Yesterday, the District Court for the Southern District of Texas sentenced two American Rice, Inc. executives in the widely watched Kay Foreign Corrupt Practices Act (“FCPA”) violations case. The defendants were convicted last August for FCPA violations arising from bribes paid to Haitian customs and sales tax officials.

The court agreed with Department of Justice recommendations and sentenced David Kay, the Vice President of Caribbean Operations, to 37 months, and Douglas Murphy, the President and Chief Executive Officer, to 63 months. Murphy’s longer sentence derived from his conviction on an additional obstruction of justice charge. These sentences are the longest provided for in any FCPA case to date.

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. The District Court initially agreed with the defendants that payments to tax and customs officials to obtain favorable tax or customs treatment are not made to “obtain, retain, or direct business to any person,” as required by the statute to find liability. United States v. Kay, 200 F. Supp.2d 681, 686 (S.D. Tex. 2002). However, the Court of Appeals held, in “diametric opposition to the district court,” that bribes paid to tax and customs officials can violate the FCPA if the bribery “was intended to produce an effect that would assist in obtaining or retaining business.” United States v. Kay, 359 F.3d 738, 756 (5th Cir. 2004).

At trial on remand, the jury found Kay and Murphy guilty on 12 counts of violating the FCPA and one count of conspiracy to violate the statute. The jury also convicted Murphy of obstruction of justice stemming from false statements he made to the SEC during its investigation of the payments.

The sentences clearly demonstrate the personal risks corporate executives take when authorizing payments that violate the FCPA. Murphy’s longer sentence gives specificity to the consequences to individuals of obstructing justice and abusing positions of trust, one focus of the Justice Department post-Enron.

Using the U.S. Sentencing Guidelines, the court calculated each sentence based on a commercial bribery base offense and increased each sentence by taking into account the amount of the benefit obtained, or intended to be obtained, as a result of the offense (i.e., between $500,000 and $800,000), as well as each defendant’s role as a manager in the offense. The court further increased Murphy’s sentence based on Murphy’s abuse of a position of trust and the additional obstruction of justice conviction.

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