FCPA defense complicated by Travel Act

Oct 20, 2010
<p>The DoJ is employing the little used Travel Act to bolster FCPA prosecutions</p>

Much has been made of the UK’s 2010 Bribery Act, one of the first anti-corruption laws with extra-territorial reach to prohibit in explicit terms not just bribery of foreign officials but also more pedestrian commercial bribery (involving only private actors).

Less noticed in most corporate compliance and risk management offices have been the efforts by the Department of Justice (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 Foreign Corrupt Practices Act (FCPA). The department’s effort in this area poses a distinct risk to corporations whose compliance programs focus too narrowly on the FCPA.

The 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, a Pennsylvania-based export company, were sentenced for their roles in a long-running scheme to bribe individuals in Vietnam to obtain contracts. The DoJ had previously meted out to Nexus itself the corporate equivalent of capital punishment, forcing the firm to agree to cease operations as a condition of its guilty plea. 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. Whatever the merits of that defense, they were rendered largely moot by the prosecutors’ charging decisions.

The Travel Act
The indictment against Nexus and the individuals included not only FCPA counts but also charges under the Travel Act, a 50-year-old law enacted to battle mobsters and racketeers, and now increasingly used to target commercial bribery abroad.

The Travel Act criminalizes the use of ‘the mail or any facility in interstate or foreign commerce’, such as 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.’ Because prosecutors can use the Travel Act to essentially federalize the commercial bribery statutes of any state, the Travel Act can be used to prosecute bribery of foreign private individuals.

In the Nexus case, for example, the DoJ charged the defendants on multiple Travel Act counts for sending a series of wire transfers from Philadelphia to Asia, in violation of Pennsylvania’s commercial bribery statute, which does not require any showing that the recipient is a public official. Because the defendants faced lengthy sentences of up to 45 years in prison on the Travel Act counts alone, prevailing on a technical defense to the FCPA count would have made little difference; hence the willingness of Nexus and the individuals to plead guilty.

Future threat
As indicated above, the inclusion of the Travel Act charges in the Nexus indictment is not an isolated incident. The DoJ has used the act to prosecute bribery of individuals overseas in several different cases – see, for example, United States vs Welch, 327 F 3d 1081 (10th Circuit, 2003) (reversing the District Court’s dismissal of Travel Act charges in a case involving bribes to private individuals overseas) – and the practice has recently gathered pace.

The government’s willingness to use the Travel Act to attack bribes to foreign nationals in cases where the FCPA arguably does not apply (Nexus) or concededly does not apply (United States vs Stuart Carson et al) seems to indicate that the DoJ stands ready to prosecute private commercial bribery. Indeed, the department’s own FCPA website states that the DoJ ‘may’ in 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 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.

What does seem plain is that the US has (and the UK shortly will have) the ability and the willingness to police all types of foreign bribery and corruption, including private commercial bribery that until recently had largely escaped scrutiny. Any anti-corruption compliance program needs to anticipate and address this emerging enforcement regime.

Travel Act cases of note

United States vs 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 customer in Saudi Arabia. They were acquitted of all charges at trial in 2005.

United States vs Steven Ott et al: Three executives from ITXC Corporation were convicted on parallel Foreign Corrupt Practices Act (FCPA) and Travel Act violations and sentenced in 2008. The Travel Act’s underlying predicate crime in that case was New Jersey’s commercial bribery statute, and the conduct included wire transfers of bribe money from New Jersey to Nigeria.

United States vs Stuart Carson et al: Numerous employees of a manufacturing company were indicted for an alleged scheme 
to land contracts through bribery, including about $2 million in payments to employees of private foreign companies. The private bribes were prosecuted under the Travel Act, using California’s commercial bribery law as the underlying predicate. Two employees have pleaded guilty and await sentencing while six more await trial, currently scheduled for November 2010.

United States vs Frederic Bourke, Jr: Bourke was convicted at trial of violating the FCPA and the Travel Act. The underlying ‘unlawful activity’ predicate for the Travel Act charges was not a state law commercial bribery statute, but the FCPA itself. 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 that can form the basis for Racketeer Influenced Corrupt Organization (RICO) charges, the Travel Act is and can. See United States vs Young & Rubicam, 741 F Supp. 334,338 (D Conn 1990) (rejecting the 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 vs 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 pleaded predicate act of racketeering).

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