TIPs and CHIPs - the payments....

SEC Charges Seven Oil Services and Freight Forwarding Companies for Widespread Bribery of Customs Officials. The Securities and Exchange Commission announced sweeping settlements with global freight forwarding company Panalpina, Inc. and six other companies in the oil services industry that violated the Foreign Corrupt Practices Act (FCPA) by paying millions of dollars in bribes to foreign officials to receive preferential treatment and improper benefits during the customs process. http://www.sec.gov/news/press/2010/2010-214.htm

DOJ is moving beyond the FCPA. 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.

For this trend, a reassessment of internal compliance programs is prudent.

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).

See Indictment in United States v. Nexus Technologies Inc., Counts 11 – 19, 08-cr-522 (E. D. Penn.) (Docket # 106, 10/29/09). And DOJ Press Release dated September 16, 2010 at http://www.justice.gov/opa/pr/2010/September/10-crm-1032.html

Precedents:

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

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

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

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.

The trend raises the need of a reassessment of internal compliance programs and an anti-corruption compliance program that covers the waterfront of traditional FCPA concerns and commercial bribery and US state commercial bribery laws which sets a very low bar for bribery, outlawing the provision of “any benefit upon any employee, agent or fiduciary … with intent to influence his conduct”, as well that covers the 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 a long-arms beyond territory (and no prong on corrupt intent).