ABA Section of Business Law
Business Law Today
Its a matter of bribery
The feds powers are greatly expanded.
Is your client company safe?
By CRAIG A. RAABE and SEAN JOHNSTON
Raabe is a partner at Robinson & Cole, LLP, in Hartford, Conn. Johnston is a third-year law student at the University of Connecticut School of Law.
If youre into superstition and omens, Congress has a statute that you need to avoid. In 1984, it codified the mark of the devil in the federal criminal code, 18 U.S.C. § 666.
Section 666 was designed to curb the evil of bribery related to federal funds. Prior to its enactment, another federal bribery statute, 18 U.S.C. § 201, was viewed by many courts to prohibit only the bribery of federal officials. In enacting § 666, Congress sought to protect federally funded programs from going into the red through theft and embezzlement by the direct bribery of federal officials. But it also made it a crime to commit bribery in connection with private citizens who have a relation to federally funded programs.
Although Congress intended § 666s scope to be significant in order to protect federally funded programs, some observers of federal criminal law are now questioning whether the horns of § 666 are too sharp to serve the federal interests at stake. This article presents a hypothetical scenario to examine the breadth of § 666.
You are the CEO of a regional agricultural company. One of your product lines is "human-friendly" herbicides, pesticides and organic fertilizers that you have developed and patented. The company has been very successful but remains closely held. You treat your 150 employees well and they are loyal and hard working. Competitive pressure from multinational chemical and genetic engineering firms is intense, but you have a loyal customer base that appreciates your companys personal touch in sales and technical support. You think you run a pretty tight operation.
Youve hired one of the best regional law firms to usher your company through the maze of state and federal environmental laws for your chemical operations and the company has a comprehensive compliance policy to prevent and detect environmental violations. Youve heard all of the horror stories about federal prosecutions and the last thing you want is the feds at your facility. In fact, not that youre paranoid, but youve avoided contracting with the federal government just because you dont want to deal with the bureaucracy and red tape.
Your nephew Jimmy is your sales manager. He began doing sales for your company after graduating from college and he remained in sales for six years, at which time he left the company to expand his horizons and earn more money. Well, the horizon remained flat and money never filled Jimmys pockets, so he went to graduate school, got a joint MBA/horticulture degree and returned to the company. Jimmy always was energetic and productive and on his return he had a joint graduate degree that your sister paid for, so you offered him the position of sales manager. As sales manager, Jimmy handles some of the larger accounts.
One of Jimmys accounts is a large landscaping company. Last spring, in response to an RFP for all of the landscaping companys herbicide, pesticide and fertilizer needs, Jimmy put his education to work and sold the landscaping company $65,000 of your products, despite a $55,000 bid from one of your multinational competitors. Jimmy did not tell you at the time, but during the bidding process with the landscaping company, he offered to "donate" one of your companys old trucks, worth $3,000, to the landscaping companys purchasing agent, who asked for the truck so he could use it in his own snowplowing business that he runs on the side. After you found out about the "gift," Jimmy assured you not to worry because he had not yet given the truck to the purchasing agent and he said he would find some excuse not to give the truck to the purchasing agent.
For many years the landscaping company has had the annual contract to landscape and snowplow at all of the federal buildings and parks in your region. The landscaping companys government contract is for $50,000 a year.
So now the questions:
Has Jimmy subjected himself and your company to criminal liability under a federal bribery statute, 18 U.S.C. § 666? Keep in mind that it is widely held that business entities are liable for the criminal acts of their directors, officers, employees and agents provided that the individual was acting within the scope of his job duties and, among other possibilities, the criminal act benefited the business entity or the act was authorized by a supervisor. See United States v. Twentieth Century Fox Film Corp., 882 F.2d 656, 661 (2d Cir. 1989), cert. denied, 493 U.S. 1021 (1990).
Despite your diligent compliance planning, has your company committed a federal crime that will subject it to the mandates of the federal sentencing guidelines? How could the circumstances in The Scenario constitute a federal crime your company had nothing to do with the federal government. Even if Jimmy screwed up, he sold to a private company not to the government. How could that be a violation of a federal bribery statute? Whats more, why would it be a crime when Jimmy didnt actually make an improper payment?
The answers to these questions may be cause for concern and forethought in corporate America. Under the U.S. Supreme Courts recent interpretation of the federal bribery provision in § 666, you can be pretty sure that federal prosecutors would be tempted to come after Jimmy and the company under the bribery statute if they learned of The Scenario, despite the lack of a direct connection between the corruption and the federal government.
The Supreme Court, in the recent case of Salinas v. United States, 118 S. Ct. 469 (1997), concluded that the anti-bribery provision in § 666 uses "expansive, unqualified language, both as to the bribes forbidden and the entities covered." Id. at 473. While the statute has a number of provisions, one of the most commonly invoked sections prohibits the corrupt offer, payment or receipt of anything valuable in connection with a business transaction thats worth $5,000 or more with any business organization or state or local government that receives more than $10,000 in federal funds in any year.
In other words, if you or your employee offers a bribe or kickback to a person in a company or state or local agency that gets more than $10,000 from the federal government in any year, your company may be criminally liable for federal bribery.
There are reciprocal provisions in this federal bribery statute under which the bribe offerer and the bribe receiver each can be punished. There are four prongs in § 666:
- A corrupt demand, offer, payment or receipt of payment;
- of anything of value;
- with an intent to influence a transaction involving $5,000 or more;
- involving a business organization or state or local government that receives more than $10,000 within one year of the corrupt act.
The first element of § 666 is a corrupt act. Jimmys protestation not to worry because he didnt actually give the purchasing agent the old pick-up truck is unconvincing. In passing § 666, Congress sought to expand the existing federal bribery prohibition, 18 U.S.C. § 201, which only applied to federal officials. The legislative history of § 666 reveals that Congress sought to "protect the integrity of the vast sums of money distributed through federal programs." 1984 U.S.C.C.A.N. 3182, 3511.
Essentially, it appears that Congress intended to expand the federal bribery law beyond the act of bribing employees of the federal government to the act of bribing anyone in an organization or agency who deals with federal funds. It is evident that in protecting these interests, Congress also sought to prohibit both attempted and completed bribery.
In the Salinas case, the court emphasized that the plain language of § 666 should control its interpretation. Salinas, 118 S. Ct. at 474. The plain language of § 666, consistent with the stated intent to "protect the integrity" of federal funds, imposes criminal liability on any person who actually pays or receives a bribe or who "demands," "solicits," "agrees to accept," "offers" or "agrees to give" a bribe. 18 U.S.C. § 666(a)(1)(B) & (a)(2). Accordingly, it is no defense that the bribe is never paid if you or your agent offers to give or take the forbidden fruit, this prong of § 666 is satisfied.
The second element of the statute is that something of value is offered as a bribe. Again returning to the plain language of the statute, the Supreme Court concluded that the bribe offered does not have to be of any particular nature to trigger criminal liability. Stated plainly, the statute "prohibits accepting or agreeing to accept anything of value." Salinas, 118 S. Ct. at 473 (citing § 666(a)(1)(B)). The court summarized this element of the offense as the "transfer of personal property or other valuable consideration." Id. In Salinas, the substance of the bribe was "a pair of designer watches and a pickup truck." Id. at 472.
The scope of this prong cannot be underestimated, particularly in areas of business that that employ "aggressive" marketing tactics. Many courts have stated that the "anything of value" clause must be interpreted broadly in order to protect the national interest against federal bribery. Indeed, in a ruling confirming the broad scope of § 666, the Second Circuit Court of Appeals just pronounced that the Salinas ruling "cast aside [any] construction of the statute that imposes limitations on the anything of value element." United States v. Santopietro, 1999 U.S. App. LEXIS 804, *2 (2d Cir. 1999).
Courts also have concluded that the phrase "anything of value" includes subjective value to the recipient. United States v. Piaquot, 963 F.2d 54, 54 (5th Cir.), cert. denied, 506 U.S. 902 (1992). In that vein, courts have found that "anything of value" includes, among other things, "amusement," "assistance in arranging a merger," provision of valuable information, a promise to hire an employee and "conjugal visits" in prison, which actually were involved in the Salinas case. See, for example, United States v. Marmolejo, 89 F.3d 1185, 1192 (5th Cir. 1996) (affirmed in Salinas).
Needless to say, if federal prosecutors combine the reasoning of the Salinas and "subjective value" cases, the result could affect traditional ways of doing business. In interpreting § 666 in such a manner, federal prosecutors intent on prosecuting might conclude that "favors" such as the summer job offer to your customers kid, an expensive set of irons for your client at a golf outing or an expenses-paid trip to a conference for your client constitutes offering a thing of value. In any event, there is little question in The Scenario that the offer to give the purchasing agent a pickup truck, even if its beat up and worth only $3,000, would constitute offering a thing of value in the eyes of the prosecutors.
The third prong of a § 666 violation is an intent to influence or be influenced in a transaction "involving anything of value of $5,000 or more." 18 U.S.C. § 666(a)(1)(B) & (a)(2). Once again, the Supreme Court placed no limitation on this language. The court termed this clause a "threshold," and cited the statutes language that seemingly permits federal prosecutors to aggregate the value a "series of transactions" in alleging the threshold, provided that the prosecutors can tie the corrupt act to the "series." Id. In The Scenario, in which the transaction between your company and landscaping firm was for $65,000, there would be little doubt that federal prosecutors would argue that the $5,000 "threshold" has been met.
It is this prong that was the centerpiece of the Salinas case. Salinas was the chief deputy at a county jail in Texas. He arranged for so-called "contact visits" between an inmate and the inmates wife. Additionally, in what may have proven for the inmate to be a worse lapse of judgment vis a vis his wife than the bribery scheme once this caper came to light, Salinas also arranged at the same time for "contact visits" between the same inmate and his girlfriend. In exchange for the "contact visits," the inmate provided Salinas with two watches and a pickup truck. The inmate was a federal prisoner, but he was in the county jail pursuant to a contract between the county and the federal marshals service, through which contract the federal government agreed to provide a grant to improve the facility and a per diem for each federal prisoner. Salinas, 118 U.S. at 472.
Salinas argued that his conviction for federal bribery under § 666 could not stand because there was no proof that the bribery affected federal funds. The Supreme Court, referring to the language of § 666, flatly disagreed, stating, "The prohibition is not confined to a business or transaction which affects federal funds." Id. at 473. The court reasoned that the "unambiguous" language of § 666 "does not require the government to prove federal funds were involved in the bribery transaction." Id. at 475.
Under The Scenario, it is likely that federal prosecutors would argue, based on Salinas, that the lack of a direct connection, or even the lack of any connection at all, between the landscaping companys federal contract and the bribe offer should not put its § 666 case in limbo. Because the "transaction" to which the bribe related, that is, the sale of goods to the landscaping company, was well in excess of $5,000, the prosecutors no doubt would argue that the threshold of § 666 was met.
The need for a connection of some sort between the bribe and the federal funds, however, may be a slightly open issue even after Salinas. In Salinas, the court stated that because there was an unquestionable nexus between the bribe and the federal funds, it did not need to address the issue of whether such a nexus is required. Salinas, 118 S. Ct. at 474.
In contrast, in a recent ruling, the Second Circuit Court of Appeals touched on this issue and noted that judicial interpretations requiring "some connection" between the bribe and federal funds were "undisturbed by Salinas." Santopietro, 1999 LEXIS U.S. App. 804 at *14. In The Scenario, however, it is likely that prosecutors would argue that even a "some connection" test was satisfied because the companys herbicides, pesticides and fertilizers that were the object of the bribery-infected sale could be used in the course of the landscaping companys services to the federal government.
The final prong of the bribery provision of § 666 is that the federal funding to the entity involved exceed $10,000 within the year surrounding the corrupt act. While this provision was not in dispute in the Salinas case, if it were, the court no doubt would have again referred to the language of § 666.
The statute offers some specifics, as well as a catch-all provision, in defining the types of federal funding that will qualify under this prong of the statute. The plain language defines "a grant, contract, subsidy, loan, guarantee [or] insurance" as qualifying forms of federal funding, but the statute also provides that "other form[s] of federal assistance" would qualify. 18 U.S.C. § 666(b). The statute provides further that the "one-year" clause can be satisfied by any continuous 12-month period, whether before the act, after the act or a combination of both. 18 U.S.C. § 666(d)(5). Finally, in federalizing bribery in this manner, Congress broadly defined the qualifying entity that receives the federal benefits, stating that it includes an organization or any state, local or Indian tribal governmental body, including agencies, boards, departments and the like. 18 U.S.C. § 666(a)(1) & (d)(1),(2),(3),(4).
One of the often-litigated provisions in this prong is the qualifying nature of the federal funding. Many trial and appeals courts view this prong quite broadly, often referring to the stated congressional policy of the statute of "protect[ing] the integrity" of federal funds. For instance, in a case that we tried in the District of Connecticut, the trial judge ruled that a Medicare intermediary, which the prosecutors acknowledged acted as a mere pass-through for Medicare payments, qualified as an "organization" for the purposes of § 666. In a similarly broad view, the Second Circuit Court of Appeals has concluded under the language of the statute that a federal loan, which would be paid back with interest, qualifies as federal benefits sufficient to impose federal criminal liability in the event of corruption involving the borrower. United States v. Rooney, 986 F.2d 31 (2d Cir. 1993).
On the other hand, the 9th Circuit Court of Appeals has concluded that a private colleges receipt of federal student loan funds as tuition payment is not sufficient to satisfy this prong of § 666. United States v. Wyncoop, 11 F.3d 119 (9th Cir. 1993).
Some courts also have concluded that federal payment for goods or services that an organization provides are not within the ambit of § 666. For instance, in United States v. Stewart , 727 F. Supp. 1068 (N.D. Tex. 1989), the district court reasoned that the theft provision of § 666 did not apply to individuals who stole parts from a helicopter manufacturer that engaged in substantial government contracting. The court concluded that "Congress did not intend the statute to apply in a situation of quid pro quo ." Id. at 1072.
In light of the Salinas decision, it is interesting to debate, as long as you and your company are not involved, whether the prior, more restrictive readings of the scope of § 666 will be persuasive in the future. While there may be an open question in The Scenario as to whether the landscaping company, which provided services for quid pro quo compensation, is a qualifying "organization," there is little question but that the Supreme Court has placed in purgatory the view that federal bribery under § 666 should have an identifiable nexus between the corrupt act and the federal funds that Congress sought to protect in drafting the statute.
Because of the expansive interpretation that the Supreme Court has given § 666, business organizations in the United States, now more than ever, should examine their marketing practices for the potential for bribery. It is important to have a system in place to detect problems, whether through sales force training, greater scrutiny of sales force expense accounts, random interviews with customers purchasing departments (which can be presented as "customer satisfaction interviews") or similar procedures.
On the back end, it is also very important to have a system to deal with violations. More and more, federal prosecutors look to corporate America to police itself when violations occur, and government agencies and U.S. attorneys offices sometimes have formal and informal policies to protect business entities from prosecution in the event of self-reporting. To that end, it is important to know if such "amnesty" policies exist and to have a compliance program that addresses the issues on which prosecutors focus in deciding whether to charge an offense. Those issues include:
- the existence of a comprehensive compliance program that provides for self-reporting;
- punitive action against individual violators;
- cooperation with investigators and
See United States Attorneys Manual, Title 9, Ch. 27, Principles of Federal Prosecution.
Because of the harsh results that can follow from a federal prosecution of a broad statute such as § 666, careful planning and up-front treatment of suspected wrongdoing are essential to determining whether self-reporting and cooperation are advised. Further, in light of recent interpretations of § 666, businesses must avoid the temptation to dismiss the potential of bribery in commercial transactions as a local or private matter not likely subject to federal prosecution.