Second Circuit Declines to Extend McDonnell in UN Bribery Case

In the landmark 2016 decision McDonnell v. United States, the Supreme Court dramatically narrowed the scope of several federal corruption laws. Last week, in a case involving the bribery of two United Nations officials, the U.S. Court of Appeals for the Second Circuit declined to extend McDonnell to two other statutes that have bribery at their core, the Foreign Corrupt Practices Act (FCPA) and federal program bribery (18 U.S.C. 666). This encouraging decision from a key appeals court may help breathe some new life into federal corruption prosecutions and dampens defense hopes that McDonnell will be applied more broadly. The UN bribery case also highlights the incoherence at the heart of the McDonnell opinion and the strategic error by the McDonnell prosecutors that made it all possible.

The United Nations flag

 United States v. Ng Lap Seng

In 2009-2010 Ng Lap Seng, a Chinese national, was developing a multi-billion dollar convention complex in Macau. To enhance the status and reputation of his new development, he wanted to have the United Nations designate it as the permanent site of one of its major annual international conventions. Over a period of five years he bribed two senior U.N. officials to try to make that happen.

Ng appointed one of the officials, Francis Lorenzo, as president of a media organization owned by Ng. Lorenzo pleaded guilty, and testified at trial that he understood that the monthly payments he received from Ng, which ultimately totaled more than $1 million, were actually bribes given in exchange for Lorenzo’s help in securing a deal from the U.N.

Lorenzo introduced Ng to John Ashe, who would go on to become the President of the General Assembly, the U.N.’s second highest ranking official. In exchange for Ashe’s help with securing the U.N. commitment, Ng agreed to pay Ashe $2,500 – $6,000 a month. These bribes, which went on for several years, were disguised as payments for consulting services by Ashe’s wife that in fact were never provided. Ng also gave Ashe other benefits, including travel for himself and his family and financial support for Ashe’s activities as President of the General Assembly. In exchange for the bribes, both Lorenzo and Ashe worked to secure the U.N. commitment that Ng desired.

On July 27, 2017, a jury convicted Ng of conspiracy, FCPA violations, federal program bribery, and money laundering. He was sentenced to four years in prison.

The Statutes in Question

Ng was convicted of violating 18 U.S.C. 666, sometimes called federal program bribery. It prohibits theft or bribery by agents of organizations that receive more than $10,000 in federal benefits per year, provided that the bribe or theft is in connection with business worth at least $5,000. In particular, the bribery prohibition applies to anyone who:

corruptly gives, offers, or agrees to give anything of value to any person, with intent to influence or reward an agent of an organization . . . in connection with any business, transaction, or series of transactions of such organization, government, or agency involving anything of value of $5,000 or more.

As with most bribery statutes, the prohibitions of 666 apply to both sides of the corrupt transaction — those who receive the bribes as well as those who give them.

Ng was also convicted of violating the FCPA, which generally prohibits bribing officers and employees of foreign governments and international organizations in order to obtain or retain business. It makes it a crime to give such an official anything of value for the purpose of:

(1) influencing any act or decision of the official in his or her official capacity;

(2) inducing the official to do or omit to do any act in violation of his or her lawful duty,

(3) securing any improper advantage, or

(4) inducing the official to use his or her influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality.

On appeal, Ng did not dispute that he had made the payments. But he raised a number of legal challenges to his convictions, arguing that the statutes did not apply to his conduct. One of his key arguments was that the Supreme Court’s decision in McDonnell required the government to prove the bribes Ng paid were in connection with an “official act.

Former Virginia Governor Bob McDonnell

 The McDonnell Decision

Former Virginia Governor Robert McDonnell and his wife Maureen were convicted of multiple felonies in 2014. Prosecutors showed that a businessman named Jonnie Williams gave the McDonnells more than $170,000 in secret gifts over a two-year period. In exchange, Williams sought McDonnell’s help in promoting his company’s dietary supplement, Anatabloc, within the Virginia government by, among other things, having it studied by Virginia universities. McDonnell made some calls and sent some emails to arrange meetings between Williams and other Virginia officials and held a product launch event for Anatabloc at the Governor’s mansion.

The key charges against McDonnell were honest services fraud and Hobbs Act extortion under color of official right. These are popular public corruption theories that essentially prohibit bribery, although neither statute defines that offense. Before trial, prosecutors agreed with McDonnell’s attorneys that the court should use the definition of bribery contained in the primary federal bribery statute, 18 U.S.C. 201. That statute did not apply to McDonnell because he was not a federal public official, so it was not actually charged in his indictment. As a result, McDonnell is a bizarre opinion: a decision that rests almost entirely on parsing the language of a statute with which the defendant was not even charged.

Section 201 prohibits bribes in exchange for a federal public official’s “official act,” which the statute defines 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 in such official’s official capacity, or in such official’s place of trust or profit.

McDonnell’s attorneys argued throughout the case that his actions on behalf of Williams did not amount to “official acts” and thus did not amount to bribery for purposes of the Hobbs Act and honest services fraud. The trial court and court of appeals disagreed, and the case went to the Supreme Court.

The Supreme Court’s decision in McDonnell consists almost entirely of analyzing the “official act” definition. It held that first the government must identify a particular “question, matter, cause, suit, proceeding or controversy” that could be pending before the public official. This requires some kind of identifiable, discrete matter, the kind of thing that could be placed on an agenda and checked off as completed. Second, the government must prove that the official made a decision or took some action “on” that matter, which requires a formal exercise of government power to try to resolve it or move it forward. A strict interpretation of the statutory language is appropriate, the Court concluded, because otherwise the statute could criminalize routine courtesies or constituent services that politicians perform for their supporters.

Acts such as arranging a meeting or holding a reception, the Court held, do not rise to the level of “decisions” or “actions” on a particular matter as defined in the statute. The Court therefore concluded that the steps taken by McDonnell did not amount to “official acts.” Because the jury instructions did not properly reflect this narrow definition of “official act,” the Court reversed McDonnell’s convictions. (For a more detailed analysis and critique of the McDonnell decision, you can read my post here.)

Ng’s McDonnell argument

Ng argued that the Supreme Court’s “official act” requirement in McDonnell should also apply to the FCPA and Section 666. Although these are different statutes, he argued, they are still bribery offenses, and the rationale of McDonnell and concerns expressed by the Court in that case should apply with equal force. Because the jury instructions in his case did not adequately reflect the “official act” requirement, Ng claimed, his convictions should be reversed.

The Second Circuit rejected these arguments. The Court observed there is no single uniform definition of bribery that applies to all federal crimes. The key to bribery is a quid pro quo, giving an official something of value in exchange for influencing that official in exercising the power of his or her office. But different statutes may define the precise “quids” and “quos” differently.

The Court in McDonnell did not purport to announce principles that would govern bribery-type offenses in every criminal statute. The opinion hinges entirely on the precise language defining “official act” in Section 201. But neither Section 666 nor the FCPA contains that language, or indeed any reference to “official acts.” Because the language of these statutes is different from, and broader than, the language in 201, the Second Circuit said, McDonnell does not govern those statutes. Nor was the court persuaded by Ng’s arguments that the policy concerns expressed in McDonnell about vagueness or political prosecutions applied equally in his case. Accordingly, the court concluded, in a prosecution under 666 or the FCPA the government is not required to prove an “official act” as defined in McDonnell.

Ng Is Right, McDonnell Was Wrong

The Second Circuit’s decision in Ng seems clearly correct. The entire focus of McDonnell was interpreting particular statutory language. There is no logical basis for importing that reasoning into a statute that does not contain the same language. But the Ng decision also highlights the incoherence at the heart of McDonnell.

As the Ng court noted, there is no single definition of bribery in the federal criminal code. There was no particular reason for the McDonnell Court to graft the definition found in Section 201 onto two different criminal statutes, Hobbs Act extortion and honest services fraud. Like Section 666 and the FCPA, those statutes do not contain any reference to “official acts.”

Bribery is an ancient common-law crime; there was nothing magical about Section 201 that compelled the Supreme Court to use that definition. It would have made just as much sense for the Court to look to the definition in Section 666, or to look to a law dictionary, or simply to rely on the common-law definition of bribery as a quid pro quo, a corrupt gift given in exchange for the exercise of some official power.

The irrationality of McDonnell’s requirement of an “official act” is further highlighted by the fact that not every bribery case under Section 201 requires an “official act.” That statute also prohibits bribes to induce an official to violate his or her official duty or engage in a fraud against the United States. The definition of bribery adopted in McDonnell thus ended up being even more limited than the definition in the statute upon which McDonnell relied. In effect, the Court only used a portion of the definition of bribery found in 201 but proclaimed that as the full definition for purposes of the Hobbs Act and honest services fraud.

As the Second Circuit noted in Ng, both sides in McDonnell had agreed well before his trial that the “official act” portion of the definition of bribery in Section 201 should apply to McDonnell’s case. I think this was a key tactical error by the prosecutors. As I wrote in this post, I’d argue that the defense won the McDonnell case before the trial even began when it got the government to make this concession. The Supreme Court ultimately ended up wallowing in the weeds of the language of Section 201 and ignoring the reality of what was going on with Governor McDonnell: not routine constituent services for a campaign support, but the exercise of official power in exchange for undisclosed gifts.

The Implications of the Ng Decision

The Ng decision has some interesting implications for future corruption prosecutions. Many state and local corruption cases that might have been prosecuted as honest services fraud or Hobbs Act violations before McDonnell could also fit within Section 666. Indeed, prosecutors likely could have indicted Governor McDonnell himself under 666 if they could have established that the research studies and other benefits sought by Williams were worth at least $5,000. This could lead to a rather incongruous result: despite all of the Supreme Court’s rhetoric in McDonnell about public officials supposedly being prosecuted for routine political favors, the same actions that the Court found were not “official acts” under 201 might well support a prosecution under Section 666.

Ng will undoubtedly appeal to the Supreme Court, but that Court is probably unlikely to take the case. It already denied certiorari in another Second Circuit case, United States v. Boyland, which also held, although with far less analysis, that McDonnell does not apply to Section 666. And the Court’s opinion in McDonnell has left it somewhat boxed in: having relied exclusively on the precise language of one statute, the Court has little room to argue that its decision applies to a different statute that does not contain that language.

Ideally, Congress would amend the criminal code to provide a uniform definition of bribery, broader than that in Section 201, that would apply to all of these statutes. But for now, many corruption schemes that could be barred by McDonnell may be repackaged as violations of Section 666. That statute does not apply to federal public officials, so those cases will continue to be limited by McDonnell’s cramped view of public corruption. But at least when it comes to state and local officials, Ng highlights a potential work-around for federal prosecutors seeking to pursue clearly corrupt behavior such as that engaged in by Governor McDonnell.

Like this post? Click here to join the Sidebars mailing list

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.

Click here to join the Sidebars mailing list and receive e-mail notification of future posts.