Tuesday, August 24, 2010

Giffen's Contribution to FCPA Case Law

Notwithstanding its mysterious conclusion, the Giffen enforcement action was instructive because it represented a rare instance in which an FCPA defendant mounted an aggressive legal defense. As a result, the long enforcement action yielded FCPA case law, even though the issues subjected to judicial scrutiny did not involve core FCPA elements.

So what did we learn from the Giffen case law?

For starters, we learned that just because the DOJ charges it, does not mean that the charge is legally viable.

As I explored in this prior post, in addition to the FCPA charges, the original indictment also alleged that Giffen's actions violated 18 USC 1346 by depriving the citizens of Kazakhstan of the honest services of their government officials - one of the more curious "tag-a-long" charges ever in an FCPA enforcement action.

In 2004, Giffen moved to dismiss portions of the charges that alleged a scheme to deprive the citizens of Kazakhstan of the honest services of their government officials. He asserted that application of the honest services fraud theory of Section 1346 to Kazakhstan impermissibly extended the mail and wire fraud statutes to cover activities beyond the original intent of Congress.

Judge William Pauley of the Southern District of New York agreed and granted Giffen's motion to dismiss portions of the charges that alleged a scheme to deprive the citizens of Kazakhstan of the honest services of their government officials. See U.S. v. Giffen, 326 F.Supp.2d 497 (S.D.N.Y. 2004).

In so holding, Judge Pauley stated that the DOJ offered "the slenderest of reeds to support its expansive interpretation." Among other things, Judge Pauley noted that the DOJ could not point to "any decision where a court upheld application of the honest services theory in an international setting involving a foreign government and its citizens."

When the DOJ pointed to "two 25-year old indictments" charging a similar theory, Judge Pauley noted that the DOJ "has not unearthed any published decision on the issue" and that the DOJ "conceded that there were no court decisions addressing the validity of the two 25-year old indictments." Judge Pauley further stated that just because certain U.S. Attorneys were able to obtain indictments "under an intangible rights theory, grounded between a foreign government and its citizenry, is not the kind or quality of precedent this Court need consider."

Judge Pauley concluded that "Congress did not intend that the intangible right to honest services encompasses bribery of foreign officials in foreign countries" and that "application of Section 1346 to Giffen [was] unconstitutional."

In the prior post, I noted that many current FCPA legal theories are similarly not supported by any case law or other meaningful precedent or guidance.

I then posed the question - if challenged would a judge (like Judge Pauley in Giffen) conclude that the DOJ offered the "slenderest of reeds" to support many of its expansive FCPA interpretations?

I asked - what case law would the DOJ cite to support certain of its aggressive interpretations (such as employees of seemingly "commercial" enterprises being "foreign officials" under the FCPA)? Would DOJ not have to concede that there are no court decisions addressing the validity of certain of its interpretations? Would the DOJ point to prior enforcement actions settled by companies or individuals to support many of its enforcement theories? If so, presumably a judge would similarly state "this is not the kind of precedent" I need to consider.

We also learned during the Giffen enforcement action that an act of state doctrine is near impossible to properly assert in an FCPA enforcement action. In addition to claiming that his actions were taken with the knowledge and support of the Central Intelligence Agency, the National Security Council, the Department of State and the White House, Giffen also asserted that he was acting as an official of the Kazakh government and thus, under the act of state doctrine, the court was precluded from considering the validity of Kazakh law and the officials acts of its leaders.

However, Judge Pauley stated that the act of state doctrine has a territorial dimension in that it is limited to acts done within the applicable foreign state in the exercise of government authority. Because the Giffen allegations, like most FCPA allegations, did not relate solely to conduct within Kazakhstan, Judge Pauley concluded that the act of state doctrine did not bar Giffen's prosecution. For instance, and among other things, the indictment alleged that Giffen transferred funds from Swiss bank accounts.

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