SDNY Judge Rules that Government May Introduce Background Evidence of Corruption in FCPA Case
The conviction last Friday of handbag magnate Frederic Bourke for bribing the government of Azerbaijan is probably enough on its own to strike fear into those doing business in the developing world – especially in countries with a high score on the Corruption Perceptions Index. But an evidentiary ruling in this high profile FCPA case may generate some serious cost-benefit analysis in boardrooms. In United States v. Kozeny, 2009 WL 1514369 (S.D.N.Y. May 29, 2009), SDNY Judge Scheindlin ruled that the government may introduce background evidence of corruption as part of its proof that the defendant consciously avoided knowing about the bribes at issue. (Another interesting decision in the case is discussed here.) The May 29 decision includes a detailed primer on the conscious avoidance doctrine, and is notable as the first reported application of the doctrine in an FCPA prosecution. It is also notable as an illustration of how a defendant can score an “own goal” by doing innocence or cooperation proffers in a triable case.
Facts
The defendant, Frederic Bourke, was charged with violations of the FCPA for allegedly making payments to Azeri officials to encourage the privatization of the State Oil Company of the Azerbaijan Republic and to permit him and others to participate in that privatization. He moved in limine to preclude the government from introducing at trial evidence of corruption in Azerbaijan to prove his knowledge of the bribes at issue. Under the FCPA, knowledge of a circumstance may be established by evidence that “a person is aware of a high probability of the existence of such circumstance, unless the person actually believes that such circumstance does not exist.” The evidence the government sought to introduce included “that Azerbaijan was known to be a corrupt nation, that the post-Communist privatization processes in other countries have been tainted by corrupt practices, that SOCAR was a strategic asset of Azerbaijan, and that Kozeny [Bourke’s co-defendant] was notorious as the ‘Pirate of Prague.’”
Conscious Avoidance and the FCPA
Agreeing with the defendant that the government may not introduce background evidence of corruption to show that he “should have known” that Azeri officials were being bribed, Judge Scheindlin held that here, however, the purpose of the evidence was to show that “a person of Bourke’s means, who was considering making a large investment in a venture in Azerbaijan, would have at least been aware of the high probability that bribes were being paid.” As such, it was relevant and admissible.
Defendant and Attorney Proffers
Critically, the court found no prejudice because the government would be able to establish the necessary factual basis for a conscious avoidance instruction. In fact, the government’s factual basis rested on the defendant’s own admissions in proffers to the government. Upon learning that he was the subject of a government investigation, Mr. Bourke appeared for a proffer session with the prosecutor, and admitted that he had been “warned by his counsel that Azerbaijan was the ‘Wild West’ and that doing business in Azerbaijan was like the movie ‘Chinatown,’ where there are ‘no rules.’” For good measure, one of his lawyers had turned over a recording of a conversation between Bourke, another investor and their attorneys in which Bourke revealed his knowledge of the dark side of business in Central Asia, e.g. “Do you think business is done at arm’s length in this part of the world?” (There are some intriguing waiver issues here, but the decision doesn’t explore them, only to note that everyone appeared to agree that the defendant had waiver his attorney-client privilege in his proffer.)
Imputing Others’ Knowledge to Defendant
Finally, the decision addresses another unusual and important issue: the circumstances under which the government may introduce and impute to the defendant evidence of a third party’s knowledge. Here, this knowledge could be imputed to Bourke based on his travels in a private jet with Viktor Kozeny (the alleged mastermind behind the SOCAR investment)and Bourke’s friendliness with Kozeny's “inner circle.” “Based on these [close business] relationships the jury has a fair basis to infer that the knowledge of these individuals can be imputed to Bourke.”
Comment
Much ink will be spilled on the conscious avoidance doctrine in an FCPA prosecution. But a lesson we can all (re)learn from this case is that proffers to the government in criminal cases can have a huge downside and should not be entered into lightly. There may have been compelling strategic reasons for Bourke's proffer in this case, but it always astonishes me how often and easily lawyers will escort the clients in for meetings with the prosecutors, instead of proceeding by attorney proffer or asserting the right to remain silent. As a wily criminal defense lawyer once said to me, “nothing is often the perfect thing to say and an excellent thing to do.”
Lawyers: Harold Haddon and Saskia Jordan, Haddon Morgan Mueller Jordan Mackey & Foreman P.C., John Cline and K.C. Maxwell, Jones Day LLP, Dan Webb, James Reich, Jr. and Christopher Paolella, Winston & Strawn LLP (defendant); AUSA Harry Chernoff
Facts
The defendant, Frederic Bourke, was charged with violations of the FCPA for allegedly making payments to Azeri officials to encourage the privatization of the State Oil Company of the Azerbaijan Republic and to permit him and others to participate in that privatization. He moved in limine to preclude the government from introducing at trial evidence of corruption in Azerbaijan to prove his knowledge of the bribes at issue. Under the FCPA, knowledge of a circumstance may be established by evidence that “a person is aware of a high probability of the existence of such circumstance, unless the person actually believes that such circumstance does not exist.” The evidence the government sought to introduce included “that Azerbaijan was known to be a corrupt nation, that the post-Communist privatization processes in other countries have been tainted by corrupt practices, that SOCAR was a strategic asset of Azerbaijan, and that Kozeny [Bourke’s co-defendant] was notorious as the ‘Pirate of Prague.’”
Conscious Avoidance and the FCPA
Agreeing with the defendant that the government may not introduce background evidence of corruption to show that he “should have known” that Azeri officials were being bribed, Judge Scheindlin held that here, however, the purpose of the evidence was to show that “a person of Bourke’s means, who was considering making a large investment in a venture in Azerbaijan, would have at least been aware of the high probability that bribes were being paid.” As such, it was relevant and admissible.
Defendant and Attorney Proffers
Critically, the court found no prejudice because the government would be able to establish the necessary factual basis for a conscious avoidance instruction. In fact, the government’s factual basis rested on the defendant’s own admissions in proffers to the government. Upon learning that he was the subject of a government investigation, Mr. Bourke appeared for a proffer session with the prosecutor, and admitted that he had been “warned by his counsel that Azerbaijan was the ‘Wild West’ and that doing business in Azerbaijan was like the movie ‘Chinatown,’ where there are ‘no rules.’” For good measure, one of his lawyers had turned over a recording of a conversation between Bourke, another investor and their attorneys in which Bourke revealed his knowledge of the dark side of business in Central Asia, e.g. “Do you think business is done at arm’s length in this part of the world?” (There are some intriguing waiver issues here, but the decision doesn’t explore them, only to note that everyone appeared to agree that the defendant had waiver his attorney-client privilege in his proffer.)
Imputing Others’ Knowledge to Defendant
Finally, the decision addresses another unusual and important issue: the circumstances under which the government may introduce and impute to the defendant evidence of a third party’s knowledge. Here, this knowledge could be imputed to Bourke based on his travels in a private jet with Viktor Kozeny (the alleged mastermind behind the SOCAR investment)and Bourke’s friendliness with Kozeny's “inner circle.” “Based on these [close business] relationships the jury has a fair basis to infer that the knowledge of these individuals can be imputed to Bourke.”
Comment
Much ink will be spilled on the conscious avoidance doctrine in an FCPA prosecution. But a lesson we can all (re)learn from this case is that proffers to the government in criminal cases can have a huge downside and should not be entered into lightly. There may have been compelling strategic reasons for Bourke's proffer in this case, but it always astonishes me how often and easily lawyers will escort the clients in for meetings with the prosecutors, instead of proceeding by attorney proffer or asserting the right to remain silent. As a wily criminal defense lawyer once said to me, “nothing is often the perfect thing to say and an excellent thing to do.”
Lawyers: Harold Haddon and Saskia Jordan, Haddon Morgan Mueller Jordan Mackey & Foreman P.C., John Cline and K.C. Maxwell, Jones Day LLP, Dan Webb, James Reich, Jr. and Christopher Paolella, Winston & Strawn LLP (defendant); AUSA Harry Chernoff
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