Time to Investigate Nike’s ‘Commitment Bonus’ to Kenya’s Track and Field Authority

Since last November Kenya has been rife with claims (here and here for press reports) that American shoemaker Nike bribed the nation’s track and field authority to ensure the country’s runners compete wearing Nike shoes.  While Nike denies wrongdoing, the March 6 issue of the New York Times provides details which suggest the allegations are true.  Yet despite the mounting evidence that an American company is at the center of a high profile corruption case in Kenya, the Times reports the U.S. has not opened an investigation.  Its failure to do so, in the face of President Obama’s stern lecture about corruption to the Kenyan elite during his July 2015 visit to the country and the agreement reached during his visit pledging the U.S. to help Kenya fight corruption, has left Kenyans frustrated and angry at America.  It is “hypocritical,” famed Kenyan corruption fighter John Githongo told the Times, for the American government to “bang on” about Kenya without investigating allegations against the iconic American company.

According to the Times, American officials believe the U.S. is powerless to investigate because, even if Nike did indeed pay a bribe, it was to employees of a private entity, and private sector bribery is not covered by the anti-bribery provisions of the Foreign Corrupt Practices Act.  But while private sector bribery itself is not an FCPA offense, this does not mean Nike is off the hook.  If an American company bribes an employee of a private entity, as it is alleged Nike has, it runs afoul of numerous state and federal statutes, anyone of which could provide the basis for launching an investigation.  Four that come to mind immediately are:  

*The Federal Trade Commission ActSection 5 of that acts outlaws ‘‘unfair methods of competition,” and private sector, or commercial, bribery has long been proscribed by the act. The Federal Trade Commission, which enforces the law, has a range of investigative tools at its service, some of which are broader than those available to the Department of Justice in FCPA cases. Although to come within section five’s proscriptions, commercial bribery must have a “direct, substantial, and reasonably foreseeable effect” on U.S. exports, if indeed Nike did bribe officials of the Kenyan athletics agency to gain the exclusive right to furnish its shoes to Kenyan runners, it denied New Balance, ASICS, Reebok and dozens of other American companies the right to compete fairly for that right, harming their ability to export their products in direct violation of one the nation’s bedrock commercial statutes.  Moreover, 2006 amendments to the act give the commission wide discretion to share information uncovered in its investigation with foreign law enforcement agencies.

* State Unfair Competition Laws.  While section 5 violations give rise only to administrative sanctions, fines and orders requiring businesses to change their practices, three-quarters of the American states make commercial bribery a felony.  These include Californian, Florida, and New York, all states where Nike has significant sales and faces substantial competition from other firms.  (But not, surprisingly, Oregon, Nike’s home state and one with a reputation for clean government.  Hint, hint Oregon legislators.) There is no reason why an attorney general or prosecutor in one of these states couldn’t open an investigation.

* Federal wire fraud statute.  It is a federal crime to transmit by wire any “writing” in furtherance of a “scheme . . . to defraud” an individual or entity.  The statute bars not only tricking or deceiving a victim into parting with money or other tangible property, but frauds that result in depriving the victim of intangible property.  If Nike did indeed bribe employees of Athletics Kenya, it defrauded the organization of the honest services of those employees, and e-mail traffic between Nike managers and Athletics Kenya officials is enough to make the fraud a violation of the statute.  Although most prosecutions of “honest services fraud” result from depriving a government of the honest services of a public employee through bribery, the wire fraud/honest services fraud theory has been used to prosecute commercial bribery as well.  Nor is the statute limited to domestic commercial bribery.

* The Foreign Corrupt Practices Act. The FCPA contains two substantive provisions, one banning bribery and one requiring firms to keep accurate books and records.  While the anti-bribery provisions of the act do not apply unless the bribe-taker is a “foreign official,” Nike might still have run afoul of the books and records provision.   It depends upon how it described the payment to Athletics Kenya in its internal records. If the payment was in reality a bribe but was not recorded as such on the company’s books, it violated this latter provision.

The Times article claims Nike paid Athletics Kenya, the non-governmental agency that oversees the country’s track and field competition, a no-strings-attached $500,000 “commitment bonus” to ensure Kenyan runners continued to compete wearing Nike shoes, a payment a former agency employee told the Times was in reality a bribe.  The Times also reports it is unusual if not unprecedented to pay a national athletics association a commitment bonus and that the payment was made after the agency’s chair e-mailed Nike saying “Urgent!!” and put “invoice” in the heading.  Furthermore, unlike previous Nike sponsorship fees, the Times says the contract involving the commitment bonus contained no details for how the money was to be used.  Finally, according to the Times, one of its reporter reviewed Athletics Kenya banks records showing the $500,000 was withdrawn from the agency’s bank within days of its receipt by top officials though no track meet was scheduled and no other reason for a hasty withdrawal was evident.

The former employee who claims the commitment bonus was a bribe may not have known all the facts.  Other claims in the story may be wrong.  Or it may be that, even if the facts are as the Times reports, senior officers of Nike were duped.  But surely, given the plethora of laws Nike would have violated if the Times’ story is accurate and President Obama’s commitment to help Kenya fight corruption, an investigation is merited.  What are U.S. authorities waiting for?

9 thoughts on “Time to Investigate Nike’s ‘Commitment Bonus’ to Kenya’s Track and Field Authority

  1. This is a very useful survey of the U.S. legal instruments that could be used to go after Nike if the facts are as alleged. One small quibble, though. I read the NYT article, and I didn’t see any statement by American officials that they’re powerless to do anything because this would be a case of private bribery. Rather, the relevant passage discussing the views of U.S. officials says: “American diplomats in Nairobi, Kenya’s capital, said that the United States government would be willing to investigate any credible allegations of corruption by American companies, but that they had no specific knowledge of the Nike deal beyond what had been reported in the Kenyan and international news media.” And later in the story, in discussing the reasons not to prosecute, the NYT quoted an anonymous federal prosecutor who said (according to the NYT paraphrasing): “[I]n many corruption cases, concealment was an indicator of criminal intent and that in this case, there was no obvious concealment by Nike…. [Also,] it would be very difficult to prove that Nike executives knew that the Kenyan officials were going to steal the bonus.”

    The only discussion of difficulties that might be created by the fact that this is a private bribery case comes near the very end, in a passage that cites unnamed “analysts” as saying “this case was especially tricky because it did not appear to fall under the Foreign Corrupt Practices Act,” due to the fact that the Kenyan athletics association is not a government entity. The only analyst mentioned by name in that paragraph (and I’m not sure it’s the one who made the point about the FCPA) is an environmental studies professor (not, as the Times says, a political scientist) who writes on sports-related topics, not a legal scholar.

    I mention this not because I disagree with any of the main substance of your post, but because I think you might have been a bit unfair to the U.S. authorities in implying that they are ignorant of, or disinclined to use, the legal tools you discuss. I suspect that someone who doesn’t really know these legal issues that well said something about the limits of FCPA jurisdiction in an interview, and that found its way into the story, but the actual quotes in the story from both U.S. officials and legal experts indicate that the reason that there has not yet been an investigation is not because of a lack of legal tools, but because the facts might not support a charge. That latter conclusion could well be wrong, though.

    • I take your point and had meant to say the story left the suggestion that U.S. authorities couldn’t do anything because, even if true, the allegations didn’t make out a violation of the anti-bribery provisions of the FCPA. But at the same time, I find it hard to believe that the allegations in the Kenyan and American media are not enough to merit at least a preliminary inquiry.

      I also find it hard to understand why the U.S. is leaving the impression that no action is contemplated. I understand why law enforcement authorities can’t say “We are going to investigate Nike,” but surely they could say something to the effect that they take allegations of commercial bribery seriously and, despite the limitation of the FCPA, have a more than adequate basis in U.S. law to investigate credible allegations of an offense. That would hardly be telling Nike something it did not already know (unless its executives think the absence of an Oregon law on commercial bribery means they are home-free). I would think it doubly important to issue such a statement given how soon after the Obama visit the allegations appeared in the press.

      • Everything you say makes sense to me. Not sure why the U.S. is being so cautious. Election year politics? Foreign policy considerations? A genuine belief that the facts as reported in the media are inaccurate? A general policy against saying much of anything at such an early stage?

  2. Interesting and helpful post, Rick. Might you also include the Travel Act? The Travel Act subjects to fines and/or imprisonment “[w]hoever travels in . . foreign commerce or uses the mail or any facility in . . foreign commerce, with intent to—(1) distribute the proceeds of any unlawful activity; or . . . (3) otherwise promote, manage, establish, carry on, or facilitate the promotion, management, establishment, or carrying on, of any unlawful activity, and thereafter performs or attempts to perform—[the unlawful activity].” The Travel Act defines unlawful activity, in part, as “extortion, bribery, or arson in violation of the laws of the State in which committed . . .” I’m unsure if foreign bribery can be “committed” in a state but an improper bank transfer initiated in-state seems like it should qualify. If so, this tool would provide federal authorities – understandably more focused on prosecuting transnational corruption than their state-level counterparts – with an opportunity to take advantage of state commercial bribery laws.

    It sounds like some of the facts in the Nike case are still getting worked out, but this story raises the broader issue of the treatment of private, commercial bribery in the United States. For all the U.S. has led a crusade against foreign bribery of public officials, other countries’ laws do far more to combat private bribery (e.g. the UK, China). Do you think the laws you have described above give American authorities “enough” jurisdiction over bribery that occurs internationally between private entities? Or do you foresee legislative developments in this realm?

    • Related to Elizabeth’s point, if you want there to be broader prosecution of foreign private bribery by the DOJ, I’m curious how tight you think the connection between the corporation and the United States should be as a normative matter. While Nike’s identity is clearly as an American company, many other corporations the US potentially has jurisdiction over will not be. Do you think the same arguments that justify the US prosecuting those companies under the FCPA for bribery of foreign officials apply to private company officials as well?Obviously the United States has chosen use the FCPA to prosecute, in places like China, companies that are public – and thus public officials run them – that would be private in more free-market oriented countries.

      • “No nation has ever yet pretended to be the custos morum of the whole world . . . .” (Story J.) cited in Kiobel v. Royal Dutch Petroleum Co.133 S.Ct. 1659, 1663 (2013)

        It is tempting to want to expand the jurisdiction of U.S. courts to right wrongs that will otherwise never be righted but there are risks to trying to become the guardian of the “whole world’s” mores. While Chief Justice Roberts and his conservative brethren on the Court may have gone too far in the opposite direction in Kiobel, a line needs to be drawn somewhere. It used to be drawn at the question of effect. If the conduct had little or no effect on the U.S. (or U.S. commerce), then there was no subject matter jurisdiction. In that NYU Journal of International Law and Politics note I cite in the blog, author Stephen C. Thompson makes a good case that despite the Kiobel majority’s effort to replace the effects test with a much narrower one, it is creeping back in.

    • I have always thought the U.S. had sufficient law. But that is partly because of a formative experience. My first case as a lawyer was defending a company alleged to have bribed retail outlets to carry its goods to the exclusion of its competitors. The main claim was an attempt to monopolize in violation of Section 2 of the Sherman Act. The plaintiff didn’t need a specific civil statute. After the case settled, it then put a U.S. Attorney onto the client contending that the conduct at issue was also a criminal RICO violation.

      I suppose a federal criminal statute explicitly making commercial bribery a crime would be useful and do no harm. But on the other hand, a motivated prosecutor certainly has enough statutes at hand. The ones I mentioned, the Travel Act you note, and a variety of other acts like RICO.

  3. Pingback: Time To Investigate Nike’s ‘Commitment Bonus’ To Kenya’s Track And Field Authority | Anti Corruption Digest

  4. Pingback: Development Channel » This Week in Markets and Democracy: Nike’s Bribes in Kenya, Elections in Benin and Niger, and Women’s Anticorruption Role

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