PEP'S, Politics and The Patriot Act

After the September 11, 2001 terrorist attacks in New York, the Patriot Act was born from the political womb and genius of the President of the United States and his all too willing bipartisan Congressional colleagues. What politician could ever besiege such a wonderful idea as the Patriot Act?

Even its title - The U.S.A. PATRIOT ACT - “Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism,” inspires confidence, strength and pride in a collective effort against a greater evil - “terrorism.” However, was this “temporary” tool (various sections of the Patriot Act are set to “sunset” or expire in December 2005) against terrorism, real or simply political fiction and expedient?

It is said by law enforcement agencies and politicians alike, that there is a link between terrorism, public corruption and drug trafficking, but what is that link? It certainly sounds good, and who in their right (political) mind would vote against this triple threat or “axis of evil.” Where is the proof however, that there is such a link? I have repeatedly asked this question at the various money laundering conferences that I have recently appeared at as a guest lecturer (see Firm News at our website http://www.drrt.com).

I have yet to receive an answer - straightforward or otherwise - from my U.S. law enforcement counterparts.

As its title suggests, the Patriot Act was supposed to be about fighting terrorism. Instead, it went on to extend the United States extraterritorial jurisdiction to include foreign public corruption offenses and demanded that U.S. banks and other financial institutions implement Enhanced Due Diligence (EDD) programs for high-level foreign public officials or, PEP's - Politically Exposed Persons. Specifically, the Patriot Act added the following foreign offenses to the current list of over 200 specified unlawful activities (SUA's) covered under the traditional U.S. money laundering statute, 18 U.S.C. § 1956: bribery of a public official, misappropriation and embezzlement of public funds, extortion and theft. Each and every one of these public corruption offenses if committed overseas, on foreign soil, come within the United States' jurisdiction for prosecution if any part of the proceeds of these crimes are transferred to the United States.

Without discussing the complexities of the possible infringement and violations of a foreign nation's sovereignty, the choice of law issues presented, or the potential for political abuse and manipulation that the Patriot Act's exercise of extraterritorial jurisdiction presents, equally important, is to whom these foreign public corruption offenses are intended to apply.

Who is a politically exposed person or PEP? Quite candidly, maybe you are! The reader of this newsletter article could very well fall under the definition of a PEP and be subject to United States prosecution and the forfeiture of their assets for an alleged crime committed completely overseas.

Under Section § 312 of the Patriot Act, PEP's are defined as: Present or former high ranking officials in the executive, legislative or judicial branches of a foreign government (the office holder does not have to have been democratically elected); a person who holds an administrative or military position in a foreign government; a person holding a high ranking position at an important political party; or, most importantly and of concern to our readers, a PEP can be a family member, close friend or business associate of a foreign public official including, a PEP's attorney, accountant, financial advisor, broker or banker. The latter, moreover, is by no means an exhaustive list of who may be considered a PEP. It encompasses basically anyone who is a close consultant or confidant of the foreign public official. PEPs also include individuals with a position at government owned institutions, such as a bank or petroleum company and their respective close associates, family members and consultants.

Although these new tools against terrorism (and public corruption) have cast a wide net under the Patriot Act, there have been few instances since the Act's passage to measure how truly effective its application has been in combating foreign public corruption - the alleged link to “terrorism.”

The Patriot Act and its anti-corruption provisions for instance, were not utilized in the U.S. led Fujimori-Montesinos public corruption case from Peru, nor, were they used in the Aleman-Jerez corruption case from Nicaragua (our firm was personally involved in the investigation and defense of both these cases). It remains to be seen whether the Patriot Act and its anti-corruption provisions will be used in the United States' current investigation of former President Alfonso Portillo of Guatemala and Augusto Pinochet, Chile's former dictator; and of the United States current investigation of corrupt practices and illegal bribes paid by the three largest U.S. oil companies (ChevronTexaco, Marathon and Amerada Hess) to the dictator of Equatorial Guinea, Teodoro Obiang Nguema, also considered a PEP.

Thus, despite all of its fanfare and political rhetoric, the Patriot Act has been sparsely used in the investigation and prosecution of foreign officials. Instead, the United States government has resorted to traditional tools to prosecute these cases, such as 18 U.S.C. § 2314, the International Transportation of Stolen Property, 18 U.S.C. § 2315, the Receipt of Stolen Property over $5,000.00, and the Wire Fraud Statute, 18 U.S.C. § 1343. Using these traditional specified unlawful activities (SUA's), as predicate offenses under the money laundering statute, 18 U.S.C. § 1956, versus the Patriot Act's new provisions, also calls into question the true effectiveness and value of the Patriot Act in combating the alleged foreign public corruption link to terrorism.

Only one such case has been recently prosecuted under the Patriot Act's anti-corruption provisions and it has stirred considerable controversy.

In the recent prosecution and conviction of the Prime Minister of the Ukraine, Pavel Lazarenko, for the first time in U.S. history, a former head of government, was prosecuted and convicted under the Patriot Act, using the foreign offenses of extortion and “deprivation of the public's right to honest and good services” from its elected official, as the specified unlawful activities (SUA's) (i.e. predicate offenses).

These SUA's were completely foreign in that they were allegedly committed and completed outside the United States. It was the simple transfer to the United States of the monies received, allegedly as a product of these foreign corruption offenses, which in turn gave the United States extraterritorial jurisdiction to seize the Prime Minister's assets and obtain his criminal conviction in the United States.

The hypocrisy and fallacy of these foreign corruption SUA's, if taken to their logical conclusion is self-evident. What U.S. politician has never done a favor, or voted on a favorable measure or legislation, in exchange for a political contribution? Campaign financing of public officials is nothing more than another form of corruption, albeit, an indirect one. Should not a U.S. citizen demand that his or her right to “honest and good services” from his or her elected official not be compromised by financial “contributions?” If indeed these services were in fact compromised, should not the U.S. official also be prosecuted like Lazarenko? Who is to determine what payments are lawful political contributions, versus illegal bribes?

As one can see, these provisions and SUA's under the Patriot Act, could easily encompass any form of innocent conduct including, traditional and customary foreign business practices which, are viewed differently depending on where one is from. What the U.S. may deem is illegal, others may view as customary and lawful business practices.

To be sure, the Patriot Act does some good things (e.g. requiring that U.S. law enforcement agencies exchange and share intelligence/wiretapping information with one another and enhancing foreign intelligence and law enforcement surveillance), but what does the inclusion of foreign political corruption offenses (as specified unlawful activities, SUA's) under the traditional U.S. money laundering laws (18 U.S.C. §§1956, 1957 and 1960) have to do with terrorism?

Accordingly, whether intentionally or not, the U.S. Patriot Act does more than just simply expand the traditional list of money laundering offenses to allegedly combat terrorism. It goes further by exporting the United States' cultural bias, norms, business customs, traditions and practices in its skewed view of what constitutes corruption - you recall, the alleged link to terrorism? To some foreign officials and institutions, that is what is truly “offensive” about the Patriot Act. Political expediency and rhetoric gave us the Patriot Act to fight terrorism. Instead, it legislates and exports the United States' view of “proper” business practices worldwide, and condemns one to prosecution if you ignore it.

Undoubtedly, the constitutionality and legality of these newly created and completely foreign-based SUA's, will be tested on the appeal of Lazarenko's unprecedented conviction. In the interim, however, foreign banks, corporations, state owned institutions and financial institutions of any kind, together with politicians, public officials and their families and associates, must take great care in conducting their business practices in the traditional customs of their home country; or, potentially risk the seizure of their assets and criminal prosecution in the United States.

No longer can a foreign corporation, financial institution or individual simply rely on the fact that an alleged corruption offense, if committed, was not committed on U.S. soil and thus, is immune from United States prosecution. In the end, the transfer of any proceeds to the United States which is the product of an alleged foreign public corruption offense - wherever committed - subjects one or its institution to the extraterritorial grasp of the Patriot Act and United States money laundering laws.

Like baseball, politics in the United States with its unfulfilled promises, is a national pastime rich with tradition. As a devout fan of one of these art forms, I can only hope that the Patriot Act does for terrorism and corruption what unshakeable blind faith does for a Boston Red Sox Fan - Victory!
Go Sawx!

Michael Diaz, Jr., Esq.