The Supreme Court’s recent 6-3 decision in Snyder v. United States overturning the conviction of the former Mayor of Portage Indiana for accepting a $13,000 from a local contractor immediately set off a wave of jeremiads among anti-corruption commentators. An Esquire headline exclaimed “The Supreme Court Majority Has Legalized Bribery So Long As You Do It Right” and claimed that “the carefully manufactured conservative majority maintained its unshakable fealty to corporate oligarchy by completing the work of legalizing bribery that began with the decision in Citizens United.”[1] A Guardian headline stated “The US supreme court just basically legalized bribery” and explained that the Supreme Court had held that “’gratuities’ … are not technically ‘bribes’ and therefore not illegal.”[2] A Vox article “The Supreme Court rules that state officials can engage in a little corruption, as a treat” informed readers that the Court had ruled that “state officials may accept ‘gratuities’ … despite a federal anti-corruption statute that appears to ban such rewards.”[3] And these are only a few examples. Unfortunately, this hyperbolic reaction obscured what the Court actually did, what it did not do, and how its concerns can be addressed by Congress to ensure that federal prosecutors have a complete and robust legislative arsenal to combat corruption.
What the Court Did and Did Not Do
The Court in Snyder addressed only one question: whether 18 USC 666 which criminalizes bribes to state and local officials in connection with programs receiving federal funds also covers “gratuities” (defined by the Court as “payments made to a public official after an official act as a reward or token of appreciation”). It concluded that 18 USC 666 is worded ambiguously and does not clearly cover gratuities. That is it. The Court did not say that gratuities are permissible. It did not prohibit states from using state law to prosecute those who give or receive gratuities. It did not prohibit the federal government from prosecuting cases involving gratuities paid to federal officials. (To the contrary, it noted repeatedly that 18 USC §201 clearly criminalizes the payment of gratuities of federal officials.) It did not change the law covering the payment of bribes (defined by the Court as “payments made or agreed to before an official act in order to influence the public official with respect to that future official act.”)
Thus, while Snyder will deprive federal prosecutors of the ability to charge state officials for receiving gratuities, it will have no effect on anti-corruption cases brought under the basic federal bribery statute (18 USC §201) the Hobbs Act (which, among other things, criminalizes extortion under color of official right), the Foreign Corrupt Practices Act (FCPA) or the recently passed Foreign Extortion Prevention Act (FEPA).
Rather, the only effect of Snyder will be to prohibit the federal government from using 18 USC §666 to prosecute the payment of gratuities to state officials. This is not nothing. But it is not everything either. §666 has not been a common prosecutorial tool in major federal corruption prosecutions. It did not figure, for example, in the prosecutions of former Illinois Governor Rod Blagojevich or former Virginia Governor Bob McDonnell. And almost all of the §666 prosecutions cited by Justice Jackson in her dissenting opinion involved relatively small payments (a $5,000 cash gratuity in connection with school district contracts; a $1,000 payment in connection with a municipality’s multimillion dollar loan application; gratuities of $5,000, $1,200, and $1,000 in connection with real-estate development projects). Only one involved more significant benefits – regular cash payments of thousands of dollars, first class plane tickets to India, and an apartment at below market rates.
But while §666 may not be the most important anti-corruption statute and while state prosecutions of public officials for receipt of gratuities will continue, there are good reasons for criminalizing the receipt of gratuities at the federal, as well as state, level. These include the obvious fact that it can often be difficult for state officials to prosecute other state officials. Therefore, the gratuity provision of §666 is worth salvaging. Fortunately, this can be done relatively easily.
How it can be fixed
The Court’s decision was the result of ambiguity in the statute. The specific provision at issue, 18 USC §666(a)(1)(B) provides:
Whoever …being an agent of an organization, or of a State, local, or Indian tribal government, or any agency thereof [that receives more than $10,000 in federal funds annually] corruptly solicits or demands for the benefit of any person, or accepts or agrees to accept, anything of value from any person, intending to be influenced or rewarded in connection with any business, transaction, or series of transactions of such organization, government, or agency involving any thing of value of $5,000 or more … shall be fined under this title, imprisoned not more than 10 years or both. (emphasis added).
The majority interpreted the phrase “intending to be … rewarded” as referring only to an ex ante expectation of receiving a payment in exchange for an official act yet to be taken, i.e., a bribe. The minority interpreted it as referring equally to after the fact gratuities. (As Justice Jackson wrote “[t]he term ‘rewarded’ easily covers the concept of gratuities paid to corrupt officials after the fact – no upfront agreement necessary.”) In reaching its conclusion, the majority contrasted the language of §666(a)(1)(B) with the language of the federal anti-gratuity statute, 18 USC §201(c)(1)(B), which explicitly criminalizes the solicitation, receipt or acceptance by a public official of anything of value “for or because of any official act performed or to be performed by such official or person.” On the basis of this comparison, the majority concluded that if Congress had intended to criminalize gratuities in §666, it would have used the same language it used in §201(c)(1)(B). Its failure to do so, the majority reasoned, makes clear that it did not intend §666 to cover gratuities. While many (most notably Justice Jackson and her fellow dissenters, Justices Sotomayor and Kagan) have attacked this reasoning as tortured, it has the virtue of making the fix easy – Congress need only conform the language of §666 to the language of §201(c)(1)(B) to address the majority’s concerns.
This solution is so obvious that a leading member of the white collar defense bar and former federal prosecutor, Justin Weitz, proposed it in a 2011 article written when he was still a law student. As Weitz presciently wrote “Congress’ inartful drafting birthed the current mess, and Congress bears ultimate responsibility for cleaning it up. If Congress fails to fix §666, the Supreme Court may decide to weigh in. If it does, the Court is likely to significantly constrain the Act.”[4] Thus, he suggested, “[i]f Congress wishes to criminalize gratuities, it must act clearly by parroting the language of §201(c).”[5] If the solution was obvious to a law student (granted a very intelligent one) in 2011, it should be even more obvious now, after Snyder.
This is the second of the “Synder” series. Click here to view the first post.
Partner, Squire Patton Boggs
[4] Justin Weitz, The Devil is in the Details: 18 U.S.C. §666 After Skilling v. United States, 14 N.Y.U. J. LEGIS. & P. POL’Y 805 (2011), available at https://nyujlpp.org/wp-content/uploads/2012/10/Justin-Weitz-The-Devil-is-in-the-Details-18-U.S.C.-666-After-Skilling-v.-United-States.pdf
[5] Id.
In concluding that an anticorruption law does not cover gratuities, the United States Supreme Court concluded that the law … covers gratuities.
The opinion, in Snyder v. U.S., discusses whether the statute is meant to only prohibit bribes, which are typically viewed as improper quid pro quo exchanges, or also bans certain gratuities, which are “a reward for some future act that the public official will take (and may already have determined to take), or for a past act that he has already taken.”
In other words, a gratuity is a payment that does not need to actually influence the official. It just has to be connected to an action.
Prosecutors argued that the law includes gratuities because it prohibits being “rewarded” in connection with certain actions, and not just being “influenced” by a payment. Writing for the majority, Brett Kavanaugh instead reasoned that the prohibition on rewards is meant to clarify that a bribe could pass both before (to “influence”) or after (to “reward”) that reciprocal action. But to supplement his point, he describes a textbook example of a gratuity:
And think about the official who took a bribe before the official act but asserts as a defense that he would have taken the same act anyway and therefore was not “influenced” by the payment. To shut the door on that potential defense to a … bribery charge, Congress sensibly added the term “rewarded.”
Simply labelling this action as a bribe does not make it so, any more than calling a chicken a duck makes it a duck.
Justice Kavanaugh cites other factors in reaching his conclusion, most of which are easily countered in Justice Ketanji Brown Jackson’s (at times) stinging dissent. Those counterpoints – which include pointing out incorrect factual assumptions by Kavanaugh – have already been picked up in articles highlighting the flaws in the majority opinion.
But two areas where Justice Jackson’s dissent is not as complete – and where the prosecution’s oral arguments embarrassingly failed – concern federalism, and burritos.
The majority opinion argues that principles of federalism dictate that Congress could not have intended for the law at question – which covers state and local-level officials – to include gratuities because states have “differing” and “nuanced” approaches to regulating gratuities, and Congress would not so “lightly override” those approaches. But in reality, states and municipalities have a nearly universal approach to gratuities – they ban them. Where they differ is in the safe harbors they set, so that more innocent gifts are not swept up in criminal enforcements.
To say that these such approaches are differing and nuanced is akin to arguing that professional sports teams have a differing and nuanced approach to the concept of uniforms because they carry different colors or logos. The point is that they all wear uniforms.
The opinion also fusses over the risk of innocent gifts being swept up in the law, positing whether students could “take their college professor out to Chipotle for an end-of-term celebration” if the law covered gratuities. The prosecution and the dissent both argue that this is why the law only prohibits gratuities that are “corruptly” given or taken, but do not convincingly resolve the question of how to define when a payment or benefit is corrupt – they argue that something is corrupt in this context if it is “wrongful,” but that is painfully circular. (Moreover, the case they point to for this logic parses a secondary definition of “corrupt,” more akin to the way the hull of a boat or a computer’s hard drive can be “corrupted.”)
Instead, they should have drawn on Justice Antonin Scalia’s point in an earlier case that “the term ‘corruptly’ in criminal laws has a longstanding and well-accepted meaning” and involves an “advantage inconsistent with official duty and the rights of others.” As he clarified, “It includes bribery but is more comprehensive; because an act may be corruptly done though the advantage to be derived from it be not offered by another."
Anticorruption practitioners are well aware that, in the broader gift-giving context, there are rarely any express statutory limits on the cost of a client dinner, or the value of a holiday gift. Instead, the standard that many corporate compliance programs use is to gauge whether those gifts or hospitality are so frequent or so lavish that they could cause a reasonable observer to conclude that they could unduly influence the recipient.
In the course of my own career in the field, I have discussed this concept countless times with thousands of bankers, politicians, contractors, doctors, consultants, boat captains, service providers, and other employees from varying industries and walks of life. While we acknowledged that some scenarios were “gray,” it was almost always clear when something was acceptable, and when something was out of bounds. It is short-sighted for the U.S. Supreme Court to base an opinion on a fear that something unrealistic may happen.
And as for the gray areas – well, that is precisely what the court is supposed to parse out. Instead, it ducked the question – which looks like a chicken to me.
This is the first of the “Synder” series. Click here to view the second post.
Dave Lee
FCPA Compliance Consultant, TRACE
Earlier this month, a Chinese social media post shared a letter that had just been sent to Adidas headquarters in Germany, alleging that a senior executive at the sportswear company received millions of euros in kickbacks from advertising partners, conspired to fake vendor performance records, and bullied colleagues.
It appears that Adidas was either unaware of, or did not act on, these allegations until after it received the letter. It has now retained external counsel to investigate the matter.
The news emerges just as Adidas is beginning to enjoy growth again in China, after several years of drastically lower sales amid a confluence of Covid restrictions, political blowback, and poor business decisions.
Following the drop in sales, Adidas shifted its business approach in the country by becoming less centralized – it employed strategy that it called “In China, for China,” which included granting more autonomy to the local management team, holding meetings in Chinese instead of English, and vastly increasing its share of locally designed products with the domestic audience in mind (as opposed to, say, FIFA World Cup jerseys).
While details about the allegations and Adidas’s oversight are still emerging, the case already illustrates the importance of upgrading risk assessments and conducting targeted diligence as circumstances evolve.
For instance, if there are fluctuations in the scale of vendor engagements – corresponding to changes in Adidas’s China marketing budget – care should be taken in reviewing year-on-year metrics so that any anomalies are properly identified and explained. If a partner is embroiled in corruption news – as was the case for advertising company GroupM – a robust review of the business relationship should be conducted, especially if other companies are cutting ties with that partner.
As strategic decisions and management become less centralized, organizations should be mindful of what impact this could have on risk oversight. Among the many questions Adidas’s headquarters may be asking itself is why the author(s) of the letter took to social media instead of relying solely on the company’s internal whistleblowing mechanism, and what that says about confidence in compliance culture. It may be a smart business move to foster autonomy, but for compliance matters, Adidas must still “lay down law from state to state.”
Dave Lee
FCPA Compliance Consultant, TRACE