The Menendez Trial and the Future of Bribery

The prosecution has finished presenting its case in the trial of New Jersey Senator Bob Menendez. Menendez and his co-defendant, Dr. Salomon Melgen, are facing multiple counts of bribery and related charges. The government alleges that in exchange for gifts from Melgen including private jet trips, luxury vacations, and large political donations, Menendez interceded on Melgen’s behalf in various disputes he was having with the federal government. (A more detailed analysis of the indictment is available here.)

Senator Menendez faces corruption charges

Senator Robert Menendez

When the government rested last week, the judge made some comments that appeared to question whether the bribery case could survive the Supreme Court’s 2016 decision in McDonnell v. United States. This led to widespread speculation that the judge might dismiss many of the charges. But on Monday the judge ruled there was enough evidence to go to the jury. The defense is now putting on its case.

Menendez makes two primary types of claims concerning the bribery charges. The first is that the things he agreed to do for Melgen did not qualify as “official acts” under McDonnell and thus could not support a bribery conviction. The second is that, even if Menendez did perform official acts, they were not in response to any gifts from Melgen but were simply done out of friendship or as part of Menendez’s routine Senate responsibilities.

The McDonnell case has been looming over the Menendez prosecution from the beginning. If the Senator is convicted, I think there is a good chance that at least some of the bribery charges will indeed be overturned on appeal. But I believe it will be based primarily not on McDonnell but on a different Supreme Court case decided almost two decades ago.

McDonnell and “Official Acts”

The Supreme Court in McDonnell held that in any federal bribery case the prosecution must prove the public official agreed to be influenced in the performance of an “official act” as defined in 18 U.S.C. 201, the federal bribery statute. The Court concluded that Governor McDonnell’s actions —  making phone calls, arranging meetings, and holding an event at the Governor’s mansion — did not rise to the level of “official acts” and could not support a bribery conviction. (For a critique of McDonnell and its “official act” holding, you can see my posts here and here.)

The “official act” argument says, in effect, that even if there were a deal or quid pro quo, what the public official did – the quo – was not substantial enough to justify a bribery charge. The official can admit there was a link between his actions and the gifts he received, but argue that those actions were trivial or were simply routine political courtesies.

The McDonnell opinion has already resulted in some high-profile convictions being thrown out, including that of former New York State Assembly Speaker Sheldon Silver. Senator Menendez has argued from the beginning of his case that the things he did for Dr. Melgen did not amount to official acts, and the judge has repeatedly rejected his arguments. As I wrote here, I think the judge is correct. If Menendez is convicted and those convictions are later overturned, I don’t expect it to be on the McDonnell “official act” ground.

Melgen is accused of bribing Senator Menendez

Dr. Salomon Melgen

Quid Pro Quo and the “Stream of Benefits” Theory 

Assuming Menendez did perform official acts, to be bribery those acts still needed to be done in exchange for the gifts he received from Melgen. This is the requirement of a quid pro quo, or corrupt intent. This is Menendez’s other main line of defense: he says that anything he did for Melgen was either out of friendship or was part of his general oversight and policy duties as a Senator, not in response to the gifts he received.

Some counts of the indictment related to Melgen’s hefty political contributions to Menendez allege a direct quid pro quo (Counts 9-14). They charge that in exchange for a particular donation, Menendez took a particular identified official act, such as advocating on Melgen’s behalf before the State Department or Department of Health and Human Services.

But a number of the charges (Counts 2-8) rely on a different bribery theory, known as “stream of benefits.” These counts charge that Menendez accepted gifts such as trips on Melgen’s private jet in exchange for “being influenced in the performance of official acts, as opportunities arose.” The specific official acts are not identified in the individual bribery counts, although a large number of official acts are described in the indictment as a whole.

Prosecutors use this “steam of benefits” theory in cases where the bribe payer essentially has the public official on retainer. In exchange for a series of gifts over time, the public official agrees do things to benefit the bribe payer when opportunities arise. It might not be possible to prove a direct link between any particular gift and any particular official act; what is charged is the continuing corrupt relationship, a sort of ongoing “you scratch my back and I’ll scratch yours” theory.

The Supreme Court has never weighed in on this stream of benefits theory. It has been widely accepted in the lower courts, including those in the Third Circuit where Menendez is on trial. But Menendez’s attorneys claim that McDonnell has changed the legal landscape here as well.

The trial judge made some comments last week suggesting he might find that the stream of benefits theory did not survive McDonnell. In the end, though, he agreed with the government that McDonnell’s requirement that an official act be specific and focused does not mean the act has to be identified at the time of the corrupt agreement. In other words, the deal may be, “I’ll give you a stream of benefits over time, and in exchange you agree to do things for me, as the opportunities arise, that qualify as official acts.” The parties have to agree that the public official will perform official acts, but they don’t have to agree up front what the precise official acts might be.

As far as the impact of McDonnell itself is concerned, that seems like the right answer. McDonnell did not discuss the stream of benefits theory and there’s no particular reason to believe that the “official act” requirement, standing alone, would invalidate that theory.

But I think the Supreme Court’s overall approach in McDonnell does suggest the Court might well reject the stream of benefits bribery theory if given the opportunity. That rejection would primarily be based not on the holding of McDonnell, but on the language of the federal bribery statute itself and the reasoning of a 1999 Supreme Court case, United States v. Sun-Diamond Growers of California.

The Sun-Diamond Decision

In Sun-Diamond the defendant, a large agricultural cooperative, was charged with giving illegal gratuities to the Secretary of Agriculture, Mike Espy. The crime of gratuities, 18 U.S.C. 201(c), appears in the same statute as federal bribery, 18 U.S.C. 201(b). It prohibits giving a public official a thing of value “for or because of any official act.” It differs from bribery in that no corrupt intent to influence the official is required; a gratuity can be a mere “thank you” for an official act that has already been performed.

Sun-Diamond was prosecuted on what was sometimes called a “status gratuity” theory. The government didn’t identify any particular official acts by Espy to which the gifts were linked. Instead, it argued it was enough that the gifts were based on Espy’s official position and were made with the hope of building up a reservoir of goodwill with Espy, perhaps to influence or reward some unspecified official act in the future.

The Supreme Court rejected this theory. It was not enough, the Court held, to charge Sun-Diamond with paying gratuities to Espy based on his status or for official acts not named in the indictment. The Court found that section 201(c)’s requirement that a gratuity be “for or because of any official act” means a specific official act must be identified. The Court particularly focused on the phrase “any official act,” holding that this language “seems pregnant with the requirement that some particular official act be identified and proved.” It specifically rejected the alternative, broader interpretation that “any official act” meant any one of the universe of potential official acts “without specification as to which one.”

Did the Stream of Benefits Bribery Theory Survive Sun-Diamond?

Sun-Diamond rejected a gratuity prosecution based on a stream of gifts not linked to any particular official acts. But in the wake of Sun-Diamond, lower courts have continued to uphold the stream of benefits theory in bribery prosecutions. Courts have held that the reasoning of Sun-Diamond does not apply to bribery cases because bribery requires proof of a higher level of intent, a corrupt quid pro quo. That’s true, but as one of my old law professors liked to say, is that a difference that makes a difference?

The language of the gratuities and bribery statutes is strikingly similar. The bribery statute in section 201(b)(2)(A) prohibits a public official from accepting anything of value in exchange for agreeing to be “influenced in the performance of any official act.” That phrase – “any official act” – is precisely the language that the Court in Sun-Diamond said required a particular official act to be identified and proved. It’s not clear to me how the different levels of intent required for the two crimes makes any difference at all when it comes to interpreting this statutory language. For either a gratuity or a bribe, the statute and reasoning of Sun-Diamond appear to require a link to a particular, identifiable official act.

There is another reason to be suspicious of lower court decisions upholding the stream of benefits theory after Sun-Diamond: most of those cases involved prosecutions for honest services fraud or Hobbs Act extortion, not section 201 bribery. Courts in those cases typically were applying general bribery law principles, not parsing the precise statutory language of 18 U.S.C. 201. One of the leading “stream of benefits” decisions, a 2007 case from the U.S. Court of Appeals for the Second Circuit called United States v. Ganim (authored by now-Justice Sotomayor when she was on the appeals court) made precisely that point. Judge Sotomayor noted that Sun-Diamond hinged on the precise wording of section 201 and that the same reasoning did not necessarily apply to other corruption statutes, including the Hobbs Act charges at issue in Ganim.

Menendez is also charged with honest services fraud, but the bulk of the bribery charges in his indictment are under 18 U.S.C. 201. McDonnell and Sun-Diamond make it clear that when interpreting section 201 the Supreme Court will not look to common-law bribery principles but will strictly interpret the precise statutory language. As a result, lower court cases upholding the “stream of benefits” theory in honest services fraud or Hobbs Act cases are of limited value when considering how the Supreme Court would rule in Menendez’s case. And McDonnell suggests that however the Court ends up defining bribery for purposes of section 201, it will apply that same bribery definition to honest services fraud and the Hobbs Act as well.

The Menendez defense argues that the stream of benefits theory does not survive McDonnell. I think the better argument is that it actually did not survive Sun-Diamond and the Supreme Court just has not yet had a chance to say so. The Court’s approach to statutory interpretation in McDonnell simply further highlights why it is unlikely to buy the stream of benefits theory for bribery.

The Defense: Playing the Long Game

The trial judge is likely to let the jury decide the Menendez charges. Even if the judge thinks some of the bribery theories may be invalid, he will likely feel constrained by Third Circuit precedent to let the case go to the jury.

Senator Menendez is in part playing a long game, hoping that even if he is convicted he ultimately will prevail on appeal. Don’t forget that Governor McDonnell was convicted at trial and his conviction was affirmed by a unanimous Court of Appeals before the Supreme Court ultimately took the case and unanimously reversed.

If the Menendez case ever were to reach the Supreme Court, I think there’s a good chance the Court would reject the stream of benefits bribery theory. A number of counts against Menendez and Melgen would remain, so that alone would not mean they would walk free. But it would represent yet another step by the Court to further narrow the scope of federal public corruption law – a process that began nearly twenty years ago in Sun-Diamond.

Update: On November 16, 2017, the Menendez trial ended in a hung jury.

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September Madness: The Problem with the NCAA Basketball Corruption Case

On Tuesday, September 26, the U.S. Attorney’s Office for the Southern District of New York announced with great fanfare that the office had filed charges against ten individuals in a fraud and corruption case involving college basketball. Acting U.S. Attorney Joon H. Kim outlined the charges against four NCAA Division I coaches, a senior executive at Adidas, and five others. A chart in the press release noted that each defendant faces a maximum of between 80 and 200 years in prison.

The charges are the result of a two-year investigation that involved wiretaps, a confidential cooperating witness, and FBI undercover agents. The three criminal complaints outline two different corruption schemes. Although the complaints name several universities as the victims of these schemes, there is no allegation that any university actually lost any money or property. There are no claims that any of the student athletes or their families were financially harmed. The public was not harmed in any way.

But the defendants did violate NCAA rules. Those rules require that student athletes be amateurs and prohibit them from receiving any outside compensation. The rules also prohibit coaches from facilitating any contacts between athletes and outside agents and from receiving any outside compensation for acts related to their athletes. These rules violations (which were, of course, created by the undercover investigation itself) exposed the universities to potential financial penalties and sanctions from the NCAA. That exposure is what’s at the heart of the prosecution. The government’s case effectively takes the rules of the NCAA, a private non-profit corporation, and leverages violations of those rules into federal felony charges.

There’s no doubt the behavior of the defendants was deplorable. But are criminal sanctions exposing them to decades in prison the proper remedy? I’m not saying the charges are legally flawed – not all of them, anyway. But I do question whether this case represents a good use of two years of the time and resources of the agents and prosecutors involved. And I question whether bringing multiple felony charges on these facts is a sound exercise of prosecutorial discretion.

At the U.S. Attorney’s press conference, the very first question was from a reporter who asked (I’m paraphrasing), “It seems like everyone involved was actually benefitting financially. Who’s the victim here?” (19:40)

It’s a good question.

The Complaints

 The Coach Bribery Scheme

The coach bribery scheme is charged in two separate criminal complaints. The first complaint charges three coaches: Lamont Evans, an assistant coach at Oklahoma State and former assistant coach at South Carolina; Emanuel Richardson, an assistant coach at Arizona; and Anthony Bland, an associate head coach at University of Southern California. It also charges Christian Dawkins, an employee of a sports management company that represents NBA basketball players, and Munish Sood, a financial advisor.

The complaint alleges that the three coaches accepted cash bribes from Dawkins and Sood. The total amount of the bribes ranged from about $13,000 to about $22,000. In return, the coaches agreed to introduce student athletes to Dawkins and Sood and to encourage the athletes to hire Dawkins and Sood once the athletes left college and began playing in the NBA. The deals were brokered by another former financial advisor, Marty Blazer. Blazer, who was facing securities fraud charges of his own, was cooperating with the FBI and recording many of the meetings and phone calls. The complaint also charges that the defendants made improper payments to student athletes and concealed those payments from their universities.

The second complaint related to the coach bribery scheme charges only one coach: Chuck Person, an associate head coach at Auburn. It also charges Rashan Michel, the owner of a clothing store in Atlanta that specializes in making custom suits for athletes. The basic nature of the scheme is the same: Person allegedly accepted more than $90,000 in bribes from Blazer (the cooperating witness) and Michel. In exchange, Person agreed to introduce student athletes to Blazer and Michel and to encourage the athletes to retain them once they left college. Once again, the complaint also charges that the defendants made improper, undisclosed payments to current student athletes.

The charges in the coach bribery scheme include multiple counts of honest services fraud, bribery, honest services fraud conspiracy, bribery conspiracy, wire fraud conspiracy, and travel act conspiracy.

The High School Players Scheme

The scheme set forth in a third complaint involves a conspiracy to pay high school basketball players and their families. The defendants are James Gatto, the global marketing director for basketball at Adidas; Merl Code, an individual identified as affiliated with Adidas and its high school basketball programs; and Jonathan Augustine, program director for an amateur high school basketball program sponsored by Adidas. Also charged in this complaint are Christian Dawkins and Munish Sood, the same sports manager and financial adviser charged in the first complaint of the coach bribery scheme.

The complaint alleges that these defendants conspired to make secret payments to three different high school athletes and their families. In exchange, the families agreed the student would attend particular universities sponsored by Adidas, and that the student would sign deals with Adidas and use the services of Dawkins and Sood after joining the NBA.

The defendants allegedly agreed to pay $100,000 to the family of a top high school graduate from the class of 2017, although apparently only the first installment of $25,000 was actually paid. In return, the student allegedly agreed to attend University of Louisville. They also allegedly conspired to funnel $150,000 to the family of another high school student graduating in 2018, this time to induce that student to attend what appears to be University of Miami. Unnamed coaches at the two universities also were allegedly involved in the schemes.

The charges in the high school players scheme include wire fraud, conspiracy to commit wire fraud, and money laundering.

Analyzing the Criminal Charges

 Bribery and Bribery Conspiracy

 The coach bribery scheme complaints charge bribery and bribery conspiracy using three different theories: 18 U.S.C. § 666, federal program bribery (applies because the universities receive more than $10,000 a year in federal funds); 18 U.S.C. § 1343 and 1346, honest services wire fraud (applies to an employee who takes bribes or kickbacks in breach of a duty owed the employer); and 18 U.S.C. § 1952, the travel act (applies to interstate travel to further violations of state bribery law).

Under each statute the bribery theory is basically the same: the outside advisors (or undercover agents posing as outside advisors) paid the coaches to induce them to violate their duties to their university employers by violating NCAA rules, thereby exposing the universities to potential sanctions.

The bribery charges highlight the centrality of the NCAA rules to these complaints. There is no direct harm to the universities, financial or otherwise. This isn’t a case where an employee took bribes to disclose trade secrets to a competitor or to award a contract to an unqualified contractor, or took some other step that directly harmed the employer. There is only potential harm, and only because of possible sanctions by the NCAA for violating its rules.

Wire Fraud and Wire Fraud Conspiracy

The wire fraud and wire fraud conspiracy allegations (18 U.S.C. § 1343) charge that the defendants defrauded the universities by causing them to pay scholarship money to athletes who were actually ineligible due to the secret payments that were made to them. The high school players scheme also charges that the universities were defrauded of their right to control their limited scholarship assets and how they would be disbursed. Again, any potential harm results only from the possible violations of NCAA rules and penalties that might result. Paying the scholarships didn’t harm the universities, because they received the services of the players they wanted in return. The only potential harm would come if the improper payments were later discovered and the schools were sanctioned.

Money Laundering

Money laundering charges (18 U.S.C. § 1956) appear only in the high school players scheme. The complaint alleges that Gatto and the other defendants tried to conceal the payments going from Adidas to the families by running them through other entities and bank accounts controlled by the defendants and by creating fictitious invoices to cover their tracks.

I think the money laundering charges may be flawed. Money laundering requires that the charged financial transaction involve the “proceeds” of a crime – money generated by a completed unlawful activity. If the parents had received the money and then done something with it to disguise where it came from, that might be a laundering transaction involving the proceeds of the bribery scheme. But here the charged transactions appear to involve the money used to pay the bribes themselves. That money is not yet proceeds of the bribe for money laundering purposes. It only becomes proceeds once the bribes have been paid and the money is in the hands of the families.

There are plenty of cases throwing out convictions where prosecutors charged money laundering when in fact the financial transactions did not involve proceeds of a completed crime but represented the underlying criminal activity itself. This requires a more detailed discussion that I will probably return to in a future post. But unless there are more facts out there that don’t appear on the face of the complaint, I believe it’s likely the money laundering charges will not survive.

The problem with the NCAA basketball corruption case

Criminalizing the NCAA Rules

Review of the charges makes it clear that the entire criminal case hinges on violations of the NCAA rules. The only harm to the alleged victims – the universities – stems from any sanctions that might potentially result from the violation of those rules. Take away the NCAA rules, and there is no criminal case.

As the complaints note, the NCAA rules provide that schools violating the rules may suffer penalties including limitations on post-season play, fines, and limitations on the ability to grant scholarships or recruit athletes. But the rules do not suggest that those who violate them may be subject to federal criminal prosecution.

The defendants could be forgiven for thinking that if they got caught violating the rules, the worst that would happen is they would be fired. Maybe the university would come after them to try to recoup any financial penalties. Their careers would certainly be over. But they likely didn’t believe that violating the internal rules of a private athletic organization would potentially subject them to decades in federal prison.

Prosecution seems even more questionable when you consider that virtually all of the conduct here likely would be legal if it related to professional athletes. The payments would be called finder’s fees or product endorsement deals. The purported criminality stems only from the NCAA’s insistence on maintaining the fiction that these athletes are amateurs and that high-level college basketball is actually about college, rather than about big business and providing farm teams for the NBA.

There’s a lot of behavior that can be squeezed into white collar violations but where criminal sanctions aren’t required. That’s where the exercise of prosecutorial discretion comes in. This case is really about the violation of NCAA rules. NCAA sanctions against the offending schools and individuals would be the more appropriate remedy.

The players weren’t harmed. Their families weren’t harmed. The teams weren’t harmed. The public wasn’t harmed. The coaches were still coaching, and the games were not affected. The universities were only potentially harmed — and only because of the rules of a private organization they voluntarily joined in support of athletics programs that earn them millions of dollars.

And this is where the Department of Justice chooses to devote its resources? Look, I love DOJ, but I can hear the critics now: “You can crash the entire financial system and no one gets prosecuted. But don’t you dare mess with college basketball!”

This year it appears the madness didn’t wait until March.

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The Limits of Friendship: Menendez Trial Update

The corruption trial of Senator Bob Menendez and Dr. Salomon Melgen is underway in federal district court in Newark, New Jersey. The parties reportedly expect the trial to last well into November.

There don’t appear to be any big surprises or bombshells so far. As expected, the trial will come down to whether the government can establish the corrupt intent necessary to prove bribery. The defense claims that anything Melgen and Menendez did for each other was simply out of friendship. The government, on the other hand, charges that Menendez acted on Melgen’s behalf in exchange for extravagant gifts and hefty campaign donations.

The gifts from Melgen included more than a dozen trips on his private jet to take Menendez back and forth to Melgen’s luxury villa in the Dominican Republic, repeated free stays at that villa, a three-day vacation at a luxury hotel in Paris, and more than $750,000 in campaign donations. In return, the government alleges Menendez worked to resolve Melgen’s multi-million dollar billing dispute with Medicare, lobbied the State Department on Melgen’s behalf in connection with a contract dispute, and helped secure visas for three of Melgen’s girlfriends to travel to the United States.

No one really disputes that any of this took place. The key issue is why. The defense has repeatedly claimed the defendants’ friendship explains all of their behavior, and has suggested that friendship is a “complete defense” to the charges of bribery.

If the defendants acted solely out of friendship that would indeed negate corrupt intent and defeat a charge of bribery. But the notion that the mere existence of a friendship is a “complete defense” to bribery is nonsense. Friends can commit crimes together. I can rob a bank with my friend, and if my friend is a United States Senator I can pay him a bribe to do something for me.

The government is not denying that the two are friends. They simply argue that friendship alone cannot explain what happened here. In fact, the friendship can actually be turned to the prosecutors’ advantage: “Of course they are friends, ladies and gentlemen. Who else would you trust with these kinds of secrets? Engaging in corrupt behavior with a stranger is too risky.”

Challenger private jet, the type owned by Dr. Melgen

With Friends Like These

The difficulty with the friendship claim is that the gifts here seem so far outside the bounds of mere friendship. As Robin Williams might have put it, most of us ain’t never had a friend like this.

Take the jet trips, for example. It would be one thing if Melgen were flying to the Dominican Republic anyway and simply let Menendez catch a ride with him. But the government’s evidence is that Melgen would send his jet for Menendez, sometimes flying from Florida to DC to pick the Senator up, even when Melgen wasn’t going to the villa. When Melgen’s jet wasn’t available he sent another private jet for the Senator, or bought him a first-class ticket.

Then there’s the Paris vacation. Melgen used his American Express points to book a suite for Menendez valued at nearly $5,000. It wasn’t for a trip the two were taking together; Melgen was not there. Prior to the trip, Menendez emailed Melgen specific instructions about the type of room that he wanted and how to book it with Amex points.

The notion that these repeated, extravagant gifts were simply the result of friendship is going to be hard for the jury to swallow. It seems far more likely that Melgen was helping Menendez maintain a luxurious lifestyle he could not afford on his own and that Menendez was doing him political favors in return.

Villa at Casa de Campo, Dominican Republic

Lifestyles of the Rich and Famous

The government apparently has spent quite a bit of trial time in recent days establishing just how luxurious the accommodations were at the Dominican Villa and how nice the private jets were. They also brought into court the foreign fashion model girlfriends of Dr. Melgen to testify about how Senator Menendez helped arrange their visas to come to the United States.

In a pre-trial brief the prosecutors noted the resort, Casa de Campo, is frequented by celebrities such as Jay-Z, Beyonce, and Jennifer Lopez. The defense criticized this brief, suggesting it was meant simply to sensationalize the case for the press. They may have a point; it is hard to see the relevance of the celebrity name-dropping.

The prosecutors need to walk a fine line here. It’s important to establish that the resort was a very high-end place, but that’s something that could be done fairly quickly. Dwelling on it and presenting multiple witnesses could become counter-productive if the jury starts to get bored.

The other danger is if it starts to appear prosecutors are suggesting a luxury lifestyle is itself a crime or that the jurors should resent the defendants for it. The luxurious nature of the trips is relevant to whether Menendez would agree to be influenced in exchange for those trips – but only up to a point. The truth is that giving a senator free stays at a Motel 6 could also be a bribe, if it was done in exchange for an agreement to perform an official act. Spending many hours establishing how luxurious the resort was doesn’t really get you closer to proving the critical question of corrupt intent.

The same is true with the testimony of the girlfriends. It may be titillating to parade the married Dr. Melgen’s young female companions before the jury, but it doesn’t really advance the ball in terms of proving corrupt intent. Menendez could accept a bribe in exchange for getting a visa for someone’s grandmother and the crime would be the same.

The more time prosecutors spend playing up the luxurious nature of the gifts or the relationships with young women, the more they open themselves up to defense arguments that they are simply trying to sensationalize the case and don’t really have any solid evidence of a corrupt agreement. As I said, I think it’s a fine line to walk. But I can’t help but wonder if the prosecutors are at risk of crossing too far over to the sensationalist side of that line.

Political Implications of a Conviction

Washington has been buzzing about the possible political implications if Menendez is convicted. He’s a Democrat, and the Republicans hold a very narrow majority in the Senate. A single vote can make a big difference, as we saw with the recent (and now apparently revived) attempts to repeal Obamacare.

If Menendez leaves the Senate the governor of New Jersey gets to appoint a replacement. This has led to speculation that if Menendez is convicted, the Republican governor Chris Christie could appoint a Republican replacement to serve out the remainder of Menendez’s term, which ends in 2018. That could shift the balance of power in the Senate in the Republicans favor.

This is unlikely to happen. Even if Menendez is convicted, he does not automatically lose his Senate seat. Assuming he does not resign (which seems a safe assumption), the Senate would have to vote to expel him. That requires a two-thirds vote of the Senate, which means a number of Democrats would have to agree.

If convicted Menendez will undoubtedly appeal. He and other Democrats would likely argue that he deserves to hold his seat until his appeals are resolved. Even if the Senate did move to expel Menendez, that would presumably require some kind of hearings and deliberations, which would also take time. Nothing moves that rapidly in Congress, and we are approaching the holiday recess.

The last U.S. Senator to be convicted of bribery was Harrison Williams, also from New Jersey, who was convicted in the Abscam investigation in May of 1981. He managed to hold on to his seat for another ten months before finally resigning just as the Senate was about to vote to expel him.

This all matters because New Jersey is holding a gubernatorial election in November, and polls show the Democrat Phil Murphy is likely to win. So if any appointment of a successor to Menendez is delayed until after mid-January, that appointment likely would be made by a fellow Democrat. For that reason, Menendez and the Democrats will try to delay any resolution of Menendez’s fate, and they will likely be able to succeed.

I’ve joked that if I were the Democrats I’d invoke the “Merrick Garland principle:” argue that the New Jersey governor should not get to make any Senate appointments when there is an election approaching. We should wait until after the election so the voice of the New Jersey people can be heard and the appointment can be made by the newly-elected governor. (I’m sure Mitch McConnell would agree with the wisdom of this approach.)

All the buzz about whether the Republicans might gain a Senate seat seems unrealistic. Regardless of the outcome of the trial, the reality is that Menendez will almost certainly still be in place until after the New Jersey election.

More on Menendez, McDonnell, and Public Corruption

As I’ve argued elsewhere, I don’t think the Supreme Court’s recent decision in the Bob McDonnell case is likely to be a significant issue in the Menendez trial. This past Sunday on the C-Span program “Q & A,” Brian Lamb interviewed me about the Menendez case, the potential effect of McDonnell, and prosecuting public corruption cases in general. If you are interested, you can find that interview here:

C-Span’s Q & A – September 17, 2017

In the meantime, watch this space and I’ll be back with any new developments as the trial progresses.

Update: On November 16, 2017, the Menendez trial ended with a hung jury.

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What to Watch For at the Bob Menendez Trial

After more than two years of legal maneuvering, the trial of U.S. Senator Robert Menendez begins today in New Jersey. Menendez and his co-defendant, Florida ophthalmologist Salomon Melgen, face eighteen counts of bribery and related offenses.

Menendez and Melgen were indicted in April of 2015. The trial has been delayed while Menendez pursued claims that his prosecution is barred by the Constitution’s Speech or Debate clause. The trail judge rejected his arguments and the U.S. Court of Appeals for the Third Circuit affirmed that decision. The Supreme Court declined to hear Menendez’s appeal, which finally cleared the way for trial to begin this fall.

This is the first criminal trial of a United States Senator in nearly a decade. It’s the highest profile corruption case to go to trial since the Supreme Court’s 2016 decision in McDonnell v. United States dramatically altered the landscape for corruption prosecutions. And given the close balance of power in the U.S. Senate, Menendez’s fate could have significant political implications for the entire country.

So in addition to all the nonstop drama in Washington these days, the drama unfolding in a Newark federal courtroom for the next six to eight weeks is worthy of attention. Here are some things to watch for at Menendez’s trial.

Federal courthouse, Newark NJ

The Allegations

The government alleges Menendez and Melgen engaged in a bribery scheme that began shortly after Menendez was first elected to the Senate in 2006 and lasted for about seven years. The government charges that Menendez agreed to use the power of his office to seek to benefit Melgen in exchange for a series of valuable gifts and donations.

Melgen’s gifts to Menendez allegedly included the following:

  • On multiple occasions Menendez, sometimes with a guest, stayed free of charge at Melgen’s villa in a luxury resort in the Dominican Republic.
  • On more than a dozen occasions Melgen flew Menendez, and sometimes his guest, to and from the Dominican villa on Melgen’s private jet. When Melgen’s jet wasn’t available, he arranged for other private jet transport for Menendez or purchased a first-class ticket for him.
  • In 2010 Melgen used his American Express points to book a suite at a Paris hotel, valued at nearly $5,000, for Menendez to use for a three day vacation.
  • In 2012 Melgen made more than $750,000 in campaign donations to benefit Menendez, as well as a $20,000 contribution to Menendez’s legal defense fund.

In return, the government alleges Menendez did the following for Melgen:

  • Menendez pressured the State Department to influence the government of the Dominican Republic to move forward on a valuable contract owned by Melgen to provide cargo screening services in Dominican ports.
  • Menendez tried to stop U.S. Customs and Border Protection from donating shipping container monitoring and inspection equipment to the Dominican Republic, because that equipment would have undermined the value of Melgen’s contract.
  • Menendez personally and repeatedly intervened on Melgen’s behalf with the Department of Health and Human Services (including meeting personally with the Secretary of HHS) in a proceeding where HHS claimed Melgen had overbilled Medicare by about $9 million.
  • Menendez and his staff worked to influence State Department officials to grant visas for three foreign girlfriends of Melgen to visit the United States.

The indictment charges Menendez and Melgen with conspiracy, bribery, honest services fraud, and the travel act. It also charges Menendez with false statements for failing to disclose the gifts from Melgen on his annual Ethics in Government Act reports. (For a more detailed analysis of the particular charges, you can read my post here.)

Melgen has separate legal problems of his own related to his Medicare billings. This past April he was convicted of dozens of counts of Medicare fraud in Florida. His sentencing in that case has been postponed pending the outcome of this trial.

The Central Issue: Was There Corrupt Intent?

The key issue in the case is going to be proving corrupt intent, the quid pro quo required for a bribery conviction. There’s not going to be much dispute about the underlying events. No one will deny that the private jet trips, vacations, and political donations took place. Menendez will dispute some details of his various meetings on Melgen’s behalf, but no one will deny the meetings happened.

As in so many white collar cases, the key will be proving what was going on in the defendants’ minds. The government needs to show that Melgen gave the gifts because he wanted some official action from Menendez in return, and that Menendez accepted the gifts with that same understanding.

The defendants claim there was no corrupt intent. Melgen says the things he provided to Menendez were strictly out of friendship. Menendez claims that anything he did on Melgen’s behalf was not because of the gifts but was either part of his Senate legislative and oversight duties or simply favors on behalf of an old friend.

Of course friendship and corruption are not mutually exclusive. Just as my friend and I can rob a bank together, my Senator friend and I can engage in a corruption scheme. Even if friendship was part of the motivation for Melgen’s largess, that is not a defense so long as at least part of the motive was a corrupt intent to influence – and to be influenced in – the performance of official acts.

The sheer lavishness of the gifts will make the “friendship” argument challenging for the defense. There will likely not be many jurors who can relate to the idea of friends giving each other private jet travel and luxury vacations.

The other challenge for the “friendship” defense is that it seems to paint a picture of an oddly one-sided friendship. Friends do give each other gifts, but it is typically more of a two-way street. Melgen gave Menendez about a million dollars worth of gifts, but what did Menendez ever give Melgen in return — other than the exercise of his official powers?

Senator Menendez faces multiple counts of corruption

Senator Bob Menendez

Proving Corrupt Intent

The best way for the government to prove intent in a bribery scheme is to have the cooperation and testimony of one side of the corrupt transaction. For example, in the Bob McDonnell case the man alleged to have bribed McDonnell was granted immunity and testified as the government’s star witness.

There has been a lot of speculation that Melgen might plead guilty and agree to testify against Menendez. Certainly he is under a lot of pressure to cut a deal to benefit himself, given his separate conviction in Florida where he faces substantial prison time. When the sentencing in that case was delayed, I thought it might mean Melgen was about to cooperate. But there has been no sign Melgen is going to roll over on Menendez. If it were going to happen, it probably would have happened by now.

Absent testimony from Melgen, the government will be left to prove intent largely by circumstantial evidence. Timing of gifts and corresponding actions will be important, and can raise an inference of a quid pro quo. For example, the most significant gifts from Melgen – more than $750,000 in contributions to various campaign funds and a legal defense fund – came in 2012. That was the same time Menendez was working most vigorously on Melgen’s behalf in both the port contract dispute and the Medicare billing dispute. In some instances, Menendez met with executive branch officials on Melgen’s behalf the same week – or even the same day — that Melgen made a substantial campaign contribution.

Concealment also is important for proof of intent. That’s where the evidence that Menendez failed to report the gifts on his financial disclosure forms will come into play. Although the false statements charge for failing to report the gifts is only a single count of the indictment, its significance is in helping to establish corrupt intent for the entire case. The government will argue Menendez failed to disclose the gifts because he knew they were corrupt and improper.

Other examples of deception also will help prove corrupt intent. For example, the government will present evidence that once the private jet trips came to light, Menendez made false public statements claiming there had only been three such trips when in fact there were more than a dozen.

In addition, there will be evidence that some of the campaign donations were made by Melgen’s family members, to keep them within legal limits, but that Melgen then used corporate funds to pay the family members back. This amounts to laundering of campaign contributions to disguise the fact that all of the money is actually coming from Melgen’s corporation and helps conceal the depth of the connection between Melgen and Menendez.

McDonnell and “Official Acts”

A key legal issue is whether the Supreme Court’s recent decision in the Bob McDonnell case provides any cover for Menendez. In McDonnell the Court ruled that in a corruption case the government must prove the public official agreed to perform “official acts.” The Court defined official acts very narrowly, and thereby dramatically restricted the scope of federal corruption law.

Menendez has repeatedly argued that his actions on behalf of Melgen did not amount to official acts as defined by McDonnell. This is a strictly legal defense, of a different character than the factual defense based on lack of corrupt intent. Relying on McDonnell Menendez can basically argue, “Even if there was a quid pro quo and I acted in exchange for the gifts that Melgen gave me, that can’t amount to bribery because the actions I took were not significant enough to be official acts.”

Menendez actually undercut his own “official acts” arguments earlier in the case. When arguing that his actions were protected by the Speech or Debate clause, he characterized them as a central part of his duties as a Senator. As the government has pointed out, in one pleading he argued that invoking oversight authority and threatening to use his power as a Senator would qualify as “official acts.” But now that his Speech or Debate arguments have been rejected, his earlier statements have come back to bite him.

With the McDonnell case itself and other cases that have been overturned since McDonnell, such as the  conviction of Sheldon Silver, former Speaker of the New York General Assembly, the problem was the jury instructions. In neither case did the courts say there was no way the defendants could be found guilty of corruption. The problem was that the trials took place before the Supreme Court announced its new “official act” requirement and so the jury instructions didn’t comply with that requirement. The government won’t have that problem here; in an entirely post-McDonnell trial it can ensure that the jury instructions comply with the McDonnell standard.

Menendez has tried unsuccessfully several times to get the judge to dismiss his case based on McDonnell. For reasons that I’ve explained in detail here and here, in the end I don’t expect this to be a problem for the prosecution. I believe the government will be able to demonstrate that Menendez did agree to perform official acts under the McDonnell standard. The key question, as noted above, is going to be why he did so – was there corrupt intent.

Possible Door Opening

The defense will have to tread lightly in some areas to avoid opening the door to the introduction of potentially damaging information. For example, the initial investigation of Menendez and Melgen was based on allegations that the two had consorted with underage prostitutes while at Melgen’s Dominican villa. Those allegations did not result in any criminal charges, but during that investigation the government learned of the other information that led to this indictment.

At various times Menendez has argued his prosecution is politically motivated, claiming, for example, that the Obama administration brought the case to punish him for his opposition to Obama’s policy towards Cuba. The government has said it has no reason to introduce evidence of the prostitution allegations and has no intention of doing so. But if the defense attacks the motives of the prosecution and raises its conspiracy theories, it may open the door to the government bringing in that evidence to explain why the case was actually begun.

Information about Melgen’s conviction for Medicare fraud, or Menendez’s protected Speech or Debate activity, also should not be a part of the case but potentially could be introduced if the defense make arguments or puts on testimony that would allow the government to raise those issues in response.

The Bottom Line

Unlike McDonnell, I don’t expect this case to turn on a technical legal argument. The case is going to come down to whether the government can prove that Menendez corruptly agreed to sell the powers of his office. That’s a factual question that ultimately will be decided by the jury.

The defense has repeatedly shown it is not afraid to be aggressive in responding to the government’s allegations. This will be a hard-fought case. The indictment paints a compelling picture of corruption, but anything can happen at a trial. Stay tuned.

Update: On November 16, 2017, the Menendez trial ended with a hung jury and a mistrial.

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Sheldon Silver, Bob McDonnell, and the Sorry State of Public Corruption Law

The Supreme Court’s Bob McDonnell decision claimed its highest-profile casualty last week. On July 13 the United States Court of Appeals for the Second Circuit threw out the corruption convictions of Sheldon Silver, the former Speaker of the New York State General Assembly. The court ruled that, in light of McDonnell, Silver’s jury was not properly instructed on what constitutes an “official act” in a corruption case.

Silver is not out of the woods yet; he may well be convicted again after a new trial. But his case does highlight how much easier it is in the post-McDonnell era for public officials to sell government access to the highest bidder.

Regular readers know I’ve written extensively, and critically, about McDonnell. By adopting an artificially narrow definition of “official act,” the Court in McDonnell cleared the way for public officials to enrich themselves through secret gifts and payments. The Silver case highlights the safe harbors McDonnell creates for corrupt behavior and the sorry state of public corruption law.

Sheldon Silver

Facts of the Silver Case

Sheldon Silver was first elected to the New York State Assembly in 1976, representing much of lower Manhattan. He was elected Speaker in 1994 and held that position until he resigned in 2015. As Speaker, he was one of the most powerful politicians in the state.

In 2015 the United States Attorney’s Office for the Southern District of New York (then headed by the recently-fired Preet Bharara) indicted Silver. The charges were based on two different corruption schemes.

In the first, the government charged that Silver agreed to do political favors for Dr. Robert Taub, a physician and researcher at Columbia-Presbyterian Hospital who specialized in mesothelioma. Silver obtained state grants worth $500,000 to support Dr. Taub’s research, introduced a state resolution commending Dr. Taub, worked to help secure jobs for his children, and did other favors for him.

In return, and to curry favor with Silver, Dr. Taub regularly referred mesothelioma patients who needed legal representation to a law firm with which Silver was affiliated. Silver received a percentage of any legal fees that resulted. Over a ten-year period, Silver earned about $3 million from Dr. Taub’s referrals.

The second scheme involved two major New York real estate developers. Over a number of years Silver took actions in the state legislature to benefit the developers on issues related to real estate taxes and rent legislation. In return, the developers sent tax-related work to another law firm that also had an arrangement with Silver. These referrals resulted in nearly another $1 million in fees for Silver.

In short, the government charged that Silver enriched himself to the tune of about $4 million through these referral schemes, which were not disclosed to the public. In return, he used the considerable powers of his office to benefit those providing the referrals.

The charges against Silver included honest services fraud and Hobbs Act extortion under color of official right. These were also two of the primary statutes used in the McDonnell indictment. Both charges, which are essentially bribery by another name, are commonly used in public corruption cases.

Bob and Maureen McDonnell

Bob and Maureen McDonnell

The Bob McDonnell Decision

Former Virginia Governor Robert McDonnell and his wife Maureen were convicted on multiple counts of corruption in 2014. Prosecutors charged that the two accepted more than $175,000 in secret gifts and loans from businessman Jonnie Williams. In return, Williams sought to have the McDonnells promote his company’s dietary supplement, Anatabloc, within the Virginia government.

In exchange for the gifts, McDonnell introduced Williams to Virginia health researchers and arranged meetings for him with other government employees. He also held a product launch event for Anatabloc at the Virginia Governor’s mansion, attended by other state employees and health officials.

The U.S. Court of Appeals for the Fourth Circuit unanimously upheld the McDonnell convictions. But in June 2016 the U.S. Supreme Court unanimously reversed.

Bribery requires a quid pro quo, an exercise of government power in exchange for something of value. There was no doubt Williams had showered the McDonnells with secret gifts that satisfied the quid side of the equation. But the Supreme Court ruled that in a federal corruption case the quo agreed to by a public official must fit a specific definition of an “official act.” McDonnell’s actions, the Court concluded, did not rise to that level.

The McDonnell Court held that an official act must be a “decision or action on any question, matter, cause, suit, proceeding or controversy” that is or may be pending before the public official. It must be specific and focused, and involve a “formal exercise of government power” similar to a lawsuit before a court or a hearing before an agency. The public official must take an action “on” that matter, such as taking steps to resolve it somehow or pressuring another to do so.

Merely arranging a meeting or holding an event, the Court held, does not constitute an official act. These are simply routine political courtesies and interactions with constituents, not decisions or actions on a particular matter or controversy. If they could form the basis of a corruption case, the Court said, politicians would be unable to perform routine services for any supporter without fearing a potential criminal prosecution.

Timing Is Everything

The McDonnell case was on appeal when Silver went to trial, but the Supreme Court had not yet decided it. Silver’s attorneys requested a narrow definition of “official act” similar to the one argued for by McDonnell. Consistent with Second Circuit law at the time, the trial judge rejected this request. The judge told the jury that official acts included anything the public official did “under the color of official authority.”

As the Court of Appeals noted, this was completely correct at the time. The trial court and prosecutors could not be faulted for the instruction. But the McDonnell decision, which came down just a few weeks after Silver was sentenced, changed the rules.

In light of McDonnell, Silver was convicted based on a broader definition of “official act” that is no longer the law. The Court of Appeals noted that some of the things Silver did, such as obtaining state grants or introducing official resolutions in the House, could still quality as official acts after McDonnell. But other things included in the indictment, such as writing letters or attending meetings on behalf of his benefactors, would not.

It was impossible for the Court of Appeals to be certain which of Silver’s actions the jury actually relied upon, or how they would have viewed those actions if they had been instructed consistent with the McDonnell holding. That meant it was possible Silver was convicted for political favors that would not meet McDonnell’s definition of official acts and so would not be a crime. Accordingly, the Court of Appeals vacated the convictions and ordered a new trial to allow a properly instructed jury to consider the evidence.

The Post-McDonnell World

The Silver case provides a good case study of the state of public corruption law in the post-McDonnell world. Silver received about $4 million in secret benefits from individuals and companies that were seeking his help in his official capacity. Whether these corrupt deals were actually criminal has now been cast into doubt by the McDonnell case.

McDonnell and his supporters argued that his convictions risked criminalizing routine political courtesies and constituent services for those who support a politician. Such interactions are indeed an integral part of politics. And as long as we have a system of privately funded campaigns, politicians inevitably will respond to their supporters.

But Silver was not simply acting on behalf of routine political supporters — individuals who gave him campaign contributions or helped him raise legal contributions from others. Like Governor McDonnell, Silver was receiving personal benefits that went into his own pocket. Those gifts were secret, not publicly disclosed for the voters to see.

The essence of corruption is politicians acting not for the good of those they are elected to represent but in order to enrich themselves. Corrupt politicians abuse the trust of their public office by acting not on behalf of all their constituents but on behalf of those who are secretly paying them off. And access to the corridors of power becomes simply another commodity available to those willing and able to pay.

By its obsessive focus on a narrow and overly legalistic definition of “official acts,” the McDonnell Court missed the corruption forest for the trees. The key to corruption is not the precise nature of what the politician does. It’s the overall corrupt relationship, including whether support is public or secret, whether it is within any applicable legal limits, and whether it goes to the politician’s campaign or into his or her personal bank account. McDonnell imposes precise limitations on the quo side of a bribery transaction, while ignoring the overall corrupt relationship that allows a public official to secretly profit from his or her position.

The original jury instructions in Silver’s case embodied this concept: corruption may be found when there are secret payoffs to a politician in exchange for any actions done “under the color of official authority.” There are many things done under the color of official authority that do not meet the McDonnell definition of “official act.” But regardless of how large the personal benefit or how corrupt and secret the relationship, sale of those political favors is now outside the reach of federal corruption law.

This is the unfortunate result of the McDonnell case. The wealthy and connected are free to keep politicians in their back pockets through secret, personal gifts. In return, those politicians may provide political favors, grease the wheels of government, and provide access to government power. They are free to skate right up the “official act” line, personally enriching themselves through their public office, while the general public is kept in the dark.

It’s Not Over for Silver

It’s important to recognize that the Second Circuit did not find the evidence against Silver was insufficient, just that the jury was not properly instructed. The United States Attorney’s Office promptly announced that it intends to re-try the case. Former U.S. Attorney Bharara Tweeted that the evidence was strong and he expects Silver to be convicted again after a new trial.

The case on retrial will certainly be more challenging for the government. The universe of actions that may qualify as “official acts” has been substantially narrowed. Some of Silver’s actions fall outside of the statute of limitations, and that may be an issue in the new trial as well. The Court of Appeals also suggested that some of Silver’s actions, even if they did amount to official acts, might have been so insubstantial that a jury would not find they satisfied the quo requirement for a corrupt relationship. That defense argument will likely be a focus of the new trial as well.

Silver clearly won the battle in the Second Circuit. It remains to be seen whether he ultimately will win the war. But there’s no doubt the McDonnell decision has made rooting out and prosecuting public corruption significantly more challenging.

That’s the true legacy of Bob McDonnell: making life easier for corrupt politicians everywhere.

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You can read more of my commentary on the McDonnell case here:

Supreme Court Narrows Federal Bribery Law in a Win for Bob McDonnell

The Bob McDonnell Case May Have Been Won Months Before Trial

Bob McDonnell’s New Trial Motion and the Definition of “Official Act”

Bob McDonnell, Bribery, and “Official Acts” – Part II

Charging Foreign Officials Who Take Bribes with Conspiracy to Violate the FCPA

The Foreign Corrupt Practices Act prohibits U.S. persons and companies from paying bribes to foreign officials to obtain or retain business. The statute applies only to those who pay the bribes, not to foreign officials who receive them. But a recent Supreme Court decision may revive a long-dormant legal theory: charging foreign officials with conspiracy to violate the FCPA.

Congress passed the FCPA in 1977 to combat U.S. companies participating in foreign corruption. In recent years FCPA enforcement has become a major priority for the Department of Justice and the SEC. FCPA cases have resulted in some of the largest criminal and civil fines in history. And although private citizen Donald Trump criticized the law in the past, Attorney General Sessions recently affirmed the Trump administration remains committed to its enforcement.

The FCPA is an unusual corruption statute in at least one respect. Bribery laws generally apply to both sides of a corrupt transaction, prohibiting the receipt of bribes by a public official as well as the payment of those bribes. The FCPA, by contrast, applies only to the bribe payer. Foreign officials who receive bribes may be subject to prosecution in their own country, but the language of the FCPA does not prohibit their actions.

Forty years after the FCPA’s passage, the economy is more global and interconnected than ever. DOJ is much more aggressive about asserting criminal jurisdiction over events that take place primarily in other countries. There are cases where DOJ may want to charge the foreign official accepting FCPA bribes. This may be particularly true when the official has extensive ties to and activities within the United States, or when prosecution in the official’s own country seems unlikely.

Because the FCPA does not apply to the bribe recipients, DOJ must look to other theories to hold them accountable. For example, in some recent cases DOJ has charged foreign officials with money laundering of funds received as part of an FCPA scheme.

But DOJ may have a more direct option: charging foreign officials who receive bribes with conspiracy to violate the FCPA. Conventional wisdom has been that such conspiracy charges are improper. This is based in large part on a single 1991 Court of Appeals case, United States v. Castle. But a recent Supreme Court decision casts doubt on Castle and may breathe new life into the conspiracy theory.

Bribery usually punishes both sides of the corrupt transaction

The Conspiracy Precedent: United States v. Castle

There was a time when DOJ believed it could charge foreign officials with conspiracy to violate the FCPA. In Castle the government used that theory to prosecute four individuals – two U.S. citizens and two Canadian officials. The Americans had allegedly paid the Canadians a $50,000 bribe to secure a contract to provide buses to the Saskatchewan government.

The conduct of the Americans plainly fell within the statute. But the Canadian defendants claimed they could not be charged with conspiracy to violate the FCPA. They argued the conspiracy charge was an improper attempt to circumvent Congress’s decision not to criminalize the foreign officials’s conduct.

The U.S. Court of Appeals for the Fifth Circuit agreed. The court said Congress knew any FCPA bribery transaction would necessarily involve a foreign official. But Congress chose not to criminalize the receipt of the bribe. Prosecuting foreign officials for conspiracy, the court held, would amount to an improper end run around this Congressional policy decision.

The Mann Act and Gebardi v. United States

The Castle court relied primarily on a 1932 Supreme Court case, Gebardi v. United States. Gebardi involved a prosecution under the Mann Act, which prohibited the transportation of women across state lines for “immoral purposes.” The Mann Act punished those doing the transporting but did not criminalize the actions of the woman being transported.

In Gebardi a woman agreed to cross state lines with her lover to have sex. When they were charged with conspiracy to violate the Mann Act, she argued the charge was improper. She noted that Congress deliberately chose not to criminalize her conduct in the Mann Act itself. To allow a conspiracy charge, she claimed, would subvert this Congressional decision. The Supreme Court agreed and dismissed the conspiracy case.

The Castle court held that the reasoning of Gebardi squarely applied to the FCPA. Failing to criminalize the receipt of bribes by foreign officials, the court said, represented “an affirmative legislative policy to leave unpunished a well-defined group of persons who were necessary parties to the acts constituting a violation of the substantive law.” Given that legislative decision, it was improper for prosecutors to use conspiracy to charge the foreign officials that the FCPA left unpunished.

Baltimore police were charged with extortion in Ocasio

Conspiracy and Ocasio v. United States

Since 1991 Castle has been widely cited for the proposition that it’s improper to charge foreign officials with conspiracy to violate the FCPA. But the Supreme Court’s decision last term in Ocasio v. United States suggests the high court would not agree.

In Ocasio the defendant was a Baltimore police officer. He, some fellow officers, and the owners of an auto garage took part in a scheme in which the garage owners paid the officers to refer car accident victims to the garage for repairs.

Officer Ocasio and the garage owners were charged with conspiracy to violate the Hobbs Act. That act prohibits extortion “under color of official right” by a public official. This is a common federal corruption charge, particularly in cases involving state or local officials.

In Evans v. United States the Supreme Court held that extortion under color of official right is basically equivalent to the receipt of a bribe. But the Hobbs Act applies only to the public official, not to the person who pays. So as interpreted by Evans the Hobbs Act, like the FCPA, is an odd bribery statute: it prohibits only one side of a two-sided corrupt transaction.

In Officer Ocasio’s case, that meant prosecutors couldn’t charge the garage owners with violating the Hobbs Act directly. So they charged the garage owners and the officers with conspiracy to violate the Hobbs Act. The government’s theory was that although the garage owners could not violate the Hobbs Act, they were still capable of conspiring to help the officers violate it. In effect, the garage owners were charged with conspiring to help the police officers extort money from the garage owners themselves.

Ocasio argued the conspiracy charge was improper. Part of his argument was similar to that made by the defendant in Gebardi. Although every Hobbs Act extortion case necessarily involves at least two parties, Congress expressly chose not to punish the person who pays the public official. Prosecuting the payer for conspiracy to violate the Hobbs Act, Ocasio argued, would undermine this Congressional decision.

Supreme Court precedent supports charging foreign officials with conspiracy to violate the FCPA

The Supreme Court on the Nature of Conspiracy

The Supreme Court disagreed with Officer Ocasio. The Court relied on basic principles of conspiracy law. It noted that conspiracy has always been a separate offense from the underlying crime. In a conspiracy charge, the crime is the agreement itself – the joint undertaking to engage in criminal activity.

Conspiracy does not require that the co-conspirators successfully commit the crime that is the object of the conspiracy. It does not require that each co-conspirator agree to commit or facilitate each and every element of the underlying crime. In fact, a conspirator may be convicted even if he was legally incapable of committing the underlying offense. Conspirators need only agree to help some member of the conspiracy commit the crime.

In Ocasio’s case, the garage owners conspired with the police officers to help the officers violate the Hobbs Act. The Court held this conspiracy theory was sound even though the garage owners, who were not public officials, would be legally incapable of committing extortion under color of official right: “It is sufficient to prove that the conspirators agreed that the underlying crime be committed by a member of the conspiracy who was capable of committing it. In other words, each conspirator must have specifically intended that some conspirator commit each element of the substantive offense.”

The Mann Act Precedents

The Ocasio Court also discussed Gebardi, as well as an even earlier Mann Act case, United States v. Holte (1915). In Holte the Court rejected the claim that it was impossible for the woman transported across state lines to be guilty of conspiracy to violate the Mann Act. The Court gave an example of a prostitute who buys the train tickets, arranges for the travel, and then crosses state lines with a companion. In such a case, the Court said, there was no reason the woman could not be charged with conspiracy even though the terms of the Mann Act did not cover her conduct.

The Court in Ocasio concluded Holte and Gebardi mean that merely participating in a two-sided transaction will not always be enough to charge the person not covered by the statute  with conspiracy. However, there could be cases where the active participation of the other party would rise to the level where a conspiracy charge would be warranted. Gebardi, the Court held, rejected the conspiracy charge not because it was inherently improper but simply because there was no evidence that the woman in that case had actually joined the conspiracy.

The Court concluded: “Holte and Gebardi make perfectly clear that a person may be convicted of conspiring to commit a substantive offense that he or she cannot personally commit. They also show that when that person’s consent or acquiescence is inherent in the underlying substantive offense, something more than bare consent or acquiescence may be needed to prove that the person was a conspirator.”

Charging Foreign Officials with Conspiracy to Violate the FCPA

Ocasio suggests the current Supreme Court would not agree with the Castle court’s reading of Gebardi. Like the FCPA, the Hobbs Act expressly fails to criminalize the acts of one of the two necessary parties in a criminal transaction. The court in Castle held that this Congressional judgment meant a conspiracy charge would always be improper. But the Supreme Court in Ocasio rejected a similar claim.

Castle essentially concluded that Congress’s failure to include foreign officials in the FCPA immunizes those officials from any FCPA-related charge, even under separate statutes. The current Supreme Court is unlikely to be sympathetic to that argument. If Congress wants to pass a statute prohibiting any charges of any kind against foreign officials who accept bribes, it is free to do so. But the Court is unlikely to infer such a broad policy decision from the silence in the FCPA. It is much more likely to find, as it did with the Hobbs Act, that nothing in the FCPA alters the basic law of conspiracy.

This suggests DOJ could properly charge a foreign official who receives bribes with conspiracy to violate the FCPA. The theory would be that the foreign official conspired to help U.S. persons violate the FCPA by bribing that official. Just as the garage owners in Ocasio conspired to help others extort money from the owners, foreign officials could conspire to help others pay bribes to the foreign officials.

This charge would be most appropriate where the foreign official was aggressively encouraging the bribes. As the Court noted in Ocasio, something more than mere passive participation likely would be required to find the officials guilty of a conspiracy. But if they were actively engaged in the scheme, a conspiracy charge may be warranted.

In a case where the foreign official is aggressively demanding bribes, punishment of the official may be particularly justified. The bribe payers arguably are being “shaken down.” They may feel they have little choice but to pay. Charging only the bribe payers in such a case is akin to charging only the victims of extortion in a Hobbs Act case – it may let the most culpable party off the hook.

Of course, cases where DOJ is interested in prosecuting the foreign official may be relatively rare. Where the official is more of a passive recipient, conspiracy charges may not be warranted. In many cases diplomatic, jurisdictional, evidentiary, or other concerns will counsel against filing charges.

But in appropriate cases, DOJ should consider charging foreign officials who accept bribes with conspiracy to violate the FCPA. Ocasio suggests the Department’s legal position more than twenty-five years ago in Castle was correct: conspiracy is a separate crime and there is no barrier to prosecution.

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Why Bob McDonnell Won’t Save Bob Menendez

U.S. Senator Robert Menendez is facing trial this fall on corruption charges. His lawyers will claim the Supreme Court’s recent decision in the Bob McDonnell case means the charges against Menendez cannot stand. But the effect of the McDonnell case on the Bob Menendez trial is likely to be pretty limited.

New Jersey Democrat Menendez and his co-defendant Dr. Salomon Melgen were indicted in April 2015. (You can find my detailed analysis of the indictment here.) The case has been on hold for two years while Menendez pursued claims that his prosecution is barred by the Constitution’s Speech or Debate clause. The trial court and the U.S. Court of Appeals for the Third Circuit rejected those arguments. The Supreme Court recently declined to hear his appeal, finally clearing the way for the case to go to trial.

But while Menendez was pursing his Speech or Debate appeals, the U.S. Supreme Court decided McDonnell v. United States. The Court reversed the convictions of the former governor of Virginia, holding that McDonnell did not perform “official acts” as defined by federal bribery law.

Senator Menendez and his lawyers are hoping that McDonnell will breathe new life into his own defense. They will argue that Senator Menendez, like Governor McDonnell, did not agree to perform any official acts. But for Menendez that’s going to be an uphill battle.

Senator Robert Menendez

Senator Robert Menendez

The Charges Against Senator Menendez

The Menendez/Melgen indictment describes a long-term bribery scheme. It charges that Melgen repeatedly provided Menendez with valuable gifts including multiple trips on his private jet, repeated stays at a luxury villa in the Dominican Republic, and hundreds of thousands of dollars in contributions to campaigns and legal defense funds. In exchange, Menendez allegedly interceded on Melgen’s behalf in several different government disputes. The government also alleges Menendez took steps to conceal these facts, including failing to report any of Melgen’s gifts.

The actions Menendez allegedly took on Melgen’s behalf fall into three general categories:

Visas:  In 2007 and 2008, Menendez and his staff contacted various embassy and State Department personnel to help three different foreign girlfriends of Melgen obtain visas to come to the United States.

Port Screening Contract:  Melgen owned an interest in a company that had a contract with the Dominican Republic to provide x-ray screening of cargo entering Dominican ports. The contract, potentially worth many millions of dollars, had been tied up in disputes. Menendez and his staff contacted different State Department officials, urging them to pressure the Dominican government to implement the contract. At one point Menendez met with an Assistant Secretary of State and said he was unsatisfied with the way State was handling the matter. Menendez allegedly threatened to hold a hearing and call the Assistant Secretary to testify.

Medicare dispute:  Melgen, a prominent Florida ophthalmologist, was embroiled for several years in a multi-million dollar dispute over his Medicare billings. He was allegedly using an eye medication designed for a single patient to treat two or three people. He would then bill Medicare as if he had purchased a separate vial for each patient. When Medicare discovered this practice they began pursuing claims against Melgen for overbilling.

Menendez and his staff worked for several years to help Melgen resolve this dispute. Menendez personally met with the Secretary of Health and Human Services and with the acting director of the Center for Medicare and Medicaid Services to advocate on Melgen’s behalf.

(As I write this, Dr. Melgen is currently on trial in Florida on a separate indictment charging him with Medicare fraud based in part on this scheme. Update: On April 28, 2017, Melgen was convicted on dozens of counts of fraud in the Florida case.)

What will be the effect of the McDonnell case on the Bob Menendez trial?

Former Virginia Governor Bob McDonnell

The McDonnell Decision

A jury convicted former Virginia Governor Robert McDonnell and his wife Maureen of multiple counts of corruption in September 2014. The McDonnells accepted more than $170,000 in gifts and undocumented “loans” from businessman Jonnie Williams. In return, prosecutors charged, the McDonnells agreed to promote Anatabloc, a dietary supplement made by Williams’s company, within the Virginia government.

A unanimous panel of the United States Court of Appeals for the Fourth Circuit upheld the convictions. But in June 2016 the U.S. Supreme Court unanimously reversed, holding that the steps taken by McDonnell on Williams’s behalf did not constitute “official acts” under federal bribery law. (You can find my more detailed analysis and critique of the Court’s opinion here.)

The Court based its decision on the language of the federal bribery statute, 18 U.S.C. § 201. That statute defines bribery, in part, as a public official accepting something of value in exchange for agreeing to be influenced in the performance of any “official act.” It further defines “official act” as “any decision or action on any question, matter, cause, suit, proceeding or controversy, which may at any time be pending, or which may by law be brought before any public official . . . . ”

The evidence had shown that McDonnell made phone calls on Williams’s behalf, arranged meetings for Williams with other Virginia government officials, and hosted a product launch event for Anatabloc at the Governor’s mansion. The Court held that these actions, standing alone, did not amount to “official acts” and could not support a bribery conviction.

The Court broke its analysis down into two steps, focusing on the precise language of the official act definition. First, one must identify the relevant “question, matter, cause, suit, proceeding or controversy” to which the alleged bribe relates. This language, the Court held, connotes a “formal exercise of government power, such as a lawsuit, hearing, or administrative determination.” It suggests something that is “relatively circumscribed – the kind of thing that can be put on an agenda, tracked for progress, and checked off as complete.”

Second, the Court said, the public official must agree to take a “decision or action” “on” the relevant matter, suit or controversy. This requires that the official take some steps to address or decide the matter, or to influence or advise others to do so. In particular, the requirement that the decision or action be “on” the matter – and not merely “about” or “related to” the matter – suggests the official is working to resolve it somehow.

The Court concluded that McDonnell’s actions did not amount to official acts under this analysis. There were several Anatabloc-related issues that could constitute a “question, matter, cause, suit, proceeding, or controversy.” But simply making phone calls or arranging meetings did not amount to “decisions or actions on” any of those questions. McDonnell introduced Williams to various officials and extended other political courtesies related to Anatabloc. But McDonnell did not himself take steps to resolve any of the matters or pressure others to do so. Accordingly, the Court concluded, a bribery conviction based on McDonnell’s actions could not stand.

Did Senator Menendez Perform “Official Acts?”

Even before McDonnell was decided, Senator Menendez had filed motions arguing he had not performed any official acts. The trial court denied those motions back in 2015. Now, in the wake of McDonnell, Menendez will undoubtedly renew those arguments.

If we follow the Supreme Court’s two-step approach from McDonnell, it’s pretty easy to define the relevant “question, matter, cause, suit, proceeding or controversy” for each aspect of Menendez’s case:

1) Should the State Department grant a visa to allow this individual to enter the United States?

2) Should the U.S. government work to persuade the Dominican government to implement the port security contract?

3) Should HHS modify its rules concerning the dosing of a particular eye medication? Or, more specifically, should the Department pursue its claims against Dr. Melgen about alleged overdosing?

Each of these is a circumscribed issue, a question that could be put on an agenda and checked off as resolved. They are the type of specific administrative or policy matters that McDonnell requires.

Menendez will argue that he, like McDonnell, did not take any “decisions or actions on” the defined matters. But Menendez’s actions were much more substantial than McDonnell’s. Menendez did not simply arrange meetings for Melgen or introduce him to other officials. The Senator himself attended various meetings and otherwise advocated for Melgen’s interests. Unlike McDonnell, Menendez was actively engaged in trying to influence the outcome of the matters in question.

An official act must also involve a matter that is “pending, or which may by law be brought before any public official . . . . ” Menendez will also argue that the identified matters were never pending before him and that he did not have the power to decide them. As a result, he will claim, his advocacy on these matters cannot amount to official acts by him.

But the Supreme Court in McDonnell squarely addressed this question. The Court held that a “decision or action” may include influencing another public official who has the power to decide: “decision or action may include using his official position to exert pressure on another official to perform an ‘official act,’ or to advise another official, knowing or intending that such advice will form the basis for an ‘official act’ by another official.’”

In other words, the official act does not have to be one the defendant himself has the power to resolve. It is sufficient if the defendant attempts to pressure, persuade, or advise another public official to perform an official act.

In the Menendez case the relevant matters were pending before various Executive Branch officials. Their resolution of those questions would constitute official acts. The indictment alleges that Senator Menendez attempted to pressure or persuade those officials to resolve the matters in Melgen’s favor. McDonnell makes it clear that such efforts can be official acts by Menendez,.

Heads I Win, Tails You Lose

Menendez has put himself in a bit of a box with the legal arguments he has already pursued. He argued all the way to the U.S. Supreme Court that the actions he took on Melgen’s behalf were part of his official duties as a U.S. Senator and should therefore be shielded by the Speech or Debate Clause. Courts rejected those arguments because the Speech or Debate Clause shields only legislative activities. Lobbying Executive Branch officials is not protected.

Now Menendez will be arguing that those same actions were so unconnected to his position as a Senator that they could not be official acts. As the government has pointed out, Menendez effectively has argued that nothing a U.S. Senator does can be prosecuted as bribery: if it’s not a legislative act shielded by the Speech or Debate clause, then it’s not an official act and can’t support a bribery conviction. Heads I win, tails you lose.

For example, in their original motion to dismiss based on failure to allege official acts, filed on July 20, 2015, his lawyers argued: “With respect to a U.S. Senator, invoking oversight authority and a threatened use of official powers would be an official act, but it also would be immunized by the Speech or Debate Clause.” (p. 6 fn. 4). But the courts have now rejected the latter half of that claim.

With respect to the Medicare dispute and the port contract issue, the government is indeed alleging that Menendez threatened to hold hearings and otherwise to invoke his oversight authority. Having conceded that these would amount to official acts, it will be a challenge now for the defense to claim otherwise without developing whiplash.

Effect of the McDonnell case on the Bob Menendez trial

As with all criminal trials, the Menendez case is going to come down to the government’s evidence. Menendez may claim that in his interactions with Executive Branch officials he was merely seeking information. He may argue he was not advocating for Melgen or trying to influence those officials. If that turns out to be true, it may be a defense. Merely attending a meeting to gather information would probably not fit the Supreme Court’s definition of official act.

But the government is alleging much more. It intends to prove that Menendez was vigorously advocating on Melgen’s behalf, trying to persuade or pressure Executive Branch officials to decide questions in Melgen’s favor. Such actions would fall squarely within McDonnell and would qualify as official acts by Menendez.

McDonnell’s primary effect will be on the jury instructions. Menendez’s lawyers will not get the case dismissed prior to trial based on the official act issue. Even in McDonnell the Supreme Court did not say it was impossible for any jury to find McDonnell guilty. The problem was that the jury was not properly instructed about the definition of official acts.

The McDonnell case will therefore shape the Menendez jury instructions concerning what the government must prove about official acts. The defense will argue the government has not met its burden. But if it proves the allegations in the indictment, the government should have no trouble meeting the McDonnell standard.

Every public corruption defendant for the foreseeable future is going to seek salvation in the McDonnell opinion. Menendez may have some other viable defenses, including his claim that there was no quid pro quo and that Melgen’s gifts were based simply on friendship. But the McDonnell case and the definition of official act are unlikely to save him.

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