Reargument Sought On Whether Shareholders Can Be Victims Of FCPA Violation For Purposes Of Criminal Restitution
On August 28, 2019, Judge Garaufis of the United States District Court for the Eastern District of New York held that investors in a mining company, Africo Resources Ltd. (“Africo”), could seek restitution from a defendant under the Mandatory Victims Restitution Act (“MVRA”) for harm caused by the corporation’s bribery scheme.The defendant is a subsidiary operating in Africa (“African Subsidiary”) of an asset manager.The African Subsidiary recently moved for reargument of the Order.
The Order was issued in connection with the African Subsidiary’s 2016 guilty plea to one count of conspiracy to violate the Foreign Corrupt Practices Act (the “FCPA”).The guilty plea related to allegations that the African Subsidiary made improper payments to officials in the Democratic Republic of the Congo to gain control of a mine that had previously been controlled by Africo.According to the plea agreement and the Order, improper payments were made to DRC court officials to obtain an ex parte judgment and subsequent decisions that allegedly deprived Africo of its control of the mine.According to the plea agreement, African Subsidiary allegedly paid $150 million to an entity that helped facilitate bribes to the DRC officials.
A condition of the plea agreement was that the Government would recommend that no “criminal fine” be imposed on the African
Subsidiary, provided that its ultimate parent pay a monetary penalty of $213 million as set forth in its deferred prosecution agreement with the DOJ.The plea agreement was silent as to restitution.
Sentencing for the African Subsidiary was set for March 29, 2017.While the Government did not seek restitution at sentencing, investors in Africo did, claiming that they had been harmed by the conspirators’ illegal actions in bribing DRC officials that resulted in the initial deprivation of Africo’s mining rights, as well as the ongoing conduct that enabled that maintained the alleged deprivation.Africo argued that because of these direct and proximate harms, they were entitled to a $1.8 billion stake in the mine, which included the opportunity loss from being unable to develop the mine.
Under the MVRA, 18 U.S.C. § 3663A(a)(l), restitution is mandatory for certain offenses,including “offenses committed by fraud or deceit”; the parties did not dispute that FCPA violations meet this standard.For a claimant to be entitled to restitution, it must show that (1) it was “directly and proximately harmed as a result of the commission of an offense”; (2) the number of identifiable victims is not so large “as to make restitution impracticable”; and (3) there are no complex issues of fact related to the cause or amount of the victim’s losses.
At sentencing, the African Subsidiary opposed the Claimants’ application for restitution.The African Subsidiary principally argued that the investors could not demonstrate direct harm or proximate cause because Africo was in dire straits when the bribery took place, had been unable to develop the mine, and would not have had the funds to do so without diluting its shareholders. The African Subsidiary argued that even assuming that the investors could be considered “victims” for purposes of the MVRA, their harm was not directly and proximately caused by the bribery scheme.
The Government similarly argued that, even if African Subsidiary could be liable for harms related to alleged bribery that occurred later in the scheme to keep Africo from regaining its mining rights, including influencing DRC Supreme Court officials, it was not liable for the initial deprivation, in which it did not take any direct part. Therefore, the Government essentially posited that there had been two conspiracies—one to initially deprive Africo of its rights in the mine and one to prevent them from regaining the rights – and African Subsidiary was only the direct and proximate cause of the latter.
Judge Garaufis rejected these arguments and found that the Africo investors qualified as victims for purposes of the MVRA.Specifically, Judge Garaufis found that the “attenuated nature of Claimants’ interest in Africo’s mining rights may make calculating restitution more difficult,” but nonetheless concluded that the African Subsidiary’s claims about Africo’s challenges associated with the development of the mine were speculative, and also that it “lost the opportunity to do so fairly, which is a harm recompensable under the MVRA.”Further, although the shareholders acting as Claimants would have no private right of action against African Subsidiary, they were not barred from relief under the MVRA.
Judge Garaufis also rejected the two-conspiracy argument, finding that “there was mutual dependence and assistance between the two phases of operation” and that the African Subsidiary was responsible for restitution stemming from the earlier acts because it “knew or reasonably should have known about some or all of the conspiracy’s past imports.”Therefore, Judge Garaufis concluded that restitution was appropriate based on the entirety of the scheme—from initial deprivation forward.The Court then directed the parties to provide supplemental briefing on how to calculate the restitution amount owed to the investors.
The African Subsidiary has moved for reconsideration on the grounds that Judge Garaufis’ opinion was premised on a “mistake of fact”—i.e. that Africo was a defunct company, which therefore precluded Africo from seeking “victim status” under the MVRA (and which derivatively allowed Africo’s shareholders to do so).In so moving, the African Subsidiary offered evidence that Africo is still a going concern, and that the corporation should be considered the “victim” rather than its shareholders.The African Subsidiary further argued that Claimants’ status as shareholders of a “victim corporation” is too attenuated to grant them a right of recovery under the MVRA.
The opinion addresses some novel issues associated with the MVRA, including the scope of proximate cause associated with restitution.