Thoughts on the FIFA Indictment

It’s been two months since Swiss police on May 26 raided a luxury hotel in Zurich and arrested seven top executives of FIFA, the world soccer federation that organizes the World Cup.  The seven execs all face extradition to the United States and a federal indictment alleging a decades-long bribery scheme.

The indictment issued from the Eastern District of New York.  It is gnarly – 161 pages long, naming 14 defendants, identifying 25 un-named co-conspirators, and detailing the role of dozens of football federations and marketing companies.

According to the indictment, high-ranking FIFA officials routinely accepted kickbacks in exchange for granting lucrative marketing deals, broadcast rights, and even the selection of which country will host the next World Cup.  For example, an unnamed sports marketing company paid $40MM in bribes so a sports apparel company (reportedly Nike) could be the exclusive outfitter for the Brazil national team.

The world of international soccer is very complicated.  FIFA is the governing international body.  Each continent has its own Football Confederation, and certain regions have Football Unions as well.   It’s all intertwined, with top confederation officials also serving in FIFA.  This proliferation of unions and confederations has been a fertile breeding ground for bribes and kickbacks, and the indictment alleges over $150MM in bribes over the years.

Here’s something interesting:  although bribery is the central theme of the indictment, nobody has been charged with “bribery” as such.  Contrary to popular belief, this is not a case brought under the Foreign Corrupt Practices Act.  The FCPA only outlaws bribes that are paid to officials of foreign governments.  But FIFA is not a governmental entity.  It is entirely private, just like the International Olympic Committee or the NBA.

No federal law directly outlaws paying bribes to executives of a private entity.  So how did the feds manage to make bribery the centerpiece of this massive case?

The Feds got there by structuring the case as a RICO conspiracy under 18 USC § 1962.  RICO makes it illegal for executives to conduct the affairs of an enterprise through a pattern of racketeering activity.”  In RICO terms, FIFA is an “enterprise” that was “corrupted” by the defendants.

This makes for an interesting twist.  As portrayed in the indictment, FIFA is not a criminal enterprise but instead a victim of dishonest FIFA officials, who enriched themselves at its expense.  (The analogy:  FIFA is not so much a mafia crime family, as it is a labor union corrupted by the mob.)  The indictment goes to great pains to establish that FIFA had a lawful mission of promoting soccer, and is very careful to allege the defendants owed a fiduciary duty to FIFA.

A RICO conspiracy can be supported by proving certain “racketeering activity” in violation of federal or state law.  This case is based on the following racketeering activity/predicate acts:

  • Commercial bribery, in violation of the New York Penal Code Section 180.03. This state law makes it illegal to pay a bribe to an employee or fiduciary of a company.  Although buried on page 114 of the indictment, this is a key predicate act because it gives the feds the hook they need to go after bribery of non-governmental officials.
  • Wire fraud, in particular honest services wire fraud. This theory relies on the defendants owing a fiduciary duty to FIFA, which they allegedly breached by accepting bribes to the detriment of FIFA.
  • Money laundering (based on laundering of the bribe payments).

Prosecutors must also overcome the fact that most of the alleged bribes took place overseas.  The indictment therefore takes care to establish a nexus between this international bribery scheme and the United States:  U.S. wires, use of U.S. banks, meetings in the U.S.  If proven, such acts in the U.S. that facilitated foreign bribe payments will probably be enough to support these charges.

So what is the extraterritorial reach of RICO?  Can it really be applied to misconduct by foreigners that mostly takes place outside the US?

In 2010, the Supreme Court decided Morrison v National Australian Bank, a securities case, which held that federal statutes are presumed to have no extraterritorial application absent clear indications of congressional intent otherwise.  Lower courts are to look to the “focus” of the statute to determine what congressional intent was.

At least three analytical approaches have emerged post-Morrison.  One line of cases looks for the existence of a domestic “racketeering enterprise.”  Other courts, such as 9th Circuit, look for evidence of a domestic “pattern of racketeering activity.”  See  United States v Chao Fan Xu, (9th Cir. 2013)   The Second Circuit (where the FIFA case originated) takes the broadest view, that the geographic reach of RICO is identical to the reach of the various statutes defining the underlying predicate offenses.  In European Community v RJR Nabisco, (2d. Cir. March 2015) , that court held that the RICO statute applies extraterritorially so long as Congress intended the statutes prohibiting the particular RICO predicate acts in question to apply beyond U.S. borders.

Given how unsettled the law is in this area, you can bet that the defendants will fight the scope of the RICO statute tooth and nail.

Pennsylvania Rep Indicted for Racketeering

Pennsylvania Congressman Chaka Fattah and four of his associates were indicted today in a federal racketeering conspiracy that accused the congressman of misappropriating hundreds of thousands of federal dollars for personal gain. Fattah, first elected to the House in 1994, has been charged with bribery, racketeering, money laundering, bank fraud, mail and wire fraud, and filing false statements.

Fattah has been the subject of a longstanding DOJ investigation, and a search warrant was executed on his office and home in 2012.  Last year a top aide pleaded guilty to helping Fattah divert public money to pay the student loans debt for his son (who has been awaiting trial on federal bank fraud charges).

Notable among the accusations in the indictment, Fattah allegedly:

  • Used a secret million-dollar loan to back his failed 2007 run for Mayor of Philadelphia;
  • Attempted to steer $15 million in federal grants to a political consultant who was owed $130,000 by Fattah’s campaign;
  • Taking an $18,000 bribe from an associate in exchange for attempting to secure him an ambassadorship, and then masking the bribe in the form of a fake car sale.

Fattah, until recently the ranking Democrat on the House appropriations committee, steadfastly denies any wrongdoing and said that he would not resign his seat.

Perry Victory: Court Tosses One Corruption Charge

The Texas State Court of Appeals today tossed out one of the two felony counts against former Governor Rick Perry.  The Court found that the law, which charged Perry with coercion of a public official, violated his right to free speech.

Count two of the April 15, 2014 indictment accused Perry of threatening to veto legislation meant to provide funding for the continued operation of the Public Integrity Unit of the Travis County District Attorney’s Office — unless Travis County District Attorney Rosemary Lehmberg resigned from her official position as elected District Attorney.

Special Prosecutor Michael McCrum has not yet decided if he will appeal the decision to the Texas Supreme Court, but seems determined to proceed on the remaining charge, predicting a trial by the end of the year.  Perry’s defense team, however, could drag things out by appealing the Court’s decision to uphold count one.

Delay might be an attractive option for Perry, who is running for the Republican presidential nomination in a crowded field.  He presumably does not want this issue detracting voter interest away from his campaign.  On the other hand, he has been eclipsed by most of the other candidates so far – in particular reality-TV performance artist Donald Trump.  So perhaps Perry will find truth in the old adage that any publicity is good publicity.

Leland Yee Pleads Guilty to Racketeering

Former California state senator Leland Yee pleaded guilty today to federal racketeering charges.   Yee was charged in March 2014 in a lurid indictment describing how the San Francisco-based politician used his influence to establish a “racketeering enterprise, trading political favors for campaign contributions and even offering to arrange the sale of machine guns and shoulder fired missiles to an undercover FBI agent posing as a mob figure.”  Not the usual forte of Bay-area politicos.

Yee’s plea agreement did not specify a sentence, but the racketeering charge carries a maximum sentence of 20 years.  Given the outrageous nature of Yee’s admitted conduct, expect prosecutors to seek a sentence in the high teens.

Former GOP House Speaker Indicted for Concealing Hush Money

Former Congressman Dennis Hastert, a Republican who served as Speaker of the House from 1999 to 2007, has been indicted for lying to the FBI and attempting to conceal nearly $1.7 million in cash withdrawals from his bank account – withdrawals for alleged hush money to cover up Hastert’s “prior misconduct” against someone from his past.

The Indictment, brought by federal prosecutors in Chicago, is a small masterpiece of innuendo.   Although it does not spell out Hastert’s “prior misconduct,” it goes out of its way to mention that Hastert from 1965 to 1981 “was a high school teacher and coach in Yorkville, Illinois.”  This would not be in the indictment unless it were relevant.  The alleged recipient of the money, “Individual A” has known Hastert “most of Individual A’s life.”  In 2010, two years after Hastert retired from Congress, Individual A and Hastert met multiple times, and at least once discussed misconduct by Hastert against Individual A “that had occurred years earlier.”  Hastert then allegedly agreed to pay the individual $3.5 million to keep quiet.

Sounds like Coach Hastert was trying to cover up a sex scandal, doesn’t it?  And although it is possible that Individual A is female, my hunch is that the misconduct involved a young man who is now grown and was shaking down Hastert.  Why else would the ex-Speaker (a conservative, evangelical Christian) agree to pay such a huge sum?   Hastert, now a well-paid lobbyist, might barely weather a hetero sex scandal (even if it involved an underage girl) but certainly not a homosexual version.

So the indictment thus far suggests two possible crimes, neither of them federal:  Hastert’s original “misconduct” (criminal if Individual A was underage at the time) and extortion (apparently committed by Individual A).  So how did this wind up in front of a federal grand jury?

Banks are required to file a Suspicious Activity Report for any transaction involving $10,000 or more.  This helps the feds detect money laundering, terrorist financing and the like.  It is a crime to structure your financial transactions in such a way as to avoid triggering these reporting requirements.    Such so-called structuring is outlawed by Title 31, Section 5324(a)(3) of the United States Code.  Hastert’s secret payments came to the attention of the feds via bank reporting, when his pattern of withdrawals became a series of smaller payments just under $10,000 each.

When the FBI interviewed Hastert about these payments, he allegedly lied and told the agents that he had made the withdrawals because he did not feel safe with the banking system.    And so now Hastert is charged with making a false statement to the FBI as well.

But what about the long-ago “misconduct” of Hastert and the more recent extortion by Individual A?   Aren’t prosecutors looking at those as well?

Let’s assume the worst:  that Hastert molested a minor many years ago, as a teacher/coach.  Could he be prosecuted for that?  Not any more.  The laws on sexual crimes in Illinois were revamped in the early 1980s. Even though the statute of limitations on sex crimes involving minors is now 20 years from the date that the victim turns 18, this lengthy limitations period does not apply if the crime was committed before 1984.  Hastert left coaching for Congress in 1981, so if he committed that type of abuse while working at the high school, the statute of limitations is long since gone.  Hastert could not be prosecuted for that.

Meanwhile, based on the indictment it appears that Individual A has committed the crime of Intimidation (i.e. extortion) against Hastert under Illinois law.  Under 720 ILCS 5/12-6, it is a crime to threaten to cause someone to perform an act (like paying hush money) by threatening to accuse the person of a crime or exposing that person to hatred, contempt or ridicule.  Since Hastert was allegedly making payments as late as 2014, presumably Individual A could be prosecuted by local authorities for extorting Hastert.

Taking the Indictment at face value, Hastert is a wrongdoer and a victim, and so is Individual A.  So far, prosecutors have exercised their discretion to prosecute only Hastert.  I suspect, however, that local prosecutors will not be able to ignore the extortion angle on this.  Expect Individual A to be unmasked and charged by the locals in the near future.

NY Senate Majority Leader Indicted for Corruption

Scant months after New York Democratic New York assembly leader Sheldon Silver was indicted on corruption charges, the top Republican in the state senate has suffered a similar fate.  United States Attorney Preet Bharara, demonstrating prosecutorial bipartisanship, has reached across the aisle to indict senate majority leader Dean Skelos on six counts of conspiracy and extortion.  Skelos’s son Adam has also been charged in the indictment.  The pair allegedly leveraged the power that Skelos senior enjoyed as state senate leader to demand payments to Skelos junior from a real estate developer and an environmental tech firm with business before the State of New York.

Feds Indict Ex-Undersheriff Tanaka for Obstruction of Justice

Federal prosecutors in Los Angeles are moving up the chain of command in their long-running probe of misconduct in the Sheriff’s Department.  An indictment has been filed against the former number two in the LASD, ex-Undersheriff Paul Tanaka, and a former Captain, Tom Carey.  The only person higher up than Tanaka is former Sheriff Lee Baca, who remains uncharged.

Tanaka and Carey face obstruction of justice charges for their roles in the 2013 “Operation Pandora’s Box” scandal that rocked the department.  Late last year, seven lower-ranking former sheriff’s deputies were convicted for their roles in an effort to thwart a FBI investigation into inmate abuse at the county jails by hiding an inmate-turned-FBI-informant from his federal handlers.

This is the first indictment brought against upper brass in the department.  Tanaka was second-in-command to then-Sheriff Lee Baca during the time FBI informant Anthony Brown was repeatedly moved under false names from jail to jail in an effort hide his whereabouts.

Tanaka testified as a defense witness in the three federal previous obstruction trials, telling jurors that orders to hide Brown came directly from Sheriff Baca.  Although this testimony may have been intended to absolve the lower-ranking deputies for “just following orders,” jurors evidently concluded that the defendants knew that they were acting to obstruct the FBI.

If Tanaka had hoped to ensure the loyalty of the former deputies by testifying for them, he apparently did not succeed.  According to press reports, several of the convicted deputies subsequently testified in front of the grand jury, presumably in hopes of a more lenient sentence.

Former Captain Carey was head of the LASD Internal Criminal Investigations Bureau (ICIB) and the direct supervisor of three of the convicted sheriff’s deputies.  He coordinated the department’s response after deputies discovered a cell phone on inmate Anthony Brown that had been planted by the FBI to snare corrupt deputies at the jail.   Like Tanaka, Carey testified as a defense witness in the other officer’s trials, telling jurors that Sheriff Baca and Undersheriff Tanaka believed a “rogue” FBI agent was responsible for smuggling in the phone and that he (Carey) was to conduct a criminal inquiry.  It is the conduct of officers during that investigation that make up the bulk of the obstruction charges.

So will Tanaka and Carey testify at their own trial?  My guess is yes.  Although the first instinct of defense attorneys is to keep clients off the stand, in this instance much of their prior testimony would be admitted anyway, through an exception to the hearsay rule.  The defense might as well put the defendants on the stand, knowing full well that any inconsistency between their trial testimony and former testimony will be the subject of cross-examination.

Top Cop at Port of Los Angeles Charged with Fraud & Tax Evasion

The Los Angeles Times has reported that Ronald Boyd, chief of the Port of Los Angeles Police Department, was indicted on federal charges of honest services fraud and tax evasion.  The indictment accuses Boyd of using his influence as chief of police to award a contract to an unnamed company which developed a smartphone app called Portwatch.  In exchange, the company entered into a profit-sharing agreement with a company created by Boyd.  The chief’s share of the profits was allegedly contingent him being able to secure the Portwatch contract with the Authority.  Apparently, the app never took off and Boyd earned little more than the indictment.

NJ Senator Menendez Indicted for Bribery

Well that was quick.

Just after my recent post on the allegations against New Jersey Senator Robert Menendez, the senator was finally indicted, on 22 counts including conspiracy, bribery, honest services fraud and making false statements.  His crony, Miami eye doctor Salomen Melgen, was also charged.

The indictment alleges that “Melgen offered and gave, and Menendez solicited and accepted from Melgen, hundreds of thousands of dollars of contributions to entities that benefitted Menendez’s 2012 Senate campaign, in exchange for specific requested exercises of Menendez’s official authority.”

According to the indictment, Menendez used his official authority to help Melgen in these ways:

  • Influencing the granting of visas for Melgen’s foreign girlfriends (Melgen is married, BTW);
  • Pressuring the State Department to influence the Dominican Republic to abide by a multi-million dollar contract with Melgen to provide cargo screening at Dominican ports;
  • Stopping United States Customs from donating shipping container monitoring and surveillance equipment to the Dominican Republic (which would have threatened the Melgen’s contract) ; and
  • Influencing the outcome an administrative action that sought repayment by Melgen of millions of dollars in Medicare overbillings.

In exchange for this official action, Menendez allegedly received at least 20 private jet trips for himself and friends, luxury vacations, and generous donations for his campaign and legal defense funds.  Donations for the latter may be harder for the Senator to come by now.

New Rumors of Corruption against NJ Senator Menendez

According to numerous press reports, the feds are circling New Jersey senator Robert Menendez.  Any day now (it has been reported for weeks) the senator will be indicted for accepting gifts from a wealthy friend, eye doctor Salomon Melgen, in exchange for using his senate position to change Medicare rules in a way that would allow Dr. Melgen to reap millions of dollars.  The gifts allegedly included three flights to the Dominican Republic on Melgen’s private jet.  (Menendez later reimbursed Melgen for these flights).

Accusations against senator Menendez and Dr. Melgen are nothing new.  In 2013, a letter allegedly written by a Dominican woman (who later recanted) claimed that the senator had sex with prostitutes, some of them underage.  She accused him of frequenting orgies allegedly organized by Dr. Melgen, who maintained a home in the Dominican Republic.  The senator vehemently denied the charges and nothing came of them directly.  However, the FBI’s investigation into those discredited claims apparently led to the newest allegations against the senator.  The feds raided Dr. Melgen’s south Florida offices in January 2013. According to 2012 Medicare data, Dr.Melgen had received more in Medicare reimbursements than any other doctor in the country.

These south Florida ties add another level of intrigue to the investigation.  Menendez, the son of Cuban immigrants, is popular among Miami’s Cuban anti-Castro crowd and wealthy Cuban expats have donated to his campaigns.  These connections have led many to speculate that the allegations of underage prostitutes may have been ginned up by the Cuban government in an effort to smear the Senator.

Menendez also weathered an earlier FBI corruption investigation initiated during the George W. Bush administration by New Jersey’s then-United States Attorney Chris Christie.  Christie served criminal grand jury subpoenas during the final stretch of the 2006 senatorial campaign, in what appeared to be a heavy-handed effort to help the GOP candidate, Tom Kean, Jr.  Kean enthusiastically pummeled Menendez with these allegations up until election day.  But nothing much came of the investigation after the initial flurry of subpoenas.  Five years later, the FBI officially notified the senator that the investigation was closed without charges ever being filed.

The FBI may well view Menendez as a big fish that got away. There may be more substance to the current allegations than in the earlier investigations that fizzled.  But given the feds’ past failures in making their case against Menendez, and their seeming hesitancy to file the current charges, it is far too early to assume anything.