Application of the Mail and Wire Fraud Statutes to International Bribery: Questionable Prosecutions of Questionable Payments
APPLICATION OF THE MAIL AND WIRE FRAUD STATUTES TO INTERNATIONAL BRIBERY: QUESTIONABLE PROSECUTIONS OF QUESTIONABLE PAYMENTS
Richard A. Hibey
The shame of Richard Nixon and his men poses a grim study in the corruptive uses of power that are alien to democratic principles.' However classic a formulation the Watergate scandal presented for political scientists and historians, it was devoid at its highest levels of the element of profiteering that has come to be commonplace in the mainstream of corruption cases prosecuted in state and federal courts. Nevertheless, Watergate's corruptive effect even absent the pervasiveness of the profit motive cannot be ignored. It broke down traditional beliefs concerning the sanctity of governmental institutions,' and at the same time verified a competing, long-held but simplistic belief that all politicians are "crooked," and that those who support them with money and other things of value are likewise dishonest. Once the dam burst, there flowed from Watergate a host of investigations and public inquiries which unfortunately tended to confirm even the basest suspicions held by the American public. These new revelations demonstrated that the profit motive in corrupt activities was alive and flourishing. As they unfolded, the impetus to ferret out even more corruption was fully ventilating. Thus, within a relatively brief period of time, this country witnessed the deposition of a President of the United States,3 his
Vice President,' two Governors,' and exposure of the existence of
a coordinated foreign governmental effort to corrupt members of
Public cognizance of these acts of corruption fit conventional
thinking and appeal to the cynicism which naturally existed after
the spectacular Watergate debacle. Each of these acts of
corruption was met with vigorous criminal prosecution rooted in
oftenused and well-understood criminal statutes. The United States
public learned that such acts of misconduct were prosecutable
under the federal conspiracy laws,7 the Internal Revenue Code,8
the obstruction of justice statute,9 and the mail and wire fraud
statutes." The principal reason underlying public
acceptance of these types of criminal prosecutions is that the illegalities
that they expose are readily identifiable as violative of the public
sense of morality. This identity of illegality with immorality has
received vigorous judicial endorsement in recent years.
It is also the case that American companies doing business
abroad have made payments to foreign government officials 2 in
situations that have been euphemistically characterized as
"questionable." However comfortable the public temperament appears
to be with respect to prosecutions under the federal mail and wire
fraud laws (to say nothing of the commentators dealing with the
same subject), substantial questions of law and policy are posed
where these statutes are used as the basis for criminal
prosecutions of the executives of United States companies for payments
made to foreign government officials. It is to this newly-emergent
form of criminal prosecution that this paper will direct its
BASIS FOR MAIL AND WIRE FRAUD PROSECUTION:
THE WILLIAMS FORMULATION
It is undisputed that United States companies doing business
abroad have frequently made payments to foreign government
officials for the purpose of obtaining or retaining business in a given
country."3 It is also certain that if such practices had been carried
out with United States government officials, prosecutions for
bribery would abound."
On December 19, 1977, President Carter signed into law the
Foreign Corrupt Practices Act 5 which proscribes bribery of
foreign government officials. However, the Department of Justice
has embarked upon a policy of prosecuting payments to foreign
government officials which occurred prior to the passage of the
Act, charging corporations and their responsible officials with
violations of the mail and wire fraud statutes of the United
States.6" The typical information, 7 to which all companies charged
to date have entered pleas of nolo contendere, indicates the
concept which has formed the basis for the Justice Department
Note, Disclosure of Payments to ForeignGovernment Officials Under the Securities
Acts, 89 HARV. L. REV. 1848 (1976); The Report of the Securities andExchange Commission
on Questionable and Illegal CorporatePayments and Practices,submitted to the Senate
Banking, Housing and Urban Affairs Committee (Comm. Print 1976) [hereinafter "the SEC
Report"]; Richardson Letter, supra note 12; Note, ProhibitingForeign Bribes: Criminal
Sanctions for CorporatePayments Abroad, supra note 12; Herlihy & Levine, Corporate
Crisis: The Overseas Payment Problem, 8 L. & POL'Y INT'L BuS. 547 (1976).
" 18 U.S.C. § 201 (1976).
15 U.S.C. §§ 78a, m, dd-1, dd-2, ff (Cum.Supp. V 1977).
" See, e.g., United States v. The Williams Companies, Crim. No. 78-144 (D.D.C., filed
March 24, 1978); United States v. Control Data Corp., Crim. No. 78-210 (D.D.C., filed April
"7As part of the plea agreement, the companies waived grand jury indictment and the
Government proceeded by criminal information.
secutions. It alleges in pertinent part that the company devised a
...to defraud the citizens of a certain foreign nation of their
right to the honest and loyal services of their government
officials in the performance of their duties free from bribery,
corruption and dishonesty by the payments of sums of money to
induce, unlawfully, favorable action by the responsible
government officials ....18
Prior to the disposition of United States v. The Williams
Companies on March 24, 1978, there were no criminal prosecutions
that embodied these allegations, hence hereinafter this concept
will be referred to as the "Williams formulation."
The seminal document setting forth the government's position
regarding "the questionable payments problem," is a letter from
then-Secretary of Commerce Elliot Richardson to Senator
Proxmire in which Secretary Richardson made only passing reference
to the deterrence of future improper payments by United States
firms abroad through criminal sanctions under the mail and wire
fraud statutes. 9 Since foreign bribery prior to the passage of the
Foreign Corrupt Practices Act was recognized as not being
prohibited under "present federal law,"2 the sustainability of these
innovative fraud prosecutions in a contested proceeding becomes
a substantial issue.
The essential premise underlying prosecutions based on the
Williams formulation is a presumption that citizens of another
country have been deprived of the honest services of their public
officials. This presumption continues even where payment
practices are part of the customs and usages of that society,
notwithstanding existence of statutes purportedly forbidding
bribery.21 For example, in Saudi Arabia, the governmental
response to United States public furor over sensitive payments
made to government officials in that country resulted not in a
" United States v. The Williams Companies, Crim. No. 78-144 (D.D.C., filed March 24,
1 "In conjunction with violations in all of the foregoing areas [securities laws, tax laws,
antitrust laws, false statement laws], depending on the facts of a particular case, additional
charges may be appropriate for conspiracy.... mail fraud, . . . or fraud by wire ......
Richardson Letter, supra note 12, at 13. See also Coffee, supra note 12, at 1157-1158, nn.
208-211; Note, supra note 12, at 234.
Richardson Letter, supra note 12, at 10.
Note, supra note 12, at 235, n. 26, 236.
spate of bribery prosecutions of officials who were the recipients
of these payments, but rather in the issuance of a decree which
regulated for the first time the maximum allowable fee payable to
a commissioned agent of a non-Saudi company.' The immediate
effect was not to eliminate the agent but rather resulted in the
announcement to United States companies doing business there that
the agent's commission rates, which were previously lower than
the ceiling set by the decree, would now be increased to that
ceiling figure. Further, despite United States condemnation of
foreign sensitive payments, it is difficult to ignore grumblings in
the international business community to the effect that the United
States government itself has recognized the customary practice of
payments to foreign government officials in order to obtain or
retain business. 3
The fact that these practices go essentially unchallenged in
most of the countries whose names are repeatedly involved in
payments disclosures, 2' and further that there is no treaty or
other international agreement binding its signatories to a
campaign against foreign corrupt practices, suggests the lack of a
consensus as to which of these practices is illegal and how to deal
effectively with the problem. 5 The basis, then, upon which the
Justice Department proceeds -that the actions which it condemns
in the name of the United States are viewed similarly as wrongful
by the citizens of that certain foreign country who allegedly have
been defrauded-must be called into question.
Royal Decree No. M/2, published in Official Gazette, Jan. 20, 1978.
" In a letter addressed to Philip Heymann, Chief, Criminal Division, United States
Department of Justice, Alexander Hehmeyer, Esq., stated that in a State Department
briefing session in connection with the first U.S. Trade Mission to the Middle East, of which
he was a member, the Mission was told:
"Yes, appropriate payments to the right government officials are customary and
expected .... Such payments ... were probably best handled through a properly
connected agent and were especially expected in Saudi Arabia. In other words,
we were specifically advised that the making of "appropriate" payments to
foreign government officials in this part of the world was a "reality" of doing
business there .... Our government officials ... advised the businessmen going
on this trade mission of the existence of an "under-the-table" payment custom and
culture in the Middle East and briefed us accordingly.
Reprinted in The Wall Street Journal, Oct. 17, 1978, at 26, col. 4.
" See Stevenson, note 12 supra, at 57, for notable exceptions, such as Honduras and
' The United Nations has established an ad hoc Intergovernmental Working Group on
the Problem of Corrupt Practices under the Economic and Social Council. Their Convention
may be ready for signature this year. U.N. Doc. E/I5 (1978). (ed.)
Current enforcement activity by affected United States
Departments and agencies reveals a program whose vigorous
enforcement holds the promise of an effective deterrent against unlawful
payment practices. The thrust of the Foreign Corrupt Practices
Act is clear and unmistakable. It serves as effective notice to
United States companies that corrupt foreign payments will no
longer be tolerated.'
In addition to the vigorous criminal enforcement activity of the
Department of Justice,' the Securities and Exchange Commission
(SEC) has long been involved in enforcing the antifraud provisions
and the reporting requirements of the securities laws in an effort
to combat corrupt corporate practices abroad. As a result of its
enforcement activities, the SEC has undertaken investigations of
both a civil and a criminal nature,"8 and has sought civil injunctive
' President Carter has recognized the deterrent effect of the Foreign Corrupt Practices
Act, as well as its impeding characteristics. Accordingly, he announced on September 27,
1978, that he has directed the Department of Justice to "provide guidance to the business
community concerning its enforcement priorities under the recently enacted anti-bribery
statute." President's Statement on United States Export Policy, 14 WEEKLY COMP. OF PRES.
Doc. 1633 (Sept. 26, 1978). It is interesting to note that the Justice Department has resisted
the formulation of such guidance, stating "all they [businessmen] want to know is who they
can bribe and who they can't. Well, we're not going to tell them- we'll go down kicking and
screaming on this one." Wash. Post, Oct. 10, 1978, § D, at 7.
'7 In both the Williams Companiesand Control Data cases, the defendants were charged
with violations of the Currency Regulations, 31 U.S.C. § 1059 (1970), 31 C.F.R. §§ 103.23(a)
). In those cases, payments in excess of $5,000 were made in cash
transported out of the United States in violation of federal currency laws and regulations.
Recently, the Westinghouse Electric Corporation was charged in an information with
violations of 18 U.S.C. § 1001 (1976), for making false, fictitious and fraudulent material
statements and representations of fact concerning matters within the jurisdiction of the
Export-Import Bank of the United States and the Agency for International Development.
These charges grew out of allegations of payments made to a foreign government official
that were not disclosed on forms submitted to those government agencies. United States v.
Westinghouse Electric Corp., Crim. No. 78-566 (D.D.C., filed Oct. 23, 1978). It should be
noted that the negotiated disposition of the case through a plea of nolo contendere provided
also that the foreign official and his country not be identified in any of the papers filed with
the court. The District Judge, to whom the disposition was presented, rejected the plea on
the grounds that the secrecy provisions prevented the court from knowing more about the
identity of the foreign official and the country he represented, as well as the circumstances
of the payments. In addition, the court objected to the fact that the proposed fines were in
an amount less than the amount of the corrupt payments. Wash. Star, Oct. 24, 1978, § A at
2 A natural concomitant of these investigations is, of course, the shareholder derivative
suit, in which a shareholder seeks remedies against the company and its personnel for
conduct which is the very subject of the SEC enforcement actions. See FED. R. Civ. P. 23.1.
actions and other appropriate ancillary relief." The SEC possesses
a capability of instituting administrative disciplinary
proceedings," and can refer matters to the grand jury for
investigation and subsequent criminal prosecutions. In addition, the SEC
has assigned some of its lawyers to the Justice Department to
assist in the criminal investigation of the very conduct which is
also the subject of the SEC's civil investigation, thus presenting
companies with two governmental institutions with which to cope,
one enforcing requirements for the fullest material disclosure, the
other recognizing that individuals under investigation have the
constitutional right to remain silent.2
The most significant undertaking by the SEC in this area began
with the implementation of its Voluntary Disclosure Program.'
Pursuant to that program, some public companies disclosed
payment practices in their international transactions. Although they
purportedly volunteered to make such disclosures, doing so did
not immunize them from the risks of shareholder suits, SEC
enforcement actions which provided ancillary relief in the form of
requiring costly investigations, the initiation of actions by other
regulatory authorities, actions against corporate officials, nor
from criminal prosecutions.'
" See, e.g., Section 20(b) of the Securities Act of 1933, 15 U.S.C. §§ 771(b) et seq. (1970),
and Section 21(e) and (c)of the Securities and Exchange Act of 1934, 15 U.S.C. §§ 78u(d) and
(e) et seq. (1970).
17 C.F.R. § 201.2(d)(e) (1977).
" See Matthews, CriminalProsecutions Under the FederalSecurities Laws and Related
Statutes: The Nature and Development of SEC Criminal Cases, 39 G.W.L. REV. 901 (1971).
' See Securities & Exchange Comm. v. Dresser Industries, Inc., Misc. No. 78-141 (D.D.C.
June 30, 1978) at 3 (Memorandum Opinion and Order), in which the court observed:
The court has been assured that the attorneys assigned to the Justice
Department are not involved in the SEC's civil investigation. The court, however, will
remind the SEC that strict ethical standards should be maintained in order to
avoid the appearance of impropriety.
See also Securities & Exchange Comm. v. Katy Industries, Inc., Civ. No. 78C-3476 (N.D. Ill.
E. Div., filed Aug. 30, 1978) (Final Judgment of Permanent Injunction and Other Equitable
Relief), in which the Commission obtained a consent decree wherein the company was
enjoined from further violation of the Foreign Corrupt Practices Act. At this writing, it is an
open question as to whether the Justice Department will initiate a criminal prosecution
against the company and certain of its officers and directors. Boycott Law Bulletin, Middle
East Monthly, Vol. II, Number IX, at 219 (Sept. 1978).
" The procedures for the Voluntary Disclosure Program are discussed in the SEC
Report, supra note 13.
It is interesting to note the different policy of the Justice Department's Antitrust
Division. Four corporations and five individuals were indicted for price fixing of titanium mill
products in United States v. RMI Co., Crim. No. 78-225 (W.D. Pa., filed Sept. 28, 1978).
Titanium Metals Corporation of America was not indicted, because it apparently had
Recently, the Federal Trade Commission also entered the field.
Three major United States corporations signed consent decrees in
which they agreed, inter alia, to cease making payments in
violation of the Foreign Corrupt Practices Act that attempt to unfairly
procure sales for those corporations and thereby eliminate from
competition other United States companies seeking award of
those same sales contracts."5
In August 1975, the Internal Revenue Service issued
guidelinese to its field examiners for the identification of schemes
used by corporations to establish slush funds and other methods
to circumvent the federal tax law. In May 1976, the IRS issued
further instructions which focused on illegal foreign payments. 7
As well, the Internal Revenue Service is actively investigating
corporations which might have taken improper tax deductions for
such payments in violations of § 162(c) of the Internal Revenue
Thus, it is clear that United States companies must answer to a
broad spectrum of governmental accountability for their conduct
in the area of sensitive payments policy. The number of
mechanisms available for the enforcement of United States
sensitive payments is more than adequate.
ANALYSIS OF THE Williams FORMULATION
The legal bases for any criminal prosecutions in the United
States for payments made abroad should be subjected to close
scrutiny, if for no other reason than their potential negative
impact on United States trade and international relations. In the
disclosed voluntarily to the Justice Department's Antitrust Division the fact that it was
involved in price fixing activity. In consideration of this admission, which came prior to the
government's knowledge of this activity, Titanium Metals was merely named as an
unindicted co-conspirator. Assistant Attorney General John H. Shenefield acknowledged that
the decision not to indict this company was the product of the "leniency" that the
government would show toward a "cooperating party". 833 ANTITRUST & TRADE REG. REP. (BNA),
A-17 (Oct. 5, 1978).
' In the Matter of Lockheed Corporation, Docket No. 761-0074 (Federal Trade Comm.,
signed June 23, 1978) (Agreement Containing Consent Order to Cease and Desist); In the
Matter of Boeing Company, Docket No. 761-0074 (Federal Trade Comm., signed June 22,
1978) (Agreement Containing Consent Order to Cease and Desist); In the Matter of
McDonnell Douglas Corporation, Docket No. 761-0074 (Federal Trade Comm., signed June 26, 1978)
(Agreement Containing Consent Order to Cease and Desist).
1 (1977) II INTERNAL REVENUE MANUAL-AUDIT (CCH) 7451-7453 (Manual Supp. 1978).
' Richardson Letter, supra note 12, at 9.
absence of an increase in the number of criminal prosecutions
against foreign government officials by their own nations, United
States enforcement policy stands to affect negatively the ability of
United States companies to compete for and retain business
abroad, as the businessmen of other countries will be able to
continue making payments with impunity, thereby gaining a clear
marketing advantage. 9 In addition, United States criminal
prosecution for payments causes resentment as an unwanted
imposition of United States morality on the internal affairs of foreign
nations. Finally, the publicity attendant to the prosecutions may
cause embarrassment to foreign governments at times when their
relations with the United States are delicate or when their
political stability is precarious. Such publicity may also endanger
''on site" United States personnel.
Williams formulation prosecutions under the mail and wire
fraud statutes bear particularly close examination since it would
appear that the other enforcement mechanisms described earlier,
which are more clearly legally supportable, are sufficient to serve
the policy interests of the United States. In fact, the legal basis of
the Williams formulation must be challenged.
Legislative History of the Mail and Wire Fraud Statutes'
At the time of the passage of the mail fraud statute, the
Congress was more concerned with punishing "dealers and pretended
dealers in counterfeit money and other fraudulent devices" for
using the United States mails.' It should be noted that the wire
fraud statute was enacted in 1952 to be a companion to the mail
fraud statute and to extend its protections against the abuse of
new communications technology.2 Section 1343 was subsequently
amended in 1956 to add the words "and foreign commerce" to the
prohibition of the use of wire, radio, and television
communications "in interstate commerce." The amendment came in response
to a California case in which the court refused to uphold a
conviction under the wire fraud statute because the fraudulent scheme
was carried out by telephone communication between Los
' Stevenson, The SEC and ForeignBribery, supra note 12, at 57.
'4 Supra note 10.
" H. R. REP. No. 1501, 50th Cong., 1st Sess. 1 (1888); S. REP. No. 2566, 50th Cong., 2d
Sess. 3-4 (1889).
4 United States v. Donahue, 539 F.2d 1131, 1135
(8th Cir. 1976)
. See also CONF. REP. No.
2426, 82d Cong., 2d Sess., reprintedin [19521 U.S. CODE CONG. & AD. NEWS 2234.
Angeles and Mexico and was thus not encompassed by the term
"interstate commerce."' 3 Little doubt remains the Congress
intended that the wire fraud statute should impose sanctions upon
the use of all wire, radio, and television communications under
federal jurisdiction to further fraudulent schemes. The mail fraud
statute by its own terms applies to any use of the United States
mails, within a State, among the States, or between the United
States and a foreign nation.
The fact that Congress may have intended the mail and wire
fraud statutes to reach transactions which crossed the borders of
the United States, does not necessarily show that Congress
intended to provide the means for a Williams formulation
prosecution. The relevant question with regard to the Williams
formulation goes a step further. It is whether the intent of Congress was
to cover payments to foreign officials in fraud of the citizenry of
B. JudicialInterpretationof the Mail and Wire FraudStatutes
The courts have construed both the mail and wire fraud
statutes to reach a wide variety of schemes to defraud. While it is
axiomatic that penal statutes are to be construed strictly," the
doctrine of strict construction of the federal fraud statutes has
been the exception rather than the rule." The majority of courts
have recognized that the fraud statutes embody "a broad
proscription of behavior for the purpose of protecting society."4 "A
broad proscription" is an understatement. The fraud statutes are
said to proscribe "all attempts to defraud by any form of
misrepresention,"'' 7 and "conduct which fails to match the
'reflection of moral uprightness, of fundamental honesty, fair play and
right dealing in the general and business life of members of
society,' as well as any "... acts done in furtherance of a scheme that
,1H. R. REP. No. 2385, 84th Cong., 2d Sess., reprinted in  U.S. CODE CONG. & AD.
" Smith v. United States, 360 U.S. 1, 9 (1959); United States v. McNeive, 536 F.2d 1245,
(8th Cir. 1976)
" United States v. Edwards, 458 F.2d 875 (5th Cir. 1972), cert. denied sub nom., Huie v.
United States, 409 U.S. 891 (1972), rehearingdenied, 409 U.S. 1029 (1972).
' United States v. Keane, 522 F.2d 534, 544
(2d Cir. 1975)
, cert. denied, 424 U.S. 976
(1976). See United States v. Bryza, 522 F.2d 414, 421
(7th Cir. 1975)
" United States v. McNeive, 536 F.2d 1245, 1247
(8th Cir. 1976)
" Blachly v. United States, 380 F.2d 665, 671 (5th Cir. 1967) (quoting Gregory v. United
States, 253 F.2d 104, 109 (5th Cir. 1958)).
it [the government] regards as contrary to public policy." 49
Perhaps most importantly, the Supreme Court has indicated that
it views these statutes as sufficiently flexible to reach "new"
frauds and to act as a stopgap measure against such conduct until
appropriate legislation can be enacted to proscribe it.5"
In light of the judicial attitude toward the flexibility and scope of
the federal fraud statutes, it comes as no surprise that courts
have sustained fraud prosecutions which are premised upon the
deprivation of the citizenry of the honest and loyal services of
their government officials. After all, that is conduct which clearly
strikes at the heart of the public interest and is truly reflective of
the moral uprightness of United States society. The real question,
however, is whether these judicial pronouncements form a
sufficient basis in law to support Williams-type fraud allegations.
In every reported case of mail fraud involving a public official,
the official was also a defendant. His fraud was that he held
himself out to be loyal to his constituency, but in fact was acting
in his own interest and thereby was dishonest and untruthful."
Under the Williams formulation, the public official involved is not
a defendant, for the obvious reason that he is not a state or
federal official of the United States. Thus, if the Williams
formulation is used, the government's burden is substantially increased.
It must prove in the first instance (a) that a fraud has occurred
against an unknown constituency in a place other than the United
States; (b) that the fraud was perpetrated by a person owing a
duty of loyalty and honesty (as those terms have come to be
understood in the United States) 2 to that foreign constituency; (c)
that he materially misrepresented and actively concealed his
fraud;5 and (d) that the defendant at bar, although incapable of
perpetrating the fraud himself, acted in furtherance of it.
The laws of the United States are designed to protect its
citizens. Thus, the question becomes, in the absence of a citizen
victim, how can the judicial extension of these statutes to protect
the citizens of other countries be justified? The absence of any
allegations of harm to United States nationals, United States
business interests, or the public confidence of the citizens of the
United States would appear to reduce the accusation in the
Williams formulation to a moralization that is devoid of legal
enforceability in United States courts.
ExtraterritorialApplication of FraudStatutes
A criminal statute is presumed to have effect only within the
territorial limits of the enacting state unless its terms explicitly
provide otherwise, or unless Congress has manifested a clearly
contrary intent.' That principle of limited jurisdiction, however,
is merely one of construction, not one of legislative power. There
is no constitutional bar to the extraterritorial application of
United States penal laws.'
Fraud statutes have been applied to prohibit fraudulent
schemes whose victims are not United States nationals.' In
United States v. Whiting, 7 defendants were prosecuted for an
elaborate scheme to defraud the Bank of America-International in
New York and the Banco do Brasil. The court never specifically
segregated criminal liability on the basis of the nationality of the
b1anks. This leaves unclear the question of whether the case would
have been brought if the Brazilian bank were the only victim.
However, it is difficult to conclude that the result of the case
would have been any different had those distinctions been made.
In United States v. Conte," defendants engaged in a telephonic
fraud concerning the sale of bonds between Toronto and
Cleveland. The court held that it had jurisdiction over this matter,
as the scheme was devised in the United States, the wires were
used between the United States and Canada, and the victim was
in the United States. It is not clear from the opinion, however,
whether the court deemed these factors necessary to establish
, Foley Bros. v. Filardo, 336 U.S. 281, 285 (1949); Blackmer v. United States, 284 U.S.
421, 437 (1932). See also American Banana Co. v. United Fruit Co., 213 U.S. 347, 349 (1909).
' United States v. Blackmer, 284 U.S. 421, 437 (1932); United States v. King, 552 F.2d
(9th Cir. 1976)
" United States v. Whiting, 308 F.2d 537, 539-540 (2d Cir. 1962), cert. denied sub nom.,
Crowe v. United States, 372 U.S. 909 (1963).
" 349 F.2d 304 (6th Cir. 1965), cerL denied, 382 U.S. 926 (1965).
Whiting and Conte provide an inviting opportunity upon which
to justify criminal prosecutions in the Williams formulation.
However, there are distinguishing factors which may yield a
substantively different result than the holdings of these two
cases. In each case, there was an identifiable victim which was
either an United States national or subject to the laws of the
United States. 9 In each of these cases, the nature of the fraud in
question operated to deprive the victims of property and other
things of value and not of the "honest and loyal services" of a
government official. This distinction gains support in light of
United States v. Dixon,' which drew a clear line between mail
fraud violations and securities laws violations. In that case, the
court sustained counts against the defendant charging him with
violation of the federal securities laws and at the same time struck
down substantive mail fraud counts involving the same
transactions. The court rejected the government's theory that a proxy
violation in that case constituted a mail fraud because it denied
information to shareholders and deprived them of the honest and
faithful services of their fiduciary and that further, the SEC was
obstructed in its work. In construing "honest and faithful
services" in the fraud context, the court relied on United States
v. Isaacs,1 and found that this concept would "fit the situation in
which a public official avails himself of his public position to
enhance his private advantage, often by taking bribes." 2
There is an essential difference in the gravamen of the Whiting
and Conte prosecutions-on the one hand, the victimization of
identifiable persons, wherever they may be, through a scheme
designed to inflict a pecuniary loss upon them, and on the other
hand, the violation of the public trust by fiduciaries.
The Williams formulation appears at first to be a hybrid of
these theories; on closer examination, it is not. A Williams-type
"scheme" is neither purely a fraud upon an identifiable person nor
a violation of the United States public's trust. As a result, it is
impossible to equate the Williams accusation with fraud on anyone
in the United States or subject to its laws or to equate or to apply
United States concepts of the public trust at work in its
democracy to the interests of another government in another
society. Thus, it would appear that nothing in the case law
interpreting these rationales for prosecution provides sufficient
guidance respecting the legal basis for a criminal prosecution
pursuant to the Williams formulation.
D. ExtraterritorialApplication of Other Anti-bribery
The securities laws have been applied to factual situations
which have occurred entirely outside the United States,' but such
enforcement is justified because of the substantial impact that
that conduct has on the United States securities market and on
United States investors. It is clearly contemplated, therefore, that
the protection of these potential victims justifies the
extraterritorial application of these laws." Indeed, authorities have urged
that the use of the United States mails or facilities of interstate
commerce confers automatic jurisdiction in these securities cases
because such use sufficiently establishes "conduct" in the United
States." The key to this rationale is that some kind of impact
resulting from the transaction which has occurred outside the
United States is felt within the United States by interests which
are specifically protected by the securities laws; hence, the courts
take jurisdiction. Similarly, the antitrust laws have been applied
to conduct occurring abroad where it has been shown that there is
an anticompetitive effect on interstate commerce in a close,
direct, substantial and reasonably foreseeable way." However, if
one were to apply the impact analysis underlying theories
supporting extraterritorial application of the securities and
an' Schoenbaum v. Firstbrook, 405 F.2d 200 (2d Cir. 1968), rev'd on rehearing on other
grounds,405 F.2d 215 (2d Cir. 1968), cert. denied sub nom., Manley v. Schoenbaum, 395 U.S.
906 (1969) (Congress intended securities acts to apply extraterritorially to protect U.S.
investors trading on national exchanges as well as to protect U.S. securities markets from
effects of improper foreign transactions).
4 Mizrack, Recent Developments in ExtraterritoriaAlpplication of Section 10(b) of the
Securities and Exchange Act of 1934, 30 Bus. LAW. 367, 380 (1975).
" See Brief of SEC as amicus curiae, Schoenbaum v. Firstbrook, 405 F.2d 200, 218 (2d
Cir. 1968); Travis v. Anthes Imperial Ltd., 331 F.Supp. 797 (W.D. Mo. 1971), rev'd on other
grounds, 473 F.2d 515 (8th Cir. 1973); SEC v. Gulf International Finance Corp., 223 F.Supp.
987 (S.D. Fla. 1963).
" Jones, Extraterritorialityin U.S. Antitrust-An International"HotPotato," 11 INT'L
LAW. 415, 418, 424 (1977).
titrust laws of the United States, it wouid be difficult to find such
impact upon legitimately protectable United States interests in
prosecutions under the Williams formulation, since the allegation
that foreign citizens were deprived of the honest and faithful
services of their public employees can hardly be said to form a
sufficient basis for United States jurisdiction.
Public Policy Arguments for the Williams Formulation
It has been urged that there is a basis in public policy which
would support prosecutions in the Williams formulation.
Certainly, the argument can be made that foreign bribery by United
States nationals damages the image of the United States abroad,
undermines the integrity of United States business, presents a
threat to the interests of United States investors abroad, inhibits
the ability of the United States Government to aid United States
investors abroad, results in retaliation by foreign governments
against United States business concerns and erodes confidence in
free enterprise institutions. 7 Of course, the counterargument to
this is that United States prosecutions under the Williams
formulation are another example of this government's intrusion into
the domestic concerns of foreign countries, and that a Williams
prosecution is nothing more than a unilateral effort to impose
United States law and morality on a world whose governments
have their own legal and moral systems.
It is significant that prior to the enactment of the Foreign
Corrupt Practices Act of 1977, there was in fact no clear national
policy on foreign payments." In the absence of a generally
accepted public policy representing a clear "reflection or moral
uprightness, of fundamental honesty, fair play and right
dealing,"69 a public policy rationale for using the fraud statutes to
punish individuals for conduct shown neither to be universally
condemned nor to have an impact on the "public" which those
statutes were designed to protect becomes highly dubious.
With rare exception," the courts upholding convictions under
the fraud statutes for bribery schemes on "public policy" grounds
" See generally Richardson Letter; the SEC Report; Stevenson, The SEC and Foreign
Bribery, note 12 supra.
See Note, note 12 supra, at 1869.
" Blachly v. United States, 380 F.2d 665, 671 (5th Cir. 1967) (quoting Gregory v. United
States, 253 F.2d 104, 109 (5th Cir. 1958)).
7 United States v. Whiting, 308 F.2d 537 (2d Cir. 1962).
spoke strictly within the context of protecting the domestic
public, and thus did not need to elaborate on the reach of the
statutes. No question arose in those cases regarding the existence
of a national consensus condemning bribery of public officials. No
one doubted that the United States as a whole imposes on its
public officials a "sacred duty" which he is sworn to uphold, or
that one citizen may not deprive another of an official's loyal
services. 1 But that does not settle or identify what the "sacred"
duties are of public officials elsewhere. Whether those precedents
should be applied to situations far beyond the contemplation of
the Congress or of the courts is a great unanswered question
awaiting resolution by the judiciary.
The continuing tension between concepts of law and morality is
nowhere more clearly evident than in the debate on the
application of the fraud statutes of the United States to the bribery of
foreign government officials. So long as clearly articulated law
and policy proscribing such conduct govern United States
companies and their personnel in future international transactions,
and where criminal liability is accompanied by a program
requiring the fullest accountability for such practices, the legitimacy of
conducting criminal investigations and prosecutions under the
federal mail and wire fraud statutes should be carefully scrutinized.
In the absence of an undisputed basis in law and policy justifying
this type of criminal prosecution, the question arises whether
there is any wisdom to the governmental pursuit of the fraud
approach to the foreign payments problem.
It would appear that Williams formulation prosecutions place
government and business in needless antagonistic positions with
one another. Instead, an approach which combines the efforts of
business and government should be considered. More specifically,
the United States government should exercise its powers of moral
suasion, which it is so ready to impose upon domestic business, to
urge countries to enter into a treaty or other form of international
agreement in which signatories are pledged to the elimination of
corruption in international business transactions. This symbolic
international commitment would be supplemented by vigorous
in' United States v. Barrett, 505 F.2d 1091, 1104
(7th Cir. 1975)
; Shushan v. United States,
117 F.2d 110, 115 (5th Cir. 1941), cert. denied, 313 U.S. 574 (1941).
tergovernmental oversight and local prosecution of violators of
the anti-corruption laws of the various countries. In this way,
parties to international transactions will be put on effective notice
that corrupt payments are intolerable and will be prosecuted in all
countries having jurisdiction. United States business, knowing
that it has the backing of its government, as well as the
government with which it is dealing in a particular transaction, could
seize upon this international partnership to cooperate with these
goals, avoid the forbidden conduct, and more importantly, bring
overtures and invitations to violate the law to the attention of the
appropriate authorities without compromise to its position in the
marketplace of the world. If such a program of cooperation could
be implemented, then a legal, if not a moral, consensus will have
GEORGIA JOURNAL OF INTERNATIONAL AND COMPARATIVE LAW
ROBERT S. WAYNE
LuIs A. AGUILAR
ALBERT CAPRONI, III
JOHN M. TANZINE, III
ROBERT J. AUGUSTINE
CURTIS W. MILLER
FRANK D. BROGAN
JOHN B. COPENHAVER
BETSY C. COX
KEITH E. FRYER
HARGER W. HOYT
SANDRA M. BERNAL
RUSSELL D. CARTER
M. NATALIE LEWIS
KENNETH W. MAULDIN
MARK D. MENEFEE
PHILLIP L. WHARTON
K. EDWIN KILGORE
NANCY L. RUMBLE*
PATRICIA E. COOPER
Recent Developments Editors
MICHAEL K. MIXSON*
JAMES T. PERRY
KENNETH K. THOMPSON
ALBERT ANDRE MITCHELL
ROBERT W. SCHOLZ
J. MICHAEL LEVENGOOD
JERE W. MOREHEAD
ALAN STEPHEN PEEVY
TIMOTHY ALAN PETERSON
PETER J. QUIST
DAVID E. RALSTON
AUDREY S. WINTER
EDITORIAL BOARD CANDIDATES
MEREDITH M. ELLARD
Sibley Professor of International Law
GABRIEL M. WILNER
Associate Professor of Law
denied , 429 U.S. 1120 ( 1977 ) ; United States v . Barker , 514 F. 2d 208 (D.C. Cir . 1976 ); United States v . Dunbar , 546 F. 2d 940 (D.C. Cir . 1976 ).
' United States v . Agnew, Crim. No. 73 - 0535 ( D. Md ., filed Oct. 10 , 1973 ).
' United States v . Mandel , 415 F. Supp . 997 ( D. Md . 1976 ) (rev'd on appeal , Jan. 11 , 1979 ,
- F. 2d - (4th Cir.)); United States v . Isaacs , 493 F.2d 1124 ( 7th Cir . 1974 ) (percuriam), cert . denied, 417 U.S. 976 ( 1975 ).
' United States v . Passman, Crim. No. 78 - 159 (D.D .C., filed March 31 , 1978 ).
' 18 U.S.C. § 371 ( 1976 ).
I.R.C. § 162 .
18 U.S.C. § 1501 et seq. ( 1976 ).
10 18 U.S.C. §§ 1341 , 1343 ( 1976 ).
" See, e.g., United States v . Bush , 522 F.2d 641 , 648 ( 7th Cir . 1975 ), cert. denied, 424 U.S. 977 , rehearingon cert. denied, 425 U.S. 985 ( 1976 ) ; United States v . Bryza , 522 F.2d 414 , 422 ( 7th Cir . 1975 ); United States v . Barrett , 505 F.2d 1091 , 1104 ( 7th Cir . 1975 ); United States v . Isaacs , 493 F.2d 1124 , 1150 ( 7th Cir . 1974 ); Blachly v . United States , 380 F.2d 665 , 671 ( 5th Cir . 1967 ); United States v . Mandel , 415 F. Supp . 997 , 1007 - 1008 ( D. Md . 1976 ).
"0Letter from Elliott L . Richardson, Secretary of Commerce, to William Proxmire, Chairman, Senate Committee on Banking, Housing and Urban Affairs (June 11 , 1976 ), reprinted in ProhibitingBribes to Foreign Officials: Hearings on S. 3133, S. 3379, and S. 3418 Before the Senate Comm. on Banking, Housing and Urban Affairs, 94th Cong., 2d Sess . 39 ( 1976 ) [hereinafter "Richardson Letter"]; ProhibitingBribes to Foreign Officials: Hearings on S. 3133, S. 3379, and S. 3418 Before the Senate Comm. on Banking, Housing and UrbanAffairs, 94th Cong., 2d Sess., at 3 ( 1976 ) (Statement of Roderick M. Hills, Chairman, Securities and Exchange Commission); Stevenson, The SEC and ForeignBribery, 32 Bus. LAW. 53 , 57 - 58 ( 1976 ) ; Coffee, Beyond the Shut-Eyed Sentry: Toward a Theoretical View of Corporate Misconduct and an Effective Legal Response , 63 VA. L. REV. 1099 , 1158 at nn. 208 - 211 ( 1977 ); Note, ProhibitingForeign Bribes: CriminalSanctions for Corporate Payments Abroad, 10 CORNELL INT'L L.J . 231 ( 1977 ).
" Badders v. United States , 240 U.S. 391 ( 1916 ).
s United States v . Maze , 414 U.S. 395 , 405 - 06 ( 1974 ) (Burger, C .J., with White , J., dissenting).
5 United States v. Bryza , 522 F.2d 414 , 422 ( 7th Cir . 1975 ); United States v . Bush , 522 F.2d 641 , 648 ( 7th Cir . 1975 ) ("We believe that the Mayor, the City, and most importantly, the citizens, were deprived of those [honest and faithful] services.").
5 United States v. Dixon , 536 F.2d 1388 , 1398 - 1399 ( 2d Cir . 1976 ); United States v . Isaacs , 493 F.2d 1124 , 1149 - 1150 ( 7th Cir . 1974 ).
' United States v . Bush , 522 F.2d 641 , 648 ( 7th Cir . 1975 ).
" The banking relations of the Banco do Brasil and the Bank of America-International are governed by federal banking laws . International Banking Act of 1978 , H.R. 10899 , 95th Cong., 2d Sess . (1978), reprinted in 124 CONG . REC. 1602 ; see also, Note, The International Banking Act of 1978: FederalRegulation of Foreign Banks in the United States, 8 GA . J. INT'L & COMP . L. 145 , 150 - 151 ( 1978 ).
'*536 F.2d 1401 ( 2d Cir . 1976 ).
493 F.2d 1124 ( 7th Cir . 1974 ).
"United States v . Dixon , 536 F.2d 1388 , 1400 ( 2d Cir . 1976 ).