Sam Bankman-Fried’s Superseding Indictment Highlights DOJ’s Broad Enforcement of the FCPA Involving Cryptocurrency
On March 28, 2023, the United States Attorney’s Office for the Southern District of New York (USAO-SDNY) filed a superseding indictment with thirteen counts against FTX crypto-exchange founder, Samuel Bankman-Fried (SBF), including conspiracy to violate the Foreign Corrupt Practices Act (FCPA) anti-bribery provisions through cryptocurrency transfers to foreign officials.
The superseding indictment—supplementing the December 13, 2022 eight-count indictment—alleges that, in November 2021, SBF authorized a bribe of at least $40 million in cryptocurrency to one or more Chinese government officials in an effort to unfreeze certain Alameda Research (Alameda)—FTX’s hedge fund which was founded and operated by SBF—trading accounts containing over $1 billion in cryptocurrency. Chinese authorities froze Alameda’s crypto trading accounts on two of China’s largest exchanges in 2021 as part of an ongoing investigation into one of Alameda’s trading counterparts. The alleged bribe was one of numerous attempts to unfreeze the accounts, including retaining attorneys to lobby in China for Alameda, communicating with the Chinese exchanges, and attempting clandestine transfers to circumvent the freeze orders.
After authorizing the bribe, an Alameda employee allegedly sent cryptocurrency payment instructions for at least a portion of the bribe to other Alameda employees, including at least one located in the United States. The accounts were unfrozen shortly after the $40 million in cryptocurrency were transferred to a private cryptocurrency wallet. According to the superseding indictment, SBF authorized another transfer of tens of millions of dollars in cryptocurrency once confirming the accounts were unfrozen “to complete the bribe.” Alameda then used the unfrozen cryptocurrency to fund additional Alameda trading.
Under the FCPA, it is illegal for a U.S. person or corporation to pay, offer, or promise to pay money or anything of value to a foreign official to maintain or obtain business relationships. For an act to violate the FCPA, three elements must be present: (1) a payment of anything of value is offered, promised, or given (2) to a foreign official (3) for a corrupt purpose.
“Anything of value” is an elusive term with no minimum monetary threshold. Indeed, the Department of Justice (DOJ) FCPA Guidance states that “[a]n improper benefit can take many forms[,]” including cash, travel expenses, gifts, scholarships, employment, and charitable donations. The USAO-SDNY’s superseding indictment emphasizes to clients that the DOJ will take a firm stance that cryptocurrency falls under the FCPA’s purview as something of value. Given the broad interpretation that courts have afforded “anything of value,” it is likely that the District Court for the Southern District of New York will consider cryptocurrency as something of value; however, it is certainly an issue that will be fought as this case progresses.
Clients should also note the USAO-SDNY’s broad reading of the “maintaining or retaining business” prong of the FCPA. Here, the superseding indictment simply alleges that Alameda used the unfrozen cryptocurrency to fund additional Alameda trading activity. No further allegations are made indicating that SBF, Alameda, and/or FTX obtained or retained business in China, thus suggesting that a company utilizing funds for general business matters without a connection to the foreign official or in the foreign country could provoke the DOJ to conclude that an FCPA violation has occurred.
Last year, the DOJ created the National Cryptocurrency Enforcement Team (NCET) and the FBI’s Virtual Asset Unit (VAU) to tackle complex investigations and prosecutions of criminal misuses of cryptocurrency. Since then, the DOJ has reportedly recovered over $5 billion in cryptocurrency and various prosecutions of crypto criminals. SBF is the latest—and certainly will not be the last—crypto defendant that the DOJ will test its FCPA enforcement authority with digital assets, and he now faces a potential criminal penalty of $250,000 and an additional five years if convicted for bribery violations.
Buchanan’s white-collar defense, corporate compliance, and blockchain & digital assets practice groups are available to provide guidance and assistance for companies and individuals regarding FCPA concerns.