Secret Payment to Influence or Reward Can Get You Jail Time

While there is often tremendous pressure to get deals done, making illicit payments to obtain or keep business will almost always backfire...

While there is often tremendous pressure to get deals done, making illicit payments to obtain or keep business will almost always backfire. The risks are even higher when government programs are involved.

Under 18 U.S.C. 666, stealing, embezzling, or otherwise unlawfully obtaining money from a program that receives federal funds is a federal crime. The statute also makes it a crime to bribe agents of an organization receiving federal funds or for such an agent to solicit a bribe. The government aggressively prosecutes such cases, which can result in significant financial penalties and even jail time. A conviction may also result in being ineligible to conduct future business with the government. 

Violations of Section 666

18 U.S.C. 666 was enacted to facilitate the prosecution of individuals who steal money or otherwise divert property or services from state and local governments, as well as private organizations (i.e., universities, foundations and business corporations), that receive large amounts of Federal funds. The statute provides:

Whoever embezzles, steals, obtains by fraud, or knowingly converts to the use of any person misapplies, property that is valued at $5,000 or more, and is owned by, or under control of the government, or corruptly solicits for the benefit of anyone, anything of value, intending to be influenced or rewarded any business, transaction, shall be fined under this title, imprisoned not more than ten years, or both.

In essence, Section 66 authorizes criminal charges against:

• An agent of an organization or government entity receiving federal funds who steals, embezzles, or misappropriates funds or property exceeding $5,000 in value;
• An agent of an organization or government entity receiving federal funds who solicits accepts, or agrees to accept a bribe in connection with diverting funds or property exceeding $5,000 in value; or
• Anyone who offers a bribe to an agent of a federally funded organization or government entity regarding diverting funds or property exceeding $5.000 in value.

Liability is predicated upon a showing that the defrauded organization “receive[d], in any one period, benefits in excess of $10,000 under a Federal program.” Those benefits can be in the form of “a grant, contract, subsidy, loan, guarantee, insurance, or other form of Federal assistance.” Additionally, the business or transaction in question must be at least $5,000.

Section 66 and the Varsity Blues Cases

Section 66 recently took center stage in several high-profile “Varsity Blues” cases involving charges of bribery and fraud in the college admissions process. In total, the Department of Justice charged nearly 60 individuals with participating in the widespread scheme, including parents of high school students, coaches and university administrators, test preparation specialists and test administrators.

While many of the defendants pled guilty, several have taken their cases to trial. In May, the First Circuit Court of Appeals addressed whether payments to a university—the alleged victim being taking advantage of by an agent—constitutes bribery under Section 666. While the appeals court ultimately vacated the convictions, it broadly interpreted the statute in finding that the payments constituted bribes under § 666.

Among other charges, defendants Gamal Abdelaziz and John Wilson were charged with “corruptly influencing university employees through payments to university accounts,” in violation of the federal programs bribery statute. As detailed in court documents, Abdelaziz and Wilson made monetary payments to several universities through a third man, Rick Singer, with the expectation that the payments would help their children gain admission to the schools.

The defendants did not dispute that the university employees who worked with Singer were “agents” and the universities were an “organization” as defined under Section 66. They also did not make any developed argument  that  their  dealings  with  Singer  and,  through  him,  the university insiders were not “in connection with . . . business, transaction[s], or [a] series of  transactions of  [the universities] involving anything of value of $5,000 or more.” Nor did the defendants argue that the payments were not “inten[ded] to influence” the insiders in conducting that business or those transactions.

The central issue before the First Circuit Court was whether payments intended for university accounts constituted bribes under Section 666. According to the defendants, because the university was the agent’s principal, the payment is not covered by §666’s text and does not align with common or historical understandings of the terms “bribe” and “bribery” or the purposes of “bribery” statutes. The appeals court ultimately disagreed, electing to broadly construe Section 66 to cover such payments.

In reaching its decision, the First Circuit focused on the statute’s text, specifically the phrase “any person.” It went on to find no textual reason to exclude the organizational principal from the set of entities that qualify as “any person” for purposes of §666. It also pointed to Supreme Court decisions explaining that courts should give effect to §666’s “expansive, unqualified language.”

Key Takeaway

Businesses that do business with state and local governments, as well as other federal-funded organizations, must be extra vigilant than ever when it comes to compliance. Properly training employees about what may constitute bribery can help shield your business from potentially liability.

If you suspect that you or your business may be the subject of a criminal investigation, it is imperative to contact an experienced white-collar criminal defense lawyer as soon as possible and certainly before meeting with state or federal law enforcement agents. 

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Ajoe Abraham, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.