Within the last month, the United States Courts of Appeals for the Fourth and Seventh Circuits addressed appeals by the former governors of Virginia and Illinois, respectively, affirming bribery-related convictions of the former and partially vacating those of the latter. In their rulings in United States v. McDonnell1 and United States v. Blagojevich, 2 these courts provided guidance in a number of areas, including the definition of “official act” and the scope of actionable quid pro quo bribery, which are of central relevance to the FCPA, for which judicial construction of such key statutory terms is hard to find. The underlying facts at issue in these two domestic bribery cases had been well-publicized at the time of trial. In the case of former Virginia Governor Robert McDonnell, the government proved at trial that McDonnell and his wife “accepted money and lavish gifts in exchange for efforts to assist a Virginia company in securing state university testing of a dietary supplement the company had developed.”3 In 2014, McDonnell was convicted on eleven corruption-related counts, and the court of appeals affirmed both his convictions and his two-year sentence.4 In the case of former Illinois Governor Rod Blagojevich, the record included “overwhelming” evidence of corruption in connection with multiple schemes involving the trading of political favors for campaign contributions. This also included acts involving Blagojevich’s seeking a favor from then President-elect Obama in the form of an appointment to the cabinet, assistance in finding a private sector job, or a contribution to a campaign fund that Blagojevich could control and convert to his personal use, in exchange for appointing Obama’s campaign aide Valerie Jarrett to the United States Senate.5 The Seventh Circuit affirmed Blagojevich’s convictions on a number of counts charging him with “rais[ing] money in exchange for the performance of official acts, even though federal law prohibits any payment (or agreement to pay), including a campaign contribution, in exchange for the performance of an official act.”6 But because Continued on page 8 1. No. 15-4019, 2015 WL 4153640 (4th Cir. July 10, 2015). 2. No. 11-3853, 2015 WL 4433687 (7th Cir. July 21, 2015). 3. McDonnell, 2015 WL 4153640, at *1. 4. Id. at *8, *33. 5. Blagojevich, 2015 WL 4433687, at *1. 6. Id. at *2. www.debevoise.com FCPA Update 8 July 2015 Volume 6 Number 12 7. Id. at *3. 8. McDonnell, 2015 WL 4153640, at *19. 9. Id. 10. See, e.g., 15 U.S.C. §§ 78dd-1(a), 78dd-2(a), 78dd-3(a). The FCPA also targets “securing an improper advantage,” irrespective of the specific role of any “official act” by a foreign official. See id. In this respect, the literal language of the FCPA is susceptible of a potentially broader interpretation than that of certain domestic bribery crimes, including Section 201(b), though the principle of noscitur a sociis, which requires as a practical matter that a list of terms be construed as embodying a unifying underlying legislative principle and purpose, arguably counsels reading the “improper advantage” language as requiring an “official act” as well. the jury charges related to the Senate appointment matter permitted a conviction if the jury believed that Blagojevich had asked only for an appointment to the cabinet, thus permitting the jury to convict based on “a proposal to trade one public act for another,”7 the related convictions had to be vacated and remanded for a potential retrial on those counts. Blagojevich’s sentence of 168 months was also vacated. Relevance of the McDonnell and Blagojevich Decisions to FCPA Compliance Although chronicling the seamy side of U.S. domestic politics, and, in turn, some of the intricacies of federal domestic anti-bribery criminal laws, the decisions in the McDonnell and Blagojevich cases also carry some important lessons for FCPA compliance. A. The McDonnell Case and the “Official Act” Requirement of Bribery Law This is particularly true in the McDonnell matter. In McDonnell, whether the governor’s recommendation of a product for further study by a state university was an “official act” was at the heart of the Fourth Circuit’s decision. The main charges at issue were for honest-services wire fraud, which draws its essential elements from the federal official anti-bribery statute, 18 U.S.C. § 201(b), which provides that public officials “may not ‘corruptly’ demand, seek, or receive anything of value in return for . . . being influenced in the performance of any official act.’”8 Similar language focusing on obtaining benefits in exchange for “official acts” supported Governor McDonnell’s conviction for Hobbs Act extortion under 18 U.S.C. § 1951(a).9 The FCPA, which criminalizes bribe-paying abroad, has as its target the making or offering of corrupt payments for the purpose of “influencing any act or decision of [a] foreign official in his official capacity,” “inducing any such official to do or omit to do any act in violation of the lawful duty of such official,” or “inducing such foreign official to use his influence with a foreign government or instrumentality thereof to influence any act or decision of such foreign government.”10 Thus, under the federal domestic bribery statute, the Hobbs Act, and the FCPA, a corrupt “Logrolling” and Corruption: What the McDonnell and Blagojevich Decisions Say About U.S. Anti-Bribery Law Continued from page 7 Continued on page 9 www.debevoise.com FCPA Update 9 July 2015 Volume 6 Number 12 payment unrelated to an “official act” (for example, a payment to an official to undertake some improper activity in his or her personal capacity as, say, a private landowner or investor) could not be prosecuted as it would be beyond the reach of that law’s anti-bribery prohibition. In the McDonnell case, the former governor did not argue the public/private distinction, but rather contended that merely making a recommendation that some other state actor – here, a state university – take action was not a cognizable “official act.” In rejecting this view, the Fourth Circuit found that “an action may be ‘official’ . . . even if it is not prescribed by statute, rule, or regulation,”11 and includes “settled practices,” including, potentially, acts incident to the giving of “receptions, public appearances, and speeches.”12 While conceding that “job functions of a strictly ceremonial or educational nature will rarely, if ever, fall within this definition,” the Fourth Circuit observed that such activities could constitute official acts if they “relate, in some way, to a ‘question, matter, cause, suit, proceeding, or controversy,’” including actions “‘taken in furtherance of longer-term goals.’”13 Because the trial court’s jury instructions lawfully defined the kinds of acts that could be the subject of the former governor’s federal convictions, the court of appeals ruled it could not set aside the verdict, given the evidence adduced that quid pro quo gifts had been given to secure the former governor’s recommendations. In this regard, the Fourth Circuit emphasized that “an ‘official act’ may pertain to matters outside the bribe recipient’s control,”14 thus reaffirming the notion that acts of recommendation even by decision-makers without final authority or officials without decisional authority at all (as the governor contended he was with respect “Logrolling” and Corruption: What the McDonnell and Blagojevich Decisions Say About U.S. Anti-Bribery Law Continued from page 8 11. McDonnell, 2015 WL 4153640, at *20 (citation omitted). 12. Id. at *22. 13. Id. at *19 (citation omitted). 14. Id. at *23. Continued on page 10 “For companies and individuals alike, the McDonnell decision highlights a recurring risk under the FCPA, particularly in countries in which decision-making is diffused and final government decisions are the product of many steps in a chain of actions, from the framing of, say, tender specifications, tender clarifications, and public bid evaluations, to project funding, contract drafting and execution, and contract and claims management.” www.debevoise.com FCPA Update 10 July 2015 Volume 6 Number 12 to the particular product study at issue) can be the target of bribery. For companies and individuals alike, the McDonnell decision highlights a recurring risk under the FCPA, particularly in countries in which decision-making is diffused and final government decisions are the product of many steps in a chain of actions, from the framing of, say, tender specifications, tender clarifications, and public bid evaluations, to project funding, contract drafting and execution, and contract and claims management. While leaving some room to argue that payments in exchange for very general “official” statements outside of the context of particular decisional matters could be beyond the reach of federal bribery laws, the Fourth Circuit’s broad interpretation of the definition of “official acts” is a warning to any FCPA-covered firm or individual considering making payments to a foreign official, regardless of the object of such payments. B. The Blagojevich Case’s Observations on “Traditional Logrolling” While affirming most parts of the judgment of conviction of former Illinois Governor Blagojevich, the Seventh Circuit, in a colorful opinion by Judge Easterbrook, took the District Court to task for framing and giving a jury instruction that permitted a conviction for honest services fraud based merely on “traditional logrolling.” The court contrasted the classic understanding of bribery, in which “a public official performs an official act (or promises to do so) in exchange for a private benefit, such as money,” with “a political logroll,” which is “the swap of one official act for another.”15 Analyzing the skein of federal statutes that prohibit bribery in its various forms, the court observed that “it would not be possible to describe a political trade of favors as an offer or attempt to bribe the other side,” even if one side in the political arena flat out lied about the motivation for the trade.16 To call this honest-services fraud, the court held, “supposes an extreme version of truth in politics, in which a politician commits a felony unless the ostensible reason for an official act is the real one.”17 Even if Governor Blagojevich sought a post in the President’s cabinet for himself, his “cabinet” scheme was not illegal,18 because the transaction he intended to complete lacked a “public act in return for a valuable return promise.”19 While providing a useful lesson in some of the dividing lines between conduct that merely offends general notions of how politicians should behave and criminal “Logrolling” and Corruption: What the McDonnell and Blagojevich Decisions Say About U.S. Anti-Bribery Law Continued from page 9 15. Blagojevich, 2015 WL 4433687, at *3. 16. Id. at *4. 17. Id. at *5. 18. Id. at *6. 19. Id. Continued on page 11 www.debevoise.com FCPA Update 11 July 2015 Volume 6 Number 12 conduct, the Seventh Circuit’s decision also raises important questions about what constitutes a “private benefit” for purposes of federal anti-corruption law. Reaffirming the notion that “the interest in receiving a salary from a public job is not a form of private benefit under federal criminal statutes,” the Seventh Circuit’s decision in the Blagojevich matter raises serious questions whether some of the broader theories invoked by the government in FCPA cases (or by government officials in published remarks) are valid. These include the notion that an FCPA case could be brought based on a private company’s provision of “public benefits” requested by a foreign official, such as, for example, the provision of investment funds to a microfinance company in exchange for a government contract, or even the accession to a request that bona fide charitable contributions be made as a condition of receiving a government contract. The 2012 “Resource Guide,” jointly published by the U.S. Department of Justice (“DOJ”) and the U.S. Securities and Exchange Commission (“SEC”), goes to lengths to identify the kinds of detailed due diligence and internal (and external) controls that are necessary in connection with these kinds of project conditions, lest the DOJ and SEC draw a negative inference from their absence.20 By shining a light on the “public benefit” concept, Judge Easterbrook’s opinion may rein in at least some broad theories of FCPA liability for provision of benefits of this nature, and should cause the government to rethink the extent of appropriate due diligence and controls actually required in practice in order to vindicate the goals of the FCPA when dealing with such impact fees and corporate responsibility efforts.