On May 3, police in Miami scooped up three people who were decidedly not common criminals—Thomas Clarke and Jose Alejandro Hurtado, brokers for Wall Street firm Direct Access Partners, and Maria de los Angeles Gonzales, a vice president of Venezuela’s state-controlled bank Banco de Desarrollo Económico y Social de Venezuela (Bandes).
Clarke and Hurtado are accused of paying about $5 million in kickbacks to Gonzales to influence her to steer Bandes’ securities investment business to Direct Access Partners. A federal indictment filed May 7 charges the trio of executives with money laundering, conspiracy and violations of the Foreign Corrupt Practices Act (FCPA) and the Travel Act.
First enacted in 1961, the Travel Act has been a little-used, but powerful, tool in federal prosecutors’ arsenal. The statute has a broader reach than the FCPA, allowing federal prosecutors to not only charge foreign nationals who receive bribes from U.S.-based companies, but also to reach a variety of criminal activity that may not on its face violate federal law.
“After sitting on the books, the Travel Act is getting a second life as an add-in with FCPA prosecutions,” says H.L. Rogers, a partner at Sidley Austin. “In the FCPA context, the Travel Act gives the DOJ (Department of Justice) two advantages: a broader reach and a stronger punch.”
The Travel Act prohibits “traveling in interstate or foreign commerce or using the mail or any facility in interstate or foreign commerce” to further any unlawful activity. This exceptionally broad language allows federal prosecutors to reach criminal acts committed abroad that would not otherwise violate federal law. For instance, federal law doesn’t prohibit commercial bribery—bribery between private parties that does not involve a government official. However, many state laws criminalize commercial bribery. Therefore, if bribery is committed abroad using any cross-border transmissions, such as mail, Skype or wire transfers, such that the crime has some significant contact with the U.S., the DOJ can snag the perpetrator under the wide umbrella of the Travel Act.
“The Travel Act allows the DOJ to federalize a state commercial bribery statute if the transaction touches any state with a commercial bribery statute,” Rogers says. “The DOJ is looking to see if there is any aspect of the crime that involves crossing state lines, even if it has nothing to do with any government official.”
Likewise, the DOJ has made foreign bribery of government officials an enforcement priority for years. But the FCPA doesn’t reach all parties to a bribe. The FCPA targets only the payor, not the bribe’s recipient. Once again, the Travel Act, as in the Direct Access Partners case, can step in to fill that gap.
“The DOJ is looking to get both sides of the transaction,” says Peter Henning, a professor at Wayne State University Law School. “They are being aggressive in going after white-collar crime. They will use all of the tools to do so and they’re not just limiting themselves to the FCPA.”
The use of the Travel Act is a piece in the DOJ’s larger, long-term strategy to aggressively target international corruption. The Travel Act provides prosecutors with a potent tool to carry out that initiative. In addition to giving the agency new avenues to prosecute wrongdoers, it also provides the DOJ a great deal of leverage for getting information and conducting investigations.
The DOJ has built up strong information-sharing relationships with regulators abroad. Suspected violations of the Travel Act by U.S. companies or executives can motivate foreign governments to cooperate in allowing U.S. officials access to investigate the activities of companies based elsewhere. Moreover, the threat of prosecution under the Travel Act can force private companies to cooperate in providing the agency access to internal information.
“This is particularly troubling for companies,” Rogers says. “The DOJ already has an enormous amount of leverage under the FCPA. This is an additional way to apply leverage to get evidence.”
When Travel Act charges are tacked onto FCPA, Racketeer Influenced and Corrupt Organizations Act or money laundering charges, the defendants face increased risks of financial penalties and jail time. This puts the DOJ in a stronger position for negotiating favorable settlements.
“Adding additional theories gives prosecutors an alternative for plea bargaining,” says Adam Hoffinger, a partner at Morrison Foerster. “Charges under the Travel Act also provide an alternative for jurors—in some cases it may be easier for a jury to find that this statute was violated than the FCPA. The DOJ is willing to go as far and wide as possible and use all of the statutes and laws available to it to go after FCPA cases.”
The Direct Access Partners prosecution is also significant because it targets both individual brokers and bank executives—not just the entities they work for. This exemplifies a larger trend in the DOJ’s approach to targeting white-collar crime committed abroad—a greater emphasis on individual prosecutions of executives. An individual convicted of violating the act could face a maximum penalty of five years in prison and a fine of the greater of $250,000 or twice the pecuniary gain or loss involved in the crime. That makes it essential for companies to integrate the requirements of the Travel Act into their compliance programs for executives working abroad.
“There was a perception that companies could pay a fine and buy their way out of it,” Henning says. “The DOJ is sending a message by concentrating on prosecutions aimed at individual misconduct.”