The FCPA Statute of Limitations—a Way Out for Wal-Mart?
By Breon S. Peace, Ryan T. Becker and Elizabeth M. Hanly, Cleary Gottlieb Steen & Hamilton
On April 21, 2012, a feature story published by the New York Times detailed potential Foreign Corrupt Practices Act violations on the part of Wal-Mart, one of the world’s largest retailers.1 According to the New York Times, senior officials in Wal-Mart’s Mexican subsidiary, Wal-Mart de Mexico, engaged in years of bribery of foreign officials (which is outlawed by the FCPA) in order to help obtain permits that fueled the company’s growth in that country.2 However, the underlying conduct at issue in the Wal-Mart case—namely the alleged payment of bribes to Mexican government officials and a cursory internal investigation conducted by the company—occurred more than five years ago, which could potentially put the conduct beyond the five-year statute of limitations period applicable to most federal crimes, including the FCPA.
But the analysis is not that straightforward. The U.S. Department of Justice has a number of tools at its disposal to bring FCPA-related charges after the expiration of the standard five-year period. FCPA enforcement actions have dramatically increased in recent years, with companies facing greater fines and individuals facing longer jail sentences, and statute of limitations issues can play a critical role in these cases, especially as it often takes years to discover and investigate foreign bribery plots. Knowing when the time to bring FCPA charges is likely to have passed may influence how prosecutors and defense attorneys handle these cases.
The Allegations Against Wal-Mart
According to the New York Times,3 in September 2005, a “senior Wal-Mart lawyer” received an email from a “former executive” who had been in charge of the permitting process for Wal-Mart de Mexico. The email detailed bribes paid to Mexican officials to help Wal-Mart de Mexico obtain the permits necessary to implement its aggressive growth strategy.
After debriefing the former executive, it appeared that from approximately 2002 through 2005, Wal-Mart de Mexico had paid bribes by using the services of “gestores”—supposed “fixture[s] in Mexico’s byzantine bureaucracies”—who had access to government officials in Mexico and would route money to those officials to eliminate roadblocks to Wal-Mart’s business development strategy, which was essentially to open new stores so quickly that the competition would be unable to respond. The email stated that the bribes had been carried out under the watchful eye of Wal-Mart de Mexico’s top executive, Eduardo Castro-Wright, beginning in earnest after he took over the top spot in 2002 and ending in 2005, after “he was promoted to a senior position in the United States.” Castro-Wright was eventually tasked with supervision of all Wal-Mart stores in the United States and became a member of the company’s executive committee. He was often mentioned as being on the short list of candidates to become the company’s CEO.
Wal-Mart first turned to a large New York-based law firm to develop a work plan for an internal investigation of the alleged bribery scheme. But after being advised in the fall of 2005 that the law firm planned to conduct an extensive investigation into all payments to government officials, the company decided to conduct its own “preliminary inquiry,” after which, if there was a “likelihood” that there were legal issues, the company would then decide whether a full investigation was warranted. The preliminary inquiry revealed more than 400 payments to gestores, including $8.5 million paid to two particular gestores, and uncovered evidence that top Wal-Mart de Mexico executives were aware of the payments. The Wal-Mart investigators who led the inquiry wrote to U.S. Wal-Mart executives in late 2005 that there was “reasonable suspicion to believe that Mexican and USA laws [had] been violated.”
In February 2006, then Wal-Mart Chief Executive Officer Lee Scott called a meeting to discuss how internal investigations were handled within the company and what to do about the Mexico issues. As a result of the meeting, Wal-Mart developed a new protocol for internal investigations, which the New York Times described as a “highly bureaucratic process that gave senior Wal-Mart executives—including executives at the business units being investigated—more control over internal investigations.” Rather than commence a full-scale investigation of the alleged bribery, Wal-Mart followed this new protocol and transferred the investigation back to Mexico under the supervision of one of the people originally implicated in the bribery scheme. This investigation was completed in just a few weeks and memorialized in a six page report that concluded there was no evidence of bribery and actually accused the former Wal-Mart de Mexico executive, who sent the initial email outlining the bribery allegations, of fraud.
Wal-Mart did not inform DOJ or the Securities and Exchange Commission about the allegations of bribery until November 2011,4 and the New York Times reported that this notification did not occur until after Wal-Mart learned that the newspaper was investigating the issue. At that time, the notification said that the bribery issues were “limited to ‘discrete’ cases.” [If Wal-Mart entered into a tolling agreement with DOJ at that time, all activity prior to November 2006 would be barred by the FCPA statute of limitations. According to the New York Times, all of the conduct in question did in fact take place prior to that date.]
In June 2012, Wal-Mart disclosed that its audit committee is conducting an internal probe into alleged FCPA violations in connection with Wal-Mart de Mexico and the manner in which the allegations were handled by Wal-Mart. The investigation is not limited to operations in Mexico but extends to other foreign subsidiaries as well. Wal-Mart also revealed that it was informed by both DOJ and the SEC that it is “the subject of their respective investigations into possible violations of the FCPA.” Wal-Mart is cooperating with those investigations.5
The Statute of Limitations Applicable to the FCPA and How it Would Likely Apply in a Typical Criminal Case
There is no express statute of limitations provision in the text of the FCPA. As a result, the general five-year statute of limitations for federal criminal offenses applies.6 DOJ must bring FCPA charges within that period or risk that the charges will be dismissed as time-barred.
The statute of limitations for a particular crime typically begins to run when the offense has been “completed” (i.e., when the elements comprising the offense have all occurred).7 Courts distinguish between crimes that are complete when they are committed, and crimes that are subject to the continuing offense doctrine, meaning that the statute of limitations does not necessarily begin to run at the time of the underlying substantive conduct because the crime itself is continuing in nature. An example of a continuing offense (that, as discussed below, often comes into play in FCPA cases) is conspiracy, which continues “as long as the conspirators engage in overt acts in furtherance of their plot.”8
Since the overwhelming majority of FCPA cases (and virtually all of those against companies) are settled without a trial, few cases interpret the FCPA, and none has provided a detailed analysis of how the standard federal statute of limitations period operates in the FCPA context. Nor has any court ruled definitively on whether bribing a government official should be treated as a completed or a continuing offense. However, the U.S. Supreme Court has cautioned that “the doctrine of continuing offenses should be applied in only limited circumstances,”9 and nothing in the text of the statute suggests that Congress intended to make violating the FCPA a continuing offense. Further, the very nature of an FCPA offense indicates that it is not a continuing offense. The elements of the crime are met when a corrupt payment is offered or made or a false entry is intentionally recorded in a U.S. issuer’s books. Thus, it is likely that courts will treat a substantive violation of the FCPA itself as a completed offense act.
The closest any court has come to addressing when the statute of limitations begins to run in a typical FCPA case isUnited States v. Kozeny, 493 F. Supp. 2d 693, 706 (S.D.N.Y. 2007) aff’d 541 F.3d 166 (2d Cir. 2008). In Kozeny, the defendants were charged with making corrupt payments between 1997 and 1999 to senior officials in the Azerbaijan government to secure control of that country’s state-owned oil company.10 Two of the defendants moved to have a number of counts in the May 2005 indictment dismissed as barred by the statute of limitations.11 The court noted that the conduct that formed the basis for the indictment’s FCPA charges occurred between March and July 1998, and therefore the statute of limitations would have run between March and July 2003. Unless DOJ could demonstrate that the statute of limitations was somehow tolled, the substantive FCPA violations would have to be dismissed.12 The court ultimately dismissed the substantive FCPA counts (save for one count where the statute was properly tolled) because the limitations period had run.13 Nothing in the ruling indicates that FCPA violations should be considered a continuing offense and DOJ did not even attempt to make that argument.
Although not FCPA crimes, the treatment of analogous domestic bribery crimes is instructive on the issue of whether FCPA offenses should be treated as “completed offenses.” Domestic bribery crimes are considered “completed offense” violations. For example, in United States v. Jones, 676 F. Supp. 2d 500 (W.D. Texas 2009), the defendants allegedly bribed government officials to gain an advantage in bidding on a government contract.14 The relevant bribery statute makes it a crime to corruptly give anything of value to anyone with the intent to influence an agent of a state or locality, or any agency thereof, in connection with any business or transaction of that organization,15 a definition of bribery extremely close to that found in the FCPA.16 The court explained that the five-year statute of limitations for this crime began to run when the crime was completed, since there “is nothing in the statutory language that indicates Congress intended bribery to be a continuing offense.”17 As a result, the statute of limitations began to run when every element of the crime had been met, which, in this instance, meant when “anything of value” had been “exchanged with the requisite intent to influence or be influenced,”18 or, in this case, when one of the defendants gave the government official a $750 check with the intent to influence him.19
The analysis would almost certainly be the same under the FCPA. A substantive violation of the FCPA would be “completed” when a defendant willfully offers (or pays) anything of value to a foreign official to influence that official in his or her official capacity in order to receive or retain business.20 In the Wal-Mart case, with the actual bribes supposedly being paid between 2002 and 2005, the five-year statute of limitations would theoretically begin to run in each instance when Wal-Mart officials paid (or caused the gestores to pay) Mexican officials with the intent of influencing them to approve the permits necessary to further Wal-Mart’s development plans. As a result, assuming DOJ did not learn about the alleged bribes before November 2011 and without evidence of later bribes, DOJ would be prevented from pursing substantive FCPA criminal charges for the bribes themselves, as the statute of limitations for those crimes would likely have run between 2007 and 2010.
Despite this potential statute of limitations problem, DOJ may still be able to pursue FCPA charges against Wal-Mart and its employees.
Two Primary Ways DOJ May Overcome Statute of Limitations Issues
DOJ may be able to charge FCPA-related criminal conduct more than five years after bribes occurred, and thus outside of the time that it would appear that the five-year limitations period has expired for a substantive FCPA violation. First, if DOJ begins to investigate potential FCPA violations before the five-year period has run, DOJ can seek court intervention to toll the statute of limitations. Second, DOJ can charge a defendant with conspiracy to violate the FCPA under certain circumstances.
Tolling the Statute of Limitations Under 18 U.S.C. §3292. Where DOJ learns of potentially violative conduct that occurred during the FCPA five-year limitations period but is not immediately in a position to bring a case, it can seek to extend the limitations period for an FCPA violation from five to potentially eight years while it attempts to obtain evidence from outside the United States.
Under 18 U.S.C. §3292, when a grand jury has been impaneled to investigate the potential offense, but before an indictment has been returned, DOJ can make an application to the court where the grand jury is sitting to suspend the running of the statute of limitations. To toll the limitations period, DOJ must show by a preponderance of the evidence that it reasonably appears that evidence of the offense exists in a foreign country and that an official request for that evidence has been made by DOJ to that foreign country.21 The court has 30 days to rule on the application.22 The statute of limitations is then tolled as of the date when the official request was made to the foreign country by DOJ and ends when the foreign authority takes final action in response to that request.23 Tolling under this section cannot last more than three years.24
While authority is split, the most recent decisions by the U.S. District Court for the Southern District of New York and the U.S Court of Appeals for the Second Circuit have held that DOJ must make the application to the court before the statute of limitations has run.25 In Kozeny, both U.S. District Judge Shira A. Scheindlin and the Second Circuit analyzed Section 3292 and concluded that DOJ was not entitled to any tolling under the provision because, while it made the request to a foreign country to obtain evidence within the limitations period, it did not make the actual application to the court to have the limitations period tolled until after it had already expired.26 These decisions are consistent with precedent that does not permit claims or offenses to be revived once the statute of limitations has expired.27
Importantly, DOJ has taken the position that requests to toll the statute of limitations under Section 3292 can be made ex parte and courts have agreed.28 Therefore, the target of an investigation likely will not know that DOJ has taken steps to suspend the FCPA limitations period. In DeGeorge v. U.S. District Court for Central District of California, 219 F.3d 930, 937 (9th Cir. 2000), the defendant argued that DOJ’s ex parte application to suspend the limitations period was improper because he did not have opportunity to appear and challenge the request.29 The court disagreed, explaining that there was nothing in the statute to suggest that the defendant was entitled to notice or a hearing.30Moreover, the court concluded that forcing DOJ to provide notice “would be to ignore the traditionally non-adversarial and secret nature of grand jury investigations.”31
Thus, it is important for defendants to assess whether their cases are the type likely to have been subject to tolling by DOJ under Section 3292. They may consider, for example, if DOJ is likely to have learned of and commenced investigating the alleged suspicious conduct within five years after the bribery occurred (e.g., the enormous and widely publicized Iraqi Oil-for-Food scandal).32 Moreover, while DOJ certainly does pursue cases secretly, especially against individuals (e.g., the “SHOT Show” sting operation that led to FCPA charges against 22 individuals),33 with respect to companies, it often serves subpoenas for information in connection with their investigation or reacts to companies’ disclosures concerning potential FCPA violations (as it appears happened in the Wal-Mart case). In these corporate cases, the risk that DOJ was aware of allegations of FCPA violations and has conducted an investigation without the company’s knowledge may be slim. Therefore, a company will likely know whether Section 3292 tolling could have been sought by DOJ.
Had DOJ learned of the Wal-Mart allegations within the original five-year limitations period (for example, sometime in 2009 when substantive FCPA violations for bribes paid in 2005 was still chargeable) and commenced a grand jury investigation, it could have conceivably made an official request to the Mexican government for evidence and then made an application to the court to suspend the limitations period.
While DOJ seemingly was unaware of the Mexican bribery in time to toll under Section 3292, the fact that Wal-Mart’s investigation is expanding to other foreign jurisdictions may give DOJ occasion to use this statute (in the event Wal-Mart declines to voluntarily sign a tolling agreement). Given that the probability of DOJ successfully invoking Section 3292 is high, in practice, a company or individual may agree to sign a tolling agreement for reasons including the desire to receive cooperation credit and avoid a precipitous charging decision by DOJ.
Conspiracy. When DOJ lawyers evaluate whether to bring FCPA charges, they may consider not only the underlying conduct, but also whether their target was part of a conspiracy to violate the law. If DOJ can prove that there was a conspiracy to violate the FCPA, it has the ability to reach conduct that occurred within five years of the end of the conspiracy—a period of time that may prove to be considerably longer than the five years following the FCPA bribery conduct itself.
When Does a Conspiracy End? Like the FCPA, the statute of limitations period generally applicable to the federal conspiracy statute, 18 U.S.C. §371, is five years,34 but a conspiracy does not end, and thus the statute of limitations period does not begin, until a conspiracy has concluded.35
In a conspiracy prosecution brought under Section 371, DOJ must prove that the conspiracy existed within the five years preceding the return of the indictment or information, and allege and prove that at least one overt act that furthered the conspiracy was committed in that same period.36 But, the specific underlying conduct that was the object of the conspiracy (e.g., paying a bribe to a foreign official) may have occurred more than five years before charges are brought.
While courts have not specifically considered when an FCPA conspiracy ends, bribery and other similar conspiracy cases shed light on how a court would likely analyze this issue, including what might constitute an overt act for an FCPA conspiracy. In order to decide whether an overt act has the effect of furthering a conspiracy, courts will evaluate the facts and circumstances alleged in the indictment or information to determine both the duration and scope of the conspiracy, and whether the act relied on by DOJ as an overt act can “properly be regarded as being in furtherance of the conspiracy.”37 Bribery cases are generally analyzed as “economic conspiracy” cases where the final goal of the conspiracy is a monetary payout derived directly from the object of the criminal conspiracy. In other words, the conspiracy does not end until the briber gets the benefit of his bribe.38
For example, in United States v. Hansen, a company allegedly paid a school district supervisor $60,000 in home improvements in exchange for the awarding of a three-year internet service contract.39 The sole overt act alleged to have occurred within the five-year limitations period was a deposit into the bribing company’s bank account of $14,000, which was the third and final installment on the internet contract.40 The defendant argued that payment of the bribe, and the receipt of goods and services by the school official were the last overt acts in the conspiracy, not the final payment to the company on the fraudulently obtained contract.41 However, the court held that the payment on the contract was indeed an overt act in furtherance of a conspiracy and denied the defendant’s motion to dismiss based on the expiration of the statute of limitations.42
In United States v. Girard, 744 F.2d 1170 (5th Cir. 1984), the defendant was charged with a Section 371 conspiracy for allegedly rigging a bidding process to obtain a contract to be awarded by a local housing authority.43 After the contract was awarded to the defendant, he also allegedly made a payment to a housing authority employee to keep silent about the falsified bidding process.44 The court held that the scope of the conspiracy, according to the indictment, had a number of purposes, including: “1) to secure the contract for [the defendant's company]; and 2) to obtain Housing Authority funds under the contract.”45 The conspiracy continued until all those goals were accomplished, and therefore the conspiracy did not end until the defendant had fully realized all of the economic benefits of the contract that was awarded as a result of the rigged bidding process.46 As the last payment under the contract occurred within the limitations period, the court reversed the lower court, which had dismissed the case on statute of limitations grounds.47
In United States v. Fitzpatrick, 892 F.2d 162 (1st Cir. 1989), the defendant, a bank officer, was convicted of, among other things, conspiracy to violate the Travel Act in connection with a scheme in which he received money and other services in exchange for arranging and approving financing arrangements that the bank might not otherwise approve.48 The court denied the defendant’s statute of limitations appeal, finding that a number of overt acts done in furtherance of the conspiracy had occurred within five years of the indictment. The overt acts that the court found provided the basis for the conspiracy charge and occurred within the statute of limitations period included repair work done on defendant’s home, the check payments made to cover the work subsequent to the repairs being done, and a check that was given to the defendant.49
The scope and duration of a conspiracy is not unlimited, and courts have sought to set some boundaries on DOJ’s efforts to stretch the limitations period for conspiracies.50 In United States v. Doherty, 867 F.2d 47 (1st Cir. 1989), three police officers appealed from convictions for conspiracy to commit mail fraud involving a scheme in which they illegally bought police promotion examinations.51 The purchase of the examinations and the resulting promotions occurred outside the limitations period, so the only overt acts to sustain the conspiracy charge were salary payments for the defendants’ ongoing employment as police officers. DOJ argued that “the object [of the conspiracy] in part was to obtain [a higher] salary, and so each act of receiving salary constituted a new ‘overt act.’”52 The First Circuit disagreed:53
It may seem reasonable to say that the act of receiving a conspiratorial objective is part of the conspiracy, where the receiving consists of one action, or a handful of actions, taking place over a limited period of time, or where some evidence exists that the special dangers attendant to conspiracies, the dangers of ‘concerted’ activity and ‘group association’ for criminal purposes, remain present until the payoff is received.
But, where receiving the payoff merely consists of a lengthy, indefinite series of ordinary, typically noncriminal, unilateral actions, such as receiving salary payments, and there is no evidence that any concerted activity posing the special societal dangers of conspiracy is still taking place, we do not see how one can reasonably say that the conspiracy continues. Rather, in these latter circumstances, one would ordinarily view the receipt of payments merely as the ‘result’ of the conspiracy.
The court relied, in part, on the Supreme Court’s decision in Fiswick v. United States, 329 U.S. 211, 216 (1946): “Though the result of a conspiracy may be continuing, the conspiracy does not thereby become a continuing one. Continuity of action to produce the unlawful result, or … ‘continuous co-operation of the conspirators to keep it up’ is necessary.”54
Courts have also curtailed the duration of a conspiracy by holding that an overt act that consists of continuing to conceal the illegal acts is not necessarily an overt act in furtherance of the conspiracy for limitations purposes.
In Grunewald v. United States, 353 U.S. 391(1957), the Supreme Court held that DOJ may not simply assume that an agreement to continue to conceal illegal acts is part of a conspiracy.55 Rather, DOJ must prove that the agreement or understanding to conceal “was an objective or part of the conspiracy.”56 If the agreement to conceal was “no more than an afterthought” or occurred when the co-conspirators were confronted with possible investigation and prosecution for their crimes, then efforts to conceal are not overt acts that further the conspiracy and extend the statute of limitations period.57
The court did explain that although “[b]y no means does this mean that acts of concealment can never have significance in furthering a criminal conspiracy … a vital distinction must be made between acts of concealment done in furtherance of the main criminal objectives of the conspiracy, and acts of concealment done after these central objectives have been attained, for the purpose only of covering up after the crime.”58 Thus, DOJ may not be able to use the mere fact that defendants took steps to avoid getting caught after their initial FCPA violations to effectively extend the statute of limitations on a conspiracy charge.
The potential application of Grunewald to a future FCPA conspiracy case is exemplified by the Third Circuit’s reasoning in United States v. Bornman, 559 F.3d 150 (3d Cir. 2009), in which the defendant, an official of the U.S. Virgin Islands, was found guilty of two counts of conspiracy to commit bribery in violation of U.S. domestic bribery laws.59
The Bornman conspiracy consisted of an agreement between the defendant and another government official in the Virgin Islands to solicit payments (under the guise of short-term loans) from government contractors in return for steering state-run roof rebuilding business to those contractors.60 The two overt acts alleged in the indictment within the limitations period were one official repaying the loan and the other refusing to do so.61 DOJ argued that because the defendant conspired to take money from contractors in the “guise of short-term loans to conceal the true nature of the transaction, … the conspiracy to solicit bribes … was not complete until the ‘short-term loans’ were either repaid or disavowed by [the defendants].”62 The court disagreed, and, citing Grunewald, noted that DOJ “cannot extend the limitations period by insisting that there was an implicit agreement to conceal the conspiracy.”63 The court decided that the agreement entailed soliciting and accepting payments, and not any type of debt forebearance, and therefore the conviction on that count was dismissed.64
Reviewing these cases, it is not easy to articulate a rule clearly identifying acts that would end a conspiracy. The cases discussed suggest that actions directly related to payments involved in the illegal scheme (such as payments for services rendered or even the bank clearing a check) would be part of a conspiracy. But acts that are merely a result of the conspiracy, like receiving a payment for employment in the normal course even if that job was obtained as a result of the conspiracy, push the envelope too far.
The issue of whether or not an overt act is in furtherance of a conspiracy is expected to be debated in the Wal-Mart case since DOJ will likely have to allege and prove a conspiracy in order to reach the potential FCPA violations in Mexico, which appear to have ended by May 2006. While DOJ may be able to uncover and cite evidence such as meetings among Wal-Mart officials where the bribery payments were discussed or the destruction of records related to the bribes, it must be able to show that such acts were a part of the main conspiratorial agreement and not merely “an afterthought” or an act arising in response to possible disclosure of the scheme.
Similarly, as it appears that the payments were made to secure permits that would allow for the expedited opening of Wal-Mart stores in Mexico, DOJ could argue that the continuous operation of those stores was the object of the conspiracy and the benefit sought by Wal-Mart from its bribes, and thus, the conspiracy remains ongoing. But under the reasoning of Fiswick and Doherty, such an argument may prove too much. The operation of the stores would likely be considered a result of the conspiracy (like the regular salary payments to police officers in Doherty) as opposed to the type of “continuity of action to produce the unlawful result” that would comprise acts of the original conspiracy.
It is worth noting also that, based on Wal-Mart’s disclosure, the investigation is not limited solely to the company’s Mexican operations and will extend to other foreign subsidiaries. DOJ could uncover evidence that the aggressive growth strategy—and the means of achieving that objective—employed in Mexico were also used in other foreign markets. If this happens, DOJ could be in a position to charge Wal-Mart with a conspiracy where the Mexican bribery payments were but one part of a grander scheme to grow Wal-Mart’s international footprint through the use of bribes to foreign officials.
Withdrawal From a Conspiracy. For individuals, the determination of when the limitations period has expired for a conspiracy charge may be different depending on the individual’s actions. Rather than just counting the five-year period from the last overt act in furtherance of the conspiracy, the statute of limitations will begin to run from the date on which an individual can prove that he or she actually withdrew from the conspiracy.65 To demonstrate withdrawal, a defendant must show: (1) “affirmative acts inconsistent with the object of the conspiracy,” that are (2) “communicated in a manner reasonably calculated to reach coconspirators.”66 “Mere cessation of activity is not enough.”67Defendants must show they took “some type of positive action which disavowed or defeated the purpose of the conspiracy.”68 The burden of proof lies with the defendant69 since a defendant’s participation in the conspiracy is presumed to continue until the conspiracy ends.70
There are no FCPA cases that define effective withdrawal from a conspiracy, but because most FCPA cases take place in a business context, examining how courts typically analyze withdrawal in other business or employment-related conspiracies can provide insight into how withdrawal would be judged in the FCPA context.
In United States v. Antar, 53 F.3d 568, 583 (3d Cir. 1995), the Third Circuit articulated specific principles that apply when assessing whether departure from a company constitutes withdrawal: (1) resignation or retirement “does not, in and of itself, constitute withdrawal from a conspiracy as a matter of law;” however, (2) resignation or retirement in conjunction with “total severing of ties with the enterprise may constitute withdrawal from the conspiracy;” and (3) even if the defendant completely severs ties, he has not withdrawn from the conspiracy if he “continues to do acts in furtherance of the conspiracy” or “continues to receive benefits from the conspiracy’s operations.”71
The court also held that “if the defendant completely severs his or her relationship with the enterprise, he  has established a prima facie showing of withdrawal” despite not having demonstrated other affirmative acts inconsistent with the conspiracy or that he notified co-conspirators about his decision to withdraw.72
Thus, resignation from a business where the conspiracy exists can sometimes constitute effective withdrawal.73 For example, United States v. Steele, 685 F.2d 793 (3d Cir. 1982), involved an alleged conspiracy to bribe a Puerto Rican public official so that General Electric would succeeded in obtaining a multi-million dollar power plant construction contract. On appeal, one defendant argued that since he had “resigned and permanently severed his employment relationship” with the manufacturer more than five years before the indictment was returned, he had effectively withdrawn from the conspiracy.74 The court held that his resignation established a prima facie case for withdrawal, and since DOJ failed to rebut his evidence, the defendant was acquitted.75
However, when leaving the company where the conspiracy was conducted, “the conspirator’s break with the other conspirators … must be both clean and permanent”76 (i.e., the conspirator must demonstrate that he “retired from the business, severed all ties to the business, and deprived the remaining conspirator group of the services which he provided to the conspiracy”).77 For example, when a defendant involved in a contract-bidding conspiracy informed his co-conspirators that he would no longer participate in the conspiracy but nonetheless honored the prior agreement not to bid for certain remaining contracts, he did not effectively withdraw.78 Similarly, an attorney who, despite resigning from the conspiratorial enterprise, continued to be entitled to a percentage of the conspiratorial proceeds did not effectively withdraw.79 A Massachusetts court also rejected the notion that retirement from a company automatically constituted withdrawal from a conspiracy.80 In holding that a jury was entitled to consider whether the resignation amounted to withdrawal, the court explained that: “the effectiveness of the withdrawal depends in large part on the showing that employment at the business was essential to the defendant’s involvement in the alleged conspiracy and that the defendant no longer maintained any ties with the business.”81
If DOJ decided to pursue criminal conspiracy charges against individuals at Wal-Mart for their role in the Mexican bribery scandal, given the lapse in time since the alleged payments of the bribes, those individuals may be able to argue that they effectively withdrew from any alleged conspiracy more than five years before any criminal charge and thus, the prosecution is barred by the statute of limitations.
The Importance of Understanding Statute of Limitations Issues in Practice
As many foreign bribery schemes are not revealed until long after the bribery ends, both prosecutors and defendants need to understand when the statute of limitations for a potential FCPA charge is likely to run—as well as the ways DOJ can extend the charging period or reach conduct outside of the limitations period. A few salient points to consider:
First, when asserting the statute of limitations as a defense in an FCPA case, be it a substantive violation or a conspiracy charge, it must be raised at the trial level or it is waived.
Second, understanding the proximity to the expiration of the FCPA limitations period should inform how defendants respond to FCPA investigations, including decisions about cooperation with DOJ. This knowledge may also influence a defendant’s decision on whether to accede to a request to sign a tolling agreement, which would stop the statute of limitations from running. While DOJ does consider an individual’s or corporation’s willingness to sign a tolling agreement when deciding whether that person or entity cooperated with its investigation (and how that cooperation may benefit the defendant), if it appears that DOJ does not have sufficient evidence to bring charges before the limitations period ends, defendants could reasonably conclude that it is not in their interests to sign such an agreement.
In making these judgments, defendants should consider that DOJ may be taking steps to circumvent that five-year time bar by having the statute tolled ex parte or building a conspiracy case. If DOJ can make the required showing under Section 3292 or can prove an overt act in furtherance of a conspiracy within five years of the indictment, a defendant could be held liable for conduct that occurred more than five years before charges are brought.
Given the facts as reported by the New York Times, Wal-Mart, and individuals involved in the bribery scheme, would have a plausible statute of limitations defense to any FCPA actions—even a potential conspiracy charge. As a practical matter, companies, especially publicly held companies like Wal-Mart, typically make a strategic decision to fully cooperate with a DOJ investigation. Despite the potential success of a statute of limitations defense, a company will often make the judgment that the negative press of a protracted investigation and the uncertainty of the outcome at trial make cooperation the more prudent business judgment. The company’s hope is that it will be given credit for the cooperation and it will achieve a better outcome than if it went to trial (i.e., avoid charges, a deferred prosecution agreement, or a reduced fine).
Such hope is real, as Assistant Attorney General for the Criminal Division Lanny Breuer has made clear—companies who self-disclose and cooperate can get meaningful credit from DOJ for those actions. Speaking at a forum on the FCPA in 2009, Mr. Breuer made clear that voluntary self-disclosures are encouraged and will be “appropriately rewarded.”82 Continuing on the topic of self-disclosure and cooperation with DOJ, Breuer added, “The Sentencing Guidelines and the Principles of Federal Prosecution of Business Organizations obviously encourage such conduct, and [DOJ] has repeatedly stated that a company will receive meaningful credit for that disclosure and cooperation.”83But even in a cooperation context, the strength of a company’s statute of limitations argument should come into play when negotiating a more favorable resolution for the company.
But for the individuals involved—whether current or former employees—when faced with the prospect of incarceration if convicted, the statute of limitations could be a home run defense. Thus, to the extent DOJ pursues individuals in connection with the Wal-Mart case, statute of limitations defenses are more likely to be litigated. This is an especially important point given the current enforcement context, where individual prosecutions are certainly on the rise and a focus of DOJ’s enforcement efforts.84
In the Wal-Mart case, with Section 3292 tolling unlikely and charges for a substantive FCPA offense likely time-barred, DOJ must take great care in defining the scope and duration of the conspiracy in the indictment so as to preclude a successful statute of limitations defense. While finding evidence of an overt act occurring in the past five years may be a challenge, DOJ could search for evidence that would sustain an allegation in the indictment that part of the initial conspiratorial agreement was to take continuing steps to conceal the nature and extent of the bribery scheme which would allow the indictment to sustain an attack along the lines articulated by the courts in cases like Fiswick.85 Or, as we previously noted, DOJ could try to link the Mexican payments to similar conduct occurring in other countries where Wal-Mart operates.
Whether or not the statute of limitations issues are ultimately litigated, the Wal-Mart case crystallizes some of the complications in FCPA cases which involve conduct that is not uncovered by DOJ for many years. For the reasons highlighted above, both DOJ and defense lawyers must be mindful of these issues when handling such cases.
Breon S. Peace is a partner in the New York office of Cleary Gottlieb Steen & Hamilton. He represents domestic and multinational corporations and business executives in regulatory and criminal investigations involving allegations of accounting fraud, securities fraud, insider trading, money laundering, and violations of the Foreign Corrupt Practices Act.
Ryan T. Becker is an associate in the firm’s New York office. His practice focuses on defending corporations and business executives in regulatory and criminal investigations.
Elizabeth M. Hanly was a summer associate at Cleary Gottlieb Steen & Hamilton.
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