The Travel Act and Overseas Commercial Bribery

“Every man has a price.“ “Bribery is just part of doing business.”

The time-dishonored clich's above describe a basis for doing business in many places, and continually force those who operate in the international marketplace to choose between risking the loss of business opportunities and engaging in activity that can easily come under the scrutiny of governmental authorities.

The United States, through its Foreign Corrupt Practices Act (FCPA), and the member nations of the Organization for Economic Co-Operation and Development, which have adopted similar legislation, have made tremendous strides in hindering corrupt payments to foreign officials relating to business transactions. In response, many international businesses have taken steps to comply with anti-bribery laws by developing compliance programs, conducting internal investigations, and cooperating with law enforcement officials when allegations of corrupt payments arise.

While the news media continue to focus on the large fines and penalties for illegal payments to foreign officials in violation of the FCPA, they have largely ignored allegations and prosecutions of corrupt payments to employees or agents of private foreign companies. As a result, international businesses that have made tremendous efforts to comply with the FCPA and parallel foreign legislation may have overlooked the possibility that their employees are making corrupt payments in their private, non-governmental business development activities. If authorities suspect a company of bribing officials, it is likely that these same companies will be investigated by U.S. and/or foreign authorities not only for violating the FCPA or its foreign counterparts, but also for engaging in commercial bribery.

The Travel Act, 18 U.S.C. ' 1952

Although the U.S. Criminal Code has no statute expressly outlawing the bribing or receiving of bribes in private business settings, commercial bribery has long been successfully prosecuted under several federal statues. One that receives little attention is the Travel Act, 18 U.S.C. ' 1952, which makes it a federal felony ' among other things ' to travel, or use any facility, in foreign commerce with the intent to “promote, manage, establish, carry on, or facilitate the promotion, management, establishment or carrying on, of any unlawful activity.”

Companies with foreign business should be aware that state law can make overseas bribery an “unlawful activity” triggering a Travel Act violation. This is because the Travel Act defines “unlawful activities” as including extortion and bribery “in violation of the laws of the State in which committed ' ” “ State,” of course, includes any “State of the United States, the District of Columbia, and any commonwealth, territory, or possession of the United States.” Thus, so long as the state in which the corporate actor is operating has a commercial-bribery statute, the federal government can rely upon the Travel Act to prosecute corporate actors for engaging in commercial bribery in foreign jurisdictions. This bootstrapping is not limited to the state where a company is incorporated or has its principal place of business; sometimes an applicable long-arm statute can make overseas bribery “unlawful” because some act in furtherance of the bribery occurred in a state with a commercial-bribery statute.

For example, California Penal Code ' 641.3 provides:

[A]ny employee who solicits, accepts, or agrees to accept money or anything of value from a person other than his or her employer, other than in trust for the employer, corruptly and without the knowledge or consent of the employer, in return for using or agreeing to use his or her position for the benefit of that other person, and any person who offers or gives an employee money or anything of value under those circumstances, is guilty of commercial bribery.

Federal Prosecution

This statute makes it possible for the federal government to prosecute individuals who “corruptly” provide money or anything of value to an employee of a foreign privately owned business so long as there is some jurisdictional nexus with California. To date, at least 35 states have commercial-bribery statutes that can be used by the Department of Justice (DOJ) as the basis for a Travel Act prosecution, including Alabama, Alaska, Arizona, California, Colorado, Connecticut, Florida, Hawaii, Illinois, Iowa, Kansas, Kentucky, Louisiana, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Hampshire, New Jersey, New York, North Dakota, Pennsylvania, South Dakota, Texas, and Washington. Thus, the federal authorities have a broad array of statutes to choose from when seeking to prosecute private overseas corruption.

The CCI Case

The DOJ recently used the Travel Act in its prosecution of Control Components, Inc. (“CCI”). The California statute quoted above acted as the basis for a Travel Act violation alleged in a conspiracy count that also charged violations of the FCPA. CCI pleaded guilty to the criminal information on July 22, 2009. The government alleged that CCI, through its executives, conspired to bribe overseas employees responsible for making purchasing decisions for several privately owned foreign businesses to induce them to purchase CCI's products. Thus, CCI pleaded guilty to conspiring to engage in commercial bribery occurring in foreign jurisdictions (including China).

The Mead Case

CCI's guilty plea to violations of the Travel Act came as a shock to many commentators who follow events relating to the FCPA. However, this was not the first time that the DOJ has brought such charges. In 1998, David H. Mead was convicted of conspiracy to violate not only the FCPA, but also the Travel Act in connection with payments made in Panama. The Travel Act count was based on the New Jersey commercial-bribery statute. He was sentenced to four months' imprisonment, four months' home detention, three years of supervised release, and a $20,000 fine. See www.justice.gov/criminal/fraud/fcpa/append/appendixa.html, ' II case 26.

Travel Act Violations

Here are the elements of a Travel Act violation according to one court: “To prove a violation of the Travel Act, the government was required to establish that the [defendant]: 1) used a facility of interstate or foreign commerce; 2) with intent to commit any unlawful activity ' ; and 3) thereafter performed an additional act to further the unlawful activity.” United States v. Kozeny, 493 F.Supp. 2d 693, 705-706 (S.D.N.Y. 2007).

The DOJ has publicly stated that it intends to use every tool in its arsenal to prosecute overseas corruption. At a conference in 2007, an attorney with the DOJ's Fraud Section announced that it planned to use the Travel Act in future prosecutions and would now bring criminal cases under the books-and-records provisions of the FCPA ' another method for the federal government to prosecute corrupt payments in private business transactions that otherwise would not fall under the FCPA.

The DOJ's use of the Travel Act to prosecute commercial bribery is significant for U.S. businesses because it allows the government to bring charges against a company that is not an issuer on a domestic stock exchange and therefore not subject to the FCPA's accounting provisions. While it is unlikely that the government will bring cases based solely upon commercial bribery in a foreign jurisdiction and the Travel Act, corporations must take steps to insure that their employees are not engaging in activities that could trigger an investigation. Failing to do so could lead to catastrophic fines and penalties.

Conclusion

During recent years, companies doing business overseas have become increasingly concerned about the prospect of being targeted by the government for FCPA violations as a result of perceived bribes of public officials. That concern is well advised, given both the DOJ's dramatic increase in FCPA prosecutions and consistent saber-rattling over its growing use of the statute to attack foreign corruption involving U.S. businesses. Those same companies, whether publicly traded or privately held, are now cautioned to be on the lookout as well for acts of potential commercial bribery within their organizations. As one California company ' and convicted felon ' now knows, the Travel Act can be effectively triggered by a seemingly irrelevant state commercial bribery statute to criminalize and punish payments between private parties that never touch the hands of any public officials. The DOJ has a little-known weapon, and it's not afraid to use it.

The authors practice with the international law firm of Bracewell & Giuliani LLP. Jeffrey Ansley ([email protected]) is a partner in the Firm's Dallas office, where he focuses on white-collar defense. Don Berthiaume and Joshua Zive are associates in the firm's Washington, DC, office.

“Every man has a price.“ “Bribery is just part of doing business.”

The time-dishonored clich's above describe a basis for doing business in many places, and continually force those who operate in the international marketplace to choose between risking the loss of business opportunities and engaging in activity that can easily come under the scrutiny of governmental authorities.

The United States, through its Foreign Corrupt Practices Act (FCPA), and the member nations of the Organization for Economic Co-Operation and Development, which have adopted similar legislation, have made tremendous strides in hindering corrupt payments to foreign officials relating to business transactions. In response, many international businesses have taken steps to comply with anti-bribery laws by developing compliance programs, conducting internal investigations, and cooperating with law enforcement officials when allegations of corrupt payments arise.

While the news media continue to focus on the large fines and penalties for illegal payments to foreign officials in violation of the FCPA, they have largely ignored allegations and prosecutions of corrupt payments to employees or agents of private foreign companies. As a result, international businesses that have made tremendous efforts to comply with the FCPA and parallel foreign legislation may have overlooked the possibility that their employees are making corrupt payments in their private, non-governmental business development activities. If authorities suspect a company of bribing officials, it is likely that these same companies will be investigated by U.S. and/or foreign authorities not only for violating the FCPA or its foreign counterparts, but also for engaging in commercial bribery.

The Travel Act, 18 U.S.C. ' 1952

Although the U.S. Criminal Code has no statute expressly outlawing the bribing or receiving of bribes in private business settings, commercial bribery has long been successfully prosecuted under several federal statues. One that receives little attention is the Travel Act, 18 U.S.C. ' 1952, which makes it a federal felony ' among other things ' to travel, or use any facility, in foreign commerce with the intent to “promote, manage, establish, carry on, or facilitate the promotion, management, establishment or carrying on, of any unlawful activity.”

Companies with foreign business should be aware that state law can make overseas bribery an “unlawful activity” triggering a Travel Act violation. This is because the Travel Act defines “unlawful activities” as including extortion and bribery “in violation of the laws of the State in which committed ' ” “ State,” of course, includes any “State of the United States, the District of Columbia, and any commonwealth, territory, or possession of the United States.” Thus, so long as the state in which the corporate actor is operating has a commercial-bribery statute, the federal government can rely upon the Travel Act to prosecute corporate actors for engaging in commercial bribery in foreign jurisdictions. This bootstrapping is not limited to the state where a company is incorporated or has its principal place of business; sometimes an applicable long-arm statute can make overseas bribery “unlawful” because some act in furtherance of the bribery occurred in a state with a commercial-bribery statute.

For example, California Penal Code ' 641.3 provides:

[A]ny employee who solicits, accepts, or agrees to accept money or anything of value from a person other than his or her employer, other than in trust for the employer, corruptly and without the knowledge or consent of the employer, in return for using or agreeing to use his or her position for the benefit of that other person, and any person who offers or gives an employee money or anything of value under those circumstances, is guilty of commercial bribery.

Federal Prosecution

This statute makes it possible for the federal government to prosecute individuals who “corruptly” provide money or anything of value to an employee of a foreign privately owned business so long as there is some jurisdictional nexus with California. To date, at least 35 states have commercial-bribery statutes that can be used by the Department of Justice (DOJ) as the basis for a Travel Act prosecution, including Alabama, Alaska, Arizona, California, Colorado, Connecticut, Florida, Hawaii, Illinois, Iowa, Kansas, Kentucky, Louisiana, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Hampshire, New Jersey, New York, North Dakota, Pennsylvania, South Dakota, Texas, and Washington. Thus, the federal authorities have a broad array of statutes to choose from when seeking to prosecute private overseas corruption.

The CCI Case

The DOJ recently used the Travel Act in its prosecution of Control Components, Inc. (“CCI”). The California statute quoted above acted as the basis for a Travel Act violation alleged in a conspiracy count that also charged violations of the FCPA. CCI pleaded guilty to the criminal information on July 22, 2009. The government alleged that CCI, through its executives, conspired to bribe overseas employees responsible for making purchasing decisions for several privately owned foreign businesses to induce them to purchase CCI's products. Thus, CCI pleaded guilty to conspiring to engage in commercial bribery occurring in foreign jurisdictions (including China).

The Mead Case

CCI's guilty plea to violations of the Travel Act came as a shock to many commentators who follow events relating to the FCPA. However, this was not the first time that the DOJ has brought such charges. In 1998, David H. Mead was convicted of conspiracy to violate not only the FCPA, but also the Travel Act in connection with payments made in Panama. The Travel Act count was based on the New Jersey commercial-bribery statute. He was sentenced to four months' imprisonment, four months' home detention, three years of supervised release, and a $20,000 fine. See www.justice.gov/criminal/fraud/fcpa/append/appendixa.html, ' II case 26.

Travel Act Violations

Here are the elements of a Travel Act violation according to one court: “To prove a violation of the Travel Act, the government was required to establish that the [defendant]: 1) used a facility of interstate or foreign commerce; 2) with intent to commit any unlawful activity ' ; and 3) thereafter performed an additional act to further the unlawful activity.” United States v. Kozeny , 493 F.Supp. 2d 693, 705-706 (S.D.N.Y. 2007).

The DOJ has publicly stated that it intends to use every tool in its arsenal to prosecute overseas corruption. At a conference in 2007, an attorney with the DOJ's Fraud Section announced that it planned to use the Travel Act in future prosecutions and would now bring criminal cases under the books-and-records provisions of the FCPA ' another method for the federal government to prosecute corrupt payments in private business transactions that otherwise would not fall under the FCPA.

The DOJ's use of the Travel Act to prosecute commercial bribery is significant for U.S. businesses because it allows the government to bring charges against a company that is not an issuer on a domestic stock exchange and therefore not subject to the FCPA's accounting provisions. While it is unlikely that the government will bring cases based solely upon commercial bribery in a foreign jurisdiction and the Travel Act, corporations must take steps to insure that their employees are not engaging in activities that could trigger an investigation. Failing to do so could lead to catastrophic fines and penalties.

Conclusion

During recent years, companies doing business overseas have become increasingly concerned about the prospect of being targeted by the government for FCPA violations as a result of perceived bribes of public officials. That concern is well advised, given both the DOJ's dramatic increase in FCPA prosecutions and consistent saber-rattling over its growing use of the statute to attack foreign corruption involving U.S. businesses. Those same companies, whether publicly traded or privately held, are now cautioned to be on the lookout as well for acts of potential commercial bribery within their organizations. As one California company ' and convicted felon ' now knows, the Travel Act can be effectively triggered by a seemingly irrelevant state commercial bribery statute to criminalize and punish payments between private parties that never touch the hands of any public officials. The DOJ has a little-known weapon, and it's not afraid to use it.

The authors practice with the international law firm of Bracewell & Giuliani LLP. Jeffrey Ansley ([email protected]) is a partner in the Firm's Dallas office, where he focuses on white-collar defense. Don Berthiaume and Joshua Zive are associates in the firm's Washington, DC, office.