In the summer of 2014, on the eve of trial, the SEC settled FCPA charges against two individuals related to Noble Corporation, a global oil and gas drilling services company. SEC v. Jackson and Ruehlen, No. 12-cv-563 (S.D. Tex.). The case settled on very favorable terms for the individuals, but had it gone to trial, it would have been the first SEC case in many years to reach that far. Even with the settlement, the two years of litigation between the SEC and the Noble executives provided a window into the government’s trial strategy on a number of issues, as well as areas where judicial caselaw on the FCPA continues to evolve.
BuckleySandler represented Mark Jackson, Noble’s former CEO and CFO, in the case, and the views expressed in this post are ours alone. (See also prior FCPA Scorecard coverage of the case). Here we highlight several of the lessons learned from the Jackson trial.
- The Facilitating Payments Exception May Be Narrower than Previously Thought: It is not news that the government does not like the facilitating payments exception to the FCPA, which permits payments “the purpose of which is to expedite or to secure the performance of a routine governmental action.” 15 U.S.C. § 78dd-1(b). In theJackson litigation, though, for the first time the SEC had to spell out its exact view on the exception and how it should be interpreted in practice. The SEC’s hand was forced by a ruling that it was the SEC’s burden to affirmatively negate the idea that payments were facilitating payments instead of bribes, not the defendants’ burden. Perhaps unsurprisingly, the SEC reads the facilitating payment exception extremely narrowly – to the point of near irrelevance.
In essence, the SEC’s briefing and arguments to the Court in Jackson stated that a payor’sactual intent when making a facilitating payment was irrelevant. Even though the statute speaks of the payor’s “purpose” in making the payment, under the SEC’s reading, the exception is instead strict liability for the payor. The payor might have believed the action he sought was a routine governmental action – i.e., that was its “purpose.” But under the SEC’s theory, if it turns out that the payor’s belief was wrong, and under the country’s laws and regulations this was actually a discretionary action by the official, then the payor cannot claim the benefit of the facilitating payments exception and the payment would constitute a bribe.
We will have to wait for the next case to see whether the SEC’s arguments successfully narrow the exception, but prior to the settlement in Jackson, the Judge rejected the SEC’s motion for partial summary judgment regarding the facilitating payments exception without a written ruling.
- Content of Foreign Law Is Important: Because the SEC’s argument about facilitating payments turned on whether the sought-after actions were, in fact, discretionary on the part of the officials, the content of Nigerian law and what if anything it said about the temporary import permits at issue became the subject of expert testimony and extensive briefing. Expert witnesses included a former Nigerian customs official, the former U.S. Ambassador to Nigeria, and a think-tank expert on Nigeria. Evidence included numerous published and unpublished Nigerian codes and regulations. Finally, the SEC filed a Motion for a Determination of Foreign Law under Fed. R. Civ. P. 44.1.
The lessons here are twofold. First, if the SEC’s view is accepted and whether a payment qualifies as an acceptable facilitating payment depends on the content of foreign law, then the burden will be extremely high on the front end for any company making what it believes to be a facilitating payment. Rather than incur the expense of hiring local attorneys to investigate local law in every country, though, the practical effect will be that companies will stop making facilitating payments entirely (presumably what the government would prefer). Second, litigating almost any FCPA case in the future will likely require expert witnesses on the local law at issue, greatly increasing costs for both the government and defendants.
- A “Corrupt” Payment, to the SEC, Means Any Payment Meant to Influence Any Act: To be prohibited under the FCPA, a payment must be made “corruptly.” 15 U.S.C. § 78dd-1(a). 37 years after the FCPA was passed, there still is no universally accepted definition for what “corruptly” means, either in the statute or caselaw. The Judge inJackson drew from multiple sources to define “corruptly” as “an act done with an evil motive or wrongful purpose of influencing a foreign official to misuse his position.” In the view of the defendants, if they believed the payments were made to obtain something the company was already entitled to, that could not be an instance of an official “misusing” his position because the official was just doing something he was supposed to do anyway. To the SEC, though, as it argued to the Court, any act done by an official in response to a payment is a “misuse” of his position: all that is required is an intent that the payment “influence any act or decision made by an official in his official capacity – regardless of any ‘entitlement’ to that act or decision.’”
Here, too, we will have to wait for another case to finally decide the validity of the SEC’s new position on “corrupt” payments; the Judge in Jackson denied all parties’ motions for summary judgment on this issue, without written opinion.
- Judges Are Still Confused By the FCPA, Too: In numerous areas, the caselaw is still unclear on issues such as facilitating payments, the meaning of “corruptly,” and the exact type of internal controls needed under the FCPA’s internal controls provisions (15 U.S.C. § 78m(b)(2)(B)). Indeed, one of the arguments the defendants in Jacksonused to justify the need for expert testimony in certain areas was that if even the Judge expressed confusion on these areas – as he did, on several occasions – how could a jury be expected to sort it out without guidance?
- The Statute of Limitations Has New Teeth: Conduct in FCPA cases tends to be historic, reaching years, if not a decade, back. Investigations then take years before any enforcement decisions are made. The conduct in the Jackson case was no different; the Complaint filed in 2012 alleged violations dating back to 2003. The defendants challenged the Complaint on statute of limitations grounds, arguing that the SEC’s claims for civil monetary penalties were almost entirely barred. The SEC countered with the idea that the fraudulent concealment doctrine delayed the running of the statute.
After the Judge dismissed the original Complaint with leave to amend, the SEC filed an Amended Complaint, but soon faced a bigger challenge – the Supreme Court’s decision inGabelli v. SEC, 568 U.S. __, 133 S. Ct. 1216 (2013), which rejected the use of the discovery rule in SEC civil monetary penalty cases. Rather than face the possibility that the Judge inJackson would extend Gabelli to its logical conclusion and bar the use of the fraudulent concealment doctrine as well, the SEC ultimately stipulated that it would not seek civil monetary penalties for conduct before May 2006. The narrowed set of claims significantly reduced the potential liability facing the defendants in Jackson. The overall issue of whether fraudulent concealment continues to be a viable argument for the SEC is still being sorted out courts around the country and may reach the Supreme Court again in the future.