In United States v. Napout, the Second Circuit (Sack, Hall and Bianco) affirmed the 2017 convictions of Juan Ángel Napout and José Maria Marin in the Eastern District of New York on charges arising out of commercial bribery related to the International Federation of Association Football (“FIFA”) scandal. The Circuit rejected all of the defendants’ arguments: the Circuit held that (i) that there had not been an impermissible extraterritorial application of the wire fraud statute, and (ii) the honest service wire fraud statute was not unconstitutionally vague as applied to them. The Circuit also denied challenges to the sufficiency of the evidence and several trial rulings. Judge Hall wrote a short concurring opinion that addressed one aspect of the parties’ contentions relating to their vagueness challenge.
The FIFA investigation conducted by the Department of Justice has garnered significant attention within the white-collar community, in part, because of the limited conduct within U.S. borders on which the charges were based. Although soccer has recently risen in popularity in the United States, it remains immensely more popular in other countries than in the United States.
FIFA is headquartered in Zurich, Switzerland, and unsurprisingly, the FIFA bribery scandal has led largely to the prosecution of individuals who reside outside of the United States. While the broader picture sets a scene of private commercial bribery by foreign nationals in connection with foreign organizations, the relevant ties to the U.S. consisted of wire transfers through U.S. bank accounts. The bribes at issue, moreover, were not alleged to have violated any laws in the countries where the majority of the conduct took place, but to have violated fiduciary duties owed to [foreign] soccer associations. In this sense, the FIFA case resembles many of the Department of Justice’s major cases in recent years, such as the LIBOR and FX investigations, which primarily concerned conduct and actors outside of the United States. This case demonstrates that prosecuting cases with underlying conduct that occurred outside of the United States will often present legal complications for the government, even where the convictions are ultimately affirmed.
Background
Napout and Marin were among a series of defendants prosecuted for bribery in connection with the award of exclusive distribution and marketing rights for high-profile soccer tournaments governed by FIFA and its regional affiliates, CONMEBOL and CONCACAF. Napout was accused of taking bribes from an Argentine sports marketing company while he was president of the Paraguayan national soccer association. Marin, a former politician and former head of Brazil’s national soccer association, was also accused of accepting bribes, as well as helping to hide bribes by funneling payments through an American bank account he had opened through a shell company. In June 2017, federal prosecutors charged Napout and Marin with various wire fraud and racketeering counts. In December 2017, following a six-week jury trial, Napout was convicted of racketeering conspiracy and multiple counts of wire fraud conspiracy, as was Marin; Marin was also convicted of money laundering conspiracy.
The Circuit Rejects The Defendants’ Extraterritoriality Arguments
On appeal, Napout and Marin argued that their convictions for conspiracy to commit honest services wire fraud rested on impermissible extraterritorial applications of the wire fraud statute. With no argument that the statute by its text applied extraterritorially, the Second Circuit considered whether the charges involved a permissible domestic application by looking to the location of the conduct relevant to the “focus” of the statute.
Napout and Marin argued that, in their case, the focus was not “the use of the wires” under the wire fraud statute but the “bad-faith breach of a fiduciary duty owed to the scheme’s victim.” The Circuit rejected that argument. The Circuit observed that because honest services wire fraud is a “type of wire fraud,” the relevant inquiry was the “focus” of the wire fraud statute, 18 U.S.C. § 1343, rather than the “focus” of the honest services statute, 18 U.S.C. § 1346. In its analysis, the Circuit relied on its recent decision in Bascuñán v. Elsaca, 927 F.3d 108 (2d Cir. 2019). There, the Circuit held that the focus of § 1343 was “not merely a ‘scheme to defraud,’ but more precisely the use of the . . . wires in furtherance of a scheme to defraud,” thus providing a sufficient basis for charges arising out of fraudulent conduct outside the U.S. where the use of the wires was “essential, rather than merely incidental, to the scheme to defraud.” Here, the Circuit concluded that the “use of the wires” occurred in the United States, as the bribery payments involved the use of U.S. bank accounts and U.S. banknotes; and that the “use of wires” was “essential” to the fraudulent scheme, as each defendant received roughly $2.5 million of his total $3.3 million in bribes through U.S. bank accounts or payments in U.S. dollars generated by wire transfers from the U.S. Thus, the charges against Napout and Marin were a permissible domestic application of the wire fraud statute.
The Circuit Rejects The Defendants’ Vagueness Arguments
Napout and Marin contended that the honest services fraud statute, § 1346, is unconstitutionally vague. Specifically, their vagueness challenged targeted the statute’s violation of fiduciary duty element. They argued that § 1346 did not provide fair notice that a breach of fiduciary duties to foreign employers (rather than violation of foreign law) would violate the statute. The Circuit accepted the government’s argument that defendants had failed to raise this argument before the district court, and, therefore the court applied plain error review. Given the ambiguities in § 1346, the Circuit concluded, it was not clear under current law that such private fiduciary duties to employers could not form the basis for honest services fraud convictions. Judge Hall addressed vagueness in his concurrence, going beyond the panel’s analysis. Even if the argument had been raised below, Judge Hall noted, he would conclude that precedent sufficiently established that breach of a fiduciary duty to an employer could provide the basis for a charge of honest services fraud.
Relatedly, Napout and Marin attacked the sufficiency of the evidence presented at trial that they owed fiduciary duties to their employers under Paraguayan law. The Circuit rejected this argument, reasoning that the government’s case was based on duties owed under the code of ethics of FIFA and CONMEBOL, applicable to all soccer officials, not the law of those countries.
The Circuit Affirms The Trial Court’s Evidence and Jury Rulings
Defendants raised several arguments concerning trial rulings, arguing that the district court erred by: (1) precluding evidence as to whether commercial bribery was illegal in Brazil and Paraguay, probative of their alleged fraudulent intent; (2) permitting the government’s expert to opine on the economic impact of bribery on soccer organizations without empirical evidence; and (3) keeping anonymous and partially sequestering the jury.
The Circuit rejected all three arguments. The district court had concluded that evidence regarding Brazilian and Paraguayan law would only be relevant if defendants believed that bribery was legal in those countries and that their fiduciary duties were identical to their obligations under such law. The lower court also concluded that such evidence presented a clear risk of jury nullification. The Circuit declined to find the district court’s reasoning arbitrary and irrational.
As for the government’s expert, the Circuit found no abuse of discretion in the district court’s determination that the absence of an empirical foundation for certain statements went to weight, not admissibility, and noted that he was cross-examined on those issues.
As for the jury’s partial anonymity, defendants were provided with prospective jurors’ names and the opportunity to investigate them for bias during jury selection, as well as the opportunity to question them during voir dire. As for their partial sequestration, the Circuit pointed to safety concerns including reports of witness intimidation, noting that it made no difference that defendants were not personally involved in any alleged intimidation.
Commentary
This case manages to bring together two areas of recurring concern in contemporary federal white-collar criminal practice: the Department of Justice’s continued focus on illegal conduct that primarily occurs outside of the United States and the expansion of honest services fraud to criminalize actions that are best characterized as violations of private agreements about codes of conduct instituted by private organizations.[1]
The first issue—extraterritoriality—is one that one of the authors of this blog post have written about in recent years. See, e.g., Harry Sandick and Devon Hercher, “New FCPA Decision Limits DOJ’s International Reach,” 27 Business Crime Bulletin No. 7 (May 2020) (“With resources limited and federal white-collar prosecutions at a decades low, there is little reason for the Department of Justice to become the world’s policeman.”); Harry Sandick and Jeff Kinkle, “The Global Reach of U.S. Law Enforcement,” New York Law Journal (Dec. 10, 2018) (“In the past decade, the Department of Justice has increased its focus on prosecuting white-collar crimes that are committed outside of the United States.”). Given the Supreme Court’s concern about extraterritorial application of U.S. law, see Morrison v. Nat’l Australia Bank Ltd, 561 U.S. 247 (2010), one wonders if the Supreme Court might in the future revisit the existing authority that the panel relies upon here that supports the prosecution of a person whose criminal acts only touched lightly on United States territory.
The second issue—honest services fraud—has already been subject to several Supreme Court decisions that have expressed concern about the vagueness and undue extension of the doctrine to contexts that are outside of what the wire fraud and mail fraud statutes were meant to address. See Kelly v. United States, 140 S. Ct. 1565, 1568 ( 2020) (“The evidence the jury heard no doubt shows wrongdoing . . . [b]ut the federal fraud statutes at issue do not criminalize all such conduct.”); McDonnell v. United States, 136 S. Ct. 2355, 2374 (2016) (“There is no doubt that this case is distasteful; it may be worse than that. But our concern is not with tawdry tales of Ferraris, Rolexes, and ball gowns.”). Like in Kelly and McDonnell, the facts here are unappealing—a sport that some of its fans refer to as “the beautiful game” was sullied by a bribery scandal that is to be deplored. To be sure, the panel decision applies settled law, just as the Third Circuit did in Kelly and the Fourth Circuit did in McDonnell, before those decisions were reversed by the Supreme Court. However, one wonders whether the settled law ought to be changed by Congress or reinterpreted by the Supreme Court so that the wire fraud and mail fraud statutes do not take a breach of a private duty to an employer located outside of the United States and convert it into a federal crime, to be prosecuted in the United States.
