Could MLB Clubs Be Criminally Liable under the Foreign Corrupt Practices Act for Signing of Cuban Players?

Previously on this blog, I’ve written about an unfortunate connection between international trade and baseball: the trafficking of Cuban baseball players as a result of the U.S. embargo on trade with Cuba.

The most recent development in the story is a big one: On October 2, Sports Illustrated reported that the Department of Justice is well underway in investigating potential violations of the Foreign Corrupt Practices Act by MLB clubs, including the Los Angeles Dodgers and the Atlanta Braves.

The Sports Illustrated story included redacted emails obtained from the DOJ dossier that show club executives were involved in obtaining a visa in Haiti for one player after a failure to get one in the Dominican Republic.

In another show of colossally bad judgment, it appears that the Dodgers even graphed the “Level of Egregious Behavior” of their own employees in Latin America on a scale of “minimal” to “criminal.”

The Foreign Corrupt Practices Act

What would DOJ have to prove for the Dodgers, Braves, and other clubs to face criminal liability under the FCPA?

Privately-Held Businesses Are Not Exempt

First, there’s a common misperception that the FCPA only applies to publicly-traded companies. Not so. The anti-bribery provisions of the act extend to any “domestic concern,” which is defined very broadly in the act to include essentially any type of business organized under the laws of any state or having its principal place of business in the United States. This includes any “corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship.” Doubtful that any MLB club is going to wiggle out of that on based on corporate organization.

Worse news for individual MLB club employees, the anti-bribery provisions also extend to any individual who is a citizen, national, or resident of the United States.

The Braves Could Get Caught Up on the Accounting Provisions, Too

It’s true that the FCPA’s accounting provisions, unlike the anti-bribery provisions, only apply to an “issuer” of securities.

But this could still be a problem for the Atlanta Braves, one of the clubs that figures prominently in the DOJ investigation. The Braves are owned by a publicly-traded company, Liberty Media, through its subsidiary holding company, the Braves Group. Under the FCPA, publicly-traded companies must also comply with accounting provisions for their majority-owned subsidiaries and make good faith efforts to influence even their minority-owned subsidiaries to do so.

The accounting provisions require covered entities to “make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer.” That means that even if DOJ can’t prove a violation of the anti-bribery provisions, it could still go after a conviction for failure to keep sufficiently detailed books.

The Anti-Bribery Provisions Are Broad

To establish a violation of the anti-bribery provisions by a domestic concern for actions taken abroad, DOJ must prove that:

• the entity knowingly, corruptly, or willfully
• made an offer, payment, promise to pay, or authorization to pay
• anything of value
• to a foreign official, foreign political party or its official, or candidate for political office
• to influence an official act or decision; to induce an action or omission in violation of a lawful duty; to secure improper advantage; or to induce an act or decision that assists the company in obtaining, retaining, or directing business to any person.

Exceptions and Affirmative Defenses Are Narrow

The FCPA expressly permits what are commonly known as “grease payments.” A grease payment is any “facilitating or expediting payment” that is used to “expedite or secure the performance of a routine governmental action.” These include non-discretionary actions performed by the official as a routine part of business, such as processing paperwork or scheduling inspections. These payments are ordinarily of low value and courts and regulators view the exception as very narrow.

The FCPA also recognizes two affirmative defenses:

• The payment was lawful under local law where it was made; or
• the payment was a “reasonable and bona fide expenditure” directly related to promoting products or services or performing a contract with the foreign government.

MLB Clubs Could Face Criminal Liability for Cuban Player Signings

A few redacted club documents and some second-hand reports in the media are not enough to establish FCPA violations. But the early evidence sounds some alarm bells.

If documents were to show that team executives knowingly made or authorized payments or offered other value to Haitian, Dominican, or Mexican officials to obtain approval of visas, residency papers, or false identity documents for Cuban players, the elements of an FCPA violation might be met.

The clubs (or their employees, if indicted separately) would then have to show that the payments were merely grease payments – perhaps to speed along the grant of any non-discretionary papers or permits – or that the payments were legal where made.

Will This Motivate the Owners and the MLB to Change?

Back in the era of the MLB steroid investigation, Congressman Henry Waxman said, “We’re long past the point where we can count on Major League Baseball to fix its own problems.”

It’s not too late for owners and MLB to take affirmative action to fix the system that creates perverse incentives to engage in shady or even criminal behavior in international player signings.

Until now, owners have lacked much incentive to do so because they were angling for an international draft instead. The international draft has been actively opposed by many Latin players in the MLBPA.

Maybe the DOJ’s current investigation – and the possibility of criminal liability – will make the owners more receptive to alternative solutions to nagging problems in international player signings. For Cuban players, a commitment to real solutions (such as the one discussed here) could mean an end to human trafficking and related exploitation.