By Andrew S. BoutrosJohn R. Schleppenbach, and Craig B. Simonsen

Seyfarth Synopsis:  Among the latest news reports in the cross-border public corruption space that has legally-minded sports fans talking is that a federal grand jury is investigating Major League Baseball’s international player development system for potential Foreign Corrupt Practices Act (FCPA) violations.  See for instance Report: A Federal Grand Jury is Investigating MLB’s International Player Development System, Major League Baseball Signings Focus of Grand Jury Probe, Reports Say, and OT MLB under investigation by US Federal Grand Jury.

The news reports claim that the FBI and federal prosecutors with the FCPA Unit out of the U.S. Department of Justice are investigating whether MLB clubs and those acting on their behalf are “bribing clerks or immigration officials to change dates of birth on identification documents, or to fabricate false identity documents,” when recruiting top baseball prospects coming out of international markets.  Specifically, the well-sourced FCPA Professor blog, in quoting a former baseball operations executive for an MLB club, explained that, “MLB scouting staff or other club employees may interact at various times with these [international] officials to obtain identification documents for prospects, such as birth certificates and passports. . . .  The reason why these points of contact create risk for clubs is that prospects, through their agents or handlers, commit rampant age and identity fraud in order to appear younger and thus increase their market value.”

Of course, those familiar with the FCPA know that the statute makes it illegal for certain persons and business entities (certainly anyone resident or acting in the United States) to corruptly offer or give anything of value (whether money, gifts, or other benefits) to foreign officials, foreign political parties, or public international organizations, with the intent to obtain or retain business.  And, of course, major league baseball and its prized recruiting systems are big business in the sports world, both in the United States and abroad.  If true, this criminal probe may well shine a spotlight on a foreseeable dark side of MLB recruiting practices in the same way that a different federal grand jury investigation brought attention to illegal steroid use by some of the league’s best and most popular players several years ago.

This latest reported FCPA investigation also demonstrates (once again) that U.S. government enforcers are applying the versatile statute to fact patterns outside traditional corporate paradigms such as improper payments for lucrative contracts.  Indeed, just a few years ago, we wrote about another “non-traditional” FCPA fact pattern, that one involving the DOJ and SEC scrutinizing whether a for-profit higher-education institution (and “issuer”) may have made an improper payment while operating its overseas campus in Turkey.  See “Higher Education Institutions are Beginning to Get an Education in the FCPA,” Management Alert, Seyfarth Shaw LLP (December 22, 2016).  As we noted then, “[l]ong gone are the days where the FCPA was viewed as practically applying only to large multinational companies with significant overseas business activity.”  We went on to observe that as “U.S. higher education institutions have opened foreign campuses (either directly or through affiliates) in places such as China, India, and the Middle East,” the foreign government approval process has required “colleges and universities to interface with foreign government officials, which in turn increases the risk that higher education institutions will fold to pressures of commission or kickback requests, or hidden payments for expediency.”

The lesson in all of these out-the-box investigations is that the FCPA really cannot be limited to a so-called “box” anymore.  Whenever U.S. entities, persons, or others interface with foreign government officials, then regardless of the industry—whether sports, film, music, education, art, or traditional business—the opportunity and temptation for improper payments will be present.  And, under such circumstances, criminal activity will necessarily abound, at least to some degree.  When that happens, we should not be all that surprised to see our enforcers step up and take a crack at the conduct with their rather mighty enforcement bats.

Seyfarth Shaw is a full-service firm with leading FCPA, white collar, international, and higher education practitioners.  Those with questions about any of these issues or topics are encouraged to reach out to the authors, your Seyfarth attorney, or any member of the Seyfarth Shaw’s White Collar, Internal Investigations, and False Claims Team or International Employment Law Team.