Annex B
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT
OF NEW YORK
United States of America
—against—
Viktor Kozeny, Frederic Bourke, Jr., and David
Pinkerton,
Defendants.
OPINION AND
ORDER
05 CR. 518 (SAS)
Shira A. Scheindlin, U.S.D.J.:
I. INTRODUCTION
This prosecution relates to alleged violations
of the Foreign Corrupt Practices Act ("FCPA") by defendant
David Bourke and others in connection with the privatization of
the State Oil Company of the Azerbaijan Republic ("SOCAR").
Bourke has requested that the Court make determinations as to
the content of applicable law in Azerbaijan and instruct the jury
on certain defenses that might be available under the law of Azerbaijan.
The Government and Bourke were unable to agree on the contents
or applicability of that law. To resolve this disagreement, the
Court held a hearing on September 11, 2008. This Opinion and Order
contains the Court's determinations.
II. BACKGROUND
A. Facts
The Government's allegations in this case are
complex, and it is unnecessary to recite them here. The relevant
facts are as follows: SOCAR is the state oil company of the Republic
of Azerbaijan.[227]
In the mid-1990s, Azerbaijan began a program of privatization.[228]
The program gave the President of Azerbaijan, Heydar Aliyev, discretionary
authority as to whether and when to privatize SOCAR.[229]
Bourke and others allegedly violated the FCPA by making payments
to Azeri officials to encourage the privatization of SOCAR and
to permit them to participate in that privatization.[230]
Bourke argues that the alleged payments were legal under Azeri
law and thus under the FCPA (which provides an affirmative defense
for payments that are legal under relevant foreign law) because
they were the product of extortion.[231]
He also argues that pursuant to Azeri law, any criminality associated
with the payments was excused when he reported them to the President
of Azerbaijan.[232]
The Government and Bourke have submitted expert reports.
The Government's expert is William E. Butler, John Edward Fowler
Distinguished Professor of Law at the Dickinson School of Law,
Pennsylvania State University, and Emeritus Professor of Comparative
Law at the University of London.[233]
Bourke's expert, Paul B. Stephan, is the Lewis F. Powell, Jr.
Professor of Law at the University of Virginia.[234]
On September 11, 2008, the Court held a hearing in which the experts
testified as to their interpretations of the relevant law.[235]
B. The Legal System of Azerbaijan
Azerbaijan, a sovereign nation in the Caspian
Sea region that borders Russia, was formerly integrated as a Republic
of the Soviet Union.[236]
Azerbaijan declared independence in 1991 .[237]
The current criminal code of Azerbaijan took effect in 2000.[238]
In Azerbaijan, decisions of most courts are not considered binding
authority; however, the highest court in Azerbaijan has the authority
to give official interpretations of the Azeri Constitution and
laws.[239]
III. LEGAL STANDARD
A. The FCPA
The FCPA prohibits giving something of value
for the purpose of "(i) influencing any act or decision of
[a] foreign official in his official capacity, (ii) inducing such
foreign official to do or omit any act in violation of the lawful
duty of such official, or (iii) securing any improper advantage … to
obtain or retain business for or with any person."[240]
The law provides an affirmative defense for payments that are
"lawful under the written laws and regulations" of the
country.[241]
B. Foreign Law
"Though foreign law once was treated as
an issue of fact, it now is viewed as a question of law and may
be determined through the use of any relevant source, including
expert testimony."[242]
Rule 26.1 of the Federal Rules of Criminal Procedure provides
that "[a] party intending to raise an issue of foreign law
must provide the court and all parties with reasonable written
notice. Issues of foreign law are questions of law, but in deciding
such issues a court may consider any relevant material or source—including
testimony—without regard to the Federal Rules of Evidence."
IV. DISCUSSION
During the relevant period, Article 170 of
the Azerbaijan Criminal Code ("ACC") provided that "[t]he
receiving by an official… of a bribe in any form whatsoever
for the fulfillment or the failure to fulfill any action in the
interest of the person giving the bribe which the official should
have or might perform with the use of his employment position … shall
be punished by deprivation of freedom..."[243]
Professor Stephan asserts that during the same period, Article
171 of the ACC provided that "[giving a bribe shall
be punished by deprivation of freedom for a term of from three
to eight years…. A person who has given a bribe shall be
free from criminal responsibility if with respect to him there
was extortion of the bribe or if that person after giving the
bribe voluntarily made a report of the occurrence."[244]
Professor Butler believes that a more accurate translation of
the last clause is "[a] person who has given a bribe shall
be relieved from criminal responsibility if extortion of
the bribe occurred with respect to him or if this person after
giving the bribe voluntarily stated what happened."[245]
The Supreme Court of the USSR interpreted Article
171 in a Resolution published in 1990.[246]
The parties agree that the Resolution is relevant to the Azeri
courts' interpretation of the Article.[247]
It defines extortion as "a demand by an official for a bribe
under the threat of carrying out actions that could do damage
to the legal interests of the briber..."[248]
The Resolution further explains that "a voluntary declaration
of having committed the crime absolves from criminal responsibility
not only the bribe giver but his accomplices."[249]
Finally, the Resolution provides that "[t]he absolution of
a bribe-giver from criminal responsibility because of extortion
of the bribe or the voluntary declaration of the giving of the
bribe … does not signify an absence in the actions
of such persons of the elements of an offense. For that reason,
they cannot be considered victims and are not entitled to claim
restitution of the items of value given as bribes."[250]
As a threshold matter, I must determine the
meaning of "relieved (or free) from criminal responsibility."
Bourke contends that if an individual is relieved of criminal
responsibility, his action was "lawful" and he may thus
avail himself of the FCPA's affirmative defense. I disagree.
For purposes of the FCPA's affirmative defense,
the focus is on the payment, not the payer.[251]
A person cannot be guilty of violating the FCPA if the payment
was lawful under foreign law. But there is no immunity
from prosecution under the FCPA if a person could not have been
prosecuted in the foreign country due to a technicality (eg, time-barred)
or because a provision in the foreign law "relieves"
a person of criminal responsibility. An individual may be prosecuted
under the FCPA for a payment that violates foreign law even if
the individual is relieved of criminal responsibility for his
actions by a provision of the foreign law.
A. The Reporting Exception
As Professor Butler observes, the structure
of the reporting exception to liability in Article 171 illustrates
that the initial payment of a bribe was certainly not lawful.[252]
The ACC relieves the payer of a bribe from criminal liability
if the bribe is properly reported not because such an action retroactively
erases the stain of criminality, but because the state has a strong
interest in prosecuting the government official who received the
bribe. By waiving liability for reporting payers, the state increases
the likelihood that it will learn of the bribery.
But at the moment that an individual pays a
bribe, the individual has violated Article 171. At that time,
the payment was clearly not "lawful under the written laws"
of Azerbaijan.[253]
If the individual later reports the bribe, she can no longer be
prosecuted for that payment. But it is inaccurate to suggest that
the payment itself suddenly became "lawful"—on
the contrary, the payment was unlawful, though the payer
is relieved of responsibility for it.[254]
This is why the Resolution provides that the payer cannot receive
restitution. Further, if the payment were retroactively
lawful, the official who received the payment could not be prosecuted
for receiving it. This cannot be correct because the purpose of
the reporting exception is to enable the government to pursue
the official. Thus, the relief from liability in Article 171 operates
to excuse the payer, not the payment.
B. The Extortion Exception
The exception for extortion contained in the
same sentence must operate in the same manner.[255]
A payment to an Azeri official that is made under threat to the
payer's legal interests is still an illegal payment, though the
payer cannot be prosecuted for the payment.[256]
This conclusion does not preclude Bourke from
arguing that he cannot be guilty of violating the FCPA by making
a payment to an official who extorted the payment because he lacked
the requisite corrupt intent to make a bribe.[257]
The legislative history of the FCPA makes clear that "true
extortion situations would not be covered by this provision."[258]
Thus, while the FCPA would apply to a situation in which a "payment
[is] demanded on the part of a government official as a price
for gaining entry into a market or to obtain a contract,"
it would not apply to one in which payment is made to an official
"to keep an oil rig from being dynamited," an example
of "true extortion."[259]
The reason is that in the former situation, the bribe payer cannot
argue that he lacked the intent to bribe the official because
he made the "conscious decision" to pay the official.[260]
In other words, in the first example, the payer could have turned
his back and walked away—in the latter example, he could
not.
If Bourke provides an evidentiary foundation
for the claim that he was the victim of "true extortion,"
I will instruct the jury on what constitutes a situation of "true
extortion" such that Bourke would not be found to have possessed
the "corrupt" intent required for a violation under
the FCPA. In any event, the jury will be instructed regarding
the "corrupt" intent that the Government must prove
he possessed beyond a reasonable doubt he possessed.[261]
Such instruction will define "corrupt" intent as "having
an improper motive or purpose" and will explain that the
payment must have been intended to "induce the recipient
to misuse his official position" in discharging an official
act.[262]
The charge will also emphasize that the proper focus is on Bourke's
intent and that the Government is not required to show that "the
official accepted the bribe," that the "official had
the power or authority to perform the act sought" or that
the "defendant intended to influence an official act which
was lawful."[263]
V. CONCLUSION
For the reasons stated above, the Court will
not instruct the jury on the exceptions to criminal liability
in Article 171. However, if Bourke provides an evidentiary foundation
for "true extortion," the Court will instruct the jury
on what constitutes a "true extortion" situation such
that Bourke would not be found to possess the "corrupt"
intent required for a violation under the FCPA.[264]
The Court will, in any case, instruct the jury on the requisite
elements of the crime of bribery under the FCPA, including the
element of "corrupt" intent.
SO ORDERED;
Shira A. Scheindlin
U.S.D.J.
Dated: New York, New York
October 21, 2008
227 See generally Frontera Res. Azerbaijan Corp. v.
State Oil Co. of Azerbaijan Republic, 479 F. Supp. 2d 376,
378 (S.D.N.Y. 2007). Back
228
See Indictment of Vicktor Kozeny, Frederic Bourke, Jr., and David
Pinkerton ("Ind.") para 4. Back
229
See id. Back
230
Ind. para 18. Back
231
See Supplemental Memorandum of Law in Support of Defendant Frederic
A. Bourke's Motion Regarding Azeri Law Issues ("Def. Supp.
Br.") at 4; see also Daventree Ltd. v. Republic of
Azerbaijan, 349 F. Supp. 2d 736 (S.D.N.Y. 2004) (addressing
claims by private investors in SOCAR privatization alleging extortion
and various corrupt practices). Back
232
See Def. Supp. Br. at 4. Back
233
See 8/21/08 Declaration of the Government's Expert Professor
William E. Butler ("Butler Decl.") para 1. Back
234
See 4/7/08 Declaration of Defendant's Expert Professor Paul
B. Stephan ("Stephan Deck") para 1. Back
235
See 9/11/08 Transcript ("Tr."). Back
236
See lnd. para 3. Back
237
See The Constitutional Act on Restoration of the State Independence
of the Republic of Azerbaijan (Oct. 18, 1991). Back
238
See Stephan Decl. para 5. Back
239
See id. Back
240
15 U.S.C. § 78dd-2(a)(l)(A). Back
241
Id. § 78dd-2(c). Back
242
United States v. Vilar, No. 05 Cr. 621, 2007 WL
1075041, at *55 n.35 (S.D.N.Y. Apr. 4, 2007). Back
243
Butler Decl. para 10. Back
244
Stephan Decl. para 3 (emphasis added). Back
245
Butler Decl. para 10 (emphasis added). The word appears to
be "russian text or russian text," which is generally
translated as "liberation," but can also mean "relieved."
See Tr. at 174. See also russian text (Deutsche Film-Aktiengesellschaft/Mosfilm
1969), a Soviet film that depicts the "liberation" of
Berlin during World War II. Back
246
See Resolution of the Plenum of the Supreme Court of the U.S.S.R.
of March 30, 1990, No. 3, "On Court Practice in Bribery Cases,"
("Res.") Ex. C to Stephan Decl. Back
247
See Stephan Decl. para 7; Butler Decl. para 16. Back
248
Res. pt. 11. Back
249
Id. pt. 19. Back
250
Id. pt 20. Back
251
The FCPA focuses on payments, not payers, throughout its structure.
For example, it provides that there is no liability for "any
facilitating or expediting payment to a foreign official…
the purpose of which is to expedite or to secure the performance
of a routine governmental action by a foreign official…."
15 U.S.C. § 78dd-2(b). The purpose of this subsection
was to "acknowledge[ ] … that some payments
that would be unethical or even illegal within the United States
might not be perceived similarly in foreign countries, and those
payments should not be criminalized." United States v.
Castle, 925 F.2d 831, 834 (5th Cir. 1991). Back
252
See Butler Decl. para 46. Back
253
In this sense, the relief from liability operates in a fashion
similar to that of a statute of limitations in the United States.
If an individual commits a crime but that individual is not prosecuted
within the statute of limitations, the individual's actions do
not become "lawful"-rather, the criminal cannot be prosecuted. Back
254
Cf. Tr. at 37 (testimony of Stephan) ("It's my
understanding that the term relief from criminal responsibility
means that the criminal code no longer applies to this person … ."). Back
255
While in the American system, it is generally accepted that a
payment that was extorted was not a "bribe," the language
of Article 171 clearly indicates that Azeri law considers
extorted payments to be bribes. Otherwise, the phrase "[a]
person who has given a bribe shall be free from criminal responsibility
if with respect to him there was extortion of the bribe"
would make no sense. Back
256
See Tr. at 215-216 (testimony of Butler) ("Let's assume
for a moment the worst forms of extortion. … So
that I as the bribe giver, I will pay no matter what. … I
am still guilty of giving the bribe because the code says I am.
So now the question is whether having done so under these circumstances
the court will convict me of bribery, and I think the answer is
no, but it's going to have to be at the court level that that's
determined, not before."). Back
257
By the same token, an individual who is forced to make payment
on threat of injury or death would not be liable under the FCPA.
Federal criminal law provides that actions taken under duress
do not ordinarily constitute crimes. See generally United States
v. Gonzalez, 407 F.3d 118, 122 (2d Cir. 2005) ("Three
discrete elements must be met to establish coercion or duress.
These are: (1) a threat of force directed at the time of the defendant's
conduct; (2) a threat sufficient to induce a well-founded fear
of impending death or serious bodily injury; and (3) a lack of
a reasonable opportunity to escape harm other than by engaging
in the illegal activity.") (citing United States v. Podlog,
35 F.3d 699, 704 (2d Cir. 1994)). If a payment was
obtained under duress, no liability attaches under the FCPA. Back
258
See S.Rep. No. 95-114, at 10-11 (1977), reprinted in 1977 U.S.C.C.A.N.
4098, 4108. Back
259
Id. Back
260
Id. at 10. Back
261
See United States v. Alfisi, 308 F.3d 144, 150 n.
1 (2d Cir. 2002) (citing United States v. Kahn, 472
F.2d 272, 279 (2d Cir. 1973) (finding that the issue of extortion
or "economic coercion" is addressed by instructing the
jury on the requisite intent of bribery). Back
262
S.Rep. No. 95-114, at 10 (defining the word "corruptly"
for purposes of the FCPA). Back
263
1 L. Sand, et. al., Modern Federal Jury Instructions-Criminal
para 16.01, instr. 16-6(2008). Back
264
If Bourke demonstrates an evidentiary foundation for an affirmative
defense of duress, the Court will also instruct the jury on its
elements. See Gonzalez, 407 F.3d at 122 ("A defendant
is entitled to an instruction on an affirmative defense only if
the defense has 'a foundation in the evidence'") (quoting
Podlog, 35 F.3d at 704). Back
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