United States v. David Kay and Douglas Murphy (S.D. Tex. 2002)
Date Filed
12/12/2012
Enforcement Agency
DOJ
Countries
Haiti
Foreign Official
Haitian Customs and Tax Officials.
Date of Conduct
1998 to 1999
Nature of Business
American Rice, Inc. (“ARI”) has a Haitian subsidiary, Rice Corporation of Haiti (“RCH”), engaged in the import of rice to Haiti. ARI is a Texas corporation and a U.S. issuer. Douglas A. Murphy is the former president of American Rice, and David Kay is the former vice president. Lawrence H. Theriot is a former consultant to American Rice.
Influence to be Obtained
False shipping documents reducing the amount of customs duties and sales taxes due to Haitian authorities.
Enforcement
As vice president of marketing for ARI, David Kay was responsible for supervising sales and marketing in Haiti. Kay was charged with twelve counts of violating the FCPA. Douglas Murphy, as president of ARI, was also charged with twelve counts of violating the FCPA. In May of 2002, U.S. District Judge David Hittner dismissed the indictments against Murphy and Kay.
On February 11, 2004, the United States Court of Appeals for the Fifth Circuit overturned the district court decision and ruled that: 1) the FCPA is sufficiently broad to include violations of the FCPA designed to obtain a tax benefit; and 2) since the business nexus[1] element of the FCPA does not go to the core of criminality under the statute, the fact that the indictment only tracks the language of the statute does not render it facially insufficient.
However, since the indictment in the instant matter only paraphrased the language in the statute with regard to the element of intent, the court suggested that on remand, the defendants may wish to submit a motion to the district court seeking to compel the government to allege more specific details demonstrating: 1) what business was sought to be obtained or retained; and 2) how the intended quid pro quo was meant to assist in obtaining or retaining such business. Upon such a motion, the district court would then have to determine: 1) whether merely quoting or paraphrasing the statute as to that element is sufficient; or 2) whether the government must allege such additional facts.
On July 15, 2004, the government filed a superseding indictment which, in addition to adding charges of conspiracy and obstruction of justice, amended the original indictment to include the following: “The defendants believed that if American Rice Inc. and Rice Corporation of Haiti were required to pay the full amount of duties and taxes that should have been paid on the imported rice they would not have been able to sell the rice at a competitive price, would have lost sales to competitors and would not have realized an operating profit, thus putting at risk American Rice Inc.’s and Rice Corporation of Haiti’s business operations in Haiti.”
A jury trial was held in September/October 2004 and the jury found Kay and Murphy guilty on all counts. Both defendants subsequently filed motions for new trials, which were denied. On June 19, 2005, Kay was sentenced to 37 months incarceration, to be followed by a two-year term of supervised release. Kay must also pay a fine of $1,300. Murphy was sentenced to 63 months incarceration and ordered to pay $1,400 in penalties. Both defendants appealed their convictions on several grounds, and in October 2007, the United States Court of Appeals for the Fifth Circuit upheld the convictions.
Defendants argued on appeal that the FCPA was void for vagueness due to its alleged ambiguity in not expressly stating that payments to lower taxes are related to “obtaining or retaining business.” The Fifth Circuit disagreed, holding that “[a]ll [elements of the FCPA] are phrased in terms that are reasonably clear so as to allow the common interpreter to understand their meaning. Defendants have, rather than showing vagueness, raised a technical interpretive question as to the exact meaning of ‘obtaining or retaining’ business. Whether ‘obtaining or retaining’ business covers the general activities that an entity undertakes to ensure continued success of a business or Defendants’ more limited definition of contractual business is an ambiguity but not one that rises to the level of vagueness and unfair notice.”
The court further noted that although the company did not make the corrupt payments to guarantee the success of one particular contract, “ARI ensured, through bribery, that it could continue to sell its rice without having to pay the full tax and customs duties demanded of it. Trial testimony indicates that ARI believed these payments were necessary to compete with other companies that paid lower or no taxes on similar imports – in other words, to retain business in Haiti, the company took measures to keep up with competitors. The fact that other companies were guilty of similar bribery during the 1990’s does not excuse ARI’s actions; multiple violations of a law do not make those violations legal or create vagueness in the law.”
Defendants also argued that the government had failed to satisfy the interstate commerce element of the FCPA as the cash bribes occurred in Haiti, using local bank accounts, and the statute requires the use of interstate commerce in the furtherance of the bribe itself. The Fifth Circuit disagreed and read the statute more broadly as including activities that support the bribe, in this case, the sending of false shipping documents through interstate commerce.
Defendants also argued that the district court’s jury instructions on the intent element of the statute were insufficient. The Fifth Circuit held that the intent element of the FCPA did not require a showing that the defendants specifically knew that they were violating the FCPA, but only that the defendants “acted corruptly, with an ‘unlawful end or result,’ and committed ‘intentional’ and ‘knowing’ acts with a bad motive.” Defendants filed a petition with the Fifth Circuit for Rehearing en Banc on this issue and the court denied the petition on January 8, 2008, holding that the district court’s instructions – which, “as a whole and considered in the context of a trial required a finding that Defendants knew their conduct was unlawful” – were satisfactory.
On April 9, 2008, Kay and Murphy filed a writ of certiorari to the U.S. Supreme Court which was denied on October 6, 2008.
[1] As defined by the Court, the “business nexus” element of the FCPA refers to exactly how a payment of a bribe would assist (or is meant to assist) in obtaining or retaining business.
Amount of the Value
The alleged bribes ranged from $25,000 to $72,000 and totaled more than $528,000.
Amount of Business Related to Payment
The alleged bribes saved the company more than $1.5 million in Haitian import tax.
United States v. Kay, No. 4:01-cr-914 (S.D. Tex. 2002)
Date Filed
12/12/2012
Filed Under Seal
No
FCPA Statutory Provision
Aiding and Abetting: Anti-Bribery
Anti-Bribery
Conspiracy: Anti-Bribery
Other Statutory Provision
None
Disposition
Plea Agreement, Plea Agreement
Defendant Jurisdictional Basis
Domestic Concern, Conspiracy, Aiding and Abetting, Agent of Issuer
Defendant's Citizenship
United States
Individual Sanction
37-Months Imprisonment.
Douglas Murphy
Citation
United States v. Kay, No. 4:01-cr-914 (S.D. Tex. 2002).
Date Filed
12/12/2012
Filed Under Seal
No
FCPA Statutory Provision
Aiding and Abetting: Anti-Bribery
Anti-Bribery
Conspiracy: Anti-Bribery
Other Statutory Provision
None
Disposition
Plea Agreement, Plea Agreement
Defendant Jurisdictional Basis
Domestic Concern, Conspiracy, Aiding and Abetting, Agent of Issuer
Defendant's Citizenship
United States
Individual Sanction
63-Months Imprisonment.
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