WCC (4/5/21)

Assignment
• For today, you should have read pp. 319-40
(Ch. 8 – Extortion)
• Next assignments will be
– pp. 351-81 (Ch. 9 – False Statements)
• SKIP pp. 352-55 (U.S. v. Rodgers)
– pp. 383-412 (Ch. 10 – Perjury and False
Declarations)
• SKIP pp. 385-90 (Dunn v. U.S.)
• SKIP pp. 404-07 (U.S. v. Smith)
 Issues
• Ch. 7 – Bribery and Gratuities (pp. 279-317)
– Sabri v. U.S. (pp. 298-301)
– Foreign Corrupt Practices Act (pp. 305-07)
• U.S. v. Kay (pp. 307-12)
– McDonnell v. U.S. (not in casebook)
• Ch. 8 – Extortion (pp. 319-40)
– 18 U.S.C. § 1951 (Hobbs Act)
– 18 U.S.C. § 1952 (Travel Act)
– 18 U.S.C. § 872 (Extortion by Federal
Employees)
– Scheidler v. NOW (pp. 320-24)
– McCormick v. U.S. (pp. 326-31)
– Evans v. U.S. (pp. 332-39)
Sabri v. U.S., 541 U.S. 600 (2004) (J. Souter)
(pp. 298-301)
 Central Legal Question
• Is 18 U.S.C. 666 even constitutional?
 Salinas Avoided This Question
• [T]here is no serious doubt about the constitutionality
of § 666(a)(1)(B) as applied to the facts of this case.
• Beltran was without question a prisoner held in a jail
managed pursuant to a series of agreements with the
Federal Government.
• The preferential treatment accorded to him was a
threat to the integrity and proper operation of the
federal program.
– [Note: Highly questionable.]
 Three Possibilities
1. 666 is perfectly constitutional. As long as the
institution is receiving over $10,000 from the
federal government, the federal government has
jurisdiction over any bribery there.
2. 666 is unconstitutional. Once the federal money is
received by the institution, federal jurisdiction ends.
3. Compromise: 666 would be constitutional if it
required a “nexus” between the bribery and the
federal money.
 Facts
• Brian Herron served as a member of the Board
of Commissioners of the Minneapolis
Community Development Agency (MCDA), a
public body created by the city council to fund
housing and economic development within the
city.
• Basim Omar Sabri was a real estate developer
who proposed to build a hotel and retail
structure in Minneapolis.
• In 2001, the City Council of Minneapolis
administered about $29 million in federal
funds paid to the city, and in the same period,
the MCDA received some $23 million of
federal money.
• Sabri offered three separate bribes to Herron.
 Indictment
• Count 1: Sabri offered [Herron?] a $5,000
kickback for obtaining various regulatory
approvals.
• Count 2: Sabri offered Herron a $10,000 bribe
to set up and attend a meeting with owners of
land near the site Sabri had in mind, at which
Herron would threaten to use the city's
eminent domain authority to seize their
property if they were troublesome to Sabri.
• Count 3: Sabri offered Herron a commission of
10% on $800,000 in community economic
development grants that Sabri sought from
the city, the MCDA, and other sources.
 Case History
• Before trial, Sabri moved to dismiss the
indictment on the grounds that § 666(a)(2) is
unconstitutional on its face for failure to
require proof of a connection between the
federal funds and the alleged bribe, as an
element of liability.
• The District Court for the Dist. of Minnesota
agreed with him that the law was facially
invalid.
– “‘Congress passed a federal criminal statute
designed to punish conduct that falls within
the domain of traditional state concerns
(bribery, embezzlement, fraud, etc.).
– Section 666 reaches beyond punishment of
the state and local governments who
receive those funds to proscribe the
conduct of third persons who aren't parties
to the funding contract.’”
• Sabri = 3rd party
– “‘Congress has no more power to punish
theft from the beneficiaries of its largesse
than it has to punish theft from anyone else.
– Federal dominion over federal property is
irrelevant, because once any particular
funds have been given to a recipient
[MCDA], those funds are not federal
property anymore.
– The Constitution does not contemplate that
federal regulatory power should tag along
after federal money like a hungry dog.’”
• The Eighth Circuit reversed on the grounds
that
– there was nothing fatal in the absence of an
express requirement to prove some connection
between a given bribe and federally pedigreed
dollars, and
– the statute was constitutional under the
Necessary and Proper Clause in serving the
objects of the congressional spending power.
 So Two Diametrically Opposed Positions
(Neither of Which Concerns Nexus)
• 666 constitutional: As long as federal money is
coming into agency or institution, 666 covers any
corruption there – even if the money can’t be
traced back to federal government. (8th Circuit’s
position)
• 666 not constitutional: Even if money did come
from federal government, it’s no longer theirs and
therefore no bribery at state/local organization is
under federal jurisdiction. (District court’s position)
 Court’s Decision
• 8th Circuit’s decision affirmed.
• 18 U.S.C. § 666 constitutional.
• Remanded.
Court’s Reasoning
Argument #1: § 666 Reflects Legitimate Federal
Concern: Protecting Integrity of Its Money
• Section 666(a)(2) addresses the problem at the
sources of bribes, by rational means, to
safeguard the integrity of the state, local, and
tribal recipients of federal dollars.
• ... The design [of § 666(a)(2)] was generally to
“protect the integrity of the vast sums of
money distributed through Federal programs
from theft, fraud, and undue influence by
bribery” …
Argument #2: Congressional Authority Under Spending Clause
and Necessary and Proper Clause to Protect Integrity of Its
Money
 Art. I, Sec. 8. Spending Clause
• The Congress shall have Power To lay and
collect Taxes, Duties, Imposts and Excises, to
pay the Debts and provide for the common
Defence and general Welfare of the United
States ...
• Congress has authority under the Spending
Clause to appropriate federal moneys to
promote the general welfare, Art. I, § 8, cl. …
• ... Congress was within its prerogative to
protect spending objects from the menace of
local administrators on the take.
• The power to keep a watchful eye on
expenditures and on the reliability of those
who use public money is bound up with
congressional authority to spend in the first
place,
• and Sabri would be hard pressed to claim, in
the words of the Lopez Court, that § 666(a)(2)
“has nothing to do with” the congressional
spending power.
Art. I, Sec. 8. Necessary and Proper Clause

• The Congress shall have Power ... To make all

Laws which shall be necessary and proper for
carrying into Execution the foregoing Powers,
and all other Powers vested by this
Constitution in the Government of the United
States, or in any Department or Officer
thereof.
 Hamilton vs. Jefferson
• https://www.gilderlehrman.org/content/battle-
over-bank-hamilton-v-jefferson

• The necessary and proper clause, part of Article

I of the Constitution, allowed for Congress to
make laws and provisions that were not part of
the enumerated powers.
• Hamilton and Jefferson debated many times
over what was meant by "necessary and
proper."
• Hamilton took a more liberal reading of the
clause and said that Congress should do
anything it felt was necessary to carry out
national responsibilities.
• Jefferson held that the clause meant that
Congress should only take actions that were
absolutely necessary, and no more.
• In 1791, Hamilton proposed that the United
States charter a national bank in order to take
care of Revolutionary War debt, create a
single national currency, and stimulate the
economy.
• Jefferson argued that the creation of a
national bank was not a power granted under
the enumerated powers, nor was it necessary
and proper.
• Both gentlemen presented their arguments to
Washington, and ultimately Washington
agreed with Hamilton.
 Back to Argument #2
• Congress has authority under the Necessary
and Proper Clause, Art. I, § 8, cl. 18, to see to
it that taxpayer dollars appropriated under
that power are in fact spent for the general
welfare, and not frittered away in graft or on
projects undermined when funds are
siphoned off or corrupt public officers are
derelict about demanding value for dollars.
• … [T]he legislative record confirms that §
666(a)(2) is an instance of necessary and
proper legislation.
• The design was generally to “protect the
integrity of the vast sums of money
distributed through Federal programs from
theft, fraud, and undue influence by bribery,”
• in contrast to prior federal law affording only two
limited opportunities to prosecute such threats to
the federal interest: 18 U.S.C. § 641, the federal
theft statute, and § 201, the federal bribery law.
• ... The former went only to outright theft of
unadulterated federal funds, and ... the bribery
statute had been interpreted by lower courts to
bar prosecution of bribes directed at state and
local officials.
• Thus we said that § 666 “was designed to extend
federal bribery prohibitions to bribes offered to
state and local officials employed by agencies
receiving federal funds,” thereby filling the
regulatory gaps.
• Congress's decision to enact § 666 only after other
legislation had failed to protect federal interests is
further indication that it was acting within the
ambit of the Necessary and Proper Clause.
The Problem With Both Arguments
• They explain only why the federal government
has the right to monitor how its money is
spent.
• They do not explain why the federal
government has the right to go after
corruption that does not have a nexus to its
contributions.
Argument #3: Too Hard to Prove if There Is
a Nexus
• [N]ot every bribe or kickback offered or paid
to agents of governments covered by § 666(b)
will be traceably skimmed from specific
federal payments or show up in the guise of a
quid pro quo for some dereliction in spending
a federal grant.
• [But] corruption does not have to be that
limited to affect the federal interest.
• Money is fungible …
• [M]oney can be drained off here because a
federal grant is pouring in there.
 Why It’s Hard to Prove a Nexus Between the
Bribery and Federal Money
1. The first two bribes clearly did not involve any of the
money coming into MCDA from the federal government.
2. The third might have. It’s not clear because
– (a) It seems to have been just an offer that was never accepted.
– (b) The federal government was not the only source of $$ to the
MCDA (and therefore from the MCDA to Sabri through Herron).
The MCDA had other sources.
– (c) Even if the federal government were the only source of $$ for
the MCDA, the MCDA was not the only source of $$ going to
Herron and therefore to Sabri. Herron had other sources.
 Argument #4: What Matters Is Nexus Between
Corruption and Stewards of Federal Money, Not
Between Corruption and Federal Money Itself
• [B]ribed officials are untrustworthy stewards
of federal funds.
Dicta: Majority Isn’t Endorsing 666 Itself or Saying that
Feds Should be Prosecuting Local/State Bribery

• Section 666(a)(2) is authority to bring federal

power to bear directly on individuals who
convert public spending into unearned private
gain,
• not a means for bringing federal economic
might to bear on a State's own choices of
public policy. FN*
 FN*
• In enacting § 666, Congress addressed a
legitimate federal concern by licensing federal
prosecution in an area historically of state
concern.
• In upholding the constitutionality of the law,
we mean to express no view as to its
soundness as a policy matter.
Issue of Government Agency Once Again…
 18 U.S.C. § 666
(d) As used in this section--

(1) the term “agent” means a person authorized

to act on behalf of another person or a
government and, in the case of an organization
or government, includes a servant or employee,
and a partner, director, officer, manager, and
representative;
 Casebook (pp. 304-05)
• While Sabri expanded reach of 18 U.S.C.A. §
666, some courts are pushing back by
adopting a narrow conception of “agent.”
– U.S. v. Langston, 590 F.3d 1226 (11th Cir. 2009): an
official paid by a state commission with state
money is not a state “agent” under 666 because
not authorized to act on behalf of the state under
applicable state law.
– U.S. v. Whitfield, 590 F.3d 325 (5th Cir. 2009):
judges not state “agents” under 666 because they
don’t make decisions “in connection with any
business, transaction, or series of transactions” of
the state court administrative agency.
 Foreign Corrupt Practices Act of 1977 (15
U.S.C. §§ 78dd-1, et seq.) (pp. 305-07)
• https://www.internationalwhistleblower.com/hist
ory.htm
• https://www.justice.gov/criminal-fraud/foreign-c
orrupt-practices-act

• Part of federal government’s post-Watergate

anticorruption efforts.
• Enacted for the purpose of making it unlawful for
certain classes of persons and entities to make
payments to foreign government officials to assist
in obtaining or retaining business.
• ... Since 1977, the anti-bribery provisions of the
FCPA have applied to all U.S. persons and
certain foreign issuers of securities.
• With the enactment of certain amendments in
1998, the anti-bribery provisions of the FCPA
now also apply to foreign firms and persons
who cause, directly or through agents, an act in
furtherance of such a corrupt payment to take
place within the territory of the United States.
 15 U.S.C. § 78dd-1 (p. 306)
• Gov’t must prove that:
– (1) defendant used mails or an instrumentality of
interstate commerce in furtherance of a payment,
gift, etc. of anything of value;
– (2) The payment, gift, etc. was to a foreign official
for an enumerated purpose, including securing any
improper advantage, in order to assist the
corporation in obtaining or retaining business for or
with, or directing business to, any person; and
– (3) The defendant acted willfully and corruptly.
 Exception: Grease Payment
• 78dd-1 exempts “facilitating or expediting payment”
if purpose of payment is “to expedite or to secure
the performance of a routine governmental action.”
• Kay defines “grease” as “payments ‘to persuade low-
level government officials to perform functions or
services which they are obliged to perform as part of
their governmental responsibilities, but which they
may refuse or delay unless compensated’”.
 Punishment
• Fine
• or imprisonment of not more than 5 years
• or both
Corruption Perceptions Index 2020
 CPI Website
• https://www.transparency.org/en/cpi/2020/in
dex/nzl#
 Previous Slide Explains Grease Payment
Exception
• Because most countries tolerate significant
levels of corruption, the US can’t categorically
prohibit Americans from engaging in it
without effectively thwarting a significant
amount of our international trade.
U.S. v. Kay, 359 F.3d 738 (5th Cir. 2004) (pp.
307-12)
 Background to Central Legal Question

• [The FCPA] criminalizes only those payments

that are intended to
– (1) influence a foreign official to act or make a
decision in his official capacity, or
– (2) induce such an official to perform or refrain
from performing some act in violation of his duty,
or
– (3) secure some wrongful advantage to the payor.
 Business Nexus
• [T]he FCPA criminalizes these kinds of
payments only if the result they are intended
to produce—their quid pro quo—will assist (or
is intended to assist) the payor in efforts to get
or keep some business for or with “any
person.”
 Central Legal Question: Business Nexus
Required?
• If proved beyond a reasonable doubt, does an
indictment alleging illicit payments to foreign
officials for the purpose of avoiding substantial
portions of customs duties and sales taxes
constitute the kind of bribe covered
prohibited by the FCPA?
• ... Perhaps our most significant statutory
construction problem results from the failure
of the language of the FCPA to give a clear
indication of the exact scope of the business
nexus element;
• that is, the proximity of the required nexus
between,
– on the one hand, the anticipated results of the
foreign official's bargained-for action or inaction,
and,
– on the other hand, the assistance provided by or
expected from those results in helping the briber
to obtain or retain business.
• [H]ow attenuated can the linkage be between
– the effects of that which is sought from the
foreign official in consideration of a bribe (here,
tax minimization) and
– the briber's goal of finding assistance or obtaining
or retaining foreign business with or for some
person,
• and still satisfy the business nexus element of
the FCPA?
Defendants’ Position: Narrow Construction

• [T]he business nexus element, i.e., the

“assist ... in obtaining or retaining business”
element, narrowly limits the statute's
applicability to those payments that are
intended to obtain a foreign official's approval
of a bid for a new government contract or the
renewal of an existing government contract.
Government’s Position: Broad Construction

• The government reasons that paying reduced

customs duties and sales taxes on imports, as
is purported to have occurred in this case, is
the type of “improper advantage” that always
will assist in obtaining or retaining business in
a foreign country, and thus is always covered
by the FCPA.
 Facts
• American Rice, Inc. (“ARI”) is a Houston-based
company that exports rice to foreign
countries, including Haiti.
• Rice Corporation of Haiti (“RCH”), a wholly
owned subsidiary of ARI, was incorporated in
Haiti to represent ARI's interests and deal with
third parties there.
• [Haiti’s] customs officials assess duties based
on the quantity and value of rice imported into
the country.
• Haiti also requires businesses that deliver rice
there to remit an advance deposit against
Haitian sales taxes, based on the value of that
rice, for which deposit a credit is eventually
allowed on Haitian sales tax returns when
filed.
 Indictment
• The indictment ... spells out in detail how
David Kay and Douglas Murphy [executives of
ARI] allegedly orchestrated the bribing of
Haitian customs officials to accept false bills of
lading and other documentation that
intentionally understated by one-third the
quantity of rice shipped to Haiti, thereby
significantly reducing ARI's customs duties and
sales taxes.
• ... [T]he indictment recites no particularized
facts that, if proved, would satisfy the “assist”
aspect of the business nexus element of the
statute, i.e., the nexus between the illicit tax
savings produced by the bribery and the
assistance such savings provided or were
intended to provide in obtaining or retaining
business for ARI and RCH.
• Neither does the indictment contain any
factual allegations whatsoever to identify just
what business in Haiti (presumably some rice-
related commercial activity) the illicit customs
and tax savings assisted (or were intended to
assist) in obtaining or retaining, or just how
these savings were supposed to assist in such
efforts.
• In other words, the indictment recites no facts
that could demonstrate an actual or intended
cause-and-effect nexus between reduced
taxes and obtaining identified business or
retaining identified business opportunities.
 Case History
• In 2001, U.S. indicted David Kay and Douglas Murphy
for bribery of foreign officials in violation of the FCPA.
• U.S. District Court for Southern District of Texas
granted defendants’ motion to dismiss on the grounds
that, as a matter of law, bribes paid to obtain
favorable tax treatment are not payments made to
“obtain or retain business” within the intendment of
the FCPA, and thus are not within the scope of that
statute's proscription of foreign bribery.
• U.S. appealed.
 Court’s Decision
• Reversed and remanded.
• Such bribes could (but do not necessarily)
come within the ambit of FCPA.
• “[W]e cannot hold as a matter of law that
Congress meant to limit the FCPA's
applicability to cover only bribes that lead
directly to the award or renewal of contracts.”
• “... The congressional target was bribery paid to
engender assistance in improving the business
opportunities of the payor or his beneficiary,
• irrespective of whether that assistance be direct
or indirect, and
• irrespective of whether it be related to
administering the law, awarding, extending, or
renewing a contract, or executing or preserving
an agreement.”
• “... [W]e hold that Congress intended for the
FCPA to apply broadly to payments intended
to assist the payor, either directly or indirectly,
in obtaining or retaining business for some
person, and that bribes paid to foreign tax
officials to secure illegally reduced customs
and tax liability constitute a type of payment
that can fall within this broad coverage.”
 On Remand, Defendants May Demand
Clarification of the Mens Rea
• Nevertheless, on remand the defendants may
choose to submit a motion asking the district
court to compel the government to allege more
specific facts regarding the intent element of an
FCPA crime that requires the defendant
– to intend for the foreign official's anticipated conduct
in consideration of a bribe to produce an anticipated
result (“quid pro quo”)
– that would assist (or is meant to assist) in obtaining or
retaining business (“business nexus element”).
• If so, the trial court will need to decide
whether
– (1) merely quoting or paraphrasing the statute as
to that element (as was done here) is sufficient, or
– (2) the government must allege additional facts as
to just what business was sought to be obtained
or retained in Haiti and just how the intended quid
pro quo was meant to assist in obtaining or
retaining such business.
 Case History After Remand
• Defendants convicted in U.S. v. Kay, 513 F.3d
432 (2007).
• Appealed convictions to 5th Cir.
• Rehearing denied (Jan. 10, 2008)
• Supreme Court denied cert. and rehearing
(Oct. 6, 2008 and Dec. 1, 2008)
 Argument #1: Congressional Intent to Include Bribes by
Businesspeople to Receive Favorable Tax Treatment

• The FCPA's legislative history instructs that

Congress was concerned about both
– the kind of bribery that leads to discrete contractual
arrangements and
– the kind that more generally helps a domestic payor
obtain or retain business for some person in a foreign
country;
• and that Congress was aware that this type
includes illicit payments made to officials to obtain
favorable but unlawful tax treatment.
Note: Court Doesn’t Provide Any Citations to
Support Argument #1
Argument #2: Congressional Intent to Obtain or Retain
Business Opportunities, Not Just Government Contracts

• [W]hereas the SEC Report highlights payments

that go toward ‘obtaining or retaining
government contracts,’ the FCPA,
incorporating the Senate Report's language,
prohibits payments that assist in obtaining or
retaining business, not just government
contracts.
• ... We surmise that, in using the word
‘business’ when it easily could have used the
phraseology of SEC Report, Congress intended
for the statute to apply to bribes beyond the
narrow band of payments sufficient only to
‘obtain or retain government contracts.’”
• The Senate's express intention that the statute
apply to corrupt payments that maintain
business opportunities also supports this
conclusion.
 Note: It’s Not Clear How Argument #2 Is
Relevant or Supports the Court’s Decision
• The idea seems to be that maintaining
business opportunities is broader than
obtaining or retaining government contracts.
• And this broader scope includes favorable tax
treatment.
 Argument #3: Broad Statutory Purpose
• Congress was obviously distraught not only about
high profile bribes to high-ranking foreign officials,
but also by the pervasiveness of foreign bribery by
United States businesses and businessmen.
• Congress thus made the decision to clamp down
on bribes intended to prompt foreign officials to
misuse their discretionary authority for the benefit
of a domestic entity's business in that country.
 Argument #4: Grease Exception Implies
That Favorable Tax Treatment Is Covered
• This observation is not diminished by
Congress's understanding and accepting that
relatively small facilitating payments were, at
the time, among the accepted costs of doing
business in many foreign countries.
• ... Congress explicitly excluded facilitating
payments (the grease exception).
• In thus limiting the exceptions to the type of
bribery covered by the FCPA to this narrow
category, Congress's intention to cast an
otherwise wide net over foreign bribery
suggests that Congress intended for the FCPA
to prohibit all other illicit payments that are
intended to influence non-trivial official
foreign action in an effort to aid in obtaining
or retaining business for some person.