The Bumpy Road to an FCPA Guilty Plea

Corporate Counsel
11.01.10

Is Nexus Technologies Inc. (Nexus) a forerunner or an aberration? That is the fundamental question looming in the aftermath of U.S. v. Nam Quoc Nguyen, in which Nexus, an export company incorporated in Delaware with offices in Philadelphia, New Jersey and Vietnam, dared to fight the Foreign Corrupt Practices Act (FCPA) charges levied against it.

While Nexus eventually pleaded guilty to conspiracy, money laundering, FCPA, and Travel Act charges, this otherwise unremarkable guilty plea followed an unprecedented, though ultimately unsuccessful, challenge to the Government’s aggressive interpretation of the FCPA. The case thus serves as a cautionary tale to companies that may consider fighting FCPA allegations.

Nexus, its founder and president, Nam Quoc Nguyen, and three other company executives were indicted on September 4, 2008, for their alleged participation in a long-running scheme to bribe Vietnamese officials in exchange for sales contracts. One of only a handful of companies to have ever been indicted under the FCPA, Nexus was initially indicted on five FCPA-related counts, including one count of conspiracy to violate the FCPA and four counts of violating the FCPA’s anti-bribery provision.

Specifically, the Indictment claimed that Nexus paid bribes to individuals who were “foreign officials” as contemplated by the FCPA because their employers -- the Vung Tau Airport, the Southern Flight Management Center, the Vietsovpetro Joint Venture, the Petro Vietnam Gas Company, and the Tourism and Trading Company -- were “controlled” by “a department, agency, or instrumentality of the Government of Vietnam,” namely the Ministry of Transport, the Ministry of Industry, and the Ministry of Public Safety.

Nexus and Nguyen moved to dismiss the Indictment for failure to state a criminal offense and for vagueness. The defendants’ motion attacked the Government’s expansive interpretation of “foreign official” -- a key term within the FCPA. The statute’s anti-bribery provision criminalizes “an offer, payment, [or] promise to pay” a “foreign official,” which is defined as “any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization,” including “any person acting in an official capacity for or on behalf of” any such entities.

In support of their motion to dismiss, the defendants argued that “mere control” by a foreign government did not make an entity’s employees “foreign officials” any more than the U.S. Department of the Treasury’s “control” of General Motors “makes all GM employees U.S. officials.”

The defendants then took aim at the constitutionality of the FCPA’s definition of “foreign official” both on its face and as applied by the Government in this case. The defendants moved the Court to dismiss the indictment on the grounds that the FCPA’s definition of “foreign official” is unconstitutionally vague. They argued that to define a “foreign official” to include employees of any foreign government “department, agency or instrumentality” solely based on government “control” of these entities “would unfairly sweep nearly all economic activity within the scope of the statute,” particularly in the context of socialist and communist foreign states.

The Government’s immediate and overwhelming response took the form of a Superseding Indictment that addressed head-on the central issue raised by the defendants and dramatically escalated the charges against the defendants from five counts to twenty-eight counts, including the original conspiracy count, five additional FCPA anti-bribery counts (for a total of nine), nine Travel Act counts, and nine money laundering counts. Notably, the same underlying conduct served as the basis for the additional FCPA, Travel Act, and money laundering charges.

In effect, the Government’s reworked charging strategy eliminated the possibility that the defendants’ legal arguments could win them total absolution of criminal liability. The concept of “foreign official” is irrelevant to Travel Act and money-laundering charges when commercial bribery (in this case, Pennsylvania commercial bribery laws) serves as at least one of the predicate acts.

Superseding the Indictment also provided the Government with the opportunity to re-characterize the alleged bribe recipients. Whereas the original Indictment stated that the recipients’ employers were departments, agencies, or instrumentalities of the Vietnamese Government by virtue of the fact that they were “controlled” by Government ministries , which were defined as “a department, agency, and instrumentality of the Government of Vietnam”, the Superseding Indictment eliminated the concept of control altogether. Instead, the Government briefly described the entities’ respective governmental functions and ownership structures and claimed that, based upon those conclusory representations, the entities were therefore agencies and instrumentalities of the Vietnamese Government.

The defendants moved to dismiss the Superseding Indictment on November 9, 2009. In part, they argued that the Government had again failed to adequately define how the bribe recipients’ employers constituted “agencies” or “instrumentalities” of the Vietnamese Government for the purposes of the FCPA, noting that the Superseding Indictment continued to describe the entities as “owned by,” “controlled by,” or “related to” a foreign government or government agency.

On December 30, 2009, the court denied the defendants’ motion to dismiss without addressing the pivotal issue of what exactly constitutes a “foreign official” for the purposes of the FCPA. Soon thereafter, Nexus and three of its indicted executives entered guilty pleas. The individual defendants were sentenced on September 16, 2010, to various combinations of fines, probation, incarceration terms of up to sixteen months, and supervised release. Nexus, meanwhile, was ordered to turn over its assets to the Court and cease all operations.

The Nexus case study is a compelling reminder to companies and executives of the potential hazards of litigating, rather than promptly settling, FCPA accusations. In response to the defendants’ challenge to the Government’s application of the term “foreign official” in the Nexus case, the Government stacked the Superseding Indictment such that even if the defendants prevailed, their victory would be of no significance or comfort in light of the additional charges pending against them. The Superseding Indictment also raised the stakes for the individual defendants, who now face longer terms of incarceration as a result of the additional charges.

The case further underscores the utility of the Travel Act to prosecutors seeking some additional muscle in otherwise problematic FCPA prosecutions. Here, the Travel Act counts enabled the Government to circumvent a potential landmine dismissal of the FCPA charges against Nexus by fortifying the Superseding Indictment with charges impervious to the defendants’ legal argument.

While the Nexus case serves as a clear warning to companies facing FCPA charges, there is a better path. There are numerous things companies can do, both prospectively and in response to government investigations, that should lead to better results:

  • Emphasize meaningful compliance. Preventive measures, such as a robust compliance program, training, due diligence, and audits, are the most effective protection against the Government’s far-reaching prosecutorial powers.
  • Hire FCPA specialists. In-house counsel and general law firms may lack the expertise to represent companies in the crosshairs of an FCPA investigation. Firms with experienced FCPA practices are thoroughly familiar with the agencies and officials who conduct the investigations, the statute’s evolving application, and the most effective methods for limiting legal exposure.
  • Consider cooperation. Though it is unclear whether Nexus was invited to or sought to cooperate before it pressed the court to dismiss the charges, the DOJ and SEC have repeatedly emphasized the advantages of cooperating with a Government inquiry. After all, cooperation does not prevent a company from zealously advocating to the Government its legal and factual analyses of the issues.
  • Forgoing cooperation? Prepare for trial. As in Nexus, courts may be reluctant to dismiss colorable FCPA charges before a jury has heard the case. Prior to challenging the Government’s allegations, a company should anticipate the eventuality of trial and shape its legal strategy accordingly.   

November 2010 edition of Corporate Counsel© 2010 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, reprints@alm.com or visit www.almreprints.com

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