Jury Convicts Defendants for Paying Bribes to Reduce Foreign Duties and Taxes
Yesterday, the jury issued its long-awaited verdict in the Kay and Murphy cases, finding the defendants guilty on all counts. Sentencing is scheduled for January 6, 2005.
The Kay case has been closely watched because the defendants had previously mounted a challenge to the statute that, if successful, would have dramatically contracted the scope of the law. At trial on remand, defendants argued both that the elements of the offense were not met and that the payments came within the “facilitating payments” exception.
David Kay and Douglas Murphy, Vice President of Caribbean Operations and Chief Executive Officer, respectively, of Houston-based American Rice, Inc., were each convicted on 12 counts of violating the Foreign Corrupt Practices Act (“FCPA”) and one count of conspiracy to violate the FCPA. According to court papers, they paid customs and sales tax officials in Haiti to induce them to accept false bills of lading and sales figures that intentionally understated the quantity of rice shipped to and sold in Haiti, reducing American Rice’s customs duties and sales taxes. Mr. Murphy was also convicted of obstruction of justice, stemming from false statements he made to the SEC during its investigation of the payments.
In earlier proceedings in the case, the United States District Court for the Southern District of Texas had dismissed the charges and held as a matter of law that the payments at issue were outside the scope of the anti-bribery prohibition of the FCPA, because they were not payments made to “obtain, retain, or direct business to any person” as required by the statute. The Fifth Circuit, however, reversed that decision in February of this year. See United States v. Kay, 359 F.3d 738 (5th Cir. 2004). The appeals court largely validated the Justice Department’s longstanding view of the scope of the FCPA’s anti-bribery prohibitions, but held that the Department must show that an alleged bribe had some “business nexus.” On remand to the district court, the trial resulted in guilty verdicts. The jury rejected defense arguments (1) that the payments were made to avoid costly operational delays in the customs clearance process and, thus, fell within the statutory exception for “facilitation” payments; (2) that Haitian officials extorted the payments, negating criminal intent; and (3) that the payments were not made to “obtain or retain business,” because they were intended to increase profits of an already profitable business.
The government has long taken the position that if a bribe advances a company’s commercial interests, it satisfies the business purpose or “business nexus” requirement of the statute. In this case, the judge instructed the jury that the “business nexus” test would be met if the payments were to obtain or retain particular business. The prosecution introduced evidence showing that the payments enabled the company to maintain its market share and profitability in Haiti generally; it did not suggest that the bribes were made to secure or retain any specific contract. Thus, not only does this jury verdict reject the proposition that the FCPA prohibits only bribes paid to secure a contract with the government, but also the proposition that the bribe must be directly linked to a specific transaction.
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