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UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________________________________
No. 02-20588
_____________________________________________
UNITED STATES OF AMERICA,
Plaintiff-Appellant,
v.
DAVID KAY;
DOUGLAS MURPHY,
Defendants-Appellees.
_____________________________________________
On Appeal from the United States District Court
for the Southern District of Texas
_____________________________________________
BRIEF OF THE SECURITIES AND EXCHANGE COMMISSION
AS AMICUS CURIAE IN SUPPORT OF APPELLANT AND
URGING REVERSAL OF THE DISTRICT COURT’S DECISION
_____________________________________________
GIOVANNI PREZIOSO
General Counsel
MEYER EISENBERG
Deputy General Counsel
JACOB H. STILLMAN
Solicitor
RADA LYNN POTTS
Senior Litigation Counsel
450 Fifth Street, N.W.
Washington, D.C. 20549-0606
(202) 942-0961 (Potts)
TABLE OF CONTENTS
Page
TABLE OF AUTHORITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
INTEREST OF THE SECURITIES AND EXCHANGE COMMISSION
AND SUMMARY OF ITS POSITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
STATEMENT OF THE ISSUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
I.
THE LANGUAGE OF THE BUSINESS PURPOSE ELEMENT PLAINLY
COVERS BRIBES TO SECURE LOWER DUTIES AND TAXES . . . . . . . . . . . . . . . . . . 6
II.
THE LEGISLATIVE HISTORY OF THE FCPA CONFIRMS
THAT THE BUSINESS PURPOSE ELEMENT COVERS BRIBES
TO SECURE LOWER DUTIES AND TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
CERTIFICATE OF SERVICE
CERTIFICATE OF COMPLIANCE
i
TABLE OF AUTHORITIES
Cases
Page
Asgrow Seed Co. v. Winterboer,
513 U.S. 179 (1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Bailey v. United States,
516 U.S. 137 (1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Bell v. New Jersey,
461 U.S. 773 (1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Bufferd v. Commissioner of Internal Revenue,
506 U.S. 523 (1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Clayco Petroleum Corp. v. Occidental Petroleum Corp.,
712 F.2d 404 (9th Cir. 1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Mount Sinai Hospital v. Weinberger,
517 F.2d 329 (5th Cir. 1975) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Reiter v. Sonotone Corp.,
442 U.S. 330 (1979) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Seatrain Shipbuilding Corp. v. Shell Oil Co.,
444 U.S. 572 (1980) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SEC v. United Brands Co.,
[1975-76 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶ 95,420
(D.D.C. Jan. 27, 1976) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
United States v. Craft,
122 S.Ct. 1414 (2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
United States v. Cyprian,
197 F.3d 736 (5th Cir. 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 15
Cases (continued)
Page
ii
United States v. Grimes,
244 F.3d 375 (5th Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
United States v. Kay,
200 F. Supp. 2d 681 (S.D. Tex. 2002) . . . . . . . . . . . . . . . . . . . . 3, 4, 9, passim
United States v. Lowe,
118 F.3d 399 (5th Cir. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Statutes
Foreign Corrupt Practices Act
Section 103, 15 U.S.C. 78dd-1 (see Section 30A, Exchange Act)
Section 104(a), 15 U.S.C. 78dd-2(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 3
Section 104A(a), 15 U.S.C. 78dd-3(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Securities Exchange Act
Section 12, 15 U.S.C. 78l . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 15(d), 15 U.S.C. 78o(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 30A, 15 U.S.C. 78dd-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 30A(a), 15 U.S.C. 78dd-1(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 3
Section 30A(a)(1), 15 U.S.C. 78dd-1(a)(1) . . . . . . . . . . . . . . . . . 2, 3, 7 passim
Section 30A(b), 15 U.S.C. 78dd-1(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 30A(f)(3)(A), 15 U.S.C. 78dd-1(f)(3)(A) . . . . . . . . . . . . . . . . . . . . . 15
Other Authorities
Page
iii
123 Cong. Rec. H12824 (daily ed. Dec. 7, 1977) . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Arthur Aronoff, Antibribery Provisions of the Foreign Corrupt Practices Act,
863 PLI/Corp. 47 (1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Cambridge International Dictionary of English (1995) . . . . . . . . . . . . . . . . . . . . . . . 8
Dennis Carlton & Jeffrey Perloff, Modern Industrial Organization (1990) . . . . . . 11
Federal Rule of Appellate Procedure 29(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
H.R. 3, 100th Cong. (1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
H.R. 3815, 95th Cong. (1977) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
H.R. Conf. Rep. No. 100-576 (1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
H.R. Conf. Rep. No. 95-831 (1977) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
H.R. Rep. No. 100-40, pt. 2 (1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14, 21, 22
H.R. Rep. No. 95-640 (1977) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14, 16, 17
Laura Longobardi, Reviewing the Situation: What is to be Done with the Foreign
Corrupt Practices Act? 20 Vand. J. Transnat’l L. 431 (1987) . . . . . . . . . . . 16
Dennis Mueller, Public choice II (1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Walter Nicholson,
Microeconomic Theory: Basic Principles and Extensions (4th ed. 1989) . . . 11
Organization for Economic Cooperation and Development, Convention
on Combating Bribery of Foreign Public Officials in International
Business Transactions, reprinted in 37 I.L.M. 1 (1998) . . . . . . . . . . . . . . . . 23
Pub. L. No. 95-213 (1977) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Other Authorities (continued)
Page
iv
Report of the Securities and Exchange Commission
on Questionable and Illegal Corporate Payments and Practices,
reprinted in Sec. Reg. & L. Rep. (BNA) (Special Supp. May 19, 1976) . . . . 16
S. 305, 95th Cong. (1977) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
S. Rep. No. 105-277 (1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
S. Rep. No. 95-114 (1977) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
The American Heritage Dictionary of the English Language (4th ed. 2000) . . . . . . 8
Webster’s Third New International Dictionary (1993) . . . . . . . . . . . . . . . . . . . . . . 8
v
UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_____________________________________________
No. 02-20588
_____________________________________________
UNITED STATES OF AMERICA,
Plaintiff-Appellant,
v.
DAVID KAY;
Douglas Murphy,
Defendants-Appellees.
_____________________________________________
On Appeal from the United States District Court
for the Southern District of Texas
_____________________________________________
INTEREST OF THE SECURITIES AND EXCHANGE COMMISSION
AND SUMMARY OF ITS POSITION
The Securities and Exchange Commission is the federal agency principally
responsible for the civil enforcement of the federal securities laws. One of the
provisions of those laws, Section 30A of the Securities Exchange Act, 15 U.S.C.
78dd-1, is one of the two anti-bribery provisions of the Foreign Corrupt Practices
Act (“FCPA”) involved in this criminal proceeding. The Commission is
concerned that the district court’s decision, dismissing the indictment for failure to
state an offense, rests on an improperly narrow interpretation of the FCPA’s anti1
bribery provisions – one that will hamper the Commission’s and the Justice
Department’s efforts to enforce the anti-bribery provisions. Therefore, under
Federal Rule of Appellate Procedure 29(a), the Commission submits this brief as
amicus curiae to urge this Court to reject that interpretation.
The FCPA prohibits publicly held companies and others from making
payments to foreign officials “for purposes of” inducing them to misuse their
office 1 “in order to assist such [company] in obtaining or retaining business for or
with, or directing business to, any person . . . .” Section 30A(a)(1) of the
Exchange Act, 15 U.S.C. 78dd-1(a)(1). 2 In this case, the district court (Hittner, J.)
1
More precisely, the “quid pro quo” element of the FCPA’s anti-bribery
prohibitions encompasses payments “for purposes of”: (a) “influencing any act
or decision of such foreign official in his official capacity,” (b) inducing such
official “to do or omit to do any act in violation of [the official’s] lawful duty,”
(c) “securing any improper advantage” or (d) inducing such official “to use his
influence with a foreign government . . . to affect or influence any act or
decision of such government.” See, e.g., Section 30A(a)(1) of the Exchange Act,
15 U.S.C. 78dd-1(a)(1). Throughout this brief, however, the quo conferred in
response to an improper payment is referred to as official action or inaction or
misuse of office.
2
The FCPA includes three distinct but mostly parallel anti-bribery prohibitions:
15 U.S.C. 78dd-1(a), 15 U.S.C. 78dd-2(a), and 15 U.S.C. 78dd-3(a). In general,
each provision, using (as relevant) identical language, prohibits improper
payments (to foreign officials, political parties, party officials, or political
candidates), but subjects different classes of payors to liability. Section 30A(a)
of the Exchange Act, 15 U.S.C. 78dd-1(a), proscribes bribes by “issuers”
(companies that register securities with the Commission in accordance with
Section 12 of the Exchange Act, 15 U.S.C. 78l, or are required to file reports
(continued...)
2
ruled that the prohibition’s “ ‘obtain or retain business’ language” was not broad
enough to encompass payments that the defendants, Douglas Murphy and David
Kay, former officers of American Rice, Inc. (“ARI”), allegedly authorized to be
made to Haitian government officials to reduce customs duties and sales taxes
owed by ARI to the Haitian government. 3
The district court arrived at this decision after characterizing the “ ‘obtain or
retain business’ ” language as ambiguous -- without examining that language.
Instead, the court focused on legislative history. In the court’s view, that history
demonstrated that “Congress has considered and rejected statutory language that
would . . . cover the conduct in question here.” 200 F. Supp. 2d 681, 686 (S.D.
2
(...continued)
under Exchange Act Section 15(d), 15 U.S.C. 78o(d)) and their officers,
directors, employees, agents, and stockholders. The section is subject to civil
enforcement by the Commission (criminal prosecutions under the section are
brought by the Justice Department) in the same manner as other provisions of
the Exchange Act. The other anti-bribery prohibitions, however, are enforced
exclusively by the Justice Department, which may bring either civil or criminal
proceedings to redress violative conduct. While this brief focuses on Section
30A(a) (and, specifically, on Section 30A(a)(1)), any interpretation of Section
30A(a)’s language should, as a general matter, be equally applicable to the
parallel provisions, including, of course, 15 U.S.C. 78dd-2(a), the other
prohibition alleged to have been violated in this case.
3
Recently, the Commission filed a civil law enforcement action against Kay,
Murphy and another person, alleging violations of, inter alia, Exchange Act 30A
(SEC v. Murphy, Civ. No. H-02-2908 (Hughes) (S.D. Tex.)). The action
concerns the same course of conduct as does this criminal proceeding. The
action has been stayed pending this Court’s decision in this appeal.
3
Tex. 2002) (R.E. 29-30). From that, the court concluded that the allegations in the
indictment did not fall within the scope of the FCPA. The court erred and in doing
so unduly limited the scope of the Act.
First, the court ignored fundamental canons of statutory construction
requiring it to begin its inquiry with the text of the FCPA and to give effect to
every word Congress used. Therefore, before the court turned to legislative
history, it should at least have attempted to construe relevant statutory text. The
court failed to do so.
Indeed, the court neglected even to mention, much less interpret, the
majority of the statutory text actually at issue in this case. That language -- “in
order to assist such issuer in obtaining or retaining business . . . with . . . any
person” (the so-called “business purpose” element of the FCPA’s anti-bribery
prohibitions) – by its terms covers all cases in which a payor’s objective is to
assist an issuer in obtaining or retaining business. Therefore, prohibited bribes are
not limited -- as defendants argued below and as the court apparently agreed – to
those seeking official action that, in itself, directly results in an issuer’s obtaining
or retaining business (such as a governmental approval of a private contract or an
award of a government contract), but also include bribes seeking official action
4
(such as tax reduction) which, in turn, will assist an issuer in obtaining or
retaining business.
Ignoring the statutory text in favor of legislative history, the court referred
to the business purpose element simply as the “ ‘obtain or retain business’
language ” (e.g., R.E. 22). Had it considered the words preceding that language,
“in order to assist such issuer in . . . . ” (and particularly the word “assist”), the
court would have concluded that bribes seeking official action favorable to an
issuer’s carrying on its business enterprise (such as payments to circumvent
quotas, bypass licensing systems, obtain concessions, or reduce taxes) run afoul of
the plain language of the anti-bribery prohibitions. A person paying such a bribe
seeks to “assist” the issuer (by, for example, increasing the amount of a product
available for sale or reducing an issuer’s expenses of sale) in “obtaining or
retaining business” (including, for example, in increasing or maintaining the
quantity or dollar volume of its sales or other economic dealings). Indeed, in this
case, the business purpose is clear: Kay and Murphy sought reductions in duties
and taxes to reduce ARI’s cost of doing of business and thereby assist ARI in
getting and keeping business.
Second, the court’s rationale for its holding -- one that focused on what
Congress did not do (e.g., it did not amend the statute to include language that
5
would have further emphasized the breadth of the business purpose element) –
rests on a flawed understanding of the uses of legislative history as an interpretive
tool and fails to appreciate the significance of what Congress did do. Thus, even
had it been appropriate for the court to look beyond the language of the business
purpose element in determining its breadth, legislative history confirms, rather
than undermines, Congress’ intent that the element is to be read, in a manner
consistent with common understanding and basic economic principles, to
encompass the bribes alleged in this case.
STATEMENT OF THE ISSUE
Whether payments to foreign officials to reduce customs duties and sales
taxes a company owes to a foreign government “assist” the company in “obtaining
or retaining business” within the meaning of the FCPA’s anti-bribery prohibitions.
ARGUMENT
I.
THE LANGUAGE OF THE BUSINESS PURPOSE ELEMENT
PLAINLY COVERS BRIBES TO SECURE LOWER DUTIES
AND TAXES.
In interpreting a statute, a court must begin and end with the text if its
meaning is plain and does not lead to an absurd result. United States v. Grimes,
244 F.3d 375, 380 (5th Cir. 2001) (citations omitted). Furthermore, unless
otherwise defined, words in statutes are interpreted as having their ordinary
6
meaning. Asgrow Seed Co. v. Winterboer, 513 U.S. 179, 187 (1995). Finally, in
construing statutes, courts are obliged to “give effect, if possible, to every word
Congress used.” Reiter v. Sonotone Corp., 442 U.S. 330, 339 (1979); see also
United States v. Cyprian, 197 F.3d 736, 739 (5th Cir. 1999) (quoting Bailey v.
United States, 516 U.S. 137, 145 (1995)) (courts “ ‘assume that Congress intended
each of its terms to have meaning’ ” ). Here, the district court failed even to
attempt a common sense interpretation of relevant statutory text. Indeed, the court
neglected even to mention important portions of that text.
The anti-bribery provisions prohibit public companies and others from
making payments to foreign officials for purposes of inducing official action or
inaction “in order to assist such [company] in obtaining or retaining business . . .
with . . . any person . . . .” 4 It is this quoted language, in its entirety (the “business
4
For example, Section 30A(a)(1) of the Exchange Act, 15 U.S.C. 78dd-1(a)(1),
reads, in pertinent part:
It shall be unlawful for any issuer . . . [or for certain persons associated
with such issuer] to make use of . . . any means or instrumentality of
interstate commerce corruptly in furtherance of an offer, payment,
promise to pay, or authorization of the payment of any money . . . to-(1) any foreign official for purposes of-(A)(i) influencing any act or decision of such foreign official in
his official capacity, (ii) inducing such foreign official to do or
omit to do any act in violation of the lawful duty of such official,
or (iii) securing any improper advantage; or
(continued...)
7
purpose element” of the anti-bribery provision), that is at issue in this case. This
language should have been – but was not – taken into account by the district court.
When this language is interpreted according to its ordinary meaning, it covers all
cases in which
a payor’s objective is to help 5 an issuer get 6 or keep 7 business with any person.
The term “business” ordinarily is defined to mean commercial, industrial or
4
(...continued)
(B) inducing such foreign official to use his influence with a foreign
government or instrumentality thereof to affect or influence any act or
decision of such government or instrumentality,
in order to assist such issuer in obtaining or retaining business for or
with, or directing business to, any person . . . .
5
“Assist” means to “give help or support to” (The American Heritage Dictionary of
the English Language 109 (4th ed. 2000)). It means “to contribute to the
fulfillment of a need, the furtherance of an effort, or the achievement of a
purpose or end” (id. at 816 (synonyms at “help”)). “Assist” usually implies
“making a secondary contribution or acting as a subordinate” (id.).
6
“Obtain” is ordinarily defined to mean“to gain or attain possession or disposal
of” (Webster’s Third New International Dictionary 1559 (1993)).
7
The word “retain” is ordinarily defined to mean “to hold or continue to hold
in possession or use: continue to have, use, recognize or accept: maintain in
one’s keeping” (Webster’s Third New International Dictionary 1938 (1993)).
8
professional transactions, dealings, or intercourse 8 (which would include, of
course, maintaining or increasing sales volume (quantity or dollar amount)).
In an argument apparently endorsed by the district court, however, the
defendants advanced a different interpretation of the business purpose element.
According to the defendants, the FCPA proscribes bribes only if they are made to
secure new business or renew existing business (R. 95-96). By that narrow
interpretation, defendants appeared to argue that the FCPA covers only bribes
seeking official action that, in itself, directly results in an issuer’s obtaining or
retaining business (such as a governmental approval of a private contract or an
award of a governmental contract).
Congress’ use of the phrase “in order to assist such issuer in . . .” (and,
particularly, the word “assist”), however, precludes such an interpretation. As
indicated, supra n.5, the common sense of “assist” is “secondary contribution” and
actions can assist a particular goal simply by making the eventual realization of
that goal easier. Thus, when a payor seeks official action which, in turn, will
8
“Business” means “[c]ommercial, industrial, or professional dealings” (The
American Heritage Dictionary of the English Language 252 (4th ed. 2000)); “the
activity of buying and selling goods and services . . .” (Cambridge International
Dictionary of English 178 (1995)); “transactions, dealings, or intercourse of any
nature . . . but now esp. economic (as buying and selling)” (Webster’s Third New
International Dictionary 302 (1993)).
9
assist an issuer in getting or keeping business, its payments fall within the antibribery prohibitions.
In its opinion, the district court erred in failing even to mention, much less
take into account, the words “in order to assist such issuer in . . .”, referring
instead to the business purpose element simply as the “ ‘obtain or retain business’
language” (e.g., R.E. 26). Had the court not isolated the “obtain or retain
business” phrase, it would have had to conclude, consistent with common
understanding, that bribes seeking official action favorable to an issuer’s carrying
on its business enterprise (such as payments to circumvent quotas, bypass
licensing systems, obtain concessions, or reduce taxes) satisfy the business
purpose element because such action makes it easier for the issuer to do more
business. Thus, a person paying such a bribe seeks to “assist” the issuer (by, for
example, increasing the amount of a product available for sale or reducing an
issuer’s expenses of sale) in “obtaining or retaining business” (including, for
example, in increasing or maintaining the quantity or dollar volume of its sales or
other economic dealings).
In this case, the business purpose is clear. According to allegations in the
superseding indictment, in exchange for numerous bribes in a nearly two-year
period, Haitian officials accepted bills of lading and other documents which
10
intentionally understated the amount of rice ARI imported into Haiti, thus
significantly reducing ARI’s sales taxes and customs duties. These reductions in
taxes and duties in turn allowed ARI to reduce its cost of doing business and
thereby enabled it to do more business. In sum, by seeking official action
favorable to the carrying on of ARI’s business enterprise, defendants sought to
assist ARI in obtaining or retaining business. 9
Basic economics and common sense demonstrate that bribes that result in
reduced taxes or induce other actions favorable to an issuer’s carrying on its
business enterprise will satisfy the business purpose element. From an economic
standpoint, bribery can reduce a firm’s cost of doing business (for example,
reduced taxes) or can provide other benefits (for example, obtaining a government
concession). To the extent that the amount of the bribe is less than the benefit it
provides, a firm paying a bribe has an advantage over firms that do not pay the
bribe. See generally, e.g., Dennis C. Mueller, Public choice II, 230 (1989). This
9
Indeed, according to anticipated testimony, defendants believed that ARI
could not do business profitably in Haiti if it had to pay the full duties and
taxes (R. 205, 207-08). Thus, as the Justice Department contended below (an
assertion the court recited in its opinion (R.E. 20)): “Defendants’ payments to
reduce customs duties and sales taxes were essential to ARI to be able to
conduct business in Haiti.” Without the “assistance” of the reductions, then,
ARI would not have “obtained or retained” any business in Haiti.
11
translates into either a cost advantage or increased business opportunities and both
assist a firm in obtaining or retaining economic dealings.
Thus, for example, a bribe that improves business opportunities by reducing
the barriers to enter a market allows a firm to enter a market it might not have
otherwise. See generally, e.g., Dennis W. Carlton & Jeffrey M. Perloff, Modern
Industrial Organization, 107-109 (1990). For firms contemplating leaving a
market (for example, because of low margins), bribes that provide cost advantages
(for example, lower taxes or duties) allow them to remain in markets they
otherwise might leave (and thus retain business). For other firms, their sales will
increase to the extent that they pass on any of the cost advantage to consumers in
the form of lower prices. See generally, e.g., Walter Nicholson, Microeconomic
Theory: Basic Principles and Extensions, 413 (4th ed. 1989). In sum, under basic
economic principles, bribes seeking official action favorable to a business
enterprise assist the firm in obtaining or retaining business. 10
10
This common sense interpretation of the business purpose element – that
would hold that the element is satisfied by bribes seeking official action
favorable to an issuer’s business enterprise -- does not disregard the statutory
language by covering any official action that merely relates to a company’s
business. For example, there may be cases in which a defendant will be able to
present unrefuted evidence that its objective in seeking a tax reduction (or
some other favorable official action) had nothing to do with obtaining or
retaining business in the short or long run (such as when a payor’s goal is to
(continued...)
12
Further demonstrating that the business purpose element should be read to
cover the bribes alleged in this case is the element’s statutory context. See United
States v. Lowe, 118 F.3d 399, 402-03 (5th Cir. 1997) (in determining whether the
meaning of statutory language is plain, inquiry is not limited to discerning the
meaning of individual terms; instead meaning is drawn from context and a term is
not considered ambiguous -- even though it may be susceptible to different
interpretations -- when the context eliminates all but one of the meanings). As the
Justice Department correctly urges (Br. 9), the defendants’ interpretation of the
business purpose element renders another aspect of the anti-bribery prohibitions
superfluous. As a consequence, that interpretation should be rejected.
As is apparent from the anti-bribery prohibition of Section 30A(a)(1), for
example, it actually has two “purpose” elements. The first -- the quid pro quo
element -- requires that the payment be made “for purposes of” influencing “any
act or decision of [a] foreign official in his official capacity,” inducing a foreign
10
(...continued)
issue dividends as it winds down its business operations). In such cases, a trier
of fact might not find violations since the trier would have to find that the
bribe was paid to help the issuer get or keep business. But the Commission or
the criminal prosecutor should not have to negate the possibility of such a rare
situation in pleadings (the civil complaint or the indictment) or at trial.
Established principles concerning the sufficiency of pleadings and the
availability of evidentiary inferences and presumptions should satisfy the
pleading or evidentiary burden.
13
official “to do or omit to do any act in violation of the lawful duty of such
official,” securing “any improper advantage,” or “inducing such foreign official to
use his influence with a foreign government . . . to affect or influence any act or
decision of such government . . . .” The second “purpose” element -- the business
purpose element -- requires that the ultimate objective of the payment must be to
assist the issuer in obtaining or retaining business.
The defendants’ (and, presumably, the court’s) reading of the business
purpose element renders the first purpose element superfluous because it limits the
FCPA’s anti-bribery coverage to payments for official actions (or inaction) that
directly or proximately result in the award or renewal of contracts or other pieces
of business. Had Congress intended this type of direct link, it could have simply
omitted the quid pro quo element and prohibited payments to foreign officials “for
purposes of obtaining or retaining business . . . .” Congress, however, described
the conduct to be performed by the official in response to the bribe (the quid pro
quo element) separately from the payor’s ultimate objective of obtaining or
retaining business (the business purpose element). In addition, Congress linked
the quid pro quo element to “obtaining or retaining business” through use of the
words “in order to assist.” The context thus makes clear that the statutory
14
language prohibits bribes seeking official action that indirectly enables an issuer to
obtain or retain business.
The Commission also agrees with the Justice Department when it argues
(Br. 10-11) that the presence of another provision of the FCPA provides further
support for a reading of the business purpose element that covers the bribes
alleged in this case. That provision, set out at, e.g., 15 U.S.C. 78dd-1(b), excepts
from the coverage of the anti-bribery prohibitions “any facilitating or expediting
payment to a foreign official . . . the purpose of which is to expedite or to secure
the performance of a routine governmental action by a foreign official . . . .” 11
Congress further defined “routine governmental action” to mean:
only an action which is ordinarily and commonly performed by a
foreign official in–
11
Facilitating payments are given to secure or accelerate performance of a nondiscretionary act an official is already obligated to perform without the
payment. See H.R. Rep. No. 100-40, pt. 2, at 76 (1987) (describing “grease”
payments as “small payments . . . demanded by relatively low-level foreign
government employees before they will even properly perform the duties for
which they are responsible, such as processing applications”). Congress always
intended that such payments -- for example, those that were made with the
goal of expediting shipments through customs -- would be excepted from the
FCPA’s anti-bribery prohibitions. See, e.g., H.R. Rep. No. 95-640, at 8 (1977).
As we explain below at pp. 21-22, however, Congress failed to implement its
intent in 1977, when it enacted the FCPA. Not until 1988, when it enacted this
“routine governmental action” exception to the anti-bribery prohibitions, did
Congress implement its intent.
15
(i) obtaining permits, licenses, or other official documents to
qualify a person to do business in a foreign country;
(ii) processing governmental papers, such as visas and work
orders;
(iii) providing police protection, mail pick-up and delivery, or
scheduling inspections associated with contract performance or
inspections related to transit of goods across country;
(iv) providing phone service, power and water supply, loading
and unloading cargo, or protecting perishable products or
commodities from deterioration; or
(v) actions of a similar nature.
e.g., 15 U.S.C. 78dd-1(f)(3)(A).
The facilitating payments identified in the statute are thus payments for
official actions, many of which (e.g., providing police protection, phone service)
could not, and all of which likely would not, directly result in the acquisition or
renewal of a specific piece of business. Therefore, because the exception would
be unnecessary under defendants’ reading of the business purpose element, basic
canons of statutory construction rule out that reading (see, e.g., United States v.
Cyprian, 197 F.3d at 739 (courts assume statutory terms have meaning)).
II.
THE LEGISLATIVE HISTORY OF THE FCPA CONFIRMS
THAT THE BUSINESS PURPOSE ELEMENT COVERS BRIBES
TO SECURE LOWER DUTIES AND TAXES.
In the Commission’s view, this Court need not look beyond the language of
the business purpose element in determining that the element encompasses the
payments alleged in this case. If, however, any uncertainty remains after
16
examining the statutory text, it is dispelled by the legislative history of the FCPA
and the policies the Act advances. The Act’s history and goals confirm that
Congress intended the element to be read, in a manner consistent with common
understanding and basic economic principles, to encompass bribes made to secure
official action favorable to an issuer’s carrying on its business enterprise.
A. Enactment of the FCPA. The FCPA has been labeled a creature of “postWatergate morality.” Laura Longobardi, Reviewing the Situation: What is to be
Done with the Foreign Corrupt Practices Act? 20 Vand. J. Transnat’l L. 431, 433
(1987). Following up on the findings of the Watergate special prosecutor
concerning illegal campaign contributions, the Commission undertook to
investigate questionable and illegal payments by corporations. See Report of the
Securities and Exchange Commission on Questionable and Illegal Corporate
Payments and Practices, reprinted in Sec. Reg. & L. Rep. (BNA) (Special Supp.
May 19, 1976). The investigation and a voluntary disclosure program revealed a
widespread incidence of questionable corporate payments to foreign officials
running the “gamut from bribery of high foreign officials in order to secure some
type of favorable action by a foreign government to so-called facilitating payments
17
that allegedly were made to ensure that government functionaries discharged
certain ministerial or clerical duties.” H.R. Rep. No. 95-640, at 4 (1977). 12
Congress was gravely concerned about bribes to foreign officials, viewing
the payments as immoral, unethical, unwise from a business standpoint, inimical to
the principles of free and fair competition, and a threat to the conduct of the
nation’s foreign policy. S. Rep. No. 95-114, at 3-4 (1977); H.R. Rep. No. 95-640,
at 4-5. Based on these findings, Congress enacted the FCPA to bring “corrupt
practices to a halt and to restore public confidence in the integrity of the American
business system.” S. Rep. No. 95-114, at 4. In sum, as the Ninth Circuit has
recognized, the FCPA represents “a legislative judgment that our foreign relations
will be bettered by a strict anti-bribery statute.” Clayco Petroleum Corp. v.
Occidental Petroleum Corp., 712 F.2d 404, 408 (9th Cir. 1983).
As it emerged from the Conference Committee, the substitute bill that
ultimately became the FCPA included anti-bribery prohibitions substantially
12
One particularly high-profile instance of bribery involved payments by United
Brands to government officials in Honduras to reduce taxes on banana
exports. The notoriety of the United Brands scandal was heightened by the
suicide of the company’s CEO Eli Black (who had authorized the bribery) on
the eve of its public disclosure. In 1976, the Commission brought an
injunctive action against United Brands alleging, among other things, violations
of the antifraud and reporting requirements of the Exchange Act. SEC v.
United Brands Co., [1975-76 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶ 95,420
(D.D.C. Jan. 27, 1976) (consent judgment).
18
similar to the current versions – that is, they proscribed payments to foreign
officials (and others) to induce official action or inaction (the quid pro quo
element), in order to assist issuers in obtaining or retaining business (the business
purpose element). See H.R. Conf. Rep. No. 95-831, at 12 (1977) (stating that “the
conferees clarified the scope of the [anti-bribery] prohibition by requiring that the
purpose of the payment must be to influence any act or decision of a foreign
official (including a decision not to act) . . . so as to assist an issuer in obtaining,
retaining or directing business to any person”). The bill incorporated some but not
all aspects of both House (H.R. 3815) and Senate (S. 305) precursors.
The House bill (H.R. 3815, 95th Cong., § 2(a) (1977)) had included, as
relevant, quid pro quo language that required that the payment be made “for
purposes of . . . influencing any act or decision of such foreign official in his
official capacity” but had not included the business purpose element. That
element was included in the Senate’s version. Its version proscribed payments
made “for the purpose of inducing [the foreign official] . . . to use his influence
with a foreign government or instrumentality, or . . . to fail to perform his official
functions, to assist such issuer in obtaining or retaining business for or with, or
directing business to, any person or influencing legislation or regulations of that
19
government or instrumentality.” S. 305, 95th Cong., § 103 (1977) (emphasis
added).
In enacting the anti-bribery prohibitions, Congress passed “[t]he House
version which provided that the corrupt purpose must be to influence any official
act or decision . . . with the modification [from the Senate version] that the bribe
must also be to retain or obtain business.” 123 Cong. Rec. H12824 (daily ed. Dec.
7, 1977) (remarks of Rep. Staggers). The conclusion that the district court drew
from this legislative history -- that the Conference Committee’s drafting choices
weigh against a broad reading of the anti-bribery prohibitions (R.E. 24) – is in
error.
First, as a matter of fact, the district court inaccurately recited those choices.
The substitute bill did not, as the district court stated, reject the House proposal to
prohibit payments to influence “any act or decision of such foreign official in his
official capacity.” Instead, the substitute bill included this very broad language in
its entirety in the quid pro quo element and limited it only by the business purpose
element. Second, although the substitute bill did not include the Senate’s proposal
to prohibit payments for the purpose of inducing official action “to assist such
issuer in . . . influencing legislation or regulations of that government,” this does
not mean that Congress intended the “obtaining or retaining business” language to
20
have a narrow, extraordinary meaning. At most, rejection of the “influencing
legislation or regulations” language signalled Congress’ intent that only businesslinked bribes would be prohibited by the FCPA: that rejection in no way defined
how close that link needs to be – the issue here.
B. 1988 Amendments. The district court also erred in concluding (see R.E.
25-29) that Congress’ 1988 rejection of a proposal to amend the business purpose
element cuts against giving the element its ordinary meaning. Rather than
focusing on Congress’ inaction, the court should have considered Congress’
contemporaneous action in crafting the “routine governmental action” exception,
which confirmed the broad reach of the business purpose element. Indeed, in light
of this action, commentary in a House Committee Report emphasizing the breadth
of the business purpose element provides significant support for an interpretation
of the FCPA that reaches the payments alleged in this case.
In proposing to amend the FCPA in 1988, the Conference Committee
determined not to include an amendment, proposed by the House, that would
expressly have stated that proscribed payments were those made for purposes of
influencing official action in order “to assist such issuer in obtaining or retaining
business . . ., including the procurement of legislative, judicial, regulatory, or other
action in seeking more favorable treatment by a foreign government.” H.R. 3,
21
100th Cong., §701(a). Because the Conference Committee rejected this proposal,
the court declined to give any deference to the conferees’ contemporaneous
statement that
the reference to corrupt payments for “retaining
business” in present law is not limited to the renewal of
contracts or other business, but also includes a
prohibition against corrupt payments related to the
execution or performance of contracts or the carrying out
of existing business, such as a payment to a foreign
official for the purpose of obtaining more favorable tax
treatment . . . .
H.R. Conf. Rep. No. 100-576, at 918 (1988). The court reasoned that Congress’
rejection of the House proposal did not involve an “enactment[] of a subsequent
Congress that would serve as guidance for the FCPA’s original ‘obtain or retain
business’ language.” R.E. 27. Accordingly, the court held to be inapposite
precedent holding that subsequent enactments of Congress are entitled to great
weight in construing prior acts. Id. 13
13
Indeed, it appears that the court did more than just decline to give deference to
the conferees’ statement -- it also attributed interpretive significance to what it
viewed as a failed legislative proposal (see R.E. 29 (the court “finds that the
1988 Congress considered and rejected expansion” of the business purpose
element)). The court erred. Even if Congress had not acted in a way that
necessarily reflected its understanding of the breadth of the business purpose
element, its non-action could not support the court’s decision. As the
Supreme Court has stated, “failed legislative proposals are ‘a particularly
dangerous ground on which to rest an interpretation of a prior statute’ . . . [in]
(continued...)
22
But Congress did act in 1988 and did so in a way that was necessarily based,
at least in part, on its understanding of the breadth of the anti-bribery prohibitions
in general and the business purpose element in particular. It enacted the “routine
governmental action” exception, discussed above at pp. 14-15, against a backdrop
of criticism that it had failed, in 1977, to effectuate its intent to exclude facilitating
or “grease” payments from FCPA coverage. See n.11 supra; see also H.R. Rep.
No. 100-40, pt. 2, at 76 (1987) (describing Congress’ intent in 1977 to exclude
petty corruption from FCPA coverage); id. at 77 (“there has been some criticism
that the current statutory language does not clearly reflect Congressional intent
and the boundaries of prohibited conduct”). 14 The history of this amendment thus
13
(...continued)
that ‘ “‘[c]ongressional inaction lacks persuasive significance because several
equally tenable inferences may be drawn from such inaction, including the
inference that the existing legislation already incorporated the offered
change.’” ” United States v. Craft, 122 S.Ct. 1414, 1425 (2002) (quotation
omitted).
14
In 1977, Congress sought to except grease payments primarily by defining the
term “foreign official” to exclude persons with “essentially ministerial or
clerical” duties. See Pub. L. No. 95-213, § 103(a); see also H.R. Rep. No. 100-40,
pt. 2, at 76 (1987). In practice, however, this approach proved problematic
because issuers had difficulty determining, among other things, whether a
foreign official’s duties were “essentially” ministerial or clerical and, perhaps
more fundamentally, because the approach delimited excluded payments by
reference to the recipient rather than the purpose. H.R. Rep. No. 100-40, pt. 2,
at 77; see Arthur Aronoff, Antibribery Provisions of the Foreign Corrupt Practices Act,
863 PLI/Corp. 47, 53 (1994). As a consequence, in 1988, in an effort to
(continued...)
23
shows that Congress recognized that the anti-bribery prohibitions had been read to
cover the listed grease payments and, therefore, that it was necessary to include a
specific exception for these sorts of payments.
Under these circumstances, the conferees’ articulation of the meaning of the
anti-bribery prohibitions’ business purpose element is entitled to deference. As
the Supreme Court has recognized, “the views of a Congress engaged in the
amendment of existing law as to the intent behind that law are ‘entitled to
significant weight.’ ” Bufferd v. Commissioner of Internal Revenue, 506 U.S. 523,
530 n.10 (1993) (quoting Seatrain Shipbuilding Corp. v. Shell Oil Co., 444 U.S.
572, 596 (1980)). See Bell v. New Jersey, 461 U.S. 773, 785 n.12 (1983) (quoting
Mount Sinai Hospital v. Weinberger, 517 F.2d 329, 343 (5th Cir. 1975)) (Congress
is “ ‘at its most authoritative, [when it is] adding complex and sophisticated
amendments to an already complex and sophisticated act. Congress is not merely
14
(...continued)
effectuate its intent that “petty corruption” be excepted from the anti-bribery
prohibitions, Congress amended the law to describe “the type of conduct that
is outside the scope of the FCPA.” H.R. Rep. No. 100-40, pt. 2, at 77; see id. at
53 (describing proposed amendments that ultimately ripened into legislation as
an attempt to make “clear that certain kinds of payments are not intended to
be within the scope of the general prohibitions under the FCPA” including
those for “certain kinds of routine actions, such as processing work orders and
loading and unloading cargoes”).
24
expressing an opinion . . . but is acting on what it understands its own prior acts to
mean.’ ”).
C. 1998 Amendments. Finally, the court erred in concluding that Congress’
actions in 1998 also support a narrow reading of the business purpose element.
The 1998 amendments to the FCPA responded to the call of the Organization for
Economic Cooperation and Development’s Convention on Combating Bribery of
Foreign Public Officials in International Business Transactions (the “OECD
Convention”) for all parties to make it a criminal offense “for any person
intentionally to offer, promise or give any undue pecuniary or other advantage,
whether directly or through intermediaries, to a foreign public official, for that
official or for a third party, in order that the official act or refrain from acting in
relation to the performance of official duties, in order to obtain or retain business
or other improper advantage in the conduct of international business.” OECD
Convention, art. 1(1), reprinted in 37 I.L.M. 1, 4 (1998). In implementing this
article of the convention, Congress chose to insert the “improper advantage”
language into the quid pro quo element of the anti-bribery prohibitions rather than
to make it part of the business purpose element (see nn.1, 4 supra).
As the legislative history makes clear, however, the drafters of this
amendment believed that it implemented the OECD Convention and, indeed, that
25
it “expand[ed] the FCPA’s scope to include payments made to secure ‘any
improper advantage,’ the language used in the OECD Convention.” S. Rep. No.
105-277, at 2 (1998). In any event, at least insofar as the business purpose
element is concerned, the court erred in according interpretive significance to
Congress’ failure to amend the element in response to the OECD Convention (see
R.E. 29). This is so because at least one inference to be drawn from that inaction - that the element already incorporated bribes made to secure “any improper
advantage in the conduct of international business” -- is equally as reasonable as
any other inference (see n.13 supra).
26
CONCLUSION
For the foregoing reasons, the Commission urges the Court to reverse the
district court’s decision. The Court should reject the district court’s unduly
narrow construction of the FCPA – supported by neither the language of the
statute nor its legislative history -- and hold that the bribes alleged in this case fall
within the scope of the FCPA’s business purpose element.
Respectfully submitted,
GIOVANNI PREZIOSO
General Counsel
MEYER EISENBERG
Deputy General Counsel
JACOB H. STILLMAN
Solicitor
___________________
RADA LYNN POTTS
Senior Litigation Counsel
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0606
(202) 942-0961 (Potts)
September 2002
27
CERTIFICATE OF SERVICE
I, Rada Potts, hereby certify that on September 10, 2002, I caused to be
dispatched via overnight courier to the Clerk of the United States Court of
Appeals for the Fifth Circuit the original and seven copies of the Brief of the
Securities and Exchange Commission as Amicus Curiae in Support of Appellant
and Urging Reversal of the District Court’s Decision, together with one computer
readable disk copy of the brief and my notice of appearance. I also certify that on
September 10, 2002, I caused to be served two copies of the Brief of the Securities
and Exchange Commission as Amicus Curiae in Support of Appellant and Urging
Reversal of the District Court’s Decision, together with one computer readable
disk copy of the brief and my notice of appearance upon counsel for each of the
following parties as follows:
via overnight courier:
Robert C. Bennett, Jr.
Bennett & Secrest
808 Travis St., Suite 2400
Houston, TX 77002
(counsel for Appellee David Kay)
Robert Jon Sussman &
Charley A. Davidson
Hinton, Sussman, Bailey & Davidson
5300 Memorial Dr., Suite 1000
Houston, TX 77007
(counsel for Appellee Douglas Murphy)
via messenger:
Reid H. Weingarten
Brian Matthew Heberlig
Steptoe & Johnson
1330 Connecticut Ave., NW
Washington DC 20036
(counsel for Appellee David Kay)
Philip Eric Urofsky
U.S. Dept. of Justice
Fraud Section, Criminal Division
th
10 & Constitution Ave., N.W.
Bond Building, Suite 4403
Washington DC 20530
(counsel for Appellant United States)
____________________________
RADA LYNN POTTS
Securities & Exchange Commission
450 Fifth St., N.W.
Washington DC 20549-0606
(202) 942-0961
CERTIFICATE OF COMPLIANCE
Pursuant to 5th Cir. R. 32.2 and .3, the undersigned certifies this brief
complies with the type-volume limitations of Fed. R. App. P. 32(a)(7).
1. EXCLUSIVE OF THE EXEMPTED PORTIONS IN 5th Cir. R. 32.2, THE
BRIEF CONTAINS:
A. 6,206 words.
2. THE BRIEF HAS BEEN PREPARED:
A. in proportionally spaced typeface using:
WordPerfect 9:
in Garamond Typeface, 14 Point Font Size.
3. THE UNDERSIGNED UNDERSTANDS A MATERIAL
MISREPRESENTATION IN COMPLETING THIS CERTIFICATE, OR
CIRCUMVENTION OF THE TYPE-VOLUME LIMITS IN FRAP 32(a)(7),
MAY RESULT IN THE COURT'S STRIKING THE BRIEF AND IMPOSING
SANCTIONS AGAINST THE PERSON SIGNING THE BRIEF.
______________________
RADA LYNN POTTS
Senior Litigation Counsel
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.