Businesses and individuals subject to the FCPA, particularly those considering investments in high-risk jurisdictions, will want to mark the first quarter of 2013 on their calendars.
That is when, absent further delays, the Supreme Court of the United States will likely grant or deny a petition for certiorari filed on October 25, 2012 by Frederic Bourke, Jr., the investor and founder of the luxury goods company Dooney & Bourke who was convicted by a federal jury in the United States District Court for the Southern District of New York in July 2009 and sentenced to a year in prison and to a $1 million fine for conspiring to violate the FCPA and the Travel Act in connection with a failed investment scheme seeking to gain ownership of the state oil company of Azerbaijan.1
The government’s response to the petition, which seeks review of the December 14, 2011 decision by the United States Court of Appeals for the Second Circuit to affirm Bourke’s conviction and sentence, is due January 2, 2013.2 The Supreme Court could consider the petition as early as its January 18, 2013 conference, although the more likely result is a listing for a conference date in late February 2013.3
As we have noted previously, the Bourke case is one of the “must-read” cautionary tales in the FCPA arena.4 As investors close their books on 2012 and plot strategy for 2013, a report on the upcoming endgame in Bourke is warranted.
Below we review (1) the key points decided by the Second Circuit and the arguments Bourke raises in his petition; (2) factors that could affect the Supreme Court’s disposition; and (3) the implications of the Supreme Court’s upcoming action.
The Second Circuit’s Decision and Bourke’s Petition for Certiorari
As described by the Second Circuit, Bourke’s conviction rests on evidence introduced at trial to show that Bourke knew of, or was at least willfully blind to, a scheme organized by lead investor Viktor Kozeny to pay bribes through a variety of circuitous routes to Azerbaijan’s President and his family in exchange for favored treatment during privatization of the state oil company SOCAR. As the Second Circuit stated in its decision affirming Bourke’s conviction, Bourke was aware that Kozeny was known as the “Pirate of Prague” as a result of Kozeny’s “shady dealings” in state privatizations,5 and traveled to Baku, Azerbaijan, where Bourke was allegedly told by Kozeny’s attorney, Hans Bodmer, of a pre-existing bribery scheme devised by Kozeny as well as “the corporate structures created to carry it out.”6 Ultimately noting how, between May and September 1998, Bodmer wired roughly $7 million to Azeri officials or family members, the court canvassed other proof the government submitted that had a bearing on Bourke’s knowledge of the scheme, including evidence that Bourke set up his own company to channel investment funds.7
The court thus stated:
…[After twice traveling to Azerbaijan,] Bourke made another trip to Baku shortly after the Minaret office opening [Minaret being the investment bank set up by Kozeny]. When he returned home, Bourke contacted his attorneys to discuss ways to limit his potential FCPA liability. During the call, Bourke raised the issue of bribe payments and investor liability. Bourke’s attorneys advised him that being linked to corrupt practices could expose the investors to FCPA liability. Bourke and fellow Oily Rock investor Richard Friedman agreed to form a separate company affiliated with Oily Rock [another Kozeny vehicle set up to purchase the shares in the Azeri oil company] and Minaret. This separate company would shield U.S. investors from liability for any corrupt payments made by the companies and Kozeny. To that end, Oily Rock U.S. Advisors and Minaret U.S. Advisors were formed, and Bourke joined the boards of both on July 1, 1998. Directors of the advisory companies each received one percent of Oily Rock for their participation.
In mid-1998, Kozeny and Bodmer told Bourke that an additional 300 million shares of Oily Rock would be authorized and transferred to the Azeri officials. Bourke told a Minaret employee, Amir Farman-Farma, that “Kozeny had claimed that the dilution was a necessary cost of doing business and that he had issued or sold shares to new partners who would maximize the chances of the deal going through, the privatization being a success.”8
Rejecting Bourke’s challenge to the “factual predicate” for a willful blindness instruction, the court of appeals noted that “[t]he testimony at trial demonstrated that Bourke was aware of how pervasive corruption was in Azerbaijan generally,” and “knew of Kozeny’s reputation as the ‘Pirate of Prague.’”9 The court wrote that “Bourke created the American advisory companies to shield himself and other American investors from potential liability from payments made in violation of the FCPA, and joined the boards of the American companies instead of joining the Oily Rock board. In so doing, Bourke enabled himself to participate in the investment without acquiring actual knowledge of Oily Rock’s undertakings.”10 In addition to noting that “Bourke’s attorney testified that he advised Bourke that if Bourke thought there might be bribes paid, Bourke could not just look the other way,” the court quoted a transcript of a May 18, 1999 taperecorded phone conference Bourke had with a co-investor and their attorneys, in which Bourke in several instances asked the call’s participants “[w]hat are you going to do with that information” if it turned out that they learned that bribes were being paid, or words to that effect.11 The court also cited evidence demonstrating that other potential investors conducted more rigorous due diligence than Bourke did and walked away from the deal.12 Holding that a willful blindness instruction was appropriate, the court of appeals also rejected Bourke’s attack on the wording of the charge, i.e., that the charge allowed the jury “to … convict based on negligence.”13
Bourke’s lead argument why review should be granted challenges the giving of a “conscious avoidance” instruction and, critically, the wording of the instruction.14 His petition relies heavily on the Supreme Court’s May 31, 2011 decision in Global- Tech Appliances, Inc. v. SEB S.A.,15 a patent case in which the Court articulated and applied a rule that allows “willful blindness” to substitute as a proxy for “actual knowledge” pursuant to “an appropriately limited” definition that requires that “(1) the defendant must subjectively believe that there is a high probability that [the] fact [at issue] exists and (2) the defendant must take deliberate actions to avoid learning of the fact.”16 “[O]ne who merely knows of a substantial and unjustified risk of wrongdoing”17 (the standard for recklessness) or “one who should have known of a similar risk, but, in fact, did not”18 (the standard for negligence), cannot be willfully blind, as “‘[a] court can find willful blindness only where it can almost be said that the defendant actually knew.’”19
Bourke’s petition summarizes the purported Global-Tech error as essentially misconstruing, as “deliberate actions” or “active efforts” by Bourke “designed to shield him from knowledge, the relevant point here,” the creation, based on advice of counsel, of U.S. investment vehicles that “might have shielded Bourke from potential liability.”20 In addition to thus challenging the basis for a willful blindness instruction, Bourke attacks the wording of the instruction given, arguing it “omits the requirement that the defendant take ‘deliberate actions’ or make ‘active efforts’ to avoid knowledge,” and “omits that even recklessness is not enough.”21
Factors Likely to Affect the Supreme Court’s Disposition
Like the other thousands of petitions for certiorari brought by private parties each year, Bourke’s petition, at best, faces long statistical odds of being granted. Merely demonstrating error is not enough to gain a grant of review by the Supreme Court.22 Indeed, as he did in the underlying facts, at least with respect to the ground of review he presents based on the Global-Tech decision, Bourke seems to have found himself in the wrong place at the wrong time – in a procedural no-man’s land in which Global- Tech was unavailable when the jury charge conference took place in 2009 and his principal briefs were filed in the court of appeals and the case was argued, but in which Global-Tech was issued before the court of appeals’ decision was rendered in December of 2011.
This gives rise to the risk for Bourke that the threshold procedural issue potentially clouding the question of whether the Second Circuit correctly decided Bourke’s case, namely, whether Bourke’s jury trial issues were properly preserved or should be decided only under a mere “plain error” standard of review, could cause the Supreme Court to deny review because the case was not an appropriate vehicle for revisiting the matter of willful blindness instructions.23 The mere two-year gap since Global-Tech was decided also complicates Bourke’s efforts to gain review, in that even if the Court perceives there to be a conflict of some kind in the courts of appeals on how willful blindness instructions are to be handled there is a risk the conflict may not be perceived as sufficiently mature as to warrant review.24 Although a summary disposition expressly directing the Second Circuit to reconsider Bourke’s conviction in light of Global-Tech also is a possibility, the fact that Global-Tech had been brought to the court of appeals’ attention prior to the issuance of its mandate militates against this outcome.25
What is at Stake in the Bourke Petition
Should the Court grant review, the Court could provide useful and nationally applicable clarification of how, precisely, the willful blindness doctrine that underlies Bourke’s conviction operates in the recurring FCPA context of investor due diligence and investment partner management in highrisk jurisdictions – an arena increasingly confronted by private equity firms, hedge funds, trading companies, banks, insurers and other financial institutions, as well as any other company that undertakes global acquisitions. Should the Court deny review, companies and individuals whose conduct might be litigated in the federal courts of New York, Connecticut, or Vermont (where the Second Circuit’s decision is binding), will need to take very particular heed of Bourke’s experience, and how the government and the federal courts dealt with it.
More generally, if the Second Circuit’s decision stands, the DOJ’s hand will be strengthened, and those subject to the FCPA will need to be ever more mindful of the risks of investing in projects without appropriate due diligence, close monitoring of partner behavior, and the need for the fortitude to turn down or exit from certain high-risk investments with seeming outsize returns rather than trying to structure the investment to reduce compliance risks. We will thus continue to monitor the Supreme Court’s handling of the Bourke case and will report on upcoming key developments in the litigation.