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FCPA Convictions Upheld Against Kay And Murphy

They Paid Bribes to Reduce Taxes in Haiti; The FCPA Gave Them Fair Warning, the Court says

The United States Court of Appeals for the Fifth Circuit affirmed on October 24, 2007 the criminal convictions of David Kay and Douglas Murphy for violating the antibribery provisions of the U.S. Foreign Corrupt Practices Act (15 U.S.C. §§ 78dd-1, 78-dd-2). Kay was formerly vice president and Murphy president of American Rice, Inc. (ARI), a Houston-based rice exporter. In 1999, ARI’s board learned through an internal investigation that Kay and Murphy had paid bribes to reduce duties and taxes in Haiti — which was “business as usual” there during the 1990’s. ARI’s directors self-reported the bribery to U.S. government regulators. ARI was not charged but Kay and Murphy were eventually indicted on twelve counts of violating the FCPA.

In their 2002 trial, the district court dismissed the indictments, concluding that “payments to foreign government officials made for the purpose of reducing customs duties and taxes [do not] fall under the scope of ‘obtaining or retaining business’ pursuant to the text of the FCPA.” The government appealed and the Fifth Circuit reversed. It said that “in diametric opposition to the district court . . . [,] bribes paid to foreign officials in consideration for unlawful evasion of customs duties and sales taxes could fall within the purview of the FCPA’s proscription,” but “[i]t still must be shown that the bribery was intended to produce an effect – here, through tax savings – that would ‘assist in obtaining or retaining business.’” The case was then sent back to the district court to determine, among other things, whether further prosecution would deny Kay and Murphy due process for want of fair warning.

Back in the district court in Houston, Kay and Murphy failed in their motion to dismiss for lack of fair warning. A jury then found them guilty on all counts. Kay was sentenced to 37 months in prison and Murphy to 63 months. They appealed on several grounds, including lack of fair warning. They argued that the ambiguity in the FCPA — which does not expressly say that payments to lower taxes are related to “obtaining or retaining buisness” — renders the statute void for vagueness.

The Fifth Circuit disagreed. It said in its 56-page opinion: “All [elements of the FCPA] are phrased in terms that are reasonably clear so as to allow the common interpreter to understand their meaning. Defendants have, rather than showing vagueness, raised a technical interpretive question as to the exact meaning of ‘obtaining or retaining’ business. Whether ‘obtaining or retaining’ business covers the general activities that an entity undertakes to ensure continued success of a business or Defendants’ more limited definition of contractual business is an ambiguity but not one that rises to the level of vagueness and unfair notice. . . .

“Although ARI did not make corrupt payments to guarantee one particular contract’s success,” the Fifth Circuit said, “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. Trial testimony indicates that ARI believed these payments were necessary to compete with other companies that paid lower or no taxes on similar imports – in other words, in order to retain business in Haiti, the company took measures to keep up with competitors. The fact that other companies were guilty of similar bribery during the 1990’s does not excuse ARI’s actions; multiple violations of a law do not make those violations legal or create vagueness in the law.”

View the Fifth Circuit’s October 24, 2007 Opinion Here.

View the Fifth Circuit’s February 4, 2004 Opinion Here.

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