Does an FCPA Violation Require a Quid Pro Quo? Further Developments in the JP Morgan “Sons & Daughters” Case

One of the Foreign Corrupt Practices Act cases we’ve been paying relatively more attention to here on GAB is the investigation of JP Morgan’s hiring practices in Asia (mainly China), in connection to allegations that JP Morgan provided lucrative employment opportunities to the children of powerful Chinese officials–both in the government and at state-owned enterprises (SOEs)–in exchange for business. A couple weeks back the Wall Street Journal published a story about the case, indicating that the government and JP Morgan were likely to reach an agreement soon in which the firm would pay around $200 million to settle the allegations. (The WSJ story is behind a paywall, but Thomas Fox has a nice succinct summary of both of the case generally and of the recent developments reported by WSJ.)

I’ll admit that my first reaction, on seeing the WSJ report, was skepticism that we were actually on the verge of seeing a settlement announcement. After all, the last time the WSJ broke a story about an imminent settlement of an FCPA case we’ve been following here on GAB, it was a story about the Walmart investigation last October; that report said that “most of the work had been completed,” and hinted that the announcement of a (smaller-than-expected) settlement was imminent. It’s now nine months later… and still no settlement. Apparently the Walmart case may have gotten more complicated since the WSJ‘s October report, but still, I think there are sometimes good reasons to season these inside scoops with the appropriate grains of salt. But, back to the reports on JP Morgan’s Asian hiring practices.

To me the most interesting feature of the recent report concerns the legal issue that is reportedly the sticking point between the government and JP Morgan. That issue is not the question whether an SOE official is a “foreign official” for FCPA purposes: According to the WSJ report, JP Morgan is not disputing the government’s position that SOE executives, at least in this case, are foreign officials, even though that issue is a major focus of critics who believe the government’s interpretation of the FCPA is too broad. And, the question whether a job for a relative counts as “anything of value”–the question that provoked the extended blog debate between Professor Andrew Spalding and me, as well as a good chunk of the other commentary on the case–also does not seem to be something that JP Morgan is contesting. Rather, at least according to the WSJ report, the big question seems to be whether an offer of a job to an official’s relative, given with the intent to influence that official’s exercise of her duties, is a violation of the FCPA even if there is no quid pro quo–at least if the conduct takes place in a country where preferential hiring for official’s relatives is “standard business practice.”

This seems to be to be a legitimately hard legal question, and one where I’m not yet sure what I think. As our regular readers may know, I’m generally fairly “hawkish” on FCPA enforcement, usually sympathizing with the government’s broad reading. And the text of the FCPA can certainly be read not to require any quid pro quo–indeed, that might be the more natural reading. But in contrast to some of the other accusations of alleged overreach lodged against the US FCPA enforcement agencies, here (if the reports are to be believed) the argument on the other side is fairly strong, both as a matter of law and as a matter of policy. In the end, I think I still come down on the government’s side, both on the legal question and the policy issue. But I’m genuinely conflicted, and would very much like to hear what others think on this one.

First, some quick background on the statute for those who haven’t committed it to memory. Simplifying a bit (but not, I hope, too much for present purposes) the FCPA, as relevant to this case, prohibits JP Morgan and other covered entities from “corruptly … offer[ing] … or authoriz[ing] the giving of anything of value to any foreign official for purposes of influencing any act or decision of such foreign official in his official capacity … in order to assist … in obtaining or retaining business….” Let’s stipulate that there’s no question that JP Morgan gave something of value (the job to the relative) to a foreign public official, with the purpose of influencing that official’s decisions so that they would favor JP Morgan’s business interests. But let’s also assume that there was never any express quid pro quo, or even a tacit agreement. Rather, let’s assume that JP Morgan provided these jobs to officials’ relatives with the hope and expectation that doing so would make the officials more likely to throw business JP Morgan’s way. Is that an FCPA violation? Or is a quid pro quo required?

Note that the FCPA language quoted above does not require a quid pro quo in so many words. The operative language covers giving anything of value for purposes of influencing the foreign official in the exercise of her duties, in order to secure a business advantage. One can clearly provide benefits “for the purpose” of influencing a decision without an agreement that the benefits are being provided in exchange for the decision. All the action, then, is in the adverb corruptly.That word is not defined in the statute; the legislative history of the FCPA, as quoted in the government’s FCPA Resource Guide, says that an offer or payment is made “corruptly” when it is “intended to induce the recipient to misuse his official position.” The key word in that explanation (which otherwise doesn’t add much to the statutory language) is misuse, which fits with the understanding, applied in other areas of law, that act is done “corruptly” when it is in some sense intentionally wrongful.

So, can an offer be made “corruptly” even if there’s no agreement? If the question is asked that generally, I think the answer has to be yes. If a company showers an official with cash and luxury gifts, and we learn (or have strong enough evidence to confidently infer) that this was done with the expectation and intent that it would help win business that the firm wouldn’t otherwise get, this should count as benefits given “corruptly”–that is, for a wrongful improper purpose.

But here’s where things start to get a little tricky, for two reasons:

  • First, part of our understanding of whether an offer is made “corruptly” is with reference to ordinary business practices in the relevant context. When FCPA scaremongers suggest that the statute would criminalize buying a government official a cup of coffee or taking her out to a nice dinner after a business meeting, the DOJ/SEC can rightly respond that, not only would the government never prosecute such cases, that conduct probably isn’t prohibited by the FCPA in the first place. Such acts–though indisputably the provision of things of value, and likely intended to influence the public official in the broad sense of cultivating goodwill–were not done “corruptly”; no reasonable person would interpret them as a wrongful attempt to get the official to misuse her authority. As the government puts it in the Resource Guide: “[C]orrupt intent requirement protects companies that engage in the ordinary and legitimate promotion of their businesses while targeting conduct that seeks to improperly induce officials into misusing their positions.” But although I’m usually not a big fan of cultural relativism arguments in the FCPA context, it seems plausible that what counts as “ordinary and legitimate promotion” might vary from context to context. Is it possible that giving preferential treatment to official’s relatives in some contexts is so common that it would not be viewed as a wrongful attempt to get an official to misuse her position, but rather as a courtesy along the lines of the cup of coffee.
  • Second, even without invoking cultural relativism, we might conclude that ingratiating one’s firm with the powerful and well-connected by hiring their friends and relatives may in fact be fairly common–so common, in fact, that the acts would not be considered “corrupt” by most people in the relevant community (that qualifier invites important questions, but hold them for the moment). In earlier posts, when I’ve taken on the folks who assert that a job for an official shouldn’t count as “anything of value” under the FCPA because doing so would criminalize common practices in the US–ones that practically every firm engages in–I’ve been quick to dismiss those arguments. But I’ve done so in part by emphasizing that the hiring must be done with corrupt intent, and that if in the US a prosecutor found evidence that a firm had offered a federal official’s child a job as part of a quid pro quo deal with the government official for favorable treatment, that almost certainly would be viewed as  a federal crime and prosecuted as such. Looking back, I think I may have been a bit to cavalier in my dismissal of the concern, if only because I was assuming (without really thinking about it) that all the FCPA cases we might see in this vein would involve a quid pro quo. Indeed, the news reports suggested strong evidence that there was a quid pro quo in the JP Morgan case. But if the FCPA doesn’t require a quid pro quo in these cases, then we do have to confront the question of whether this creates a sufficiently awkward double standard that we might not even consider the job offer “corrupt” in the legal sense.

So that’s what I’m struggling with. At the moment, I’m still tentatively inclined to think that these job offers, when made with the express purpose of influencing particular official decisions, should still count as FCPA violations, for the following reasons:

  • On the cultural relativism argument, as a general rule the fact that a practice is widespread and widely tolerated does not cut much ice in FCPA cases. Indeed, the statute seems to signal quite clearly its hostility to such arguments by creating an affirmative defense under which the defendant must show the conduct was legal under the express written laws of the host country. In practice, this defense is hardly ever invoked, and never invoked successfully. But its mere presence signals fairly strongly that the statue admits of no other limitations grounded in alleged different understandings of what constitutes a bribe.
  • A case-by-case analysis is appropriate here, and may help distinguish “thumb on the scale” preferential hiring from gross attempts to offer jobs to relatives as inducements to public officials. The three key considerations, to my mind, ought to be (1) the degree of connection between the job offer and a particular official decision, or set of decisions (as distinct from general goodwill and connections); (2) the degree to which the official indicated that he very much hoped the firm would hire the relative (even if there was not enough evidence of agreement to establish a quid pro quo); and (3) the degree to which the firm relaxed its ordinary standards to hire the official’s relative. On that last point, just as we can distinguish the nice business meal from the luxury all-expense paid vacation, and the cab fare from the private jet, so too we can distinguish between the hiring of a well-qualified candidate whose personal family connections might have been a “plus factor” from the hiring of a lazy and incompetent relative whose only benefit to the firm is favorable treatment by the powerful relative.
  • On the point about how such hiring practices are common in the US, the above point mostly covers it, but to that I’d add that many of the arguments I made in the earlier post would still be valid: just because something is widespread here doesn’t make it good, and maybe the push to crack down on this behavior in foreign markets might have the salutory effect of getting us to take a harder look at ourselves.

For those reasons, I think JP Morgan likely violated the FCPA in this case even if there wasn’t a quid pro quo. But as I said at the beginning, I’m not at all certain about this, and I do hope others who have thoughts will weigh in.

18 thoughts on “Does an FCPA Violation Require a Quid Pro Quo? Further Developments in the JP Morgan “Sons & Daughters” Case

  1. Below is what Congress had to say about corrupt intent in the FCPA.

    A House Report stated as follows concerning corrupt intent:

    “The word ‘corruptly’ is used in order to make clear that the offer, payment, promise, or gift, must be intended to induce the recipients to misuse his official position; for example, wrongfully to direct business to the payer or his client, to obtain preferential legislation or regulations, or to induce a foreign official to fail to perform an official function. The word ‘corruptly’ connotes an evil motive or purpose such as that required under 18 U.S.C. 201(b) which prohibits domestic bribery. As in 18 USC 201(b), the word “corruptly’ indicates an intent or desire wrongfully to influence the recipient. It does not require that the act [be] fully consummated or succeed in producing the desired outcome.”

    A Senate Report further stated:

    “[The anti-bribery provisions] cover payments and gifts intended to influence the recipient, regardless of who first suggested the payment or gift. The defense that the payment was demanded on the part of a government official as a price for gaining entry into a market or to obtain a contract would not suffice since at some point the U.S. company would make a conscious decision whether or not to pay a bribe. That the payment may have been first proposed by the recipient rather than the U.S. company does not alter the corrupt purpose on the part of the person paying the bribe. On the other hand extortion situations would not be covered by this provision since a payment to an official to keep an oil rig from being dynamited should not be held to be made with the requisite corrupt purpose.”

    Scaremongering? Recent FCPA enforcement action have included allegations about flowers, cigarettes, karaoke bars, and golf in the morning and beer drinking in the evening.

    • Thanks for providing the full text of the relevant legislative history. I decided putting the full text in the post itself would make it too long, but it’s helpful to have it in the comment section. As I said in the post, the legislative history doesn’t indicate that a quid pro quo, in the sense of a meeting of the minds, is strictly necessary: wrongful intent to induce misuse of authority would seem to be enough, and that can occur even if the official never actually agrees, even implicitly, to do the firm a favor.

      As for “scaremongering” — for now I’ll stick to my guns on that. From the cases I’ve seen (that involve a penalty imposed), all the seemingly minor benefits you mention are all in the context of an ongoing wooing, wining, dining, etc. that plausibly satisfies the “corrupt intent” element. But tell you what: Name the case that you think is the single most ridiculous instance of the government bringing an enforcement action for trivial benefits. I’ll take a look, and if I agree that it really does involve an FCPA action threatened for minor, incidental social entertainment, I’ll retract (or at least modify) the “scaremongering” accusation.

  2. The house report stated (as quoted here: http://fcpaprofessor.com/donald-trump-the-fcpa-is-a-horrible-law-and-it-should-be-changed/):

    “While payments made to assure or to speed the proper performance of a foreign official’s duties may be reprehensible in the United States, the committee recognizes that they are not necessarily so viewed elsewhere in the world and that it is not feasible for the United States to attempt unilaterally to eradicate all such payments”

    What, then, differentiates facilitating payments from the cultural relativism argument? Wouldn’t they be similar in this circumstance?

  3. The house report stated (as quoted here: http://fcpaprofessor.com/donald-trump-the-fcpa-is-a-horrible-law-and-it-should-be-changed/):

    “While payments made to assure or to speed the proper performance of a foreign official’s duties may be reprehensible in the United States, the committee recognizes that they are not necessarily so viewed elsewhere in the world and that it is not feasible for the United States to attempt unilaterally to eradicate all such payments”

    What, then, differentiates facilitating payments from the cultural relativism argument? Wouldn’t they be similar in this circumstance?

  4. The following is a factual statement: recent FCPA enforcement action have included allegations about flowers, cigarettes, karaoke bars, and golf in the morning and beer drinking in the evening.

    I take the position that the DOJ/SEC include such allegations in FCPA enforcement actions for a reason and not just to practice their typing skills.

    • There’s no need to be snide. I never said that I thought that your statement was not “factual,” nor did I say or suggest that the particular minor benefits you mentioned in your first comment were included so DOJ/SEC officials could “practice their typing skills.”

      I said that my impression, based on the settled cases I’ve seen, is that when minor incidents like this are included in the summary of facts accompanying a settlement document, they are in the context of describing a much more extensive long-term relationship involving multiple gifts and favors that, when taken cumulatively, could plausibly be characterized as “corruptly” offering benefits in exchange for favorable treatment. Hence my view is that when FCPA critics mention these trivial benefits in isolation, suggesting that giving a government official a bouquet of flowers or taxi fare would _by itself_ support an FCPA prosecution, they are scaremongering.

      But I’m happy to acknowledge that I could be wrong. I don’t read every FCPA settlement document that comes out. I gather that you do. So I’m asking, in all seriousness, for you to name me the most blatant example (or two or three, but I’ll take just one for starters) of an FCPA settlement that involved merely trivial gifts in the context of routine social interactions.

      Name the case.

      • The DOJ and SEC’s websites (with links to all enforcement action documents) are below.

        https://www.justice.gov/criminal-fraud/related-enforcement-actions

        https://www.sec.gov/spotlight/fcpa/fcpa-cases.shtml

        You will find numerous examples of inconsequential things of value – including payments as small as $2 – being included as substantive allegations in DOJ / SEC resolution documents.

        Other than the legislative history component of my initial response, my only point is to rebut your assertion

        “When FCPA scaremongers suggest that the statute would criminalize buying a government official a cup of coffee or taking her out to a nice dinner after a business meeting, the DOJ/SEC can rightly respond that, not only would the government never prosecute such cases, that conduct probably isn’t prohibited by the FCPA in the first place.”

        By including the substantive allegations in the enforcement action documents, even if the inconsequential things of value allegations are only part of the overall conduct at issue, the DOJ/SEC – it sure would seem – are suggesting that the conduct is prohibited by the FCPA.

        Indeed, SEC Enforcement Chief Andrew Ceresney has given several speeches that include prominent mention of the “anything of value” element including his statement about the SEC’s “ongoing efforts to ensure that the FCPA is enforced to its fullest extent.”

        • OK, well, you still haven’t actually named any individual cases you think are examples of outrageous overreach. I’ll do some digging around on my own, and perhaps revisit this issue in tomorrow’s post. FWIW, I disagree that by listing actions that would seem inconsequential on their own, in the context of a larger pattern that indicates a sustained bribery scheme, the DOJ/SEC are suggesting that these actions on there own (without the larger context) would be prohibited by the FCPA, and indeed the Resource Guide makes precisely that point.

          • Small correction – payments as low as $4 (not $2).

            What other conclusion is there to draw when the DOJ or SEC set forth a litany of allegations (or findings in the case of SEC orders) and then the resolution document concludes with a summary or legal findings section using language such as “based on the above,” or “as a result of paragraphs a,b,c,and d (d being a paragraph about inconsequential things of value) the company violated the FCPA.

  5. Reblogged this on Matthews' Blog and commented:
    When it has to do with advanced economies and their managers, there are inconsistencies in their handling of anti-corruption efforts. But they shout to the hilt about the same crime in developing economies. Reason we are in with the Global Anti-corruption Blog on Matthews Blog.

  6. Pingback: Does an FCPA Violation Require a Quid Pro Quo? Further Developments in the JP Morgan “Sons & Daughters” Case | Anti Corruption Digest

  7. Pingback: Fact-Checking the FCPA Scaremongers | GAB | The Global Anticorruption Blog

  8. Matthew,
    I think the FCPA can b read to require that a gift-giver intend that the gift be a “quid” in return for a “quo” for there to be a violation. My source is the explanation from the Resource Guide that you provide. You write that the Guide “says an offer or payment is made ‘corruptly’ [and hence in violation of the statute] when it is ‘intended to induce the recipient to misuse his official position.’”
    Providing something of value with the intent that the recipient misuse his or her official position sounds to me to be equivalent to the Model Penal Code’s definition of bribery. As Professor Alschuler explained in his April 27 post, the code “defines bribery as offering [or] giving . . . any pecuniary benefit as ‘consideration’ for an official act.”

    Reading the FCPA this way avoids the problem Professor Alschuler says haunts federal bribery prosecutions and could come to haunt FCPA actions, interpreting “intent to influence” to cover efforts to curry favor with an official. Take the fear expressed by Professor Koehler that buying a public official a cup of coffee could be construed be an FCPA violation. The purchase was surely intended to influence the official. The question is what the purchaser’s intent was: to get the recipient to think well of the purchaser or to induce the recipient to misuse his or her office by, for example, awarding the purchaser’s company a contract without following the rules governing government procurement.

    Not only does this reading dispose of the fear someone would be convicted of an FCPA violation for buying a cup of coffee, it also disposes of the possibility that a prosecutor could charge someone with an FCPA violation for buying a public official a coffee. For under this reading, the prosecutor must also allege what the coffee was intended to produce in return. Were it the award of a multimillion dollar contract, even were the coffee a double macchiato I assume the prosecutor’s superiors would laugh him or her out of the office. On the other hand, were the prosecutor to attach a copy of the coffee buyer’s expense report to the charge sheet that stated that the purchase was in return for the official’s agreement to award the company a multimillion dollar contract, that would be another question entirely.

    To be sure, my reading of the statute requires that the legislative history’s term “misuse of official position” be equated to consideration for an official act. But that doesn’t seem to require much, if any, of a leap.

    Getting back to JP Morgan, part of the problem you see may arise from your equation of “hope” with “expectation.” You write –

    “[L]et’s assume that JP Morgan provided these jobs to officials’ relatives with the hope and expectation that doing so would make the officials more likely to throw business JP Morgan’s way. Is that an FCPA violation? Or is a quid pro quo required?”

    I grant you that “hope” and “expectation” are closely related, but hope carries with it the idea of desire while expectation connotes a far greater degree of certainty even to the point of an “assurance” of an outcome. It is one thing to desire that hiring a relative will make the official more likely to do business with JP Morgan. It is quite another thing to have an assurance that the hiring will result in the official doing business with JP Morgan. That is intending to extend a quid.

    Keep in mind too that the official doesn’t even have to know a quid is being extended. As Professor Alschuler notes in his discussion of the Model Penal Code, the term “offering” in the code “allows for the conviction of an individual acting alone. . . .” It is enough, he explains, that the offeror seeks a bargain with another. So offering a public official something of value believing the official will misuse her office in return makes out a violation.

    • I’m not sure we disagree on anything substantive, but I do think we might be using terminology in somewhat different ways:

      When I referred to a “quid pro quo,” I meant an agreement–a “meeting of the minds” (if you remember that term from your days in legal practice). Of course I agree with you that the FCPA requires that the benefit be conferred with the intent that it will result in favorable treatment. If that’s all we mean by quid pro quo, then of course that’s an essential element of the offense. But I was using the term “quid pro quo” in a stricter sense of an actual agreement (albeit perhaps an implicit one).

      The way this could cash out to a difference in result can be illustrated with the JP Morgan case itself (indeed, I suspect this is what the parties are fighting about): Suppose there’s enough evidence to show that JP Morgan gave a fancy internship to the boorish, incompetent offspring of a powerful Chinese official, and enough evidence to show that the only reason JP Morgan extended the offer was because they they thought that doing so would curry favor with the official sufficient to influence him to give JP Morgan business that it otherwise wouldn’t have gotten. But suppose there’s not any direct evidence that the official ever asked (or even hinted ahead of time) that giving his child a job was a precondition for getting the business. That’s a case in which a benefit was provided to a public official, in order to influence that official in the exercise of his duties in order to secure a business advantage–but a case in which there was not a quid pro quo in the narrower sense that I’m using the term.

      • Perhaps the problem is with the way different courts use the term “quid pro quo” in antibribery jurisprudence. In Evans v. United States and United States v. Sun-Diamond Growers, the Supreme Court used quid pro quo in the strict sense of the term when describing the elements of bribery. (Technically what the Court wrote in both was dicta as Evans was an extortion actin brought under the Hobbes Act and Sun-Diamond involved construction of the antigratuity statute. Perhaps an overeager clerk inserted some words the Justices chose to keep?)

        But the Court seems alone in that usage. A strict quid pro quo is not required to show bribery under the Model Penal Code. An offer extended with the intent that the offeree will perform an official act in return suffices. Nor have the federal appeals courts required a strict quid pro quo to uphold a conviction under the federal antibribery statute. Alschuler, Criminal Corruption: Why Broad Definitions of Bribery Make Things Worse, pp. 479 – 480. Thus, for example, the Fifth Circuit wrote in United State v. Whitfield that “a particular, specified act need not be identified at the time of payment to satisfy the quid pro quo requirement, so long as the payor and payee agreed upon a specific type of action yo be taken in the future.” 590 F.3rd 325, 350 (5th Cir. 2009).

        A language differences almost led me to think you were misstating the law in your reply above. You write that JP Morgan’s extending a job offer to an offspring of an official because its executives “thought that doing so would curry favor with the official sufficient to influence him to give JP Morgan business that it otherwise would not have gotten” is a violation. If what the executives intended was the garden variety of favor currying — we will make nice to the official and he will look with favor on us — then there is no violation because the favor currying gifts were not made the intent that doing so would induce the official to misuse his office to give JP Morgan business. In your hypothetical, you use favor currying in the limiting case: “sufficient to influence.” When employed that way, I believe it is equivalent to what the FCPA legislative history means when it defines “corruptly” as “intendend to induce.” Correct?

  9. Pingback: Three Key Questions to Ask in Hiring of Family Members of Foreign Officials – Compliance Report | Anti Corruption Digest

  10. Pingback: Fact-Checking the FCPA Scaremongers | Anti Corruption Digest

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