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On August 29, 2019, a federal district court judge in the Eastern District of New York ruled that, under the Mandatory Victims Restitution Act (the “MVRA”), a defendant corporation that pleaded guilty under the Foreign Corrupt Practices Act (the “FCPA”) may be required to pay restitution to the shareholders of a defendant’s competitor whose company was divested of mining rights because of the defendant’s bribery – even where the defendant’s plea agreement did not require such restitution. In doing so, the court’s decision may embolden other parties to claim that they are “victims” of a defendant’s bribery scheme and injects potential uncertainty into whether a defendant company may be subject to material financial penalties beyond those set forth in a plea agreement. These results may cause defendant companies and other defendants to think twice before entering into a plea-agreement with the U.S. Department of Justice (the “DOJ”). However, the implications of this case remain uncertain, at least because it involves unique facts, and remains the decision of only a single court.
The law at the center of the court’s ruling–the MVRA–requires courts to order defendants to “make restitution to the victim of the offense.” Generally, restitution is required for offenses against “property” in which a “victim” has suffered a pecuniary loss. In turn, “victim” is defined under the MVRA as “a person directly and proximately harmed as a result of the commission of an offense for which restitution may be ordered.” The bribery scheme dates back to 2007, when the defendant engaged in the first of a series of fraudulent transactions which resulted in the shareholders being divested of mining rights. The defendant pleaded guilty on September 29, 2016. That plea agreement required the defendant to pay a criminal penalty of more than $213 million. The plea agreement, however, did not require the defendant to pay restitution to any parties. But on February 20, 2018, shareholders of the defendant’s former competitor that lost valuable mining rights due to the bribery scheme filed a motion asking the district court to afford them “victim status” and award restitution under the MVRA. The shareholders argued that they were victims of the bribery and should be made whole for losses they sustained from the defendant’s bribery scheme. Both the defendant corporation and the DOJ opposed the shareholders’ attempts to recover their losses by way of court-ordered restitution. Among other objections, the defendant argued that the shareholders could not be compensated because they do not qualify as “victims” under the MVRA, in large part because the shareholders’ interests in the particular mining rights were too “attenuated” to qualify as “property” under the MVRA.
In the August 29 ruling (available here), Judge Nicholas R. Garaufis rejected the defendant and DOJ’s arguments, including the defendant’s argument that the shareholders were not legally entitled to restitution under the MVRA. While the court acknowledged that the “attenuated” nature of the shareholders’ interest in the operations of the company may make calculating restitution more difficult, the judge found that such attenuation in interest does not automatically preclude the shareholders from being “victims.” The MVRA, the court reasoned, defines “victim” broadly and “contains no carve-out for holders of intangible property rights.” The court also explained that the loss was premised on the lost opportunity to control the development of the mine and the potential resulting value. The court concluded that this uncertainty also made restitution more difficult but did not mean the shareholders were not victims under the MVRA. Accordingly, the court will move forward with proceedings to calculate the appropriate restitution amount. Still, the court recognized that there remains a possibility that the defendant will not ultimately be ordered to pay restitution, if the court finds that determining issues of fact related to the cause or amount of the victim’s losses would “complicate or prolong” the sentencing such that the need to provide restitution is outweighed by the burden on the sentencing process. In this regard, the court noted that the unique property interests involved may make calculating restitution more difficult.
Even if the court ultimately declines to award restitution, and the implications of this decision remain uncertain, this case is an important reminder of the potential for restitution claims following a guilty plea. Parties should consider this risk when assessing how and whether to resolve claims with the DOJ and should factor this risk into their evaluations of potential liability.
10 September 2019
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