Thursday, November 12, 2009

Year & A Day in FCPA Case - But Will It Hold on Appeal?

Guest Blog - Matthew Reinhard, Miller & Chevalier Chartered

Lost in this week’s maelstrom of white collar activity – the acquittal of the Bear Stearns bankers, the accusations that Blackwater bribed Iraqi officials, and the sentencing of former Congressman Jefferson this Friday – was the sentencing of handbag mogul turned would-be Caspian petroleum mogul Frederic Bourke. Convicted earlier this summer of conspiring to violate the Foreign Corrupt Practices Act ("FCPA") and making false statements to the FBI in connection with his investment in a consortium attempting to purchase the Azerbaijan state-owned oil company ("SOCAR"), Bourke’s trial was straight out of Hollywood and included testimony from a former U.S. Senator, allegations of suitcases full of cash changing hands, and an alleged co-conspirator nicknamed the "Pirate of Prague" who is currently fighting extradition from his estate in the Bahamas while freely admitting he bribed Azeri officials.

Judge Shira Scheindlin, of the Southern District of New York, sentenced Bourke to a year and one day (the "one day" being important in that it will allow Bourke to receive good behavior credit if he is ever incarcerated) and fined him $1 million. Any confinement in a federal prison is something to be avoided at all costs, but the 366 days doled out by the court is far less than the 10-year sentence prosecutors were seeking and could signal the court’s doubts about Bourke’s ultimate culpability. While any appeal from a jury verdict presents enormous challenges, I like Bourke’s odds at this point.

Bourke’s appeal will squarely frame important evidentiary issues concerning how the government must prove knowledge and, thus, intent, in FCPA and white-collar conspiracy contexts. The Government’s allegations against Bourke notably did not claim that Bourke himself paid bribes. Rather, the Government charged that, as an investor in a consortium attempting to gain control of SOCAR, Bourke had knowledge of the conspiracy’s "unlawful purpose" (i.e., to bribe Azeri officials). However, not only did the Government not charge Bourke with actually making the bribes, it set out to prove Bourke’s "knowledge" for the purpose of the conspiracy not by showing that he had "actual" knowledge of the unlawful purpose, but that he "consciously avoided" gaining actual knowledge – essentially that Bourke stuck his head in the sand to avoid "knowing" that he was engaging in a criminal enterprise.

The Government did not create the "conscious avoidance" standard out of whole cloth. Indeed, it is defined within the FCPA’s broader knowledge standard, which states that "when knowledge of the existence of a particular circumstance is required for an offense, such knowledge is established if a person is aware of a high probability of the existence of such circumstance, unless he actually believes the circumstance does not exist." 15 U.S.C. § 78dd-1(f)(2)(B) (2004) (emphasis added). When the government indicated its intention to travel on this standard, Judge Scheindlin appropriately ruled that to prevail on such a theory the Government would need to prove that Bourke decided not to learn a key fact, not that he was merely negligent in failing to learn it. To a lay-person (and perhaps even to many lawyers) that may seem like a tough distinction to make, but it is also the bright line that separates civil liability from criminal activity.

This distinction quickly became an issue during and after Bourke’s trial. During trial the court admitted testimony and evidence from the Government about Azeri officials’ general reputation for corruption, and conversations between Bourke and other investors regarding concerns that the head of the investor consortium was paying bribes. In objecting to this evidence Bourke’s lawyers specifically noted that the evidence could confuse the jury into believing that the "conscious avoidance" standard is the same as the "should have known" negligence standard. Such fears appear well founded. Interviewed after the verdict, the jury foreman sounded as if he was reading from a tort-law hornbook when he dismissed the need for the court to have even given the "conscious avoidance" instruction, stating: "We thought he knew and he definitely should have known. He’s an investor. It’s his job to know." See Entrepreneur Is Found Guilty of Conspiracy in Azerbaijan, Mark Hamblett, New York Law Journal, July 13, 2009 (emphasis added). That is a clear enunciation of the negligence standard, but it is notably not the "conscious avoidance" standard. I expect Bourke’s attorneys to include a judicially-appropriate re-phrasing of "we told you so" in their appeal briefs.

Next, at sentencing, Judge Scheindlin provided Bourke’s counsel with even more ammunition for appeal. In sentencing Bourke, Judge Scheindlin observed that: "After years of supervising this case, it’s still not entirely clear to me whether Mr. Bourke is a victim or a crook or a little bit of both." That sounds a lot like reasonable doubt to my ears. Judge Sheindlin obviously did not feel she had enough to overturn the jury verdict on a Motion for Judgment of Acquittal ("MJOA"), but when a sentencing judge says she is not sure whether a defendant is a "victim or a crook" that must raise substantial questions about the quality of the Government’s evidence.

This case may ultimately be proof that the road to Hell is paved with good intentions. Few would disagree with Judge Scheindlin’s admonition that "[b]ribes must and will result in jail sentences." Nonetheless, the Bourke case will now force the influential Second Circuit Court of Appeals to pass on the appropriate knowledge standard in FCPA and white-collar conspiracy cases, and what evidence can be used to prove that "knowledge." However, given the number of close facts, the apparent skepticism of the trial judge, and the confusion evidenced (perhaps unwittingly) by the jury itself, many observers may rightfully be left wondering whether this is really the case where the Government wants test these theories. We all know that jury verdicts are notoriously difficult to overturn on appeal, but I like Bourke’s chances here.

* For a terrific in-depth analysis of the "conscious avoidance" standard, as well as other important FCPA issues that arose during the Bourke trial, see the article written by my colleague, James Tillen, for Bloomberg Law Reports.


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