International Lawyer, 5 WASH. U. GLOBAL STUD. L. REV. 1, n. 101 (2006) (citations omitted). 52. Doty, supra note 49, at 1238. 53. Colares, supra note 51, at 15. 54. Id. 55. Id. \\jciprod01\productn\I\IAL\44-1\IAL105.txt unknown Seq: 8 1-NOV-13 11:28 70 INTER-AMERICAN LAW REVIEW [Vol.44:1 ion by the preponderance of evidence.56 Moreover, since the opin- ion only binds the DOJ to the party who requests the opinion, the opinion’s utility for other companies is in question.57 Many of the FCPA’s critics agree with the aims of the FCPA. Many, in fact, consider the principles behind the FCPA as impera- tive to an American business’s ability to thrive in foreign mar- kets.58 The business community, however, is acutely aware that inherent ambiguities in the FCPA make it difficult and costly to abide by.59 The courts have added to the confusion by playing a minimal role in interpreting the FCPA’s provisions. The courts’ lack of par- ticipation can be partly attributed to businesses’ desire to avoid court proceedings.60 While individuals have challenged FCPA vio- lations in the courts, companies would rather pay substantial fines to avoid corruption charges and the resultant reputational impact.61 As a result of this desire to avoid trial, companies have indirectly given prosecutors “unchecked authority to define the contours of FCPA liability.”62 II. A FCPA: MBIGUITIES WITHIN THE A V MBIGUOUS BUT NOT AGUE There are numerous ambiguities within the FCPA that place unwary businesses in danger of indictment and sanctions.63 Nev- ertheless, courts have steadfastly held that the FCPA is not so ambiguous to render it constitutionally vague. In U.S. v. Kay, the defendants, David Kay and Douglas Murphy, were president and 56. Id. 57. Id. 58. Doty, supra note 49, at 1239 (“U.S. business interests benefit by the strengthening of legal institutions that counter the pressures of state-sponsored (or state-condoned) corruption.”). 59. Allen R. Brooks, A Corporate Catch-22: How Deferred and Non-Prosecution Agreements Impede the Full Development of the Foreign Corrupt Practices Act, 7 J.L. ECON. & POL’Y 137, 155 (2010). 60. Stevenson & Wagoner, supra note 41, at 786 (“[M]ost companies have chosen to sweep charges under the rug by entering into a plea agreement.”). 61. Koehler, supra note 41, at 406 (“In fact, no business entity has publicly challenged either enforcement agency in an FCPA case in the last twenty years.”) (citations omitted). 62. Marceau, supra note 47, at 287; Hearings, supra note 18, at 1-2 (statement of F. James Sensenbrenner, Jr., Chairman, S. Comm. on Crime, Terrorism, and Homeland Security). 63. See Doty, supra note 49, at 1239 (“[I]n the entire canon of FCPA law there is little judicial development of the concept of ‘corruptly’ and no administrative definition of ‘facilitating payment.’”) (citations omitted). \\jciprod01\productn\I\IAL\44-1\IAL105.txt unknown Seq: 9 1-NOV-13 11:28 2012] SENDING AN S.O.S. TO CONGRESS 71 vice-president of American Rice, Inc. (“ARI”), which exported rice to Haiti, among other countries.64 The Haitian government levied taxes and duties on rice importers.65 Both Kay and Murphy took steps to reduce these costs by purchasing licenses from govern- ment officials that designated ARI as a charity. This designation resulted in ARI not having to pay the applicable duty. Also, ARI paid government officials to give them a “service corporation” license that allowed it to avoid paying duties by claiming that it did not own the rice it imported.66 While the defendants did not deny bribing Haitian officials, they argued the “untested” defense that the FCPA was too vague and ambiguous to apply to hold them criminally liable.67 The defendants argued that the FCPA fails to provide businesses clear warning of violations.68 The defendants further argued that because the FCPA does not specifically state that payments to lower taxes or duties are not related to obtaining or retaining bus- iness, the statute should be found void for vagueness.69 Although the Fifth Circuit agreed with the defendants that the FCPA failed to define the point at which a payment given to a foreign official is in consideration for the retention or continuation of business,70 it held that the FCPA is not vague, thereby uphold- ing the defendant’s conviction.71 The court concluded that the FCPA maintains seven standards that are likely to lead to convic- tion, and all of the standards are “reasonably clear so as to allow the common interpreter to understand their meaning.”72 Brushing aside the defendant’s vagueness argument, the Fifth Circuit noted that the defendants merely “raised a technical interpretive ques- tion as to the exact meaning of ‘obtaining or retaining business.’” rather than setting forth a vagueness defense.73 While agreeing that the FCPA contains many ambiguities, the Fifth Circuit ulti- 64. United States v. Kay, 513 F.3d 432, 439 (5th Cir. 2007). 65. Id. 66. Id. 67. CASSIN, supra note 20, at 39 (citingKay, 513 F.3d at 440). 68. Id. at 38-39. 69. Id. 70. United States v. Kay, 513 F.3d at 442 n. 11 (5th Cir. 2007) (citing U.S. v. Kay, 359 F.3d 738, 744, 746-47 (5th Cir. 2004)) (questioning the “linkage [] between the effects of that which is sought from the foreign official in consideration of a bribe (here, tax minimization) and the briber’s goal of finding assistance or obtaining or retaining foreign business with or for some person, and still satisfy[ing] the business nexus element of the FCPA?”). 71. Kay, 513 F.3d at 442. 72. Id. at 441. 73. Id.