One of the most thoroughly reported trends of the past five years has been the increasingly aggressive enforcement of the Foreign Corrupt Practices Act by the US Department of Justice and the Securities and Exchange Commission, resulting in steadily climbing numbers of prosecutions and record-breaking monetary sanctions. The US government has demonstrated that it is as good as its word, promising ever more aggressive enforcement of the FCPA, backed up by increased resources – and delivering the same. As substantial as this challenge to corporate compliance has been in recent years, it appears that the landscape of anti-corruption prosecutions in the international setting is poised for yet another seismic shift.

First, of course, is the hotly anticipated April 2011 effective date of the UK's 2010 Bribery Act, one of the first anti-corruption laws with extra-territorial effect to prohibit in explicit terms not just bribery of foreign officials, but more pedestrian commercial bribery. Second is the recent effort by DOJ to expand the scope of US bribery prosecutions to reach similar commercial bribery of overseas private entity employees, the type of bribery schemes not covered by the FCPA and not previously prosecuted by the DOJ in the ordinary course. While the UK Act has garnered the lion's share of attention, DOJ's quieter efforts to reach the same conduct pose a distinct risk to corporations whose compliance programs focus too narrowly on the FCPA.

DOJ's successful efforts to expand liability in this fashion are illustrated by recent events in the Eastern District of Pennsylvania.

On September 15, 2010, four individuals associated with Nexus Technologies Inc., a Pennsylvania-based export company, were sentenced for their roles in a long-running scheme to bribe individuals in Vietnam to obtain contracts. DOJ had previously meted out to Nexus itself the corporate equivalent of capital punishment, forcing Nexus to agree to cease operations as a condition of its guilty plea.1 Emblematic of the government's characteristically enthusiastic approach to foreign corruption cases, the prosecution sought a sentence of between 168 and 210 months in prison for one defendant, and between 87 and 108 months for another (while seeking downward departures from similar ranges for the remaining two defendants).2 Unpersuaded, the court sentenced the top two defendants to less draconian sentences of 16 and nine months in prison.

The government's victory over Nexus Technologies and the individual defendants was greeted with mild surprise by some observers, because in their pre-trial motions the defendants had mounted a vigorous legal challenge to the government's interpretation of the FCPA, arguing specifically that the indictment's FCPA counts should be dismissed because the individuals who received the alleged bribes were not "foreign officials," as their employers were neither "agencies" nor "instrumentalities" of the Vietnamese government.3 Regardless of the merits of that defense, however, it was rendered largely a moot point by the prosecutors' charging decisions. The indictment against Nexus and the individuals included not only FCPA counts, but parallel charges under the Travel Act – a 50-year-old law enacted to battle mobsters and racketeers but now increasingly pressed into service to target commercial bribery abroad. This use of the Travel Act against Nexus and its employees was hardly anomalous. Indeed, it is merely the latest of a recent string of such cases.

The United States does not have a federal commercial bribery statute, outlawing bribery in private business settings. It does have the Travel Act. In relevant part, the Travel Act criminalizes the use of "the mail or any facility in interstate or foreign commerce" – a telephone call, wire transfer, or actual travel – with the intent to "facilitate the promotion, management, establishment or carrying on of an unlawful activity." The statute defines unlawful activity as, among other things, "bribery ... in violation of the laws of the state in which committed or of the United States."4 Because prosecutors can use the Travel Act to essentially federalize the commercial bribery statutes of any state – and almost all states have such a statute – the Travel Act is substantially broader than the FCPA and can be used to prosecute bribery of foreign private individuals.

For example, in the Nexus Technologies case DOJ charged the defendants in multiple Travel Act counts for sending a series of wire transfer from Philadelphia to Asia in violation of Pennsylvania's commercial bribery statute (Section 4108 of the Pennsylvania Code), which does not require any showing that the recipient is a public official.5 Because the defendants faced cumulative statutory maximums of 45 years imprisonment on the Travel Act counts alone, prevailing on a technical defense to the FCPA count would have been the most pyrrhic of victories. Hence, the Nexus guilty pleas.

But, as indicated above, the inclusion of the Travel Act charges in the Nexus Technologies indictment is not an isolated incident. DOJ has used the Travel Act to reach bribery of individuals overseas in a number of different cases. It has, in fact, done so at least sporadically for years. See, e.g., United States v. Welch, 327 F. 3d 1081 (10th Cir. 2003) (reversing District Court's dismissal of Travel Act charges, with Utah bribery statute as predicate, in case involving bribes to private individuals overseas); United States v. Young & Rubicam, Inc., 741 F. Supp. 334 (D. Conn. 1990) (Travel Act charges with underlying predicates of FCPA and New York commercial bribery statute). But the practice has picked up pace in recent years. Among recent cases are the following:

  • United States v. Robert E. Thomson and James C. Reilly – Two executives of HealthSouth Corporation were charged with Travel Act violations, based on Alabama's commercial bribery statute, in connection with alleged kickbacks to a Saudi Arabia customer. They were acquitted of all charges at trial in 2005. Two other executives caught up in the same investigation pled guilty to other charges.
  • United States v. Steven J. Ott et al. – Three executives from ITXC Corporation, an international telecommunications company based in New Jersey, were convicted of parallel FCPA and Travel Act violations and sentenced in 2008, with the lead defendant receiving 18 months in prison. The Travel Act's underlying predicate crime in that case was New Jersey's commercial bribery statute (Section 2C:21-10 of the New Jersey Code) and the conduct included wire transfers of bribe money from New Jersey to Nigeria.6
  • United States v. Stuart Carson et al. – Numerous employees of an energy industry equipment manufacturer were indicted for an alleged scheme to land contracts through bribery – including about $5 million in payments to employees of foreign state-owned customers and about $2 million in payments to employees of private foreign companies. The latter conduct was prosecuted under the Travel Act, using California's commercial bribery law (Penal Code Section 641.3) as the underlying predicate. Two employees have pled guilty and await sentencing while six more await trial, currently scheduled for November 2010.7
  • United States v. Frederic Bourke, Jr. – Bourke was convicted at trial of violating the FCPA and the Travel Act. Unlike in other cases discussed above, however, the underlying "unlawful activity" predicate for the Travel Act charges was not a state law commercial bribery statute – but the FCPA itself. Unsurprisingly, the jury was accordingly instructed that the government had to prove, among other things, "that the activity that the person intended to facilitate was, in fact, unlawful under the FCPA" itself.8 But that charging decision portends another future risk: that the government could use the Travel Act to bootstrap an FCPA charge (or a state commercial bribery charge) into a racketeering charge – as it has done in the past. While the FCPA is not an enumerated predicate under the Racketeer Influenced and Corrupt Organizations Act, and hence cannot form the basis for RICO charges, the Travel Act does constitute such a predicate and thus can be the basis for a RICO indictment. See Young & Rubicam, 741 F. Supp. at 338 (rejecting defense argument that it was improper to charge criminal RICO violation based on Travel Act predicates, which were in turn based on FCPA and New York commercial bribery predicates); cf. Dooley v. United Technologies Corp., 1992 WL 167053 at *9 (D. D. C. 1992) (refusing to dismiss a civil RICO action, finding specifically that Travel Act violation relating to bribery of Saudi Arabian officials was a sufficiently pled predicate act of racketeering).

The government's willingness to use the Travel Act to attack bribes to foreign nationals in cases where the FCPA arguably does not apply (e.g., the Nexus Technologies case) or concededly does not apply (e.g., the Carson case) seems to indicate that DOJ stands ready to prosecute private commercial bribery. Indeed, the DOJ's own FCPA website states that DOJ "may" in the future continue to use the Travel Act to pursue "federal prosecutions of violations of state commercial bribery statutes." Whether it will do so only in cases where it stumbles on evidence of bribes to private actors during traditional FCPA investigations or will pursue such cases where this conduct stands alone, based on whistleblower information or other leads, remains to be seen. Nonetheless, given these recent prosecutions, a reassessment of internal compliance programs is prudent. This is particularly so given the fact that many state commercial bribery laws (such as New York's) set a very low bar for bribery, outlawing the provision of "any benefit upon any employee, agent or fiduciary ... with intent to influence his conduct."9

The need to be certain that an anti-corruption compliance program covers the waterfront of traditional FCPA concerns and commercial bribery writ large is trebly underscored by the looming UK Bribery Act. The conduct US prosecutors can now only reach through the artful use of the Travel Act (necessarily tethered by some nexus to the individual state at issue), the UK Act targets directly and more broadly: it directly criminalizes commercial bribery of private individuals, imposes criminal liability for the new strict liability corporate offense of "failing to prevent bribery" (with no corrupt intent required) and has very broad extraterritorial reach.10

Accordingly, it is quite plain that in the near future both the UK and US governments, the latter through the continued invocation of the Travel Act, will be policing all types of bribery and corruption, including private commercial bribery that until recently had largely escaped scrutiny. As a result, even those companies that have sought to conduct their business ethically and with integrity will want to reevaluate current efforts to ensure that they provide sufficient protection in what is clearly an evolving and increasingly complicated regulatory landscape.

Footnotes

1See DOJ Press Release dated September 16, 2010 here.

2 See Government Sentencing Memoranda, United States v. Nguyen et al., Cr. 08-522 (E.D. Penn. Sept. 8, 2010) (Docket # 196).

3.See Government's Response In Opposition to Defendants' Second Motion to Dismiss, United States v. Nguyen et al., Cr. 08-522 (E. D. Penn.) (Docket #122, 11/23/09) at 6.

4.18 U.S.C. §§ 1952 (a) (3), 1952 (b) (i) (2).

5.See Superseding Indictment in United States v. Nexus Technologies Inc., Counts 11 – 19, 08-cr-522 (E. D. Penn.) (Docket # 106, 10/29/09). The same acts of bribery were also charged as FCPA violations.

6.See DOJ Press Release dated September 2, 2008; Indictment in United States v. Steven J. Ott, 07-cr-608 (D.N.J.).

7.DOJ July 6, 2010, Press release; Docket sheet for United States v. Carson et al., 8:09 cr 77 (D.D. Cal. 2009).

8.Jury Instructions, United States v. Bourke, S2 05 Cr. 518 (S.D.N.Y. 2009) at 32.

9.N.Y. Pen. L. §180.03.

10.To learn more about the UK Bribery Act please read our earlier Alerts hereand here.

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