This article was reprinted with permission from FCPA Professor
Decision Also Sheds Light on a Pending FCPA Grand Jury Proceeding
FCPA lawyers would be wise to review the Third Circuit’s February 12th decision in In re Grand Jury Subpoena in which the court upholds an order from the district court (E.D. of Pa) enforcing a grand jury subpoena issued to a corporation’s FCPA lawyer concerning oral advice the lawyer gave to the client regarding the application of the Foreign Corrupt Practices Act [an enhanced version of this opinion is available to lexis.com subscribers].
As stated in the Third Circuit’s decision, the relevant facts are as follows.
“Corporation and Client (together, “Intervenors”) are targets of an ongoing grand jury investigation into alleged violations of the Foreign Corrupt Practices Act (“FCPA”). The grand jury served a subpoena on Intervenors’ former attorney (“Attorney”) and the Government moved to enforce this subpoena and compel Attorney’s testimony, based upon the crime-fraud exception to the attorney-client privilege. Intervenors sought to quash the subpoena by asserting the attorney-client privilege and work product protection. After questioning Attorney in camera, the District Court found that the crime-fraud exception applied and compelled Attorney to testify before the grand jury.
Intervenors appeal, challenging the District Court’s decision to conduct an in camera examination, the procedures it fashioned for the examination, and the court’s ultimate finding that the crime-fraud exception applies. We hold that the standard announced in United States v. Zolin, 491 U.S. 554, 572, 109 S.Ct. 2619, 105 L.Ed.2d 469 (1989) [enhanced version], applies to determine whether to conduct an in camera examination of a witness. We also find that the District Court did not abuse its discretion in applying this standard, in determining procedures for the examination, or in ultimately finding that the crime-fraud exception applies. We therefore affirm the District Court’s order enforcing the grand jury subpoena.
Intervenors are the targets of an ongoing grand jury investigation in the Eastern District of Pennsylvania seeking to determine whether they made corrupt payments to obtain business in violation of the FCPA. Corporation is a consulting firm headquartered in Pennsylvania and Client is Corporation’s President and Managing Director. The grand jury investigation stems from Intervenors’ business transactions with a financial institution (“the Bank”) headquartered in the United Kingdom and owned by a number of foreign countries. Between 2007 and 2009, Corporation was retained as a financial advisor by five companies to provide assistance in obtaining financing from the Bank for oil and gas projects. Two of the five projects were approved and financed by the Bank, resulting in the payment of nearly $8 million in success fees to Corporation. For all five projects, “Banker,” an official and banker at the Bank, was the operation leader responsible for overseeing the financing process. In 2008 and 2009, Corporation made payments totaling more than $3.5 million to Banker’s sister. The payments occurred within months of the success-fee payments to Corporation. No evidence showed that Banker’s sister worked on or was involved in any of the projects or meaningfully contributed to any of Corporation’s other ventures.
Attorney worked out of Corporation’s office but practiced law independently. In exchange for permitting Attorney to work out of the office rent-free, Client would periodically consult Attorney on ordinary legal matters. Attorney had several brief interactions with Client regarding one of the successful financing projects. In April 2008, Client approached Attorney to discuss issues he was having with the project. Client explained that he planned on paying Banker in order to ensure that the project progressed swiftly, as Banker was threatening to slow down the approval process. Attorney did some preliminary research, found the FCPA, and asked Client whether the Bank was a government entity and whether Banker was a government official. Although Attorney could not ascertain given his limited research whether the planned action was legal or illegal, he advised Client not to make the payment. Despite this advice, Client insisted that his proposed payment did not violate the FCPA, and informed Attorney that he would go ahead with the payment. Attorney gave Client a copy of the FCPA. After this communication, Attorney and Client ended their relationship.
In February of 2010, the Bank began an internal investigation into the transactions between Intervenors and Banker’s sister. The Overseas Anti-Corruption Unit (“the Unit”) in the United Kingdom was informed of the situation, and the Unit informed the Federal Bureau of Investigation (“FBI”). The Unit arrested Banker and Banker’s sister in the United Kingdom; their prosecution is ongoing. The FBI began its investigation into Intervenors in February 2010. Due to the parallel prosecution of Banker and Banker’s sister in the United Kingdom, Intervenors have some knowledge of the nature of the grand jury investigation of which they are subjects.”
The above generic description from the Third Circuit sheds light on a pending FCPA grand jury proceeding and a simple internet search would seem to suggest that the company under FCPA investigation is the same company referenced in this 2013 Bloomberg article.
Back to the Third Circuit decision.
In pertinent part, the court held that the “unmemorialized oral communications” at issue did not prevent application of the crime fraud exception. The court stated:
“The communication between Attorney and Client was brief, and consisted mainly of informing Client on the applicable law and advising that he not make the payment. However, we believe that the questions posed by Attorney to Client and the information that Client could gain from those questions are sufficient for us to conclude that the District Court did not abuse its discretion in determining that the advice was used in furtherance of a crime or fraud.”
Of further note, the Court stated that “if the attorney merely informs the client of the criminality of a proposed action, the crime-fraud exception does not apply.”
However, in the case, the Court noted that the “situation … is different” and stated:
“In addition to the advice Attorney provided to Client that he should not make a payment, Attorney also provided information about the types of conduct that violate the law. We cannot say that the District Court abused its discretion in determining “that there is a reasonable basis to conclude that [Attorney's] advice was used by [Intervenors] to fashion conduct in furtherance of [their] crime.” Specifically, Attorney’s questions about whether or not the Bank was a governmental entity and whether Banker was a government official would have informed Client that the governmental connection was key to violating the FCPA. This would lead logically to the idea of routing the payment through Banker’s sister, who was not connected to the Bank, in order to avoid the reaches of the FCPA or detection of the violation. Of course, it is impossible to know what Client thought or how he processed the information gained from Attorney. But the District Court did not abuse its discretion in determining that Client “could easily have used [the advice] to shape the contours of conduct intended to escape the reaches of the law.” For these reason, we affirm the District Court’s finding that the crime-fraud exception applies and its order compelling Attorney to testify before the grand jury.”
Read more articles on the FCPA by Mike Koehler at FCPA Professor.
For more information about LexisNexis products and solutions connect with us through our corporate site.