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U.S. v. Giffen
326 F. Supp. 2d 497 (S.D.N.Y. 2004)
Avoiding International Bribery Issues by Just Becoming a Government Official
Kazakhstan, formerly a republic of the Soviet Union, became a sovereign nation in 1991 and has vast oil and gas reserves, which are the property of the Kazakh government. With its independence, Kazakh officials had the opportunity to sell oil and gas rights to companies from around the world. James H. Giffen was the principal shareholder in Mercator Corporation, a New York Company. Between 1995 and 1999, Giffen was alleged to have made $78 million in payments to Nurlan Balgimaev, the former Prime Minister and Oil Minister of the Republic of Kazakhstan, and Nursultan Nazarbaev, the President of Kazakhstan, in violation of the FCPA. Giffen moved to have the charges dismissed because he had been named, on August 1, 1995, a Counselor to the President of Kazakhstan. The Counselor position was a semiofficial title and Giffen advised the officials on oil and gas deals. Indeed, Giffen's advice tended to favor contracts with Mercator. However, Giffen moved to dismiss the FCPA charges on the grounds that he was a government official in Kazakhstan and thereby immune from prosecution under the act of state doctrine and, that, as a public official of the Kazakh government he was immune from prosecution. He also asked for dismissal on the grounds that his payments were facilitating—that he merely made the payments to gain access to the officials and that there were no direct contracts in play when he made the payments.
PAULEY III, District Judge
I. Foreign Corrupt Practices Act
The FCPA makes it illegal for an individual or company in the United States to make illicit payments to a foreign official to cause that foreign official to assist in obtaining or retaining business for the payor.
Despite the FCPA's prohibition on bribery of foreign officials, an exception exists for "facilitating" payments to "expedite or to secure the performance of a routine governmental action by a foreign official, political party, or party official." The term "routine governmental action," however, does not extend to decisions by a foreign official to award new business or continue business with a particular contractor.
Giffen does not dispute the FCPA's applicability to the actions charged in the indictment. Accepting those allegations as true, the illicit payments to senior Kazakh officials were for the sole purpose of obtaining and retaining business for Mercator. Giffen does not argue that the $78 million was a "facilitating" payment. Nor could the alleged payments be characterized as "facilitating" a routine governmental action because, as alleged in the indictment, they were primarily intended to influence the senior Kazakh officials to award new business to Mercator.
II. Act of State Doctrine
"[T]he act of state doctrine ... 'precludes the courts of this country from inquiring into the validity of the Public acts a recognized foreign sovereign power committed within its own territory.'" While a United States court may question the wisdom of a foreign sovereign act, it may not rule on its legality or validity.
"The major underpinning of the act of state doctrine is the policy of foreclosing court adjudications involving the legality of acts of foreign states on their own soil that might embarrass the Executive Branch of our Government in the conduct of our foreign relations."
Giffen argues that the activities charged in the indictment were all performed in his capacity as an agent of the Kazakh government. Giffen contends that because he was acting as an official of the Kazakh government, this Court must consider the "validity of the law of Kazakhstan and the official acts of its leaders."
As a preliminary matter, this Court must decide whether it will have to invalidate any official act of Kazakhstan. Giffen is charged with bribing the senior Kazakh officials.
Factual findings in this case might impugn the motives of the Kazakh government in its dealings with Mercator. However, this Court will not need to rule on the legality of any public acts of the Kazakh government. In essence, Giffen's argument is that his de facto position within the Kazakh government enabled him to pay the senior Kazakh officials—not that his official duties required him to make secret payments.
The act of state doctrine also has a territorial dimension in that it is limited to "acts done within their own States, in the exercise of Governmental authority." Here, the illicit activities occurred in the United States and Switzerland—not Kazakhstan. Moreover, Giffen Rallegedly transferred funds from Swiss bank accounts to non-Kazakh corporations. Because these transactions were dehors the geographic boundaries of Kazakhstan and involved transactions among foreign corporations, the act of state doctrine does not prohibit this Court from ruling on their legality.
Further, some courts have determined that the act of state doctrine does not reach "acts committed by foreign sovereigns in the course of their purely commercial operations." The indictment alleges deposits of monies into foreign banks, which were then used by Giffen to fund offshore entities for the personal benefit of the senior Kazakh officials. These actions were commercial—not governmental, and are not immune under the act of state doctrine.
The FCPA countenances an affirmative defense where the payments were "lawful under the written laws and regulations of the foreign official's ... country." But, Giffen does not assert that the challenged payments were lawful under Kazakh law. Rather, he argues that his actions were effected pursuant to the powers conferred by the Kazakh government. Because Giffen claims to have acted as a Kazakh government representative, he argues that his payments to senior Kazakh officials are shielded from FCPA scrutiny. The letters of appointment that Giffen offers, however, fail to show that his secret payments constituted official acts of Kazakhstan. Giffen's various official titles do not exempt his actions from prosecution by the United States.
Accordingly, this Court concludes that the act of state doctrine does not bar Giffen's prosecution.
Why is the question of whether the payments were legal under Kazakh law important in the act of state analysis?