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Fifth Circuit Clarifies the Intent Requirements for a Criminal FCPA Conviction

Date: 2/1/08

Last week, the US Court of Appeals for the Fifth Circuit released a new opinion stemming from the Department of Justice ("DOJ") prosecution of David Kay and Douglas Murphy for payments to Haitian customs officials to reduce duties and taxes on importation of rice into Haiti. A rare addition to the relatively few judicial opinions interpreting the FCPA, the Fifth Circuit’s second opinion in Kay holds that although an FCPA antibribery violation is a specific intent crime, the statute does not require a defendant to have actual knowledge that the FCPA prohibits his or her behavior, but only knowledge that his or her conduct was generally unlawful.

The district court had initially dismissed the indictment in the case on the grounds that the payments were not made to “obtain or retain business” within the meaning of the statute. In a 2004 opinion ("Kay I"), the Fifth Circuit held that the scope of payments made to “obtain or retain business” was not confined to payments made to secure or renew business contracts and could encompass payments to reduce customs duties and taxes.1 The court stated that the “obtain or retain business” requirement is satisfied as long as there is a nexus between a payment to a foreign official and monetary savings or gain that aids an entity in carrying on its business in some way. The Fifth Circuit reversed the dismissal of the indictment and remanded the case to the district court. After a trial on remand, the defendants were convicted. The defendants appealed their convictions, arguing that the Fifth Circuit’s first impression interpretation of the “obtain or retain business” requirement in Kay I could not be applied to them without violating their Due Process rights to fair notice of what the statute prohibits. The defendants further argued that “willfully,” as used in the FCPA’s criminal penalties provision, required proof that the defendants knew their conduct violated the FCPA, and that the jury had been incorrectly instructed on the “willfulness” element.

The Fifth Circuit rejected the defendants’ fair warning argument. The court acknowledged it had concluded in Kay I that the FCPA’s business nexus requirement was ambiguous as a matter of law, but ruled that “it does not follow that the standard requires guesswork or that the statutory language itself is vague.”2 The court noted that the business nexus element was only one of seven standards that may lead to conviction under the FCPA, and that a “technical interpretive question” as to the meaning of “obtaining or retaining” business did not draw a line so vague that defendants who paid foreign officials to reduce tax and duty burdens would not reasonably be aware of the potential illegality of such action under the FCPA.3 Instead, the court concluded that a “man of common intelligence would have understood” that a company “bribing foreign officials . . . was treading close to a reasonably-defined line of illegality.”4 In this case, the Fifth Circuit held that it should have been clear to defendants that they were treading close to the line since trial testimony demonstrated that defendants believed that their bribes were necessary to compete with competitors in Haiti and thus “retain” business there.5 The court further held that the government’s failure to prosecute other companies for similar conduct did not excuse defendants’ actions: “the fact that other companies were guilty of similar bribery during the 1990’s does not excuse ARI’s actions; multiple violations of a law do not make those violations legal or create vagueness in the law.”6

Regarding the requirement of a “willful” violation in order to impose criminal penalties on individuals under the FCPA,7 the court rejected the defendants’ contention that they had to have known their conduct violated the FCPA, and ruled instead that the defendants need only have been aware that their conduct was generally unlawful. Taking guidance from the Supreme Court’s decision in Bryan v. United States,8 and the Second Circuit’s decision in Stichting,9 the Fifth Circuit held that the FCPA is not one of the complex, highly technical statutes (such as tax statutes or money laundering statutes) for which the Supreme Court has “carved out an exception to the traditional rule that ignorance of the law is no excuse.”10 Instead, the court ruled that a showing, “that a defendant knew that he was doing something generally unlawful,” that is, that “the defendant must have known that the act was in some way wrong,” was sufficient to satisfy the “willfulness” requirement for a criminal violation of the FCPA.11

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