The FCPA and Bribery: We-know-it-when-we-see-it

By: Kelsey Quigley

On October 6, 2014, the United States Supreme Court denied a petition for writ of certiorari that requested review of a case brought under the Foreign Corrupt Practices Act of 1977 (“FCPA”) – the first substantive certiorari petition in the history of the statute.

The FCPA prohibits the “offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value” to a “foreign official,” defined as “any officer or employee of a foreign government or any department, agency, or instrumentality thereof.” In 2011, the United States District Court for the Southern District of Florida convicted two former executives of Miami-based Terra Telecommunications Corp. of various FCPA violations, including the payment of more than $890,000 in bribes to officials at Haiti’s state-owned sole provider of landline telephone services, known as Haiti Teleco. The court sentenced Carlos Rodriguez, Terra’s former vice president, to seven years in prison; Joel Esquenazi, Terra’s former president, received an unprecedented fifteen years in prison – the longest FCPA sentence ever imposed.

The certiorari petition followed the former executives’ unsuccessful appeal to the U.S. Court of Appeals for the Eleventh Circuit, requesting for the very first time in the FCPA’s nearly forty-year history, a review of the legal meaning of “foreign official” under the statute. Specifically, appellants challenged whether officials at state-owned Haiti Teleco were “foreign officials” under the FCPA’s “instrumentality” designation.

In its opinion, the Eleventh Circuit adopted an “instrumentality” interpretation similar to versions utilized by the Department of Justice and the Securities and Exchange Commission, holding that an “instrumentality” is any “entity controlled by the government of a foreign country that performs a function the controlling government treats as its own.” Explaining that this legal designation was necessarily “fact-bound,” the Eleventh Circuit provided potential indicia for the two elements required to designate a foreign government “instrumentality:” government control and government function. First, to determine government control, the Eleventh Circuit articulated, among other potential considerations, a government’s ability to hire and fire the entity’s employees and any government majority interest in the entity’s operations and profits – particularly in the context financial backing. Second, to assess whether the entity performs a function that the foreign government treats “as its own,” the Eleventh Circuit suggested that juries look to “whether the entity has a monopoly over the function it exists to carry out; whether the government subsidizes the costs associated with the entity providing services; whether the entity provides services to the public at large in the foreign country; and whether the public and the government of that foreign country generally perceive the entity to be performing a governmental function.” U.S. v. Esquenazi, 752 F.3d 912 (2014).

In the petition to the Supreme Court, counsel for Esquenazi and Rodriguez primarily challenged the adoption of the Eleventh Circuit’s “unacceptably broad,” “we-know-it-when-we-see-it” interpretation of a government “instrumentality.” Indeed, at its outer limits, the Eleventh Circuit’s definition seemed “illogical.” Theoretically, “a janitor working for U.S. Government subsidized General Motors could qualify as a ‘foreign official’ if General Motors were located overseas.” More, the petition explained that with this interpretation the statute would extend to “doctors, pharmacists, lab technicians and other health professionals who are employed by state-owned facilities.” These hypotheticals, while thought provoking, arguably overlooked the Eleventh Circuit’s practically fact-driven focus for discerning a foreign government’s “instrumentality.” Using the petition’s own example, General Motors may presently be under “government control” (having recently emerged from a government-backed Chapter 11 bankruptcy), but the company does not meet the Eleventh Circuit’s second element, government function. Along with individual shareholders, GM’s largest beneficial owners are both the Canadian and United States governments; the company does not enjoy a monopoly in American or in Canadian automobile sales; and the public does not perceive GM as serving a “governmental function.” Despite this inconsistency, counsel for the convicted former executives convincingly advocated for the adoption of an unambiguous formal definition of “foreign official” under the FCPA, especially as increasingly severe criminal sentences are imposed for FCPA violations.

The petition also contended that, in drafting the FCPA, Congress intended for a narrow interpretation of the term “instrumentality.” For example, the Foreign Sovereign Immunities Act (“FSIA”), passed just one year before the FCPA in 1976, specifically defines an “instrumentality” as any entity with a “majority of whose shares or other ownership interest is owned by a foreign state or political subdivisions.” Though this language likely applied to state-owned and operated Haiti Telecomm, petitioners argued that the absence of this language from the FCPA “warrants construing ‘instrumentality’ as excluding state-owned or state-controlled enterprises that are not political subdivisions and that do not perform core, traditional governmental functions.” Congress could have included the FSIA’s previously established definition in the FCPA, but chose not to: “[i]f Congress desires to go further [in defining an “instrumentality”…] it must speak more clearly than it has.”

Furthermore, in a joint amicus curae brief, free-market advocates Washington Legal Foundation and Independence Institute acknowledged that the definition of “foreign official” is “the single greatest source of confusion regarding the scope of the FCPA,” and thus of great international business interest. Therefore, as the petition noted, “the time is now ripe for this Court to settle the meaning of instrumentality under the FCPA” – as FCPA actions continue to pertain to “individuals who are not traditional government officials,” and before federal appeals courts publish conflicting opinions. It urged that the Supreme Court settle the question, so that valuable international business officials would not “be left to wonder whether the  [United States] [g]overnment will unilaterally declare their conduct criminal.”

Despite these legal questions, the Supreme Court declined to review the case. According to Southern Illinois University School of Law’s Professor Mike Koehler (who also authors the FCPA Professor blog), the Supreme Court likely declined the petition for writ of certiorari because of the lack of a “circuit split” on the issue. So far, only the Eleventh Circuit has ruled on the FCPA’s “foreign official” issue – largely a result of the SEC’s, the DOJ’s, and other enforcement agencies’ increasing use of alternative dispute resolution forums in FCPA cases. With only the Eleventh Circuit’s precedent and in a climate favoring alternative dispute resolution, questions surrounding the FCPA’s treatment of “foreign officials” who do not fit the more traditional definition, will likely go unanswered.

In an official statement that accompanied the conviction of Esquenazi and Rodriguez, Assistant Attorney General Lanny Breuer declared that violating the FCPA “is a serious crime with serious consequences” and that the federal government will “continue to hold accountable individuals and companies who engage in such corruption.” And yet, the Supreme Court persists in declining to review a fundamental tenet of the statute – what constitutes a “foreign official.” As successful FCPA actions become more prevalent, and especially as the subsequent punishments become increasingly severe, resolving the statute’s ambiguities will become critical to the equitable enforcement of international justice.

Kelsey Quigley is a J.D. Candidate at Berkeley Law. She is a student contributor for Travaux.

Omar al Bashir – War Criminal at Large

By: Lisa-Marie Rudi, L.L.M. Candidate, Berkeley Law

On August 12, 2012,  Omar al Bashir, president of Sudan, freely traveled to Iran and met with United Nations Secretary General Ban Ki-moon while he was there. In 2008, al Bashir became the first sitting Head of State to be indicted by the International Criminal Court (ICC), the first treaty-based international court that handles cases of individual criminal responsibility. The Court has jurisdiction over so-called “jus cogens crimes” such as crimes against humanity, war crimes and genocide. Yet, despite this formal charge, many states such as Kenya have continued to welcome al Bashir, and have not arrested him in order to bring him before the ICC to face his charges. Foreign Policy called him the “world’s most mobile accused war criminal” which brings to light the controversy around al Bashir’s indictment and whether the ICC was permitted to displace the traditional Head of State immunity and indict al Bashir.

Traditionally, under international customary law, state officials are immune from prosecution, at least as long as they are in office. The indictment is particularly interesting both because of al Bashir’s status as a sitting Head of State and because Sudan has not consented to the ICC’s jurisdiction as it has not ratified the treaty that established the ICC: the Rome Statute (it is therefore a so-called non-party state). In 2009, the ICC issued an arrest warrant for al Bashir, calling on all signatories of the Statute to arrest him. The warrant is a landmark order because it marks the first time that the question of immunity for a representative of a non-party state is raised before the ICC. The warrant for al Bashir’s arrest caused an outcry among African Union as well as Arab League members with China and Russia similarly condemning the bold actions of the ICC prosecutor. Since the issuance of the arrest warrant, al Bashir has freely traveled to different ICC states parties which clearly did not feel obliged to arrest him. In 2012, President Joyce Banda of Malawi was the first to warn the Sudanese president that he would be arrested if he set foot in Malawi. However, Banda, in honoring the arrest warrant, stands virtually alone among African leaders with the African Union protecting al Bashir, citing the urgent need for peace in the region. Additionally, it should not be disregarded that the arrest warrant had disastrous consequences for the people of Sudan as Bashir expelled aid organizations in an angry response to the warrant and no state party stepped in to stop him.

Besides exposing the ICC’s inability to enforce its orders, the warrant reveals a lack of agreement on the concept of Head of State immunity in international law. In the 21st century in which “never again” is supposed to be a reality and impunity is supposed to be non-existent, does the concept of Head of State immunity still exist?

ICC and Jurisdiction over the Darfur Situation

Under the Rome Statute, the ICC has jurisdiction over nationals of states that have ratified the Statue and over all jus cogens crimes committed on the soil of states parties. Jurisdiction is triggered when a state refers a situation to the Prosecutor of the ICC or when the Prosecutor initiates an investigation on her own initiative. Under Article 27 of the Rome Statute, indicted individuals cannot raise the defense of immunity. However, the ICC can also have jurisdiction over nationals of non-party states that have committed a crime on their national territory if the United Nations Security Council (UNSC), acting under Chapter VII, refers a particular situation to the ICC. The immunity from prosecution of those individuals, indicted under extraordinary circumstances is the topic of this post.

On March 31 2005, the UNSC referred the Darfur Situation in Sudan to the Prosecutor of the ICC under Resolution 1593. The term “Darfur Situation” used in the resolution referred to a civil war in the Sudanese Darfur region that was caused by an uprising in 2003 by mainly non-Arab rebels who complained of marginalization and neglect. The Sudanese government reacted by arming, training and financing Arab nomads to attack villages across Darfur. With jurisdiction over the situation having been created by Resolution 1593, the ICC prosecutor accused al Bashir of being responsible for this brutal counter-insurgency campaign and indicted him on counts of crimes against humanity, genocide and war crimes (note that the warrant was amended to add genocide). Sudan refused to recognize the arrest warrant and denied any cooperation with the ICC, as did many African ICC member states.

While the ICC can legally exercise jurisdiction over the “Darfur Situation,” this does not necessarily mean that it can legally exercise jurisdiction over all individuals involved in the Darfur conflict. As the International Court of Justice (ICJ) stated in its famous Arrest Warrant opinion, “[j]urisdiction does not imply absence of immunity, while absence of immunity does not imply jurisdiction.” Hence, even though the ICC can legally exercise jurisdiction over the Darfur situation, al Bashir could still be immune under customary international law or, as addressed by this post, under immunity provisions provided in the Rome Statute.

Immunity under the Rome Statute

Article 27 of the Rome Statute invalidates all forms of immunity that could shield individuals from the ICC’s actions. It is, however, not clear whether this article also applies to individuals such as al Bashir who is subject to the ICC’s jurisdiction by virtue of a UNSC Referral and a representatives of a state that never signed the Statute. Arguably, the drafters of the Rome Statute did not consider all immunities to be invalidated by a Security Council referral and obligations under international customary law to remain intact, as exemplified by the existence of Article 98(1) of the Rome Statute: “The Court may not proceed with a request for surrender or assistance which would require the requested State to act inconsistently with its obligations under international law with respect to the State or diplomatic immunity of a person or property of a third State…” Thus, the question that arises is whether the ICC violated its own statute in issuing the warrant and in disregarding Article 98(1). As the Statute clearly attempts to avoid conflicts of obligations for states parties, it is difficult to imagine why the drafters would have addressed the immunity issue at all in any other article besides article 27 if they had assumed that official immunity under customary international law was invalidated in all cases in which the ICC has jurisdiction, even when jurisdiction was created through a UNSC referral.

In the Pre-Trial Chamber’s decision on the prosecution’s application for the Arrest Warrant, the judges cited Article 21 of the Rome Statute as a legal basis for the warrant. According to Article 21, the Statute is the primary source of law to be applied by the ICC. Thus, the Pre-Trial Chamber declared that the referral of the Security Council meant that any prosecution arising in connection with it “will take place in accordance with the statutory framework provided for in the Statute, the Elements of Crimes and the Rules as a whole.” According to this argument, since the whole Statute applies to the situation, Article 27 invalidates any immunity that might exist. However, if the Pre-Trial Chamber did indeed consider the whole Statute in deciding on the warrant, why did it not consider Article 98(1)? Had the Pre-Trial Chamber addressed Article 98(1) and delved into an analysis of international customary law on immunities, it might have concluded that there can be no immunity for the gravest crimes under international customary law. Subsequently, the chamber could have found that there was no conflict of obligations for states parties when faced with the warrant. In absence of such a justification, however, the ICC’s interpretation of international customary law as well as of its own Statute remain remains unclear.

One could adopt the argument supported by Akande that if immunity was not invalidated by referral, the ICC would not be able to fulfill its objective of preventing impunity and, therefore, resolution 1593 must have the effect of subjecting all actors in the Darfur Situation to the entire Rome Statute and making Sudan a de facto party state for the duration of the conflict. According to this argument in order to ensure the proper functioning of the ICC, the Rome Statute extends to invalidate al Bashir’s immunity under the ICC due to the applicability of Article 27. As a counterargument, however, it could be put forth that the UNSC cannot force a state to ratify a treaty against its will, a far-reaching power that is arguably not foreseen in the UN Charter.  However, as the Court did not make this point clear and simply ignored the existence of Article 98(1) and the obligation it places on the ICC, observers are left to wonder.

Reactions to and Consequences of the Arrest Warrant

The African Union and other states that called on the ICC to revoke the warrant and have failed to enforce it are worried about stability in the region. While this is not a legal argument in favor of al Bashir’s immunity, their actions do neither serve to reinforce the ICC’s unclear interpretation of the Statute. While the argument that Sudan has become a de facto party state of the Rome Statute through Resolution 1532 seems logical, it does not appear to be supported by a plurality of states parties and has not been sufficiently discussed in the warrant in order to conclude that it is in line with the ICC’s view. If the ICC continues to apply Article 27 to non-party states and continues to ignore Article 98(1) without sufficient explanation, it could be faced with an overall weakening of its credibility. Naturally, the mere existence of Article 27 of the ICC is a sign for the law on immunities to progress towards a prevention of impunity. However, the reaction of states parties to which al Bashir has traveled shows that the main actors of the international legal system and parties to the Statute might not be adopting the ICC’s progressive vision, for whatever reason. Hence, consistent state practice is lacking.

Even though the desire to outlaw impunity is noble, desirable and in line with the objectives of the Nuremberg and Tokyo Tribunals, if the ICC’s ambitions outrun the speed of the development of international customary law, the result will be a weakening of its authority and trustworthiness. Instead of constructing abstractly and without sufficient legal reasoning that it is not bound by immunities under customary international law and even ignoring parts of its own Statute, it needs to actively work on developing customary international law by making its reasoning more clear. Naturally, one wants to see perpetrators of the gravest crimes being prosecuted. However, attempts at achieving this without a clear legal basis and, consequently without a functioning enforcement mechanism due to a resistance amongst parties states, will eventually weaken the whole system of international justice and international criminal law.

This post by no means attempt to depict all legal arguments with respect to the arrest warrant or to provide a comprehensive conclusion as to the state of customary international law on immunity. Rather, it is an effort to provide a glimpse of some legal problems that ICC jurisdiction over and prosecution of a head of state of a non-member state may face. As Gaeta rightly points out: “There is no doubt that justice for the horrendous crimes committed in Sudan must be done, and that even those in power should be brought to justice.” Nevertheless, the rules enshrined and agreed upon in the Rome Statute must be respected. To hold otherwise would undermine the credibility of the entire system set up by the Statute. The ICC is putting itself in a tenuous position with the al Bashir indictment and is subject to criticism that its legal system is susceptible to being manipulated in order to attain certain goals, however noble they might be.

The Record: This Week in Review

Whistleblower Asks U.S. to Withhold Funds from the UN

James Wasserstrom, a former UN employee who reported misconduct among UN officials in Kosovo in 2007, has sent a letter to Secretary of State John Kerry asking him to withhold fifteen percent of the United States’ funding for the UN. There is a U.S. law that requires such withholding if the Secretary of State finds the UN has failed to protect whistleblowers from retaliation. The United States is the largest single contributor to the UN budget.

UN Approves Arms Sale Treaty

The UN overwhelmingly approved the Arms Sale Treaty, a groundbreaking treaty that would require arms dealers to consider the human rights records of their customers. Although the United States voted in favor of the treaty in the UN, ratification in the current Senate appears unlikely. More than 50 senators, as well as the NRA, oppose the treaty because they believe it violates the right to self-defense. Nonetheless, the treaty has the potential to create a new international norm for arms sales.

UN Secretary-General Seeks to Eliminate Chemical Weapons

UN Secretary General Ban Ki-moon wants to eliminate chemical weapons by adding eight hold-out nations to the Chemical Weapons Convention. Ban asked world leaders to put pressure on the eight nations to join. The recent allegations that chemical weapons have been sued in the Syrian conflict underscore the continuing relevance and importance of chemical weapons controls.

IMF Managing Director Christine Lagarde Calls for Policies to End Global Economic Slump

Speaking at the Economic Club of New York on April 10, Lagarde noted that while the global economy has shown signs of recent strength, growth in many countries remains suppressed. Lagarde called for policies to address the “three-speed global economy.” Specifically, Lagarde called on both developing and emerging countries to develop fiscal policies that reduce global inflationary risks, while the euro zone should focus on the establishment of a banking union and recapitalization of bank balance sheets.

International Chamber of Commerce Publishes Guide to Letters of Credit in China

The ICC’s publication provides an interpretation and synthesis of over 500 Chinese court cases dealing with letters of credit. Given that the current body of Chinese law dealing with letters of credit is based solely on principles set forth by the Chinese Supreme Court, this document will likely provide international practitioners with a valuable resource.

Luxembourg Announces International Exchange of Tax Data to Start in 2015

Luxembourg’s Prime Minister Jean-Claude Juncker announced that his country will coordinate with EU provisions to align international tax data transfers. The Luxembourg Finance Ministry reported that tax information discussions took on a new emphasis following the recent bailout of the Cypriot financial sector. Austria remains the last country within the 27 member-state European Union not to participate in the transfer regime.

Uruguay Legalizes Gay Marriage

A bill to legalize gay marriage was approved by over two-thirds of the lower chamber of Congress, after receiving substantial support in the Senate, despite protest from the Catholic Church. Uruguay is the second country in Latin America to legalize gay marriage, Argentina being the first. The bill also allows gay couples to choose the last names of their adopted children and increased the age of consent for sexual relations.

Prosecution of Former Auschwitz Guards

Germany’s Central Office for the Investigation of Nazi Crimes has identified fifty former Auschwitz guards who are still alive. The office will determine if any of these fifty individuals can be prosecuted, which depends on whether they have been tried for their participation in the Holocaust previously. In 2011, it became possible to convict former concentration camp guards for acting as accessories to murder without requiring proof of direct involvement in a specific crime.