Fifth Circuit Holds That The FCPA Gives Fair Notice of Illegal Conduct

19 November 2007 Publication

In October 2007, the U.S. Court of Appeals for the Fifth Circuit affirmed the FCPA convictions of former American Rice, Inc. (ARI) executives David Kay and Douglas Murphy for violating the FCPA in connection with improper payments made to Haitian officials to reduce customs duties and taxes owed by the company. The Fifth Circuit's decision follows its prior 2004 ruling in this case in which the court held that payments to foreign government officials for the purpose of avoiding custom duties and sales taxes in a foreign country can, under the appropriate circumstances, satisfy the "obtain or retain business" element of the FCPA's anti-bribery provisions. See United States v. Kay, 359 F.3d 738 (5th Cir. 2004) (Kay I). The case was remanded to the district court where Kay and Murphy were ultimately found guilty of violating the FCPA.

Among other things, at issue in Kay II was the district court's denial of defendants' motion to dismiss the indictments on the basis that the FCPA fails to give fair notice of conduct that is prohibited by the statute and defendants argument that the district court failed to adequately instruct the jury on the element of willfulness. In sum, the Fifth Circuit held in Kay II that even though the "obtain or retain business" element may contain imprecise language, "a man of common intelligence would have understand that ARI, in bribing foreign officials, was treading close to a reasonably-defined line of illegality." See United States v. Kay, 2007 WL 3088140 (5th Cir. Oct. 24, 2007) (Kay II). The court noted that "although ARI did not make corrupt payments to guarantee one particular contract's success, ARI ensured, through bribery, that it could continue to sell its rice without having to pay the full tax and customs duties demanded of it" and that "defendants took this risk, and splitting hairs as to the illegality of one type of action under the business nexus test does not allow them to argue successfully that the FCPA's standards were vague." See id. As to the defendants' challenge of the district court's jury instructions, the Kay II court found that the FCPA was not within the narrow category of "complex statutes" and that the jury did not need (as defendants argued) to find that defendants "knew that the [FCPA] prohibited American businessmen from providing anything of value to a foreign official in order to obtain or retain business." The court held that the district court's instructions, which required that the jury find the Defendants acted corruptly, with an "unlawful end or result," and committed "intentional" and "knowing" acts with a bad motive sufficiently captured the definition of criminal willfulness. See id.