This article was reprinted with permission
from FCPA Professor
Yesterday's post (here) highlighted
the FCPA's first mega-enforcement action involving multiple actors.
The story remained open as to George McLean (Vice
President of Solar Turbines International ("Solar"), a division of
International Harvester Company), and Luis Uriarte (the Latin American Regional
Manager of Solar).
As noted in the prior post, soon after McLean and Uriarte
(and several others) were indicted in October 1982, in November 1982 the DOJ
also filed a criminal information against International Harvester (see here).
The information was based on the same core set of allegations as in the
October 1982 indictment and was based on the conduct of its employees
McLean and Uriarte. International Harvester pleaded guilty to conspiracy
to violate the FCPA (see here)
and was ordered to pay a $10,000 fine and agreed to also pay $40,000 civil cost
reimbursement. (Notice the italics).
McLean and Uriarte filed a motion to dismiss the
indictment principally based on the so-called Eckhardt amendment that was then part
of the FCPA. In June 1983, Judge George Cire (S.D. Tex.) granted the
motion to dismiss the substantive FCPA charges against them, but not the
conspiracy charge. The DOJ appealed the dismissal which lead to a Fifth
Circuit opinion. Before summarizing Judge Cire's decision, as well
as the Fifth Circuit's decision, this post provides background information on
the so-called Eckhardt amendment.
The Eckhardt amendment was named after
Representative Robert Eckhardt (D-Tex). If you read my detailed
history of the FCPA, "The
Story of the Foreign Corrupt Practices Act," you will learn that
Eckhardt was a leader in the House as to what would become the FCPA.
My article provided a detailed overview of the FCPA legislative history,
yet at the same time to keep the article at a publishable limit, omitted
certain side issues also found in the FCPA's extensive legislative history.
One side issue that developed towards the later part of
the FCPA's legislative history as the basic contours of the law began to
take shape, and an issue of great concern to Representative Eckhardt,
was that individual corporate actors might be put at a disadvantage in
defending themselves in an FCPA enforcement action.
Representative Eckhardt stated in an April 1977 hearing,
in pertinent part, as follows.
"I don't have any compunctions against making acts of
foreign bribery illegal for the corporation. [...] [T]he
[corporate] defendant would always be able to marshal what evidence there was
to contradict any contention that the company had anything to do with the
bribery. With respect to that necessary element of the case without which
a conviction could not be had, the defendant would be peculiarly in control of
the evidence, both overseas evidence and domestic evidence. But this is
not so with respect to the individual who is an agent of such issuer and who is
being accused of an act overseas where the totality of the proof would be from
activities overseas. Indeed, the corporations interest might even be
in conflict with that of the agent. The corporation might desire to have
Joe Bloke found to have intentionally engaged in bribery and to have been the
sole moving agent, that is, the company never agreed to it and the quicker they
can convict Joe Bloke, the better off the company is. It is relieved of
responsibility and it has a sacrificial lamb in Rome and everybody forgets
about the activity."
"I don't find any difficulty whatsoever with the
corporation's position as a defendant because indeed it has a very inside road
to testimony and information. [...] [I]t seems to me that there is
a vast difference between the position of the individual defendant accused of
having violated the act and the corporate defendant. Besides, the
individual defendant can be clapped in jail and the corporation can't be
clapped in jail."
In September 1977, Representative Eckhardt testified
before a House committee and likewise stated, in pertinent part,
regarding H.R. 3815 (a bill he introduced, which in compromise with S.
305, ultimately became the FCPA).
"[W]e were so concerned about the individual penalty as a
means of making a scapegoat of an individual that we provided in our bill that
unless the corporation were found to be guilty there could not be an individual
penalty at all."
In short, the FCPA originally contained the
following introductory language as to the penalty provisions applicable to
employes or agents of issuers of domestic concerns "whenever an [issuer or
domestic concern] is found to have violated [the FCPA's anti-bribery
Back to McLean and Uriarte's challenge.
In granting the motion to dismiss the substantive
FCPA charges against them, Judge Cire noted that the defendants'
employer, International Harvester, pleaded guilty to conspiracy and
not to a substantive FCPA offense. Judge Cire reasoned that
"conspiracy and the related substantive offense which is the object of the
conspiracy are separate and distinct crimes."
Accordingly, Judge Cire concluded as follows.
"Since International Harvester plead guilty to conspiracy and not to a
substantive FCPA violation, it has not been found to have violated the
FCPA. The Eckhardt amendment protects employees like McLean and
Uriarte from prosecution under the FCPA when their employer has not
been found to have violated the FCPA." (See here for
Judge Cire's Memorandum and Order).
The DOJ appealed Judge Cire's order and presented
three arguments on appeal: (1) that the FCPA does not require the
employer be convicted of an FCPA violation, only that it be established in
the employee's trial that the employer violated the FCPA; (2) that McLean, as
an individual, may be charged with aiding and abetting FCPA violations; and (3)
that International Harvester's conviction of conspiracy was sufficient.
The Fifth Circuit began its decision (here)
"We are presented for the first time with the question of
whether the FCPA permits the prosecution of an employee for a
substantive offense under the Act if his employer has not and cannot be
convicted of similarly violating the FCPA."
The Fifth Circuit began its decision as follows.
"Our task in interpreting the FCPA 'is to construe the
language so as to give effect to the intent of Congress. To do so, we
look primarily to the language of the statute and secondarily to its
legislative history, which includes the 'purpose the original enactment served,
the discussion of statutory meaning in committee reports, the effect of
amendments-whether accepted or rejected-and the remarks in debate preceding
[See this recent
post highlighting the importance of the FCPA's legislative history]
The Fifth Circuit then reviewed the "found to have
violated" language of the Eckhardt amendment and stated as follows.
"Hearings were conducted on the precurser to the
final version of the Eckhardt Amendment in April of 1977 by the
subcommittee of the House Interstate and Foreign Commerce Committee. The
subcommittee examined two proposed bills: (1) H.R. 3815, introduced by
Congressman Bob Eckhardt, which imposed as a prerequisite to the conviction of
an employee a showing of violation of the Act by the issuer or domestic
concern, and (2) H.R. 1602 which had no such requirement. At the hearing,
Congressman Eckhardt, the subcommittee chairman, in discussing H.R. 3815
[... stated as follows].
"Indeed, the corporations [sic] interest might even be in
conflict with that of the agent. The corporation might desire to have Joe
Bloke found to have intentionally engaged in bribery and to have
been the sole moving agent, that is, the company never agreed to it and the
quicker they can convict Joe Bloke, the better off the company is. It is
relieved of responsibility and it has a sacrificial lamb in Rome and everybody
forgets about the activity."
The Fifth Circuit then stated as follows.
"Congressman Eckhardt pointed out the dependence of
the agent on the corporation for an adequate defense since the corporation, due
to its superior resources, would be in a much better position than the employer
to defend against accusations of wrongdoing in a foreign country. He
articulated concern over legislation that would require the agent alone to bear
the burden of refuting allegations of FCPA violations. He was also
troubled about giving the uncharged corporate employer incentive to both
disavow knowledge of the agent's activity and to let the agent bear all
responsibility for the wrongdoing. This problem was avoided [...] because
what would become the Eckhardt Amendment 'would require the government ... to
prove in the first instance that the issuer had violated the section, because
that is the condition precedent to the holding of any agent responsible."
After reviewing other aspects of the
FCPA's legislative history, the Fifth Circuit concluded that "both
the language of the Act and its legislative history reveal a clear intent to
impose criminal sanctions against the employee who acts at the behest of and
for the benefit of his employer only where his employer has been convicted of
similar FCPA violations."
The Fifth Circuit then stated as follows.
"We hold that in order to convict an employee under the
FCPA for acts committed for the benefit of his employer, the government must
first convict the employer. Because the government failed to convict
Harvester and under the plea agreement will be unable to indict Harvester and
try it with McLean, the Act bars McLean's prosecution."
In so holding, the court observed that "it is
well-settled that a conspiracy to commit an offense and the commission of a
substantive offense are separate and distinct crimes."
Uriarte was subsequently charged in a one-count
superseding information and pleaded guilty to "accessory after the fact" in
violation of 18 USC 3. He was placed on probation for one year.
As for McLean, contrary to what the FCPA Blog stated in this prior
post, the Fifth Circuit's decision did not end the DOJ's case against McLean in
that the decision only addressed the substantive FCPA charges against him
that were dismissed by the trial court. The Fifth
Circuit decision did not address the conspiracy charge against
As to the conspiracy charge, McLean proceeded to trial
and was found not guilty by the jury.
Stung by its McLean defeat, the DOJ sought to repeal
the Eckhardt Amendment. In a September 1986 FCPA reform hearing
in the Senate, John Keeney (Deputy Assistant Attorney General, Criminal
Division) submitted a written statement, which read in pertinent part, as
"The Department also wishes to highlight a serious law
enforcement problem in both the existing law and in [a Senate bill to amend the
FCPA], with respect to the prohibition against convicting an employee (and, in
the present FCPA, an agent) of an issuer or domestic concern unless the
domestic concern itself is 'found to have violated' the Act. The purpose
of this provision, known in the present FCPA as the
Eckhardt Amendment, was to prevent a company from labeling an employee as
a renegade, thereby making him a scapegoat for the company's criminal acts, and
forcing him to bear alone the full economic burden of defending the criminal
charges as well as the potential criminal sanctions. This goal,
unfortunately, has not been met. There is nothing to prevent a company
from pleading guilty to a FCPA violation thereby forcing the employee or agent
to defend by himself. Situations similar to this have occurred in the
cases brought thus far."
"While the Eckhardt provision falls short of
fulfilling its purpose, it also makes it more difficult to prosecute certain
classes of individuals regardless of the quantum of evidence as to their guilt
or that of their employers. In the only reported opinion on this issue,
an appellate court construed Eckhardt to mean that a company must be
convicted of a FCPA violation rather than merely be 'found to have
violated' the act."
"In that case, a company entered a pre-indictment guilty
plea to conspiracy to violate the FCPA rather than to a substantive
violation of the Act. The conspiracy plea was permitted because of the
serious financial condition of the company and the real possibility that the
imposition of a substantial fine would force it into bankruptcy. Two
company employees were indicted for multiple FCPA violations as well as
for conspiracy to violate the FCPA. The government offered to present
proof beyond a reasonable doubt that the company had violated the FCPA and
suggested that the Court instruct the jury to make the required
Eckhardt finding prior to considering the guilt or innocence of the
employees. The Court rejected these alternatives and dismissed the
FCPA charges. In our view, this construction of the statute does not
comport with the intention of Congress in enacting the Eckhardt language."
"A similar problem exists where a company, over the
objection of the United States, enters a plea of nolo contendere to
FCPA violations. In that situation, a court could enter a judgment
of conviction against the company for FCPA violations without necessarily
making a finding as to guilt for purposes of the statute. Arguably, the
United States might be prevented from prosecuting an employee or an agent of
that company following such a conviction. Such an argument has recently
been made by a fugitive defendant who, as agent for a domestic concern, acted
as the conduit for transmitting in excess of 10 million dollars in bribes to
two foreign officials on behalf of the company which pleaded no contest to 48
FCPA charges. Given the current state of the law, the eventual resolution
of this issue is not completely free from doubt. What is clear is that
there is no justification for allowing conduct of this sort to go unpunished."
"Should the Subcommittee wish to retain the language of
Eckhardt, the Department would suggest that it clarify what is meant by "found
to have violated." Alternatively, the Subcommittee might wish to
substitute some other language which more clearly sets out the intent of
Congress. If the Subcommittee wishes to insure that the goals of
Eckhardt are met, we suggest adding language requiring a company to
indemnify an employee's attorney's fees unless it can be shown that the
employee was clearly was operating as a renegade or without the company's
knowledge. The Department is willing to work with the Subcommittee to
clarify the Eckhardt provisions."
A relevant House Conference Report in April 1987 (Rep.
100-576) as to a bill to amend the FCPA stated, in pertinent part, as follows.
"Anti-bribery Provision - House Repeal of Eckhardt
House bill. The
House bill repealed the so-called Eckhardt amendment to the FCPA by
deleting the lead-in clause of present law, which reads "whenever an
issuer/domestic concern is found to have violated ...". The deleted
language had the effect of providing that employees or agents could not be
prosecuted for FCPA violations unless the domestic concern or issuer, whichever
the case may be, had been found to have violated the Act.
The Senate amendment contained no comparable provision.
The Senate receded to the House.
When the FCPA was finally amended in 1988,
among its changes, was repeal of the so-called Eckhardt amendment.
Read more articles on the FCPA by Mike
Koehler at FCPA
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