The Use of the Travel Act to Prosecute Foreign Commercial Bribery

Both the definition of foreign official and the defendant's knowledge of the bribe recipient's official function are critical issues that will certainly receive continued attention as the FCPA's provisions are further scrutinized and interpreted in ongoing and future prosecutions.

The relevant portions of the indictments in Carson for violations of the Travel Act ' which accompany the FCPA counts ' are noteworthy because they signal the government's resolve to use the Travel Act to pursue foreign commercial bribery. Because the FCPA's anti-bribery provisions criminalize solely corrupt payments or offers of same to foreign government officials, the government must employ a different statute if it seeks to prosecute corrupt payments to private individuals. The government has previously used mail and wire fraud statutes to prosecute foreign commercial bribery. See, e.g., DOJ Press Rel. No. 06-707, Schnitzer Steel Industries Inc.'s Subsidiary Pleads Guilty to Foreign Bribes and Agrees to Pay a $7.5 Million Criminal Fine (Oct. 16, 2006), on file with author (foreign bribery guilty plea based on violations of FCPA, conspiracy law and wire fraud statute); see also DOJ Press Rel. No. 10-278, Innospec Inc. Pleads Guilty to FCPA Charges and Defrauding the United Nations; Admits to Violating the U.S. Embargo Against Cuba (Mar. 18, 2010), www.justice.gov/opa/pr/2010/March/10-crm-278.html (guilty plea for violations of FCPA and wire fraud statute in connection with kickbacks to the former Iraqi government under the Oil-for-Food program).

The district court's denial of the defense motion provides a useful analysis of the issues that are triggered by the government's application of the Travel Act in the context of foreign commercial bribery. If appellate courts were ultimately to prescribe a more restrictive definition of foreign official, the Travel Act might become an even more prominent ground for charges in foreign bribery proceedings.

Application of the Travel Act in Carson

The Travel Act is a federal criminal statute passed in 1961 that proscribes travel in interstate or foreign commerce or use of the mail or any facility in interstate or foreign commerce with intent to promote, manage, establish, carry on, or facilitate any unlawful activity with subsequent performance or attempted performance of the unlawful activity. 18 U.S.C. ' 1952(a). See also Erlenbaugh v. United States, 409 U.S. 239, 246 (1972) (describing the Travel Act as “an effort to deny individuals who act [with the requisite] criminal purpose access to the channels of commerce.”). See also H.R. Rep. No. 87-966, at 4 (1961), reprinted in 1961 U.S.C.C.A.N. 2664, 2666 (letter from Attorney General Robert F. Kennedy to the Speaker of the House of Representatives, stating that the Travel Act “impose[s] criminal sanctions upon the person whose work takes him across State or National boundaries in aid of certain 'unlawful activities'.”). The Travel Act defines “unlawful activity” as including “extortion, bribery or arson in violation of the laws of the State in which committed or of the United States.” 18 U.S.C. ' 1952(b). The underlying state law pursuant to which the Carson defendants allegedly committed the “unlawful activity” is California's Penal Code ' 641.3, which prohibits commercial bribery.

In Carson, the government is alleging that the defendants bribed foreign officials, as well as private business persons, by making corrupt payments and providing for lavish travel accommodations, trips and entertainment in an effort to obtain or retain business for their employer. The defendants, all of whom are U.S. citizens, served as executives at the California headquarters of CCI. In addition to the FCPA counts, the government has also charged the defendants with conspiracy to violate the Travel Act and three substantive violations of the Travel Act stemming from alleged corrupt wire transfers to persons in foreign countries. The first wire transfer in question in the amount of $10,000 was allegedly sent from California to China, the second transfer in the amount of $69,420 was allegedly sent from Sweden to China, and the third transfer in the amount of approximately $136,584.98 was allegedly sent from Sweden to Latvia. The government contends that the defendants, from their offices in California, knowingly facilitated the commission of the wire transfers.

The Impact of Morrison

The motion to dismiss the Travel Act counts principally contended that the government is seeking to apply the statute and the accompanying California bribery law improperly in an extraterritorial manner. Defendants placed great weight on the U.S. Supreme Court's 2010 holding in Morrison v. Nat'l Austl. Bank Ltd., which declared that ' 10(b) of the Securities Exchange Act of 1934 provides no “cause of action to foreign plaintiffs suing foreign and American defendants for misconduct in connection with securities traded on foreign exchanges.” 130 S. Ct. 2869, 2875 (2010). The larger principle animating Morrison suggests that a federal statute does not extend extraterritorially in the absence of evidence of an affirmatively expressed intent by Congress. See Id. at 2877-78 (stating that “[w]hen a statute gives no clear indication of an extraterritorial application, it has none.”).

The Carson defendants argued that under Morrison, their Travel Act indictments are deficient because they depend on the statute's extraterritorial application, contrary to Congress's presumed intent. They pointed to the Travel Act's language and legislative history as evincing no intent by Congress to apply the Travel Act extraterritorially, in contrast to the explicitly authorized extraterritorial reach of the subsequently passed FCPA. See Carson, Defendants' Notice of Motion and Motion to Dismiss Counts 1, 11, 12 and 14 of the Indictment; Memorandum of Points and Authorities in Support Thereof at 7-12 (C.D. Cal. June 13, 2011) (hereinafter “Defense Motion”). Because the FCPA was “intended to occupy the field of foreign bribery” and an expansion of the Travel Act into foreign bribery prosecutions could result in a conflict with provisions of the FCPA, the defendants advocated for the Travel Act's limitation to domestic affairs. Id. at 12. The defendants suggested in their motion that the FCPA's exceptions (i.e., “routine government actions” and “legality under local written law”) would create a conflict between the Travel Act, as applied through California's penal code, and the FCPA. See Id. at 9-12.

In denying the motion, the district court determined that defendants' alleged conduct ' directing bribe payments from their offices in California ' constituted a domestic activity, even if the targets of their bribery scheme were located abroad. The district court ruled that the indictment described the use of facilities in interstate or foreign commerce of the United States with intent to facilitate commercial bribery, followed by an act in furtherance of commercial bribery, and thus met all required elements of a Travel Act violation without implicating extraterritorial application. See Carson, Order Denying Defendants' Motion to Dismiss Counts 1, 11, 12 and 14 of the Indictment at 6 (C.D. Cal. Sept. 20, 2011) [hereinafter "Order Denying Defendants' Motion"]. Even with respect to the counts that did not explicitly cite actions in the United States ' i.e., the alleged wired payment from Sweden to China or Sweden to Latvia ' the district court assumed that the defendants took action in California to facilitate the payments.

The district court accordingly deemed Morrison inapposite and instead analogized the alleged conduct to Pasquantino v. United States, 544 U.S. 349 (2005). In Pasquantino, the Supreme Court held that the indictment of U.S.-based defendants who had smuggled liquor from the United States into Canada did not implicate an extraterritorial application of the federal wire fraud statute, because the “offense was complete the moment [defendants] executed the scheme inside the United States.” Id. at 371 (Specifically, the defendants, while in New York, had ordered liquor from Maryland and then drove it or instructed others to drive it to Canada without paying excise taxes. Id. at 373.).

Next month, we will discuss further the implications of Carson and other cases on prosecutions of foreign commercial bribery through means of the Travel Act.

Paul R. Berger is a partner and David M. Fuhr is an associate in the Washington, DC, office of Debevoise & Plimpton LLP. Bruce E. Yannett is a partner in the firm's New York office. The authors may be reached at [email protected], [email protected], and [email protected].

On Sept. 20, 2011, the U.S. District Court for the Central District of California denied another round of defense motions in United States v. Carson, a case arising out of alleged bribes paid or authorized by employees of Control Components Inc. (CCI), a California manufacturer of control valves that pleaded guilty to FCPA violations in 2009. See DOJ Press Rel. No. 09-754, Control Components Inc. Pleads Guilty to Foreign Bribery Charges and Agrees to Pay $18.2 Million Criminal Fine (July 31, 2009), www.justice.gov/opa/pr/2009/July/09-crm-754.html. The latest motions had challenged the government's indictments under the Travel Act. The court also denied motions that contended that California's commercial bribery statute does not reach defendants' conduct, that the relevant statutes invoked in the indictment are unconstitutionally vague, and that several of the government's counts are defective because they omitted allegations pertaining to essential elements of the Travel Act.

The Carson case, which is not scheduled to go to trial until mid-2012, has already featured several challenges to the U.S. government's prosecution of foreign bribery. The Travel Act motion comes on the heels of the defendants' objection to the government's interpretation of the term “foreign official” in the FCPA. Previously, the district court had rejected the defendants challenge based on the definition of “foreign official” that asserted that payments to employees of state instrumentalities that do not perform traditional government functions are not encompassed by the FCPA, and that specific individuals employed by a Mexican state-owned public utility Comisi'n Federal de Electricidad did not fall within the parameters of this definition. See Sean Hecker, Philip Rohlik & Michael A. Janson, Carson Ruling on Defendants' Challenge to the DOJ's Definition of “Foreign Official”: A Fact-Based Approach, FCPA Update, Vol. 2, No. 10 (May 2011). For further coverage on Carson, see Sean Hecker, Bruce E. Yannett & Michael A. Janson, Defendants Contest DOJ's Definition of “Foreign Official,” FCPA Update, Vol. 2, No. 9 (Apr. 2011).

Subsequent to that ruling, in preparing to formulate jury instructions for the upcoming trials, Judge James V. Selna posed the question whether a conviction under the FCPA requires the defendant to have known that the bribe recipient was a foreign official. Both parties answered that question affirmatively, although the government contended that it should not have to prove that the defendant was aware of the definition of foreign official under the FCPA or the factors that constitute a government instrumentality. See United States v. Carson, No. 8:09-cr-00077-JVS, Government's Supplemental Brief Regarding Jury Instructions (C.D. Cal. Sept. 26, 2011).

Both the definition of foreign official and the defendant's knowledge of the bribe recipient's official function are critical issues that will certainly receive continued attention as the FCPA's provisions are further scrutinized and interpreted in ongoing and future prosecutions.

The relevant portions of the indictments in Carson for violations of the Travel Act ' which accompany the FCPA counts ' are noteworthy because they signal the government's resolve to use the Travel Act to pursue foreign commercial bribery. Because the FCPA's anti-bribery provisions criminalize solely corrupt payments or offers of same to foreign government officials, the government must employ a different statute if it seeks to prosecute corrupt payments to private individuals. The government has previously used mail and wire fraud statutes to prosecute foreign commercial bribery. See, e.g., DOJ Press Rel. No. 06-707, Schnitzer Steel Industries Inc.'s Subsidiary Pleads Guilty to Foreign Bribes and Agrees to Pay a $7.5 Million Criminal Fine (Oct. 16, 2006), on file with author (foreign bribery guilty plea based on violations of FCPA, conspiracy law and wire fraud statute); see also DOJ Press Rel. No. 10-278, Innospec Inc. Pleads Guilty to FCPA Charges and Defrauding the United Nations; Admits to Violating the U.S. Embargo Against Cuba (Mar. 18, 2010), www.justice.gov/opa/pr/2010/March/10-crm-278.html (guilty plea for violations of FCPA and wire fraud statute in connection with kickbacks to the former Iraqi government under the Oil-for-Food program).

The district court's denial of the defense motion provides a useful analysis of the issues that are triggered by the government's application of the Travel Act in the context of foreign commercial bribery. If appellate courts were ultimately to prescribe a more restrictive definition of foreign official, the Travel Act might become an even more prominent ground for charges in foreign bribery proceedings.

Application of the Travel Act in Carson

The Travel Act is a federal criminal statute passed in 1961 that proscribes travel in interstate or foreign commerce or use of the mail or any facility in interstate or foreign commerce with intent to promote, manage, establish, carry on, or facilitate any unlawful activity with subsequent performance or attempted performance of the unlawful activity. 18 U.S.C. ' 1952(a). See also Erlenbaugh v. United States , 409 U.S. 239, 246 (1972) (describing the Travel Act as “an effort to deny individuals who act [with the requisite] criminal purpose access to the channels of commerce.”). See also H.R. Rep. No. 87-966, at 4 (1961), reprinted in 1961 U.S.C.C.A.N. 2664, 2666 (letter from Attorney General Robert F. Kennedy to the Speaker of the House of Representatives, stating that the Travel Act “impose[s] criminal sanctions upon the person whose work takes him across State or National boundaries in aid of certain 'unlawful activities'.”). The Travel Act defines “unlawful activity” as including “extortion, bribery or arson in violation of the laws of the State in which committed or of the United States.” 18 U.S.C. ' 1952(b). The underlying state law pursuant to which the Carson defendants allegedly committed the “unlawful activity” is California's Penal Code ' 641.3, which prohibits commercial bribery.

In Carson, the government is alleging that the defendants bribed foreign officials, as well as private business persons, by making corrupt payments and providing for lavish travel accommodations, trips and entertainment in an effort to obtain or retain business for their employer. The defendants, all of whom are U.S. citizens, served as executives at the California headquarters of CCI. In addition to the FCPA counts, the government has also charged the defendants with conspiracy to violate the Travel Act and three substantive violations of the Travel Act stemming from alleged corrupt wire transfers to persons in foreign countries. The first wire transfer in question in the amount of $10,000 was allegedly sent from California to China, the second transfer in the amount of $69,420 was allegedly sent from Sweden to China, and the third transfer in the amount of approximately $136,584.98 was allegedly sent from Sweden to Latvia. The government contends that the defendants, from their offices in California, knowingly facilitated the commission of the wire transfers.

The Impact of Morrison

The motion to dismiss the Travel Act counts principally contended that the government is seeking to apply the statute and the accompanying California bribery law improperly in an extraterritorial manner. Defendants placed great weight on the U.S. Supreme Court's 2010 holding in Morrison v. Nat'l Austl. Bank Ltd., which declared that ' 10(b) of the Securities Exchange Act of 1934 provides no “cause of action to foreign plaintiffs suing foreign and American defendants for misconduct in connection with securities traded on foreign exchanges.” 130 S. Ct. 2869, 2875 (2010). The larger principle animating Morrison suggests that a federal statute does not extend extraterritorially in the absence of evidence of an affirmatively expressed intent by Congress. See Id. at 2877-78 (stating that “[w]hen a statute gives no clear indication of an extraterritorial application, it has none.”).

The Carson defendants argued that under Morrison, their Travel Act indictments are deficient because they depend on the statute's extraterritorial application, contrary to Congress's presumed intent. They pointed to the Travel Act's language and legislative history as evincing no intent by Congress to apply the Travel Act extraterritorially, in contrast to the explicitly authorized extraterritorial reach of the subsequently passed FCPA. See Carson, Defendants' Notice of Motion and Motion to Dismiss Counts 1, 11, 12 and 14 of the Indictment; Memorandum of Points and Authorities in Support Thereof at 7-12 (C.D. Cal. June 13, 2011) (hereinafter “Defense Motion”). Because the FCPA was “intended to occupy the field of foreign bribery” and an expansion of the Travel Act into foreign bribery prosecutions could result in a conflict with provisions of the FCPA, the defendants advocated for the Travel Act's limitation to domestic affairs. Id. at 12. The defendants suggested in their motion that the FCPA's exceptions (i.e., “routine government actions” and “legality under local written law”) would create a conflict between the Travel Act, as applied through California's penal code, and the FCPA. See Id. at 9-12.

In denying the motion, the district court determined that defendants' alleged conduct ' directing bribe payments from their offices in California ' constituted a domestic activity, even if the targets of their bribery scheme were located abroad. The district court ruled that the indictment described the use of facilities in interstate or foreign commerce of the United States with intent to facilitate commercial bribery, followed by an act in furtherance of commercial bribery, and thus met all required elements of a Travel Act violation without implicating extraterritorial application. See Carson, Order Denying Defendants' Motion to Dismiss Counts 1, 11, 12 and 14 of the Indictment at 6 (C.D. Cal. Sept. 20, 2011) [hereinafter "Order Denying Defendants' Motion"]. Even with respect to the counts that did not explicitly cite actions in the United States ' i.e., the alleged wired payment from Sweden to China or Sweden to Latvia ' the district court assumed that the defendants took action in California to facilitate the payments.

The district court accordingly deemed Morrison inapposite and instead analogized the alleged conduct to Pasquantino v. United States , 544 U.S. 349 (2005). In Pasquantino, the Supreme Court held that the indictment of U.S.-based defendants who had smuggled liquor from the United States into Canada did not implicate an extraterritorial application of the federal wire fraud statute, because the “offense was complete the moment [defendants] executed the scheme inside the United States.” Id. at 371 (Specifically, the defendants, while in New York, had ordered liquor from Maryland and then drove it or instructed others to drive it to Canada without paying excise taxes. Id. at 373.).

Next month, we will discuss further the implications of Carson and other cases on prosecutions of foreign commercial bribery through means of the Travel Act.

Paul R. Berger is a partner and David M. Fuhr is an associate in the Washington, DC, office of Debevoise & Plimpton LLP. Bruce E. Yannett is a partner in the firm's New York office. The authors may be reached at [email protected], [email protected], and [email protected].