It is no surprise that the United States’ fight against corruption is not confined to its borders. For decades, the government has sought to prosecute individuals and companies across the globe who have been involved in bribery schemes that touch on U.S. interests or use the U.S. banking system.
The government’s most powerful tool for fighting foreign corruption is the aptly named Foreign Corrupt Practices Act (FCPA), which criminalizes bribing foreign government officials in exchange for a business advantage. The FCPA has resulted in numerous high-profile cases against companies and their employees, huge fines, and eye-popping whistleblower awards. The Department of Justice (DOJ) and Securities and Exchange Commission (SEC) both have specialized units that enforce the FCPA.
But the anti-bribery provisions of the FCPA are triggered only when the corruption involves a foreign government official. While that term is defined very expansively—it even includes employees of state-owned enterprises—it still applies only to the public sector.
What about foreign commercial bribery? Commercial bribery is similar to public bribery, except that it involves bribing an employee of a private company rather than bribing a government official. While commercial bribery may not raise the same broad concerns about undermining democracy and eroding citizens’ faith in government, it still disrupts the economy and harms companies and their stakeholders. And it still is a crime in many jurisdictions, including the United States and many foreign countries.
The U.S. federal government prosecutes individuals and companies for commercial bribery using the honest services fraud statute, which criminalizes the use of bribes or kickbacks to deprive an individual or entity of its intangible right of honest services—in other words, the right of an employer to the honest services of its employees. Courts have endorsed the use of the honest services fraud statute to prosecute commercial bribery, at least domestically.
But a high-profile corruption case from the world of professional soccer may rein in federal prosecutors’ ability to use the honest services fraud statute to prosecute foreign commercial bribery.
The Case
After a long-running and wide-ranging investigation into corruption in international soccer, U.S. prosecutors brought charges against dozens of individuals and entities between 2015 and 2020. The defendants included officials at the governing body of international soccer, FIFA (headquartered in Switzerland), and its regional affiliates, such as CONMEBOL (in South America) and CONCACAF (in North and Central America), as well as executives at sports broadcasting companies. Most of these defendants cooperated or pleaded guilty, but a handful went to trial in the Eastern District of New York. One of the defendants, an Argentine sports media and marketing company, was charged with bribing CONMEBOL officials to obtain the broadcasting rights for South American World Cup qualifying matches and the immensely popular Copa Libertadores and Copa América soccer tournaments. Another defendant, an executive at a different media company, was charged as a co-conspirator in the Copa Libertadores bribery scheme.
The government charged these two defendants with conspiracy to commit honest services wire fraud and money laundering. The jury convicted both defendants, finding them guilty of using bribes to deprive FIFA and CONMEBOL of their intangible right to the honest services of their officials. After trial, however, the defendants argued that the honest services fraud statute does not encompass commercial bribery in foreign countries. The district court agreed, and it granted their motions for acquittal.
The Decision
To understand the district court’s reasoning, it helps to know the backstory of the honest services fraud statute. Even before that statute existed, courts historically interpreted the general fraud statute to criminalize depriving a victim of honest services. The courts applied this honest services theory to cover a wide variety of circumstances where an employee acted disloyally to his employer, such as accepting a bribe or conducting undisclosed self-dealing. But in a 1987 decision, McNally v. United States, the Supreme Court quashed that theory, finding that the “intangible right to honest services” was ambiguous and holding that the fraud statute was limited to protecting property rights.1 Almost immediately, Congress reacted by passing a new statute that codified the honest services theory of fraud, though it included no language that clarified what it meant by the “intangible right to honest services.”
In 2010, the Supreme Court in Skilling v. United States reiterated that the honest services theory was too vague. Instead of entirely striking Congress’s statute, however, it narrowed the statute’s application to “only the bribe-and-kickback core of the pre-McNally case law”—that is, only cases involving traditional bribes and kickbacks.2 That narrow definition was reaffirmed just a few months ago in Percoco v. United States, where the Supreme Court clarified that if a certain type of bribery scheme had not been consistently accepted by the courts, then it does not fall into the pre-McNally “core.”3
The district court here found that there were no pre-McNally cases applying the honest-services theory of fraud to foreign commercial bribery. So, applying Skilling and Percoco, it ruled that foreign commercial bribery falls outside the scope of the honest services fraud statute.
The district court also supported its decision by noting that Percoco and another Supreme Court case from earlier this year, Ciminelli v. United States, both rejected novel wire fraud theories and chastised federal prosecutors for overextending the limits of the fraud statutes (see client alert). The district court interpreted those opinions as generally discouraging the extension of the fraud statutes to novel situations, such as applying the honest services fraud statute to foreign commercial bribery.
The Aftermath
The district court held that foreign commercial bribery is not a federal crime under the honest services fraud statute. That may not be the end of the story, though, since federal prosecutors have appealed the decision to the Second Circuit. The Second Circuit has often given federal prosecutors leeway in their interpretations of the fraud statutes, although it remains to be seen how receptive that court will be after the Supreme Court reversed it twice earlier this year.
For the time being, federal prosecutors have lost a tool in their arsenal to fight foreign corruption in the private sphere. But before companies and individuals relax their vigilance on avoiding commercial bribery, they should remember these practice pointers:
- Many foreign jurisdictions criminalize commercial bribery, so even if payors of foreign bribes could avoid U.S. prosecution, they may still be prosecuted in those foreign jurisdictions with the possibility of aid from U.S. prosecutors.
- Foreign commercial bribery may still trigger other U.S. criminal statutes. For example, there is a separate statute that prohibits bribing employees of organizations, including foreign organizations, that receive money from the U.S. government.
- What a company believes is commercial bribery may actually be public bribery that triggers the FCPA, due to the FCPA’s broad definition of “foreign official.” A common example of an unexpected “foreign official” is a doctor at a state-owned hospital.
- Public companies should also remember that the FCPA’s accounting provisions have been used to charge foreign commercial bribery, albeit indirectly. Those provisions require issuers to maintain adequate accounting controls to prevent and detect the payment of bribes—public or private—and to record all payments accurately.
If you have any questions about this client alert or how these important issues could affect you or your company, do not hesitate to reach out to a member of Wilson Sonsini Goodrich & Rosati’s white collar crime and government investigations practices.
[1] McNally v. United States, 483 U.S. 350, 360 (1987).
