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SEFFENS, RPR United States Courthouse 411 West 4th Street, Suite 1-1053 Santa Ana, CA 92701 (714) 543-0870 REPORTER'S TRANSCRIPT OF PROCEEDINGS Santa Ana, California May 9, 2011 STUART CARSON, et al., Defendants. -------------------------UNITED STATES OF AMERICA, Plaintiff, vs. UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA SOUTHERN DIVISION - - THE HONORABLE JAMES V. SELNA, JUDGE PRESIDING
2 1 2 3 4 5 6 7 8 9 10 11 12 13 For Defendant STUART CARSON: 14 15 16 17 18 19 20 21 22 23 24 25 SHARON SEFFENS, U.S. DISTRICT COURT REPORTER NICOLA T. HANNA JOSHUA JESSEN GIBSON, DUNN & CRUTCHER LLP 3161 Michelson Drive, Suite 1200 Irvine, CA 92612 (949) 451-3800 For Defendant HONG CARSON: KIMBERLY A. DUNNE SIDLEY AUSTIN LLP 555 West Fifth Street, Suite 4000 Los Angeles, CA 90013 (213) 896-6060 CHARLES E. DUROSS, Acting Chief CHARLES LABELLA NATHANIEL B. EDMONDS ANDREW GENTIN Fraud Section Criminal Division, U.S. Department of Justice 1400 New York Avenue, N.W. Washington, DC 20005 (202) 353-3551 APPEARANCES OF COUNSEL: For the Plaintiff: ANDRE BIROTTE, JR. United States Attorney DENNISE D. WILLETT Assistant United States Chief, Santa Ana Branch DOUGLAS F. MCCORMICK Assistant United States 411 West Fourth Street, Santa Ana, CA 92701 (714) 338-3541
Attorney Office Attorney Suite 8000
3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 SHARON SEFFENS, U.S. DISTRICT COURT REPORTER ALSO PRESENT: Mandarin Interpreter KENNETH M. MILLER TERESA CESPEDES ALARCON BIENERT, MILLER & KATZMAN 115 Avenida Miramar San Clemente, CA 92672 (949) 369-3700 For Defendant DAVID EDMONDS: DAVID WIECHERT 107 Avenida Miramar, Suite A San Clemente, CA 92672 (949) 361-2822 For Defendant PAUL COSGROVE:
4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 SANTA ANA, CALIFORNIA; MONDAY, MAY 9, 2011; 3:00 P.M. THE CLERK: Item No. 17, SACV-09-00077-JVS, United
States of America versus Stuart Carson, et al. Counsel, please state your appearance after I call your client's name. Stuart Carson. MR. HANNA: Good afternoon, Your Honor. Nick
Hanna and Joshua Jessen on behalf of Stuart Carson who is present in court. THE CLERK: MS. DUNNE: Hong Carson. Good afternoon, Your Honor. Kimberly
Dunne on behalf of Hong Carson who is present in court. THE CLERK: MR. MILLER: Paul Cosgrove. Good afternoon, Your Honor. Ken
Miller and Teresa Alarcon on behalf of Paul Cosgrove who is present in court. THE CLERK: David Edmonds. Good afternoon, Your Honor. David
Weichert on behalf of David Edmonds who is present in court. THE COURT: Good afternoon. Good afternoon, Your Honor. Doug
McCormick on behalf of the government, and with me today is Andrew Gentin, Nathaniel Edmonds, and Charles LaBella from the Crime Section of the Department of Justice. Mr. Edmonds will be arguing for the government on SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the Motion to Dismiss. THE COURT: All right. Good afternoon.
On Thursday, the defendants filed a pleading entitled Supplemental to Defendants' Reply in Support of Amended Motion to Dismiss Counts 1 through 10 of the Indictment. We have got three of the four signatories to
this pleading here, so I would like to ask you some questions. Ms. Dunne, Mr. Wiechert, and Mr. Hanna, would you not agree that counsel signing a pleading have a duty of candor to the Court that's at least equivalent to the obligations of a civil practitioner under Rule 11? MR. HANNA: Yes. Yes.
MR. WIECHERT: MS. DUNNE: THE COURT:
Yes. What am I to do with this supplement?
What is the purpose of tendering it? MR. HANNA: Your Honor, it was our belief that the
comments from the attorneys who will argue this matter for the government were relevant to the government's position and relevant to our position, so we wanted to present that and bring that to the Court's attention. THE COURT: a website, correct? MR. HANNA: It's called mainjustice.com. It's a What you attached was just a page from
SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 inartful. motion. him. journalistic-produced website. THE COURT: But it's not a
governmentally-sponsored website is it? MR. HANNA: THE COURT: Mr. Edmonds was it? MR. HANNA: No. It's comments attributable to No, Your Honor. And the news story wasn't written by
We tried to get a copy of the actual tape-recorded We were unable to get
conversation that was presented. that. THE COURT:
This supplement says in part:
there is a reason the government's maximalist position on the definition of 'foreign official' has avoided serious judicial scrutiny for so long, and the reason is that individuals and companies are reluctant to challenge the government's interpretation for fear of consequences." Let me ask you, Mr. Hanna, when you filed this motion or since have you had any fear of consequences? MR. HANNA: Your Honor, I'm sorry. We were
We weren't suggesting that we had fear during our
We're suggesting that the reason the statute has
been in effect for 30 years and that companies end up pleading guilty and these issues don't get vetted in front of the Court is because the government takes a hard position. And on an issue like this when they say it's up
SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 to the jury -- you can't decide until you get to the jury -you know, the Court is not going to roll the dice -somebody is not going to roll the dice, so they end up striking a deal. THE COURT: Are you telling me that you have had
no fear of consequences in bringing or prosecuting this motion? MR. HANNA: consequences. THE COURT: Ms. Dunne, have you had any fear of I have not had any fear of
consequences in bringing or prosecuting this motion? MS. DUNNE: THE COURT: No, Your Honor. Mr. Wiechert? Well, when the motion was brought,
I hadn't seen the comments that were attributed to Mr. Edmonds. The comments that were attributed to The first
Mr. Edmonds can be interpreted a couple of ways.
is that Mr. Edmonds has a personal belief that it's a waste of time for a corporation to raise the issue of who is or who is not a foreign official and that it would be a waste of resources to take that issue up before the Court. The
other way to interpret it is that at the end of the day if you raise that issue and you lose that issue, the government is going to be seeking harsher sanctions against you at the end of the day because you raised that issue. SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 So when I read the comments that were attributed to the representative of the Justice Department, I didn't know whether his -- the intention behind the comments was to fire a warning shot across the bow of anyone who wants to raise these issues in court, or he was just expressing his personal view that this argument is a loser. ways. To be frank, when I read the comments, I was troubled by them because I viewed this as more -- it is more likely than not a shot across the bow of entities or persons raising the arguments. the bank. Now, the arguments were already in It can go both
So from the standpoint of at the time that we
filed this motion did we feel intimidated by the comments of Mr. Edmonds that we didn't know about at the time we filed the motion, no. Can they be interpreted as a shot across I believe
the bow for parties who are raising this issue? they can be. THE COURT:
What's the factual basis for the
statement that I read, namely, that the parties have in fact -- that litigants under this statute have in fact been reluctant to challenge the government's interpretation for fear of consequences? statement? What's the factual basis for that
Can any of you tell me that? Your Honor, I can't cite a case where
that's occurred, but it's clear given the history of the SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Honor. THE COURT: But when people sign it, there is some statute that if you look at all the -- especially all the settlements since 2004, companies are suing for -- they're for suing peace. challenge this. If you look at the CCI case, they didn't The government cited 35 plea agreements
where nobody raised this issue. I think the government didn't want this issue to be raised. They like the statute the way it's currently
being interpreted by them, and I think they are sending a message by this statement that that's the way they like it. That was the purpose of bringing this to the Court's attention. Your Honor, frankly, this is our pleading. there is any issue as to the pleading, it's my fault. THE COURT: MR. HANNA: Well, everybody signed it. I understand, but we prepared it, Your If
significance to that whether you drafted it or not. Mr. Wiechert, do you have any basis for that statement that I read? MR. WIECHERT: THE COURT: It's an inference.
No, no. Yes, you can infer from facts.
MR. WIECHERT: THE COURT: inference based on?
What facts are you making the
SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. WIECHERT: The facts are that this was a
statute that was passed in 1977 that on the face of the statute determines -- over the course of 30-plus years of jurisprudence, not one appellate decision has addressed this issue. In fact, throughout the course of the 30-plus
years of jurisprudence -THE COURT: I understand that from your paper. I
would like to know the factual basis for the statement to which you put your name: "The reason is that individuals
and companies are reluctant to challenge the government's interpretation for fear of consequences." support that statement? MR. WIECHERT: Well, one, the fact that the What facts
prosecutor himself talked about the negative consequences that might befall organizations raising this challenge. THE COURT: Can you show me in the web page where
any negative consequences were threatened by the prosecutor in his speech? MR. WIECHERT: "It is not necessarily the wisest
move for a company," is that prosecutor speak for things aren't going to go well for you? It is not necessarily the
wisest move for a company to raise an issue that I think should be granted for any defendant involved in a case involving state-owned enterprises, and it hasn't been raised at all by any corporation as far as I can tell. SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 law. MR. EDMONDS: In terms of the tentative ruling, motion? MR. EDMONDS: Would you like me to address the THE COURT: Ms. Dunne, what is your view on the
basis for that statement? MS. DUNNE: Well, I concur that it was an
inference based on the historical handling of these cases. It's not something that an institution has an interest in raising. Now that individuals are bringing this question to
the Court's attention, it is an odd time particularly with this motion pending for that statement to be made. thought it was an appropriate inference. THE COURT: particularly helpful. I don't find this supplement Thank you. I
Mr. Edmonds, do you want to be heard on your
supplement, or would like me to address the tentative ruling? THE COURT: I would like to hear from you on the
the government has reviewed Your Honor's tentative ruling, and we believe that Your Honor's ruling on all the various factors is sufficient. I'm happy to address any of the
specifics that Your Honor would like me to address, or I can walk through my argument again, whichever you prefer. THE COURT: I would be happy to hear you in
SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 rebuttal. Mr. Hanna. MR. HANNA: Thank you, Your Honor. We have
reviewed the Court's tentative.
I have a number of points I As an overview of the
would like to raise with the Court.
comments, though, we think that the government's argument that has been adopted in the tentative raises two overarching issues. One is the fact that Congress did not
define the term "instrumentality." We have concern essentially that the definition that the government proposes and the Court adopted is overbroad. Congress. We don't believe that definition was intended by We believe it conflicts with other portions of Once you give a
the statute, and we believe it's vague.
definition, then the tentative definition of "instrumentality" we believe is inherently vague and overbroad and cannot be applied in a constitutional way. For example, we now have four sets of factors: two that the government has proposed, one with the OECD, and one to us in the stipulation. We have a set of factors that
Judge Matz proposed in the ruling in the Lindsey case, the Aguilar case, and we have a set of factors that the Court proposes, which seems to be a compilation of the government's factors. In our view, none of those factors were spelled SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 out by Congress. There is nothing in the statute that We potentially have the anominalous
supports those factors.
situation where if a jury in Los Angeles in the Aguilar case were to reach a ruling on instrumentality based on factors that Judge Matz believes were appropriate, which would be different from the factors -- if any factors are used in this case, and I think that is the definition of an "arbitrary and vague" statute. THE COURT: But how can you be sure of that until
we get to that day, and we actually settle the instructions? MR. HANNA: Well, in our view, Your Honor, the By basically
term "instrumentality" is inherently vague.
using a dictionary definition and saying "instrumentality" means anything -- an instrument through which the governmental purpose is effectuated, we think that's inherently vague. There has to be some standards. There
has to be something we can shoot at, and they can shoot at. We can gather evidence in pursuit of our defense, and they can gather evidence in pursuit of their case. know that now. We need to
I don't think it's fair to wait until the
jury is charged for all of us to find out what standards the jury is going to decide the case on. We believe -- and I will get into that in a minute that -THE COURT: Isn't it fairly self-evident if this
SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
14 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 matter proceeds to trial that the nature of each of the entities in Counts 1 through 10 will be put before the jury in a factual manner? MR. HANNA: to apply those facts? out at trial. My question is how is the jury going They are going to be facts that come
How is the jury going to decide what weight
particular factors are due, whether any of those factors are relevant? Let me give you a concrete example. There are two
entities that are identified in the substantive count, MPCC and HMP. MPCC is a subsidiary of a subsidiary. It's owned
by two companies.
As you will recall in the government's One of those
declaration, it's owned by two companies.
companies is in turn owned by another company, and that company apparently is government-backed. that? Let's assume those are the facts. how that comes out. I don't know What do we do with
I don't know how a jury is going to
look at those facts and decide is this thing an instrumentality under the law or is it not? it's definitely not. In our view,
It's a subsidiary of a subsidiary. The way it currently
But the government has charged it.
stands we are going to throw that in front of the jury and say you have got to decide. parameters. I think there has to be some There is
Otherwise, it's completely arbitrary.
SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 out. MR. HANNA: I have argued they are all out, but no way a jury is going to make that decision that anyone is going to understand how they came to that decision. The
prosecutors can charge whatever they want on the slimmest read saying this thing has got some connection to some government somewhere. let's the jury decide. On the standard that I think the Court has articulated, General Motors is arguably a government instrumentality. It's got government investment. The Then it goes in front of jury and
President of the United States essentially got rid of the CEO. It's too big to fail. It's important to the economy. We own stock in
We have a vested interest in this company. this company.
I think one could argue that General Motors How is a That's
is a government instrumentality under that theory. jury to decide whether it's in or whether it's out? our concern. out.
Nobody knows whether it's in or whether it's
The entities I have just discussed, I don't know if I would argue they are out. Well, you have argued they are all
they are in or out. THE COURT:
those entities are perfect examples of what is a jury going to do with that? We are going to argue that they are out. They are
The government is going to argue they are in.
going to go back in the jury room, and the first thing that SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
16 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 point. is going to come out is a note saying how do we decide? I
think we need to know now what the rule is, and if this is no rule or if it's unknowable, then it's got to go back to Congress for clarification. That's our point.
We think, Your Honor, that McBoyle is right on In the McBoyle case -- if you find the reasoning of
the tentative to meet McBoyle, I think McBoyle comes out differently. If you look at McBoyle -- that was a Supreme
Court case, which was the theft of an airplane, interstate transportation of a stolen airplane. There is no question
the defendant knew he was transporting a stolen airplane. The question was does an airplane qualify as a self-propelled vehicle? a broad term. The government argued "vehicle" is It sure can. They said,
That can encompass airplanes.
But the Supreme Court analyzed it as follows.
(a) in context, the term "vehicle" in the statute calls up in your mind a land vehicle; (b) while airplanes were well-known at the time, there is nothing in the legislative history that says Congress was looking at airplanes; and (c) even though the same policy relating to stolen cars applies to stolen airplanes, we are not going to substitute our judgment for Congress's judgment. Even if we think Congress
would have included airplanes had it dawned on them, we are not going to substitute our judgment for that. conviction reversed. SHARON SEFFENS, U.S. DISTRICT COURT REPORTER Result,
17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 If you apply the rationale with the tentative, though, in my view, the answer would be "vehicle" is a broad enough word in the ordinary meaning that it could include an airplane if you don't look at the legislative history, and it's up to the jury to decide if an airplane has the right characteristics that make it a vehicle. What's important in
McBoyle is even though the defendant had the requisite criminal intent the law didn't clearly cover airplanes, and the Court said send it back to Congress. The words used to define "foreign official" in our context call up in your mind a traditional government official, so the outcome here should be the same as in McBoyle. The Court should hold that the statute doesn't
cover nontraditional government departments and agencies and political subdivisions and units. Skilling as well. This is supported by
If Congress isn't clear on a criminal
statute, it has to go back to Congress, and they have to speak more clearly. The Ninth Circuit decision in Hall we think supports our view. In Hall -- and the Court cited it in the
tentative -- the relevant statute defined "government" to include a branch, department, agency, instrumentality, very much like our case. In determining whether the Red Cross was an instrumentality, the Ninth Circuit said no. According to
SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the Ninth Circuit, they said the use of instrumentality, which is undefined in that context, was simply an attempt to include all parts of the government and not entities like the Red Cross, even though they might be considered instrumentalities in the broad sense. That was true even
though the Red Cross was an instrumentality under the Tax Code. I would point out that in Exhibit J to
Mr. McCormick's declaration the Red Cross is listed as a federal government-established organization. that, the Ninth Circuit said that it's not an instrumentality. So Hall stands for two propositions in our view: One, when Congress used the term "instrumentality" without a definition, they're talking about traditional governmental units; two, being an instrumentality depends on what the statute says. It's statute specific. Despite all
The tentative says that Hall is not in conflict because some state-owned entities are undoubtedly part of the government. the question. I respectfully submit that that just begs In Hall, they were
What is the government?
talking about traditional government, the kind it calls up in your mind when you hear foreign official. think of an engineer at a power plant. You don't
We think Hall was
focused on traditional governmental units and not those types of entities that might have some governmental SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
19 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ownership or control or governmental formation or creation like the Red Cross. In our case, much like McBoyle, we don't think the dictionary definition helps much. As the Court cited in the Some of them I
tentative, there are varying definitions.
think wouldn't include a state-owned enterprise, for example, a branch of a governing body. When I think of
branch as a governing body, I think of the legislature or the judiciary or something. company somewhere. It's not at all clear from the text of the statute or the legislative history that Congress intended to open up the word "instrumentality" to basically anything else, and Hall suggests otherwise. I think my starting point in I don't think of a power
looking at the statute is it would have been very easy for Congress to say, including state-owned enterprise or a foreign corporation or however else they wanted to say it. It would have been very easy if what they meant was anything used to achieve an end or purpose of the government to use those words. That would have been simple, but they didn't
use those words. I think about if someone was drafting the statute and they wanted to cover the traditional government, you would write "government." You would think of a department. If you are a good lawyer
You would think of an agency.
SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 drafting the statute, you would think about all those other myriad type of government entities, the FBI, Food & Drug Administration, et cetera. You would want a word to capture
those because you wouldn't want some smart defense lawyer to come in and say, well, that's a ministry, not an agency, not a department. If you use the term, though, "state-owned enterprise" and that's what you are shooting for, that brings up one immediate question. What do you mean? So if
you were drafting the statute and you really wanted instrumentality to cover state-owned enterprise, the next question you have to face is what do we mean by that? far? Majority-owned, minority-owned, subsidiaries, no You have to face that issue. How
Clearly, for example, in the Foreign Sovereign Immunities Act, they faced that issue, and they defined it as majority-owned. and controlled. The OECD defined it as majority-owned
They even had an exclusion in Commentary 15
that said this is going to exclude any entities that are operating on a normal commercial basis. So they addressed
that issue of what does it mean to be a state-owned entity or instrumentality? You have to reach that question if that
really was your intent in drafting the statute if you really wanted instrumentality to cover those type of entities. The next question is what do we mean by that? SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
21 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Here Congress says zero. There is nothing about state-owned There is no Does it get to Is it
enterprises being part of instrumentality. discussion about how far does this reach? subsidiaries? majority?
Does it not get to subsidiaries?
Is minority-owned enough?
There is no discussion
My point is there most assuredly would have
been if that's what Congress was after. Additionally, Your Honor on the definition, it seems to me that under the government's analysis that is carried over in the tentative, in order to figure out if something is an instrumentality, you have got to delve into the purpose of it, the creation, the local law, the management of it, employment policies, all these types of issues, none of which are spelled out in the statute or the legislative history. In 1977, many of these state-owned enterprises were in Communist-controlled countries. I think it's a
little far-fetched to think that Congress really intended folks to do that kind of analysis in a closed country to try to figure out all of those -- creation of the entity, who is on the board, and all of that sort of information. I think
they would have said something if that was really their intent. Finally, the problem we have with the definition is that under the tentative no matter how much due diligence SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
22 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 you do up front -- if you are a businessman, no matter how much due diligence you do you never know until the moment you are charged, you are tried, and a jury comes back with a verdict whether or not you were dealing with an instrumentality. That can't be the law. It can't be that
there is really no way to know for sure if you are violating the law or not. At bottom, it's not whether the term "instrumentality" conceivably could include state-owned enterprise. The question is did Congress clearly intend to We think there is no real
cover state-owned enterprise?
evidence that that was what Congress clearly intended. The Court in the tentative looks to the Foreign Sovereign Immunities Act for guidance. We think if you do
that, you should look at all of it, all of the guidance related to the Foreign Sovereign Immunities Act. What's
important there is under the Doyle case that only applies to majority-owned, directly-owned entities. By that I mean, if
one of these companies that sued in this court and defended itself on the grounds of sovereign Immunities -- we are part of the foreign government. You cannot sue us here -- five
out of eight of them wouldn't comply, wouldn't make it. They wouldn't be considered by this Court as foreign government instrumentalities, as part of a foreign government, because they are subsidiaries or subsidiaries of SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
23 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 subsidiaries. So how is it that an entity in this
courthouse one day is not part of a foreign government is depending on the whim of a jury part of a foreign government in a Foreign Corrupt Practices Act case? I think if we are
going to look to the Foreign Sovereign Immunities Act, we have to look at all the interpretative guidance relating to it and at least be consistent on that score. Beyond the Foreign Sovereign Immunities Act, I think the same principle applies, the same result is compelled, by standards of corporate law. Subsidiaries and
parents are treated as separate independent companies unless they are going to allege there is some alterego or some piercing of the corporate veil or something like that. of the eight entities are not directly owned by a government. I think they should be out of the box on those There is no dispute on that. Five
entities right off the bat.
That's in their own declaration that was filed in this case. The Court in its tentative -- we pointed to the Foreign Sovereign Immunities Act and said, look, in the Foreign Sovereign Immunities Act, they referenced "instrumentality," and they defined it. Here they don't.
There is a reason for the distinction, and we thought this distinction was persuasive. As I read the tentative, the
Court said the opposite inference is to be drawn there because there is nothing in the FCPA. It has to be solely
SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
24 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 that. THE COURT: MR. HANNA: That's the point. There is nothing. within the FCPA. But actually there are two places in the FCPA in which Congress explicitly put out a control ownership test, two places. One is in the accounting provisions. The FCPA In the
has two got parts:
anti-bribery, books and records.
books and records part, there is a section dealing with internal controls. It says that if an issuer owns more than
50 percent of the voting power of another company it has certain obligations. It spells it out. If they have more
than 50 percent of the voting power, they have certain obligations. If they are 50 percent or less, then their That's spelled out. So Congress
obligations are different.
in the statute specifically put in a control test for the accounting provision. They put no test for the foreign
official instrumentality provision. THE COURT: Well, couldn't one draw the inference
that Congress did not wish to so restrict the bribery aspects of the FCPA? MR. HANNA: Except there is nothing to suggest
All we are drawing on is the fact they There is no definition. If it's
use the word "instrumentality."
There is nothing in the legislative history.
correct that you have to look within the statute, clearly SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
25 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Congress said 50 percent in another part of the statute. they knew how to say it. instrumentality. THE COURT: Well, couldn't one infer that they did They didn't say anything on So
not wish to so restrict instrumentality for purposes of the bribery aspects of the Act? MR. HANNA: speculation. Candidly, I think that would be
What we know is that Congress used the word We know that they didn't define it. We
know that they knew how to define it.
We know that in other We know
portions of the statute they gave a control test.
that if they wanted to say corporation, more than 50 percent, they could have put it in there. We know if they
wanted to say state-owned enterprise, they could have put it in there. They didn't say anything. The question is, going back to first principles, what do they mean by "instrumentality"? There is nothing in
the legislative history that is persuasive that suggests they wanted that word "instrumentality" to include a foreign corporation. In the definition of "domestic concern" -- the "Domestic concern," which
Court cites it at Footnote 4.
comes right above the "foreign official" definition is defined as "any corporation, partnership, association, joint stock company." So they put it there. They didn't put it in the
SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
26 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 "foreign official" definition. I think that falls squarely
within what the Court was saying in terms of the canons of interpretation. If they didn't put it there, we can infer They didn't want it
they didn't put it there for a reason.
to cover state-owned enterprise or corporation. I would also point out that in the legislative history there were 20 bills, one of which ultimately became the FPCA. In several of them, they had an express None of
definition that included state-owned enterprise. those made it.
If you look at that package, you see that
Congress defined "control and ownership" in different parts of the statute. Congress had competing bills, which Congress didn't impose There is no
included state-owned enterprise. those.
Congress left the word with nothing.
definition at all.
There is nothing to suggest they wanted I think it's
state-owned enterprise to be included. speculation to assume that they did.
The statute also, Your Honor, as I think we have pointed out in our papers, doesn't work as a cohesive unit if you include state-owned enterprise versus the facilitating payment exception. Basically the exception
says if you make a small what they call grace payment it's not illegal. How did that come about? Initially, in the
statute, there was a definition of "foreign official" that SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
27 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 had a provision that said, "Such term does not include any employee of a foreign government or any department, agency, or instrumentality thereof whose duties are essentially ministerial or clerical." So that's how they tried to To my
accept it, through that language, "ministerial." mind, that's indicating government bureaucrat.
In the hearings in 1988, they took it out and changed it. Part of the rationale for changing it was
because you couldn't tell under the local laws very well what the duties of these government officials were. wasn't always spelled out. It
Clearly, if you are looking for
the duties of an official under local law, that's government based. The duties of a commercial -- an engineer aren't They are talking about They
going to be in the local law. government officials.
So they changed the statute.
changed the statute with an express facilitating payments exception. It says, "It shall not apply to any facilitating
or expediting payment to a foreign official, political party, or party official, the purpose of which is to expedite the disputed performance of a routine governmental action." Then they give some examples, and the examples are
all examples of low-level government functionality: permits, licenses, government papers, visas, and that sort of thing. You have the anomalous situation if you include SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
28 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 state-owned enterprises that if a person goes up to a uniformed customs officer and gives them a small amount of money to get a visa statement, that's illegal under the FPCA under this exception, but if the same person goes up to a secretary at a commercial business to get a paper expedited or something, that may not be covered. That can't be right.
The interpretation that includes all these other entities does violence to that provision. The bona fided reasonable expense provision is exactly the same. That provision says if you're charged
with an FPCA violation it's an affirmative defense if the money was a bona fide expense in connection with a government contract -- government or agency contract. doesn't say anything about instrumentality. It
So under that
reading -- the literal reading is if the expense was related to a government contract you would have an affirmative defense. If it's related to a commercial contract with an
entity that's owned by another company that's owned by another company that's backed by the government, you are out of luck with that affirmative defense. That can't be right.
That's why we say the statute doesn't work as intended to interpret "instrumentality" beyond traditional government components. The Court also indicates that it's looking at the purpose of the statute and, as I said, looks to the Foreign SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Sovereign Immunities Act and also looks at the domestic SOEs. We submit the Court should look at the actual We think that's the best place to find We think that when you look at the
legislative history. congressional intent.
legislative history it supports the defense. There are at least two other cases look at the legislative history in the FCPA context, the Kay case and the Bodmer case. In Bodmer, they were trying to interpret
the phrase "otherwise subject to the jurisdiction of the United States," what that meant. The Court said it was a
technical term, and the ordinary common-sense meaning approach doesn't really help too much for that one. examining the legislative history, they said -- they ultimately dismissed on rule of lenity grounds. Like Bodmer, we think "instrumentality" is a technical legal term, and as Hall said, it doesn't have a consistent meaning. It's not a one size fits all. We think After
when you look at the legislative history it's not inconclusive. It supports us. It shows that there is no
express statement that state-owned enterprises are covered. It shows that the genesis of this bill, the impetus for it, was the large-scale bribery of foreign government officials that had caused tremendous foreign policy damage to the United States. You will see that foreign official is a
shorthand for foreign government official or foreign public SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
30 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 official, and you will see the competing bills that included an express definition of "state-owned enterprise" didn't make it in the final version. With respect to the rule of lenity, the Court says there is no grievous ambiguity here. Well, Your Honor,
we cited in our brief commentary from the OECD, Chamber of Commerce, former FPCA prosecutors, all pointing to the ambiguity inherent in this government "instrumentality" term. I don't think that it's correct to say it's clear on We respectfully submit that it's not. We submit
that the tax structure history and the purpose of the statute would go to the defendants. We should win outright,
but if it's debatable at all, then the rule of lenity kicks in. Lastly, Your Honor, I want to talk a little bit about the factors -- I kind of started with those factors -and the concern we have about how a jury would go about trying to figure out whether or not something is in or out. The Court says it's a question of fact. to be a legal framework. We submit there has
There has to be some parameters.
There has to be an in or an out. We talked about a legal instruction. There is
going to have to be a legal instruction to the jury. There's Posner and a case we didn't cite, but I will Court the cite to it, 840 F.2d 1333 (Seventh Circuit 1988). SHARON SEFFENS, U.S. DISTRICT COURT REPORTER It
31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 says, "It is not true that the law is what a jury might make out of statutory language. interpreted. The law is the statute as
The duty of interpretation is the judge's.
Having interpreted the statute, he must then convey the statute's meaning as interpreted in words the jury can understand." So, at some point, we are going to have to fashion a jury instruction that conveys to the jury what the parameters are in words a jury can understand. I submit the
factors the Court pointed to, the factors Judge Matz pointed to, and the factors the government pointed to don't do anything to make this more clear. They are just factors.
We might as well say it was a full moon the night the company came into being. They are just factors without
weight, without any standards at all, and it doesn't make the ultimate decision -- is it an instrumentality? -- clear. In terms of why the statute is my view so dangerous, I want to point out that not all the allegations in this case are about change. Starting at paragraph 19,
for example, there are allegations about improper wining and dining of foreign officials, paying for meals, trips to Disneyland and things like that. I will submit to the Court
that that kind of stuff happens all the time in U.S. business. Taking clients out and taking customers out to Taking
golf and paying for golf, that happens all the time. SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 customers and clients out to expensive meals, that happens all the time. When you watch a Super Bowl, all those luxury
suites, they are all bought by companies that are entertaining their customers there. That happens all the
time in America, and there is nothing illegal about it. THE COURT: MR. HANNA: In America. Correct. When you do it here in
America -- these are a list of many of them here, playing golf here. My point is when you take out a government
official to golf, a congressman, a federal judge or something -THE COURT: MR. HANNA: be different. pay. Federal judges never get invited. You are on notice that the rules may
You are on notice that maybe you shouldn't But I would submit to you that
You are on notice.
there is zero difference between an engineer at a government-owned power company or an engineer at a privately-owned power company. dress the same. buildings. They look the same. They
They act the same.
They are in commercial There is
They are not in government buildings.
no difference. To a layman, these distinctions between foreign official and non-foreign official are not obvious. What is
perfectly legal with one -- taking one out to golf, for example, and paying for it, customer relations to build a SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
33 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 relationship -- may be illegal with the other. may be a federal felony. The other
That can't be right, Your Honor.
That can't be right, but that is the law that the government would like this Court to put its stamp of approval on. In conclusion, I think the Skilling case ultimately is the proper lens through which the Court should examine the statute. If you look back at the history of the
honest services statute, there was mail and wire fraud, and in the 1940's, the government started pushing the envelope. The Courts started going along with them. In McNally, the
Supreme Court said there is nothing about that in the statute. Congress has to speak if that's what they want. The next year Congress did speak by passing 1346. Then for 20 years, the government pushed the envelope, and the Courts allowed them to push the envelope on what exactly is the meaning of the term "honest services," which is inherently vague, but nobody found it to be inherently vague. The Circuits were all over the map on what it means. Finally, in Skilling, the Supreme Court said Congress has to be clear. There is a core of conduct that
this statute was designed to get at, bribes and kickbacks, but at to everything else, we are not sure if Congress intended that. It has to go back to Congress. While that
was good news for Mr. Skilling, I'm sure that all the people who pled guilty or who were convicted, who spent time in SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
34 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 jail in that 20-year period, that was cold comfort to them. That's what should happen here. send this back to Congress. Court's fault. It's unclear. The Court should It's not the Congress The
It's not the government's fault.
wasn't clear in passing the statute what it meant. answer is up front send it back to Congress.
government is so confident that they are right, that this is an evil that has to be changed, let Congress do it. think this Court should do it. Thank you. THE COURT: Ms. Dunne. MS. DUNNE: Your Honor, I obviously agree with Thank you. I don't
Mr. Hanna's comments, but given the Court's inclination, I would like to focus on the question of whether the statute is vague as applied to this case. I would submit that the
defendants had absolutely no notice as to what due diligence they were supposed to have done to assess whether the individuals with whom they were conducting business were foreign officials. The core of the statute here is official corporation, so it is critical that the defendants knew what facts they had to look at to determine and thereafter know that an individual was a foreign official. In fact, the
only meaningful guidance -- and Mr. Hanna addressed it -SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
35 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 would have suggested that the companies at issue in this Indictment were in fact not instrumentalities of the government because either they were subsidiaries or they were normal commercial enterprises. More importantly, if a state-owned enterprise was not considered an instrumentality in these statutes, it would be perfectly reasonable for someone to conclude that if it's not a government instrumentality for a civil statute, it certainly would not be an instrumentality for a criminal statute. Under the various factors that have been identified by this Court, the government, and Judge Matz, they come too late. There was nothing in the public debate
about how it could determine whether a state-owned enterprise was in fact a government instrumentality. debate was about the fact that there was confusion. understood how to do that. What is most telling here about the fact that the statute is vague as applied is the lack of clarity that is evidenced by the government's own conduct. There is The Nobody
absolutely no rhyme or reason as to the structure or function of the entities that are named in this Indictment. There is no reason to think the government applied any of these so-called factors to identify whether one state-owned enterprise was appropriately a government official and one SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 was not. Indeed, as the Court knows, because this Indictment started with 236 transactions, the government simply accepted all the entities that were identified by CCI in this case. The department gave no thought whatsoever as
to how they would go about showing that one state or enterprise was in fact a government instrumentality while another one was not. The Indictment is silent. There is
absolutely no discovery that the defendants have received that suggest some factual basis to make a determination that any of the state-owned enterprises in this case are in fact government instrumentalities, and we have been told that the government has completed its Rule 16 production. So there
is absolutely nothing in the discovery that we received that has addressed that point. The first time we saw any analysis was with the information that was submitted in conjunction with Agent Smith's declaration. There is no individual that is on the
trial witness list that the defendants have received from the government that is a representative of any of these companies that could talk about any of the factors that the Court has mentioned. And I would submit that the grand jury
was never advised in this case that there was any determination that had to be made as to whether the state-owned enterprises identified in this Indictment were SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
37 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 in fact government instrumentalities. If the government is just coming to the realization of the need to delineate what makes a state-owned enterprise a government instrumentality, how is a reasonable person in defendant's position supposed to know the fact-finding that was necessary to make this supposed judgment? So the idea that these individuals over a decade
ago because the transactions go back to 2000 -- that they were in a position to know what due diligence needed to be conducted is completely unsupported. It's particularly troubling in the context of China where my client operated. As the government
acknowledges, there are thousands upon thousands of state-owned enterprises in China, companies conducting commercial transactions in which either the central government has invested or many of the local governments. Indeed, the Chinese economy over the last decade has been moving towards a market-based capitalistic economy. What
that has led to was people to think that the government was decentralizing, not that they were retaining holds on what was now considered to be capitalistic entities. A reasonable person had absolutely no basis to know that they were supposed to conduct some factual inquiry to identify which of these over 150,000 state-owned enterprises -- and that was the number that the government SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 put to the Court -- that somehow which ones of these were supposed to be government instrumentalities versus the ones that were not. The scienter in the statute does not state its application here as the Court suggests. The government
appears to have simply assumed the scienter based on the fact that the entities were state owned in any part. Indeed, in the government's opposition, it takes the position that it's obvious that the Foreign Corrupt Practices Act prohibits bribes to officials who work for state-owned enterprises. I submit that's the wrong question
and it misses the point because it's unknown if an official works at a state-owned enterprise until an analysis is done to assess whether that company is in fact a government instrumentality. Now, while the government appears to acknowledge based on the elements it has put in its opposition that it will need to prove that the defendants knew that any alleged payment was in fact being offered to a foreign official at the time it was made, the point here is that there was absolutely no basis for the defendants in advance of being charged in this case, in advance of litigating this case over two years, to know who, if anyone, in the state-owned companies or the state-invested companies with which they were dealing were government officials. It's obvious that
SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
39 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the government didn't have a principal basis for making its charging decisions either because there was no application of any factors to identify which entities they were charged and which they weren't. So I would submit that it's unfair to preserve this case simply because the government will have a high evidentiary burden at trial when the defendants had no basis to know of the events at issue that their business customers might be foreign officials. THE COURT: MR. MILLER: Thank you.
Mr. Miller. Thank you, Your Honor.
My comments -- number one, I agree with the comments of co-counsel. Frankly, they are -- they are
similar to Ms. Dunne's comments, so I just want to warn the Court of that in advance, but I hope they are still worth making. The key to the FPCA -- it's the core criminality is a bribe of a public official to influence official action. That's from the Kay II decision, 359 F.3d 738.
Because that is the core of what the statute gets at, the mens rea has to address that core. The Court implied -- the
Court stated that the fact that there is a mens rea requirement can save the statute from vagueness. The key to that mens rea requirement is that the defendant while he is acting knows the facts and knows that SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
40 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 they violate the law. the FPCA is undefined. I submit that instrumentality under The Court's definition of
"instrumentality" -- I would echo comments by co-counsel -is really broad, an instrument, something by which an end is achieved. That could apply to a pen. If it has to be an
entity, it could apply to Boeing, which is privately owned but which the United States uses to achieve its end. just a very, very broad principle. If you look at the FCPA, it doesn't have any definition. If you look at some of the other things that It's
have defined what an instrumentality is -- you could go with Lebran, which says that basically anything Congress creates is an instrumentality, but that case is completely inapposite because what that case was about was -- Congress created Amtrak. In creating Amtrak, somebody sued Amtrak Amtrak said
saying you violated my First Amendment rights. look at all the statutes. instrumentality.
We are not supposed to be an
What the Court said was when Congress creates something they can't make it so that it's not covered by the Constitution. The Constitution is a priority, and anything The
that Congress makes is going to be bound by that.
concept that that could be an instrumentality really doesn't aid us at all. On the other end of the spectrum, you have
got Hall, which says when Congress refers to agencies and SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
41 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 instrumentalities, they generally just mean the government itself. Okay, on this side, we have got the government. It's got to be the government itself. anything Congress creates. On this side, it's
That is a wide broad spectrum Well, you can look at
that nobody knows about in advance.
other things that kind of go in between, the Foreign Sovereign Immunities Act. That says that SOEs can be So in
instrumentalities but not the subsidiaries of SOEs.
this case, that would wipe out a number of the counts if that one was followed. My point is it's very vague, and it applies to this statute. The Court noted that we didn't make -- join
issue with any of the allegations in this particular Indictment or what the government was specifically saying, but we do with whether or not SOEs can be covered as an instrumentality and whether or not subsidiaries of SOEs can be included. Because it is broad, because you have to know it and you can't -- these factors are post-hoc things that the Court is saying to people look back and know if you were dealing with it, but you couldn't have known in realtime, and the factors didn't even exist in realtime. Therefore,
this statute suffers from the primary problem of a vague statute. The defendant cannot know in advance what conduct
SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
42 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 violates the statute. It comes back to the fact that You
official bribery is the key aspect of the statute.
can't know if you are doing that in advance, so I would submit that the statute is vague. THE COURT: Thank you.
Mr. Wiechert. MR. WIECHERT: Thank you, Your Honor.
The first thing I would suggest is that the reason why federal judges aren't invited to dinner or lunch is not because people don't excellent banter in talking about current events or just getting insight into what the judicial frame mind is -- the reason I don't pay for a judge's lunch -- I don't think anyone in this room would pay for a judge's lunch -- is because a judge is a judge. We
all know that the judge has a certain status in our system. It's one of the highest statuses there is. the law. A judge is appointed for life. A judge decides
That is the
essence of a public official. That is the essence of the type of individual that the drafters of the Foreign Corrupt Practices Act decided that we don't want people influencing. That's why it is
clear to anyone in this room that we can't do that, not because we don't want to talk to you or not because it wouldn't be fun but because it's absolutely clear that that's something that even a cup of coffee or a lunch may SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 cross over the line. That isn't what we have here.
I think there are certain questions that the Court has to determine to decide this motion. come from the government. The answers have to
From the standpoint of the
questions that the Court asked at the beginning of this hearing, I think certain directions need to be pointed the government's way as well. The first question is what's the definition of "instrumentality" under the Foreign Corrupt Practices Act? The dictionary has three different definitions. One
definition is incredibly broad as all the other lawyers have suggested. It could be a pen. It could be a jerk. It
could be an officer of the court.
I'm an instrumentality.
Everyone here is an instrumentality because we all serve the court, which is a judicial body which is a branch of this government. So, first, under the Foreign Corrupt Practices
Act, what is the definition of an "instrumentality"? Second of all, does someone have to know that the person they are dealing with is a foreign official, not that they are making a payment to someone who turns out to be a foreign official? Is the mens rea that the person actually
needs to know that this person falls within the definition of a foreign official under the Foreign Corrupt Practices Act? I would suggest to the Court if that is the necessary
mens rea, there is absolutely no way anyone can be found to SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
44 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 be violative of the Foreign Corrupt Practices Act on the clause that they have made a payment to influence someone who is an employee of an instrumentality. The reason I say that is this. There are multiple
definitions of what a foreign official is in the context of a state-owned enterprise. factors. The government has certain This Court has What we do
Judge Matz has certain factors.
The statute has no factors.
know from the statute is that the term "instrumentality" can't mean something that is instrumental. that. It can't be
It can't be the janitor in a company that does It can't be
10 percent of its business for a public entity.
the paralegal at Gibson, Dunn & Crutcher because Gibson, Dunn & Crutcher does business for foreign governments. Most
of the lawyers here with big firms would qualify as foreign officials under that term "instrumentality." We know the term "instrumentality" in the statute can be Definition No. 1. is the definition? If it isn't Definition No. 1, what
When does 30-percent ownership become The government has taken positions
against certain companies that are less than half owned, taken the position that those state-owned enterprises fall within the scope of instrumentality. decision? Why do they make that
They make that decision because they have taken
the position that they will decide what factors bring it to SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
45 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the level of a foreign official. common law. That's prosecutorial
That is what has been made.
So when we present to the Court statements by the Department of Justice that says the corporation shouldn't -it wouldn't be wise for them to contest this issue -- the reason we bring it to the Court's attention is to suggest to the Court that the dearth of authority that governs this issue is a derth of authority that has been generated by way these cases have been prosecuted. First of all, there was almost 20 years of non-prosecution. Since that time, most of the cases have
been decided with plea agreements with corporations where employees haven't even been touched. So when the Court is
looking at a lack of authority by any Appellate Court on this issue, it really needs to get to the basics. basics are, number one, what does the statute say? The We know
instrumentality cannot mean anything that's instrumental. If that's the government's definition, we will take that up to the Court of Appeals and the Supreme Court because that can't be what it is. If it's not that definition, how do we parse it? How do we decide what this term means? Well, the next step
that at least most of us would consider would be going to the legislative history. Looking at the Court's tentative
ruling, the Court didn't look at the legislative history. SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 To me, in the context of this term which has no definition within the scope of this statute, for the Court to take the position that the legislative history is irrelevant, I think is even more indicative that there is no way to decide what this term means. I actually at first thought that that was something that was negative, that the Court should have looked at that. But then as I thought about it, I said to It
myself what's the legislative history going to do here? doesn't define what "instrumentality" is. instrumentality.
It doesn't mean
And even if it tried to define
"instrumentality," they wouldn't put a defendant on notice by reading the statute what instrumentality meant anyway. The McBoyle case, which is another area that the Court didn't address in its tentative ruling, I think is totally on fours with this case. Not only is it on fours
because you have a statute that has a general definition of "vehicle" that adopting the Court's analysis would be similar to instrumentality -- everybody knows what a vehicle is. Is an airplane a vehicle? Yes. Should an airplane It The
fall within the statute?
The District Court said yes.
went up to the Court of Appeals in the Tenth Circuit. Tenth Circuit said yes. a minute.
It was Justice Holmes who said wait It isn't clear that (a) It isn't clear that (b)
This isn't clear.
Congress want to cover airplanes.
SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
47 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 somebody reading this statute would know airplanes were covered. How can somebody reading this statute know whether a KHMP is covered, know whether a subsidiary of a power company in Korea is covered? Smith's declaration? Would they know from Agent
Agent Smith's declaration doesn't even
mention the fact that KHMP under Korean law isn't subject to public bribery sanctions. Now, Agent Smith is probably not
going to testify to explain why that wasn't mentioned in the course of his declaration, nor was Mr. Johnson required to attempt to explain why under the OECD primarily only three countries are prosecuting people for foreign bribery out of over 30 members of the OECD, that the foreign affairs of the other members of the OECD have fallen apart because of this dearth of prosecutions. Absolutely not. Does Mr. Johnson
bring that up in his declaration? matter anyway. The point here is this.
No, but that doesn't
We have a statute that on We have
its face you cannot discern what the meaning is.
some of the brightest legal minds by resume and position throwing out different definitions for the same word. Looking at the definition of the word, we know that the top definition can't be what Congress meant when it passed this statute. So how can it be decided that this isn't vague?
How if the tie goes to the defendants can it be decided that SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
48 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 voice? MR. WIECHERT: THE COURT: Sure. the rule of lenity really doesn't apply here, that the rule of lenity is in the government's favor? There are a few things in the tentative I want to point out. I do this typically in argument. First, on page
six, the Court's heading "(b)(1) statutory text is clear." that.
The meaning of the
I don't know how to interpret
Is the word "instrumentality" a word in the English Yes. It is clearly defined in the English?
Well, no, because (a) there are three definitions, and (b) under this statute, Congress never defined it. instrumentality mean? What does
In fact, going through the rest of
the tentative, all I know is that there are factors. THE COURT: Sir, would you please modulate your
I'm getting impression that someone I don't enjoy that. I was just
out there is shouting at me. MR. WIECHERT: trying to emote.
I'm not shouting.
The reason is because to me this issue
looking at the way -- we spent a lot of time going through the legislative history because we thought it was important. We think anytime a statute is ambiguous the Court should look at the legislative history. We are looking at a
statute that uses a word that it does not define, a word that has a tremendously general and vague meaning. SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
49 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 We have a Supreme Court case that's on all fours at least from my reading of McBoyle with this situation. It
was a person who was engaged in illegal conduct, who knows it's illegal conduct, who switches the numbers on the airplane that was stolen. It's not a question of whether or
not that person knew that they were stealing an airplane. It's not a question that that person knw they were taking it over state lines, and that that person knew it was wrong. Yet we have one of the smartest jurists in the country taking the position that that was not enough because "vehicle" like "instrumentality" is a general and amorphous term. I would submit, Your Honor, that "vehicle" is far less amorphous than "instrumentality" is. Then I read the
tentative ruling where it says that the meaning of statutory text is clear. Yet I go through, and I understand that the
government submits factors, and Judge Matz submits factors, and this Court submits factors, and they are all different. So from the standpoint of the clarity of the statutory meaning it is hard for me to get my hands around what that statutory meaning is, which is why in the beginning I was hoping that the Court would inquire with the government what the government's position is of what "instrumentality" is under the scope of the Foreign Corrupt Practices Act. Turning to page eight, page eight focuses on SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
50 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 domestic instrumentality, demonstrates that a state-owned company could be considered an instrumentality. One of the
things I want to point out in the Court's discussion there is that the cases the Court is citing are civil cases. is a civil case involving the Religious Freedom Act. Hall
Court tries to distinguish Hall -- is suggesting that Hall's statement that Congress sometimes uses instrumentality not to expand the definition of a certain clause but just to basically -- that you kind of throw in a tag-on at the end, and that tag-on in the end isn't intended to expand the other terms within the statute. dicta. That wasn't dicta. The Court made the decision The Court labeled that as
that the First Amendment determination of whether or not this falls within government action is not changed by the Religious Freedom Act. That was the Court's holding. That
was central to the Court's holding.
To get to that holding,
the Court had to make a determination that the word "instrumentality" was a nullity in that statutory language. That's not dicta at all. Now, it may be speculation as to
why Congress put that language in there because they couldn't determine it from the legislative history, but at least they didn't go to the legislative history to determine what Congress considered. The bottom line is Lebron. Lebron is a case --
SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
51 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 again, a First Amendment case, a civil action. Was
somebody's rights to post a sign in a railroad station infringed? What is interesting there is that the Court
cites other Supreme Court cases that say that Amtrak is not an agency, but for First Amendment purposes, it was an agency. That's not the kind of clarity that a criminal
statute can be based on. There are so many -- the tentative ruling is replete with the word "could." I have never seen a criminal That's not the way it
statute defined by what could be. works. It is or it isn't.
The bank is federally insured, It's not it could That's not how
or the bank is not federally insured.
fall under the scope of federal insurance. criminal statutes are governed.
Either a plane is a vehicle under the statute, or it's not a vehicle under the statute. It's not, well, the
plane has two or three seats -- maybe if it has four seats, they will consider it a vehicle, but if it only has two seats, it's not a vehicle. The notion that certain things
could or couldn't be -- how does one ultimately decide when they are looking at the statute what is or what isn't? goes to the whole concept of notice. The same use of the word on page 11 when discussing the definition of "instrumentality" in the Foreign Sovereign Immunities Act -- I think it's important SHARON SEFFENS, U.S. DISTRICT COURT REPORTER That
52 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 because the Court has cited in its tentative ruling that if it looks at the purpose of the Act, if it looks at the history, that all of these support the notion that state-owned enterprises should fall within the scope of instrumentality. That's of course without consideration of
the legislative history. This is a point that Ms. Dunne made, and I just -- as someone who enjoys reading history and did a lot of history in college and undergraduate in the 1970s, this statute was not intended to be a general commercial bribery statute. If you ask the government was this ever intended
to be a general commercial bribery statute, the answer would be no. So if we can accept that and we can accept that we
weren't intended to be the world's policeman with regard to all acts of foreign corruption, that we wanted to focus on public officials, would we have passed a statute in 1977 that would basically be a general commercial bribery statute in China, in Russia, in Vietnam, in North Korea, in all of these countries that were our sworn enemies who were against our way of life and how our economy was put together? just doesn't make any sense at all. From a historical standpoint, instrumentality would be something that would give us a wedge to make criminal cases in China when we don't even have an airline with them in the '70s? We had no way to get information out That
SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
53 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 motion. of the China in the '70s. That alone from a historical
perspective makes absolutely no sense. So from the standpoint of going forward, Your Honor, all I want to say is this. the word "instrumentality" means. I still don't know what I have spent a heck of
lot more time looking at this issue than any of these defendants did. There is no case that has defined the term.
In this case, we still haven't defined the term, and that is just the inherent -- it just -- this is a case for vagueness. We don't know what it is, and that's just not
good enough. THE COURT: brief recess here. (Recess.) THE COURT: Mr. Edmonds. Thank you, Your Honor. Thank you. We are going to take a
I think we need to recall the basis for this This is a Motion to Dismiss. One of the facts --
one of the issues that none of the defendants really tried to even discuss was whether or not there are factual issues that are outstanding. first argument. Ultimately, that is the government's
It is the one which in the tentative ruling
this Court has looked to, whether or not there are factual issues that are intertwined and must be proven at trial. The government respectfully submits that there are factual SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
54 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 issues that are out and that each of the various different instrumentalities, different state-owned entities that are alleged, will be proven at trial whether they are an instrumentality or not. I think all of the arguments that are there are made passionately, are made with a great desire, for a technical definition of what an "instrumentality" is. That
is something which has been repeated by the OECD, by others, trying to define the precise scope of what an instrumentality is, but that's not a sufficient basis at a Motion to Dismiss. The Motion to Dismiss looks specifically at whether or not the defendants are sufficiently apprised of the facts and whether or not they are protected from double jeopardy. It's very clear what the standards are and what What they are essentially arguing
they are challenged on.
in all of these other aspects is that they do not know the precise technical definition of what an "instrumentality" is. I want to go through just a couple of different pieces in response to the various different arguments that were made. One of the pieces that was discussed at length
was the scienter requirement and whether or not that is sufficient to save the statute. I think that when we
examine the issues and the facts in evidence, when we see SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
55 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 that these are not just golf outings that we are looking at -- we are looking at cash payments that are made. We are
looking at someone landing in the United States and handing over an envelope of $2,000. These are the scienter that
will be shown and will be relevant for a jury to consider. We are looking at all these payments that are hidden in various commissions, false invoices, coded e-mails, and requests for the confidentiality of the individual that is being bribed. THE COURT: But I suppose the defendants would
have responded just like the fellow who stole the airplane. There is no question he did something bad, but did he violate the statute? MR. EDMONDS: I think without a doubt that is one In the McBoyle case, I think
of the aspects that is there.
what is most relevant is looking at the context that is there. The government went at length and the Court analyzed
the context of the FPCA, looked at the legislative history, which the government submits did include references to state-owned entities. Which through all the various
briefing and all the various arguments that were made, there is no response to the various points which the government pointed out where they did refer to Italian state oil companies, quasi-governmental institutions. It's very clear
from the legislative history that it was a part of what was SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
56 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 being considered. I think that the overall structure and
context of what is there is very different than what we see in McBoyle where it is a very different type of statute. We would submit for all of the various reasons that we have put forth in our discussion -- all of those various different factors go into the analysis of what the statutory meaning of the term "instrumentality" is. I want to just touch base on the scienter requirement because I do think it's important. There have
been two Circuits which have analyzed what is necessary for scienter in the FPCA. specific intent. It's not as the defendants suggest, a
They do not need to know that this was a That's not what is
technical violation of the FCPA. required.
In the Fifth Circuit in Kay what is required and
made very clear is they must know only that it was wrong, that it was unlawful. Similarly, the Second Circuit in a case called Stichting, which is cited in the Kay case, it discusses again -- and that's a civil matter -- discusses what is necessary is only the concept that it is wrong or unlawful, not the heightened criminal intent of various tax statutes. I think that the scienter requirement does help significantly in the void for vagueness argument, as well as the fact that this is an economic statute. The number of
attorneys who are focused on this issue and the press SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
57 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 coverage that is out there -- there has been and always will be a focus on what is meant -- what the government interprets the term "instrumentality" means, and what is the application of that to the law? Mr. Wiechert's question is what is the definition of "instrumentality"? I would suggest that there are many
times where that is appropriate to ask, but at a Motion to Dismiss state, that is not the appropriate time. question for the jury. That is a
The government anticipates there
will be lengthy briefing over the jury instruction going to the definition of "instrumentality." The government would submit that the various factors that Your Honor has identified are pretty coextensive with those that Judge Matz has identified, with those that the OCED has identified, those that the government offered in stipulation with the defendants. We
think that this is a typical standard for various juries to consider, whether -- in the Ninth Circuit, there was a case where they looked at intimidation in a bank robbery statute. There are a number of different factors that a jury must look to in terms of identifying that. F.3d 175. Similarly, in gift and income tax laws, what is -a question whether it is a gift or whether it is income. There is a wide variety of factors that must be looked at by SHARON SEFFENS, U.S. DISTRICT COURT REPORTER The cite there is 56
58 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the jury in identifying these various different pieces. Similarly, with identification or credibility of a witness, specifically what are the various factors that a jury must apply when something that is case specific and is dealt with in the jury instruction phase? In terms of what we are looking at and what the defendants are asking, they are specifically asking for a technical definition. What are the meets and bound of the In Kay, the Fifth Circuit
definition of "instrumentality?"
specifically rejected the question of a business nexus, another aspect of the FCPA. The argument that there is a
requirement that there be a specific technical definition of what is a business nexus -- undoubtedly that is something that defense attorneys and companies may want. Indeed, if the defense attorneys had listened to the full scope of the presentation that I had done, the government was talking about how it welcomed the various court decisions out there because it would provide judicial guidance for companies in designing compliance programs, which was the purpose and discussion of that presentation, just like the U.S. Attorney's Office here does things with the Federal Bar Association to identify specifically the scope of what the U.S. Attorney's Office is interested in. All of these factors really boil down to their attempt and their focus on whether or not this case -SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
59 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 whether the statute itself is void for vagueness. The
government would suggest and would submit that this is not a First Amendment case as they recognize. It is an as-applied
challenge, and the as-applied challenge when you are bribing the engineers at a state nuclear power plant, that is just as it would be fairly obvious under bribes to TVA -- to a nuclear engineer at TVA, it would be a violation of criminal law. Ultimately the Court is required to prove under the scienter requirement that they knew it was wrong, and they knew it was unlawful. As applied, they have provided
no argument that they did not know that it was wrong. Unlike the Sico example or other examples that are out there, this not only absurd or a breach, but indeed, the elements that are set forth in the arguments and the Indictment as set forth makes clear and appropriately identifies entities which the defendants knew were wrong. The facts at trial will show that. One other point that I do want to clarify on, Your Honor, is the subsidiary point. The defendants made a large
argument regarding the subsidiaries, that subsidiaries of subsidiaries are not covered under the Foreign Sovereign Immunities Act. I would suggest that if one examines the
Foreign Sovereign Immunities Act -- what we heard the defendants talk a lot about was the second of two prongs. SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
60 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 The second prong is majority ownership. If you hit majority
ownership, then automatically you are considered an instrumentality. What they did not discuss was the organ prong of the Foreign Sovereign Immunities Act, which discusses at greater length and identifies a number of the factors which the government drew upon in identifying the various factors of what an instrumentality is and which are relevant for determining what an instrumentality of a foreign government is. I think the subsidiary point focuses specifically on
the majority ownership and not necessarily on the organ prong of the Foreign Sovereign Immunities Act. In terms of what the various factors are that are necessary for a jury to determine, the government respectfully submits that that will be extensively briefed, and that is something which is appropriate at the time to discuss but is not appropriate at this stage and is not necessary in an as-applied challenge, because with the facts that are present in this case, we are not discussing the Sico case. We are making very clear the characteristics of
the entity, the control of the entity, and that the purpose of those activities being the delivery of power, the creation and generation of power, are squarely within the FPCA itself. I would point to that routine governmental
exception, whereas, they call it the facilitation payments SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
61 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 exception, which discusses specifically the idea that the generation and delivery of power is a governmental action, and consequently -- and it is one which throughout the world is considered to be that. In terms of the definition of "instrumentality" as a whole, Mr. Hanna talked a lot about the legislative history that is there and all of the various competing bills. I believe he made a very intelligent and pointed
remark that a smart lawyer would have been able to identify a term that could include all of those various different definitions: the definitions of a state-owned entity, the
definitions of majority ownership, all of those things that were considered in previous bills. submits is what happened. When you look at the various competing bills that were out there, all of those various different discussions that were out there, X percent that needed to be owned, or all those various different factors were combined into the legal term of art "instrumentality." It had just been That the government
defined the previous year under the Foreign Sovereign Immunities Act. It was a term of art that was heavily
debated and discussed in terms of the domestic context, whether it is with TVA, whether it is with OPEC, whether it is with a wide variety of other instrumentalities in the United States. SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
62 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 The legislative history would suggest that picking a term "instrumentality" makes it clear that it could include state-owned entities. That is the question that we
are here today to discuss, whether or not the Indictment can stand, whether or not instrumentality could ever include a state-owned entity. For all of the reasons in our brief and
for the arguments set forth, we respectfully suggest that it does. THE COURT: Mr. Hanna. MR. HANNA: carefully. A couple of comments. I listened very Thank you.
I actually wrote down before the argument Mr.
Wiechert's questions and the questions I started out with, which is what does it mean to be an instrumentality, and how do you tell? The government didn't answer those questions.
They said we will all find out together, that some extensive briefing is going to occur right before the trial. is why the surprise? Why don't we find out now? My point
The reason is the government doesn't want a definition. They don't want a hard and fast definition
because they like the flexibility of saying, you know, could be, maybe not. to find out. You will have to take your chances at trial
That cannot be correct. They say, well, that
They cite the McBoyle case. was somewhat different.
I don't think it's different at
SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
63 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 all. That case is on all fours. In that case, as the Court
correctly pointed out, there is no question that the defendant there knew he was doing something wrong. An even better example is Skilling. ever be a worse guy? crime. Could there
The Supreme Court said it's just not a
It doesn't matter that he had bad general intent,
thought he was doing something wrong, if the statute doesn't cover it. Maybe it's a state crime, or maybe it's something And that's the issue
else, but it's not a federal crime. here.
The government raised scienter in their brief. They said scienter saved the statute. But we just heard
them say a second ago that you don't have to know that you are dealing with foreign officials, so scienter is somehow irrelevant apparently. Either scienter helps save the
statute by saying you have to know you are dealing with a government official or it doesn't. Here they are trying to
argue scienter, but then on the other hand, they say but we don't have to actually prove that you knew that the person was a foreign official. doing something bad. doing something bad. We just have to prove that you were
Well, in Skilling, they proved he was They convicted him of all kinds of What they charged
crimes, but this crime wasn't a crime. him with was not a crime.
In terms of figuring out later what the law is, as SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
64 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 a practical matter, I need to know now. I am conducting a I need to
defense investigation to get ready for trial.
understand what is an instrumentality, and how is the jury going to decide? The government said, well, credibility. Well, that's
There is a jury instruction on credibility. kind of vague. of a defense.
First of all, credibility is not an element Beyond that, I can go to the Ninth Circuit
jury instructions and see what the instruction is on credibility right now. instrumentality. There is no instruction on
There is no definition of We are all operating in
"instrumentality" that makes sense.
the dark here, and we are all going to be surprised whenever the government unveils what it is that it thinks this statute covers. That cannot be correct, Your Honor.
On the facilitating payments exception, I think when you read that exception in context the government is reading too much into that. All of those examples are
low-level bureaucratic -- you know, police protection, getting visas stamped, things of that nature. Clearly when
it's talking about utilities, it's getting your utilities hooked up. A business is trying to get its phone hooked up It's not talking about companies I
or something like that.
that are drilling for oil in the China Sea or something. think it's a bit disingenuous to try to stretch this
facilitating payments exception to cover -- that Congress of SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
65 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 all the industries singled out oil and gas by that reference. Finally, Your Honor, the government argued that Congress picked the word "instrumentality" deliberately to be broad and made some conscious decision that they were going to reject other competing bills that more carefully and correctly delineated what it covered and picked instrumentality. I would submit that's a pure guess. There
is nothing in the legislative history that says that thought process was followed. THE COURT: But is it not a reasonable inference
given the way the drafting did go that there are -- you have a similar statute a couple years earlier that has detailed instrumentality. You have a number of different definitions At the end of the day, Congress just Could not one draw the inference
that Congress by eliminating the detail intended a broad definition and to include many of the specifics that were in bills or in the earlier legislation? MR. HANNA: I think one could make that guess, but
I think one could make an equal and opposite reasonable inference that that's not what Congress intended. The point
is if it's a tie, if we are basically speculating on what Congress meant by using one word over another when both I would submit are probably conceivable, is it supported by SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
66 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 have. the legislative history? There is nothing in the
legislative history that says that they thought that. The government is saying, look, there was a competing bill that had the words. They didn't use it. You can
Therefore, they must have meant something broader.
look at that and say there was a competing bill that used those words. They didn't use those words. Thus, they
didn't want to incorporate that context. win.
Rule of lenity, we We
I don't think you can just pick one or the other.
win on that. Thank you. THE COURT: MS. DUNNE: THE COURT: MR. MILLER: Ms. Dunne. Nothing further, Your Honor. Mr. Miller. There are just three brief points I We
The first point is one that Mr. Hanna just made.
disagree as to the government's characterization of the mens rea, but it is important to note that their characterization of the mens rea does not help their vagueness argument. When you look at the Supreme Court cases that say mens rea saves the statute from vagueness, they are talking about a mens rea that means you know that these facts violate the statute. The government referenced the factors with an economic statute. The cases that say that gets a little
SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
67 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 more leeway for vagueness say that if it's an economic statute you would expect somebody to go back and research it. But as we have discussed here today, if you go back and
research this, you are not going to find anything that is going to define "instrumentality" for you. Then the final point is the government mentioned the fact that you don't have to know about the business nexus in -- that the Fifth Circuit said that in Kay as supporting their argument that you don't have to know what an instrumentality is here. But the key difference in
Kay -- they said the business transaction was outside the core of the criminality of the statute. My opening point
that I started off with -- that same Court, Kay, said that the core of criminality here is bribing a public official to influence a public action. Therefore, the fact that the Kay
Court in the Fifth Circuit said you don't have to know about the business nexus does not help the government here. Thank you. THE COURT: Thank you.
Mr. Wiechert. MR. WIECHERT: Your Honor, I asked a few questions The first was The answer is
that I hoped the government would answer.
what is the definition of "instrumentality"? we will find out later.
As Mr. Hanna noted, for us to find
witnesses to testify as to who owns these corporations and SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
68 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 how they operate, what governments have control over what portions of the operations, how employees are paid and how the corporations are taxed, that is going to require going abroad and talking to someone who has firsthand knowledge, not an FBI agent doing a web search but someone who has firsthand knowledge of what those factors are. How can we
make that determination if we don't know what the factors are? If we are going to make the determination of what the
factors are at a jury instruction conference that may happen immediately before the trial or may happen right after the close of evidence, that doesn't work. The government has had 30-plus years to define "instrumentality," and they have never done so. What more
telling fact is there as to whether or not a statute is vague when the prosecuting agency that is using that statute who has the clout to extract billions of dollars in settlements cannot tell us what the statute means. that's number one. Number two, the beauty of West Law is you can go to West Law and not only find the Kay case, but you can find all the briefs that were submitted on both sides of Kay. The issue in Kay was not whether or not the recipient of the bribe was a foreign official. That wasn't the issue in Kay. So
In fact, the individuals who were involved in Kay was a Haitian minister and customs officials. There was no debate
SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
69 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 in Kay that those people were foreign officials. There was
no debate in Kay as to whether or not instrumentality encompassed a state-owned enterprise's employees. So the second question I asked was is the government going to say that a defendant as an element of this offense needs to know that the person they are dealing with is a foreign official under the Foreign Corrupt Practices Act? The government didn't answer that question The Kay case
either, and there is no case law on that. isn't that case.
If you look at the Kay case, it doesn't
stand for that proposition at all. Finally, the Court questioned Mr. Hanna about whether or not it would be a reasonable interpretation for Congress's use of instrumentality to mean that it wanted a very broad panoply of entities that would fall within the scope of employers of foreign officials. That's Hall. In
Hall, the Court said we have instrumentality, and our interpretation of the use of instrumentality is that Congress didn't mean to use it as an expanding term at all. When the Hall Court drew that inference, this Court took the Ninth Circuit to task for drawing that inference. Well, if the inferences can be drawn both that Congress wanted to have an expansive definition as in what was suggested to Mr. Hanna and Congress didn't intend the word "instrumentality" to add anything to the equation, SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
70 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 which is Hall, I think we should stick with the Ninth Circuit law on that and especially in the context of a criminal case, Your Honor. THE COURT: submitted. argument. The matter is set for trial for October 4, which is less than five months away. scheduling in some time. MR. MCCORMICK: Your Honor, the government is Our last sort of We haven't really discussed Thank you. The matter will stand
It's been very helpful to have this extensive
prepared to go to trial on October 4.
detailed status conference in which we discussed the parameters of case was in December. Since that time, we
have narrowed the Indictment by removing the reference to 236 payments. The case has been previously narrowed -- the
scope of the case has been previously narrowed where the scope of the case would involve just 16 charged payments and the 30 uncharged transactions the government has identified. The government has not identified any additional transactions to date. We asked Steptoe & Johnson in
February to produce everything related to those 46 transactions. Those productions have been made. They were
made in January, March, and April. We have provided a tentative witness list. We
have asked Steptoe & Johnson to produce the defendants' SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
71 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 digital devices. They have done so. That production was
made I believe in January. particular charts.
23 months ago we provided those
After we committed to produce everything related to the 46 transactions, the defendants made clear to us in informal discussions that they still wanted us to consider a number of their Brady requests. We considered those
requests, and we have conferred about those requests, and we have passed along approximately half of those -- there were about 80 requests -- to Steptoe & Johnson. Steptoe &
Johnson has agreed to produce materials responsive to about half of that half. They have asserted attorney/client
privilege and attorney work product doctrine, and they have asserted those materials are in the hands of the parent company IMI, and they don't intend to provide that. All that is a long way of saying with the trial date five months away, at this point, we think the Court should set some real hard deadlines. We understand there is
a Motion to Dismiss the non-FCPA counts in the Indictment. This case has been pending for 25 months by my count. There
is nothing I am aware of that would have precluded that kind of motion from being brought much earlier. We ask the Court
to set a deadline for that kind of pleading motion at the end of this month. We have asked many times for the Court to set a SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
72 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 deadline for Rule 15 depositions. I have looked at my notes We discussed it then.
from the December status conference.
The Court's comment was we certainly should have those by the end of February. Well, it's now two-and-a-half months
later, and we don't have them. At the time, Mr. Bienert said, well, it's going to be very hard for us to get those done. project files. We don't have the We
The defendants have the project files.
don't have any Rule 15 motion.
We would ask the Court to
set a deadline for those Rule 15 motions at the end of this month, May 31. There are a number of motions regarding
discovery issues that are potentially out there, a motion to compel CCI to produce documents, a motion to compel perhaps the government to produce additional documents. number of loose ends in the discovery process. and conferred. There are a We have met
We have given the defendants our responses. I won't detail them for the Court
I can think of several. now.
We would ask the Court to set a deadline for those We need to have
motions, same kind of time frame, May 31.
those discovery issues thoroughly and quickly resolved if we are going to keep an October trial date. We do not want to see another postponement of this trial date. We want to move forward as quickly as possible.
With all that, I am prepared to get going on many fronts, and we will take whatever guidance the Court has in terms of SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
73 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 dates. The other thing I would like to suggest is setting -- having a trial mechanics conference where we discuss things like deadlines for an exhibit list, witness list, and the exchange of discovery and so forth, reciprocal discovery. I think at the last status conference we
discussed the fact that the defendants have received thousands of pages of documents from CCI. To the extent
those pages are going to be defense exhibits, the government thinks we are entitled to see those before trial to determine whether they are admissible and make our objections if we have any. If the Court has any questions, I am prepared to address them. THE COURT: MR. HANNA: Mr. Hanna. In all that has transpired today, if
we are going to set some firm dates, I would ask when the government is going to give us discovery on all these entities? If we are going to start setting hard dates on
discovery, I think that the government should by the end of this month give us everything under Rule 16 that they are going to try to introduce in their case-in-chief on these entities unless the Court grants the motion, which I hope the Court does. If not, we want to see that. There is a
lot that has to be done.
Again, if we don't know the legal
SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
74 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 standard, it makes it all that much more difficult. We did just get a significant amount of discovery. I don't want to speak out of turn, but I think it's a million documents or a million pages of material or thereabouts, a significant amount, through the government from CCI. CCI can't find quite a few project files. CCI
has refused to produce some material that's in the possession of their parent company saying they can't control their parent, which is interesting given the argument today, so we will have to deal with that. done still. I will say that we would like to get this case to trial as soon as we can. one. I have been saying that since day There is a lot to be
Mr. Carson will be 73 years old very soon, and we We are
would like to get this case teed up and to trial.
working as quickly as we can, but it would sure help if we could get all the discovery promptly. THE COURT: What does the government have with
respect to all these foreign entities? MR. MCCORMICK: We have the materials that we
submitted to the Court, Your Honor, and what we intend to do at this point is basically set forth a list of what we believe the facts are related to these entities and ask the defendants whether they controvert any of those facts or whether they wish to tender their own facts to the jury. SHARON SEFFENS, U.S. DISTRICT COURT REPORTER If
75 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 it's possible, we will try to reach a stipulation as to as many of those facts as possible. For instance, things like
what percentage of a particular entity is owned by the government is not something that I think the parties will necessarily controvert. They may controvert the meaning of
it, but the percentage of ownership is not necessarily something that we would have a witness come and testify to. That's a process that we are prepared to undertake. Obviously the prospect of litigation on this
issue is something we only really learned about with the filing of our motion in February, that the defendants were going to contend that the fact that these state-owned entries was not sufficient instrumentalities under the Act. THE COURT: Well, let's begin with some basics. A
date for further motions on the pleadings. MR. HANNA: THE COURT: Could we have a minute to confer? Sure.
(Counsel conferring.) MR. HANNA: If I can make a suggestion, it may
make sense for us to try to sit down with the government and come up with proposed dates. I think if we sit down with
the calendars and work it out with the government we should be able to come with some kind of schedule. THE COURT: Well, I guess I would like to see the The
parties' joint or separate proposals a week from today. SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
76 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 things we need are a motions date, a Rule 15 date, a date for discovery motions, a trial mechanics conference. I
assume the parties will have a laundry list of things they will want to work through with the Court. get back to me within a week. I think there is some merit in settling the instruction as to what an entity is sooner rather than later understanding that it may need to be modified depending on what the evidence is. It seems to me if the parties have So why don't you
the benefit of the Court's thinking crystallized in an instruction it will help you focus on the remaining discovery, and it will get one major issue out of the way. So why don't you discuss a date for that, too. Mr. Wiechert. MR. WIECHERT: One of the issues that has become
more pertinent throughout the course of these proceedings is -- since it isn't really clear what information the government had on the status of the entities when they made discovery two years ago, that the information that was gathered by Special Agent Smith was relatively recent based on review of the web pages, et cetera, I don't believe that -- this is my speculation -- that that suggests that there was any kind of detailed presentation made to the grand jury with regard to each and every entity that the government contends was an instrumentality in the Foreign SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
77 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Corrupt Practices Act. Now, we can make a motion to disclose the grand jury transcript, but if the government wants to move things along that they stipulate that the Court have a chance to review the transcript. If the instructions to the grand
jury on this issue and the evidence comports with the Court's understanding, then there is no reason to litigate it any further, and if it doesn't, then it needs to be disclosed to the defendants for further litigation. THE COURT: other way around. Well, I guess I would rather do it the
I don't want to be put in the position of Those It's
an ex parte advocate reviewing the transcript.
transcripts are going to be produced at some point.
grist for your argument that the Indictment is faulty apart from the pleading issues you have raised today. MR. WIECHERT: Right. I guess there was one other
issue that might help us on this, and, that is, there was a motion to strike that the defendants made with regard to Special Agent Smith's declaration. One of the issues was
whether or not he was appropriate expert as that term is used under the Federal Rules of Evidence as to whether or not the information he relied on was simply hearsay information. In terms of the arguments about whether or not it's acceptable for the government to call basically a case SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
78 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 agent to testify as an expert on what I believe is over 40 different companies around the world and who controls them and how they do business -- if that's the way the government is going to approach this, we would like to know that sooner than later so we can litigate that. THE COURT: Well, it ought to be teed up in a
Daubert motion if that's going to be the government's proof. MR. WIECHERT: Right. Again, for two years we In hindsight, maybe it was
have had nothing on this issue.
best for us to not to even raise it at all because then the government would have come to trial, and we would have made a motion to preclude the witness's testimony because we would have had nothing on it. The case would have been
nonsuited on the grounds that there wasn't proof that these people were foreign officials under the Foreign Corrupt Practices Act. We truly believe in the validity of this motion, which is why we brought it. So for the government to say to
us now we want to know all your Rule 15 depositions by the end of the month even though we don't have wit of evidence other than the Smith declaration -- and that doesn't really even go to when those acts occurred back in 2000 and 2002 as to what the status of those entities were -- then it's really more grinding on an issue that they are unprepared to deal with at this point. SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
79 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: Well, the fact that I denied both
applications is not a finding that either witness is necessarily qualified for trial. As the tentative
indicates, the charming Betsy argument is referenced, but it's not really part of the Court's rationale apart from the Court accepting the position that the facts are intertwined with the law in terms of what is an entity within the meaning of the statute. I didn't really dwell on a factual The more significant
showing for each of those entities. point is there is a factual issue. MR. WIECHERT:
There is a factual issue, and at
this point, at least from our standpoint, it requires someone with firsthand information, and those people are going to be abroad in 99 percent of these cases. We are
going to have to go out and identify who these people are and see who would be willing to agree to give us information. process. That's part of the whole fact-gathering
At this point, we still don't even know based on
the government's position what an instrumentality is. THE COURT: take up today? MR. HANNA: No, Your Honor. No, Your Honor. Thank you. Any other issues anyone would like to
MR. MCCORMICK: THE COURT:
Very good. -oOo-
SHARON SEFFENS, U.S. DISTRICT COURT REPORTER
80 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 SHARON SEFFENS, U.S. DISTRICT COURT REPORTER Sharon A. Seffens 5/17/11 _________________________________ SHARON A. SEFFENS, U.S. COURT REPORTER Date: May 17, 2011 I hereby certify that pursuant to Section 753, Title 28, United States Code, the foregoing is a true and correct transcript of the stenographically reported proceedings held in the above-entitled matter and that the transcript page format is in conformance with the regulations of the Judicial Conference of the United States. CERTIFICATE
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