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A N 8 D 8 B 18 AR CE www. NYLJ.com SIN Volume 264—NO. 31 Thursday, August 13, 2020

White-Collar Crime Expert Analysis FIFA Decision Confirms Long Arm of Honest Services Fraud

he U.S. government’s lead role U.S. Attorney Michael Garcia. Garcia later in the prosecution of corruption resigned in protest after FIFA leadership within the Zurich, Switzerland- released a summary he claimed to be based Fédération Internationale inaccurate, rather than his 430-page de Football Association ("FIFA") investigation report. mayT be a paradigmatic example of U.S. The Eastern District of New York’s FIFA law enforcement acting as the world’s By And prosecutions reportedly arose from an policeman, reaching out around the Robert J. Richard F. unrelated FBI inquiry that led to the Anello Albert globe to prosecute wrongdoing with secret 2013 guilty plea and cooperation little apparent connection to the land of of Chuck Blazer, a U.S.-based FIFA official. baseball, hot dogs and apple pie. Didn’t as the scheme entails some use of the On May 27, 2015, Eastern District of New the Supreme Court remind everyone just U.S. banking system, the Department of York prosecutors unsealed a 161-page a few years ago that U.S. statutes are Justice can venture broadly indeed to indictment, asserting charges against presumed only to apply domestically? If prosecute foreign nationals under U.S. fourteen defendants arising from alleged corruption is based on foreign executives criminal law for conduct that appears bribes and kickbacks paid for broadcast violating their duties of loyalty to foreign and marketing rights contracts for FIFA private entities, how does that translate tournaments. Earlier that morning, at into a violation of U.S. criminal law? Does The U.S. government’s the behest of the United States, Swiss it matter that the conduct in which the lead role in prosecuting corrup- officials arrested seven of the named foreign executive engaged—commercial tion within FIFA is a paradigmatic defendants at the Baur au Lac hotel in bribery—may not be illegal under the law Zurich, where they had arrived for a of the executive’s home country? example of U.S. law enforcement FIFA meeting. Further charges followed The Second Circuit answers these acting as the world’s policeman. against additional soccer officials and questions in its recent decision in United marketing executives. States v. Napout, 963 F.3d 163 (2d Cir. predominantly foreign in locus and effect, In June 2017, the government filed a 2020), affirming the convictions of Juan with little regard for whether that con- superseding indictment naming only Angel Napout, the former president of duct would violate the criminal laws of Napout, Marin and Burga, the former Paraguay’s national soccer federation, their home country. head of the Peruvian soccer federation, and Jose Maria Marin, the former head based on their alleged acceptance of Background on FIFA Prosecutions of the Brazilian national soccer federa- multi-million dollar bribes in connection tion. In doing so, the decision joins a long After public allegations that senior with awarding broadcast and marketing line of authority illustrating that as long FIFA officials demanded bribes in con- rights for tournaments organized by the nection with the 2010 bidding process South American soccer confederation to be the host country for the 2018 and (“CONMEBOL”). The bribery charges Robert J. Anello and Richard F. Albert 2022 World Cup tournament, FIFA com- relied upon FIFA’s and CONMEBOL’s are partners at Morvillo Abramowitz Grand Iason & Anello, PC. Thaddeus R. Kleckley, an associate missioned an internal investigation led codes of ethics, which provide that orga- at the firm, assisted in the preparation of this article. by former Southern District of New York nization officials have a fiduciary duty to Thursday, August 13, 2020 FIFA and CONMEBOL, respectively, and case involves a permissible domestic and Marin, after the main briefing was contain express prohibitions on bribery application’ of the statute, even if oth- complete, in addressing a civil RICO claim and corruption in connection with official er conduct occurred abroad.” Napout, in another case, Bascuñán v. Elsaca, 927 duties. 963 F.3d at 178 (internal citations F.3d 108 (2d Cir. 2019), the Second Circuit Following extradition to the United omitted). decided the issue in the government’s States, Napout, Marin and Burga were Liability for honest services wire fraud favor. The court rejected Napout’s and tried before the Eastern District of New conspiracy derives from a combination Marin’s attempt, via supplemental brief- York Judge Pamela K. Chen. After six of three federal statutes: the wire fraud ing, to distinguish Bascuñán because it weeks of trial, on Dec. 22, 2017, a jury statute, 18 U.S.C. §1343, which imposes did not involve honest services fraud, rul- acquitted Burga, but convicted Napout liability on “whoever, having devised ing that it was merely a type of wire fraud on one count of racketeering conspiracy … any scheme or artifice to defraud … that §1346 clarified to be “includ[ed]” and two counts of wire fraud conspiracy. transmits or causes to be transmitted by within the prohibitions of §1343, and the Marin was convicted on one count of means of wire … in interstate or foreign fact that appellants were convicted under racketeering conspiracy, three counts of commerce, any writings, signs, signals, an honest services theory “thus has no wire fraud conspiracy, and two counts pictures, or sounds for the purpose of bearing on our extraterritoriality of money laundering conspiracy. Judge executing such scheme or artifice”; the analysis.” Chen sentenced Napout and Marin to 108 honest services statute, 18 U.S.C. §1346, Notably, in Bascuñán and Napout, the months’ and 48 months’ imprisonment, which provides that “scheme or artifice Second Circuit offered a narrowing prin- respectively. to defraud” includes a scheme or artifice ciple, limiting criminal liability to where Napout and Marin appealed to the to deprive another of the intangible right “the use of the … wires [was] essential, Second Circuit, arguing principally that of honest services, and the wire fraud rather than merely incidental, to the their convictions were based upon imper- conspiracy statute, 18 U.S.C. §1349. scheme to defraud.” By limiting liability missible extraterritorial applications of The parties agreed that the wire fraud to cases where the use of the domestic the honest services wire fraud statute. statute, §1343, is the relevant statute for wires was “central” to the scheme, the They also asserted that their right to purposes of the extraterritoriality analy- Second Circuit sought to “ensure[] that present a defense was violated when sis. As to step one of that analysis, neither the domestic tail not wag, as it were, the the trial court precluded them from party claimed that Congress expressly foreign dog.” Napout, 963 F.3d at 179. introducing evidence that their conduct granted extraterritorial application to This aspect of the Second Circuit’s was not criminal under the law of their the wire fraud statute. As to step two, decision seems to echo the Supreme home countries Napout and Marin argued that the stat- Court’s recent ruling in the “Bridgegate” ute’s focus is the “scheme to defraud,” case, Kelly v. United States, 140 S.Ct.. Extraterritoriality of Honest Services which conduct occurred overseas. They 1565 (2020), which held that in order Wire Fraud Statutes further argued that the centrality of the to support a conviction under a statute In its landmark 2010 decision in Mor- scheme to defraud is particularly mani- requiring a deprivation of “property,” rison v. Nat’l Australia Bank, 561 U.S. fest in an honest services case, which deprivation of an employee’s time and 247 (2010), the Supreme Court confirmed hinges on an employee’s loyalty obliga- labor must be an “object” of the fraud, that all federal statutes are presumed tions to his or her employer, because not merely an incidental consequence. to apply only domestically. That pre- the duties of domestic public officials, See Anello & Albert, "Bridgegate: Open sumption, however, can be rebutted via union officials and private employees Questions After Supreme Court Narrows a “two-step framework.” RJR Nabisco v. were Congress’s object in passing §1346. Fraud Statutes," New York Law Journal, European Cmty., 136 S. Ct. 2090, 2100-01 If not so limited, they urged, the statute June 10, 2020. In neither instance does (2016). At step one, a court must ana- would stretch even into the regulation the decision provide much guidance as to lyze “whether the presumption … has of foreign public officials. where to draw the line between essential been rebutted” by the statute’s plain and The government, marshalling signifi- and incidental conduct, thus the issue affirmative language to extend extrater- cant prior case authority, argued that, remains to be fleshed out in future cases. ritorial application. Id. If step one is not on the contrary, the statute’s focus is the In Napout, the government presented conclusive, the court must determine use of the wires within, from or to the rather limited evidence of the use of the “focus” of the statute and “whether United States in furtherance of a scheme U.S. wires with respect to Napout. He the case involves a domestic applica- to defraud, rather than the scheme per se. was bribed with “American banknotes” tion of the statute.” Id. “If the conduct At the time the appeal was taken, the Sec- delivered to him in Buenos Aires through at issue relevant to the statute’s focus ond Circuit had not resolved this impor- an Argentinian money changer who had occurred in the United States, then the tant question. Unfortunately for Napout received the funds from a U.S. bank Thursday, August 13, 2020 account. He also received concert tick- had good faith belief that his conduct did and CONMEBOL were identical to their ets and a vacation apartment in Uruguay not violate his duties to FIFA,” the court duties under that law. The Second Circuit paid for with sums wired from a U.S. invited reconsideration of its prior rul- concluded that because appellants had bank account. Accordingly, the Second ing. After receiving written briefing and not articulated any basis to believe, nor Circuit’s test does not seem an overly seeking a proffer from the defendants, proffered any evidence, that they so con- demanding one. the court ruled that the only evidence of strued their duties to FIFA and CONME- foreign law that would be permitted was BOL, the district court’s ruling was not The Role of Foreign Law if the defendant took the stand to testify arbitrary or irrational, notwithstanding Particularly because the Second Cir- “as to his beliefs about foreign law and that appellants had identified witnesses cuit’s extraterritoriality ruling on honest how those beliefs influenced his under- whom they expected on cross-exami- services wire fraud potentially brings to standing of the duties he owed to FIFA or nation to confirm their own views that the fore a foreign executive’s obligations another relevant soccer organization.” commercial bribery was acceptable and under the laws of his or her home juris- On appeal, Napout and Marin asserted not illegal in Brazil and Argentina. With diction, the Second Circuit’s consider- that the district court’s pretrial ruling regard to the district court’s restriction ation of Napout’s and Marin’s effort to negated their ability to pursue a critical on the appellants’ means to present evi- assert a defense based in foreign law is line of defense, and that having proceed- dence of foreign law, because only their of special interest. In response to defense ed well into trial on an alternative theory, own testimony could tie such evidence assertions that commercial bribery was to their understanding of their duties to not illegal in the defendants’ home coun- their employers, it did not run afoul of tries, the government moved in limine The decision is also a reminder the Constitution to require them to waive pretrial to preclude all defense evidence to counsel who advise overseas their Fifth Amendment rights in order to or argument on that issue during trial. clients that the FCPA is not the offer such evidence. The government did not concede that Conclusion commercial bribery was legal in the only way the government can defendants’ home countries. Instead it prosecute foreign bribery. Perhaps marking a final high point in asserted that even if they had no specific the government’s FIFA prosecutions, commercial bribery statutes, other penal the mid-trial reversal was an insufficient the Second Circuit’s decision in Napout laws would likely bar such conduct, and remedy. They further protested the trial illustrates that whenever investigators that debating the issue would require judge’s ruling that the only way a defen- can find use of the U.S. banking system a battle of the experts and a confusing dant could raise foreign law was through in carrying out a scheme, few practical mini-trial. his own testimony, thereby improperly limits will be placed on U.S. prosecutors’ The trial judge granted the motion, forcing them to waive their Fifth Amend- ability to reach alleged misconduct any- opining that because the defendants’ ment right to silence, contrary even to where in the world that can be claimed obligations to provide honest services the government’s position, which would to fall within the broad bounds of the arose from the FIFA rules, evidence con- not have imposed that restriction if wire fraud statute. The decision is also a cerning foreign law could be relevant defendants were permitted to offer evi- reminder to counsel who advise overseas only for the narrow purpose of asserting dence of foreign law. clients that the FCPA is not the only card that a defendant never read the FIFA rules The Second Circuit rejected appel- the government can play to prosecute and assumed that those rules would be lants’ arguments, observing that “if the foreign bribery. Indeed the combination consistent with what his country would district court has conscientiously bal- of the wire fraud and honest services allow or not allow, therefore, negating anced the proffered evidence's proba- statutes reaches even more broadly into the intent or belief that he was violating tive value with the risk for prejudice, its commercial bribery, without regard to his fiduciary duty. Nevertheless, under conclusion [to preclude evidence pursu- the involvement of any foreign official. the balancing test pursuant to FRE 403, ant to FRE 403] will be disturbed only Napout also underscores that even a val- the court would preclude the evidence if it is arbitrary or irrational.” Napout, id claim that such conduct is legal under because any such limited relevance 963 F.3d at 185 (citation omitted). The applicable foreign law is unlikely to offer would be outweighed by the risk of jury district court determined that evidence a defense to a U.S. bribery prosecution. confusion and nullification. of commercial bribery’s legality in appel- Later, during trial, after noting that the lants’ home countries was relevant only government’s proposed jury instructions if the jury could infer that the appellants Reprinted with permission from the August 13, 2020 edition of the NEW YORK included that a defendant could not be were familiar with that law, and further, LAW JOURNAL © 2020 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382 convicted of honest services fraud “if he that they believed their duties to FIFA or [email protected]. # NYLJ-08122020-457776