Jury acquits foreign national in apparent rebuke of DOJ's attempt to police overseas corruption
On December 2, 2019, following a nearly seven-week trial, jurors acquitted Lebanese businessman Jean Boustani of fraud and money laundering charges in a federal trial in Brooklyn. The result highlights some significant issues that may, in some cases, limit the ability of the Department of Justice to prosecute foreign nationals for corruption overseas.
The DOJ alleged that between 2013 and 2016 Boustani played an integral role in defrauding US investors in a complex scheme involving $2 billion in loans to state-owned companies in Mozambique. According to the DOJ, Boustani and his co-conspirators arranged for various investment banks to finance government-sponsored coastal development projects in Mozambique and formed three state-owned entities to borrow the funds for those projects. Boustani's employer, Privinvest (a group of companies based in the United Arab Emirates) secured the contract to perform the projects from the Mozambican government. Boustani and his co-conspirators secured the loans from the banks and, once the loans were securitized, they were sold to investors worldwide, including investors in the US. While the loans were ostensibly for coastal development, more than $200 million was purportedly diverted to pay bribes and kickbacks to Boustani, his co-conspirators, Mozambican officials, and others. Prosecutors maintained that Boustani helped negotiate the loans, made material misrepresentations to investors, and personally pocketed at least $15 million in improper payments.
To establish a US nexus, prosecutors claimed that Boustani received improper payments through "a series of wire transfers, many of which were paid through a correspondent bank account in New York City and passed through the Eastern District of New York," and coordinated payment of millions of dollars in bribes from banks outside the United States through New York. (See, eg, Superseding Indictment ¶¶ 75-79, 91-93). Moreover, the securitized loan agreements at issue required "that all payments by the borrower or the lenders" would be paid to a bank account at a New York-based bank. (Superseding Indictment ¶¶ 51, 71, 82). The state-owned entities that Boustani helped form eventually defaulted on the loans, plunging Mozambique into financial crisis.
As a result, Boustani faced allegations of conspiracy to commit wire fraud, securities fraud, and money laundering for his alleged role in the scheme, while some of his co-defendants were charged with conspiracy to violate the US Foreign Corrupt Practices Act (FCPA).1 Boustani was not charged under the FCPA, likely a consequence of the Second Circuit’s recent decision in United States v. Hoskins limiting the extraterritorial reach of the FCPA. 902 F.3d 69 (2d Cir. 2018). As explained in a prior DLA Piper client alert, the Second Circuit determined that non-resident foreign nationals operating entirely outside the United States could not be prosecuted as aiders-and-abettors or co-conspirators under the FCPA unless they could be liable under the statute as an employee, director, or "agent" of a United States company. In fact, the Second Circuit observed that finding otherwise would "transform the FCPA into a law that purports to rule the world." 902 F.3d at 92. The Boustani jury appears to have applied this same reasoning in acquitting Boustani of the conspiracy charges levied against him.
The verdict is already being characterized by some as a blow to the US’s ability to root out corruption beyond its borders. The DOJ's case against Boustani hinged, in large part, on whether there was a sufficient nexus to the US. While wire fraud and securities fraud violations are limited to domestic conduct, if an "essential" element of the scheme occurred in the US, then extraterritorial jurisdiction (based on that "essential" conduct in the US) may be appropriate − even as to individuals who never set foot in the United States.2 The money laundering statute provides for jurisdiction where "the conduct occurs in part in the United States [and] the transaction or series of related transactions involves funds or monetary instruments of a value exceeding $10,000." 18 U.S.C. § 1956(f).
At trial, prosecutors contended that Boustani and his co-conspirators took advantage of the US financial system and defrauded US investors who purchased the securitized loans at the heart of the bribery and kickback scheme. According to the government, Boustani and his co-conspirators made material misrepresentations or omitted information concerning the use of loan proceeds, among other things. (See Superseding Indictment ¶ 24). Prosecutors walked jurors though the payments to Mozambican officials in painstaking detail − payments that Boustani characterized as "fees" − noting that the illicit payments were transferred through US correspondent banks. "For wire fraud, all that is required is wires through the United States," argued Assistant US Attorney Mark Bini. "Every single penny went through wires in the US."
In contrast, Boustani's defense challenged the limits of the extraterritorial applications of US law, arguing in its opening that the United States is "not the world's policeman." The defense argued that the DOJ had failed to prove that Boustani had any role in selling the securitized loans or knew that the loans would later be sold to US investors. The defense further argued that any reasonable emerging market investor would know Mozambique was a corrupt country − that was part of the risk one took if one invested there. Taking the stand in his own defense, Boustani admitted that he was involved in making payments to Mozambican officials, agents and others, but his counsel contended that Boustani could not have known that the payments would have passed through the US. There was no evidence that Boustani had any involvement in the loan disclosures or had had any contact with US investors.
According to reports from the courtroom, this was ultimately the winning argument for Boustani. Although as trial lawyers we are cautious about certitude regarding why any particular jury reached any particular verdict, it does appear that at least some jurors ultimately concluded that there was no nexus between Boustani’s conduct and the US. "We couldn't find any evidence of a tie to the Eastern District of New York," said one juror. "That’s why we acquitted."
While it is hard to extrapolate from a jury verdict, taken together with Hoskins, one could argue that the two cases indicate a nascent trend of courts and juries rejecting the DOJ's increasingly aggressive attempts to extend its extraterritorial reach beyond clear connections with the US. While Hoskins was ultimately convicted of one count of conspiracy to violate the FCPA and six counts of violating the FCPA (in addition to other, separate counts − see DLA Piper's recent client alert regarding his conviction here), those convictions were possible only after the DOJ convinced the jurors that he acted as an agent of a United States company.
In contrast − although Boustani was not charged with violating the FCPA − he was acquitted of the conspiracy charges against him because the jurors apparently rejected the idea that the government could prosecute him for actions taken outside the US, notwithstanding the fact that Boustani admitted his role in the scheme and there seemed to be no dispute that "every single penny" involved in the scheme went through banks in the United States.
Again, we caution against reading too much into any particular jury verdict. Prosecution risks to foreign nationals allegedly involved in such schemes remain acute. It is easy to see a jury considering similar facts in another case reaching a different result. Also, there remains the risk of SEC action for FCPA violations given the result in S.E.C. v. Straub, 921 F. Supp. 2d 244 (S.D.N.Y. 2013). There, the court found it had jurisdiction because although the communications implementing the bribery scheme were not sent to or from the United States, the messages were routed through US servers. While the defendants argued that the SEC failed to allege an intent to use those servers, the Straub court found that the SEC was not required to show an intent to use interstate instrumentalities in the United States. 921 F. Supp. 2d at 263.
The Boustani outcome is the first trial defeat suffered by the DOJ's FCPA Unit in some years (although there have admittedly been relatively few trials). The verdict appears to represent a rebuke of the position taken by the DOJ that it may prosecute foreign individuals for overseas corruption.
1 While Boustani was not charged with conspiracy to violate the FCPA, the allegations in the Superseding Indictment supporting the conspiracy to commit money laundering charge were based on specified unlawful activities that included, inter alia, violations of the FCPA's anti-bribery and internal controls provisions. (Superseding Indictment ¶ 104).
2 See Bascuñán v. Elasaca, 927 F.3d 108, 122 (2d Cir. 2019) (explaining that for purposes of determining whether an individual defendant located abroad can be prosecuted for wire fraud, the use of US wires “must be essential, rather than merely incidental, to the scheme to defraud”); United States v. Vilar, 729 F.3d 62, 76 (2d Cir. 2013) (“[A] domestic transaction has occurred when the purchaser has incurred irrevocable liability within the United States to take and pay for a security, or the seller has incurred irrevocable liability within the United States to deliver a security.”) (alterations and internal quotation marks omitted).