April 26,2002

Grassley: Penalties Apply if Enron Lied to Get Tax Dollars


Earlier this month, Sen. Chuck Grassley asked the Congressional Research Service toresearch the consequences of a corporation, such as the Enron Corp., providing incorrect informationto the Export-Import Bank of the United States and the Overseas Private Investment Corp. Grassleymade the following comment on the Congressional Research Service's findings.

"This analysis is eye-opening. It shows that lying to get financial aid from the taxpayerscarries serious penalties, as it should. Any corporate executives who lie and cheat to get governmentfinancial help could face years in prison, hundreds of thousands of dollars in fines, or both. Thetaxpayers aren't a cash cow for corporate cheats. The Department of Justice is right to investigatewhether the Enron Corp. provided false information to the Export-Import Bank and OPIC. If Enronofficials cheated the taxpayers, the full penalty of law should apply. I'm also pleased to see theExport-Import Bank realizes this is serious and is cooperating with the Department of Justice."

Attachments:

(1) April 23, 2002, letter from the Export-Import Bank of the United States to Grassley
(2) Congressional Research Service analysis

Note: This is a re-typing.

April 23, 2002
The Honorable Charles E. Grassley
Ranking Member
Committee on Finance
United States Senate
219 Dirksen Office Building
Washington, D.C. 20510

Dear Senator Grassley:

This is in response to your letter of April 2, 2002, concerning export credit commitments madeby the Export-Import Bank of the United States ("Ex-Im Bank") that involve the Enron Corporation"Enron"). Please let me assure you that Ex-Im Bank takes very seriously potential violations of lawwith respect to its financing programs and works very closely with the Department of Justice("DOJ") when such matters arise.

Congressional Research Service Washington, D.C. 20540-7000The Bank has been in contact with DOJ regarding Enron. DOJ is aware that Ex-Im Bank hasreceived and relied upon financial information from Enron. DOJ has stated to us that documents inour possession may contain information relevant to DOJ's investigation of Enron, and DOJ has askedEx-Im Bank to preserve and maintain all records relevant to the investigation. Ex-Im Bank ismaintaining all such records and has provided DOJ with the information previously submitted to theSenate Finance Committee, including information on the Accroven transaction.

Again, Ex-Im Bank is committed to working very closely with DOJ regarding potentialviolations of law with respect to its financing programs.

Sincerely,

Eduardo Aguirre
Vice Chairman

Memorandum April 22, 2002
TO: Senate Finance Committee
Attention: Dean Zerbe
FROM: Elizabeth B. Bazan
Legislative Attorney
American Law Division
SUBJECT: Potential civil and criminal consequences of a corporation providing false ormisleading information to OPIC or the Export-Import Bank of the United Statesto obtain loans from them

This memorandum is in response to the request from Senator Grassley, Ranking Member ofthe Senate Committee on Finance, asking for an examination of potential civil and criminalliability of a corporation providing false, misleading or incorrect information to the OverseasPrivate Investment Corporation (OPIC) or to the Export-Import Bank of the United States (Ex-ImBank) in order to obtain loans from such organizations. The Senator has asked for informationwith respect to both organizational and personal liability of those providing such false,misleading, or incorrect information. Our examination is limited, of necessity, by timeconstraints.

The examination of these issues will be separated into the following sections. First, weCRS-2

1 31 U.S.C. §§ (3)(C) (Export-Import Bank of the United States) and (3)(H) (Overseas Private InvestmentCorporation).

2 12 U.S.C. § 635(a)(1).
3 22 U.S.C. § 2191.

will briefly touch upon the statutory underpinnings of OPIC and the Export-Import Bank of theUnited States relevant to the basis of criminal and civil penalties or remedies which may beapplicable. Second, we will note a number of criminal law provisions that may be of interest inconnection with the issues you have raised. Third, we will note possible civil penalties or civilremedies that may be available as a result of such conduct in some circumstances.

Brief Summary of Pertinent Statutory Underpinnings of OPIC
and the Export-Import Bank of the United States
Both OPIC and the Export-Import Bank of the United States are wholly-owned governmentcorporations.1 Under 12 U.S.C. § 635(a)(1), the Ex-Im Bank is created and denominated “anagency of the United States of America.”

The objects and purpose of the [Export-Import Bank of the United States are] to aid infinancing and to facilitate export of goods and services and imports and the exchange ofcommodities and services between the United States or any of its territories or insularpossessions and any foreign country or the agencies or nationals thereof. In connection withand in furtherance of its objects and purposes, the bank is authorized and empoweredto do a general banking business except that of circulation; to receive deposits; topurchase, discount, rediscount, sell, and negotiate, with or without its endorsement orguarantee, and to guarantee notes, drafts, checks, bills of exchange, acceptances,including bankers’ acceptances, cable transfers, and other evidences of indebtedness; toguarantee, insure, coinsure, and reinsure against political and credit risks of loss; topurchase, sell, and guarantee securities but not to purchase with its funds any stock inany other corporation except that it may acquire any such stock through theenforcement of any lien or pledge or otherwise to satisfy a previously contractedindebtedness to it; to accept bills and drafts drawn upon it; to issue letters of credit; topurchase and sell coin, bullion, and exchange; to borrow and to lend money; to performany act herein authorized in participation with any other person, including anyindividual, partnership, corporation, or association; to adopt, alter, and use a corporateseal, which shall be judicially noticed; to sue and to be sued, to complain and to defendin any court of competent jurisdiction; to represent itself or to contract forrepresentation in all legal and arbitral proceedings outside the United States; and theenumeration of the foregoing powers shall not be deemed to exclude other powersnecessary to the achievement of the objects and purposes of the bank. . . . 

Under 22 U.S.C. § 2191, OPIC is created as “an agency of the United States under the policyguidance of the Secretary of State.” OPIC’s purpose is to “mobilize and facilitate theparticipation of United States private capital and skills in the economic and social developmentof less developed countries and areas, and countries in transition from nonmarket to marketeconomies.”3 In so doing, OPIC may provide insurance, guarantee, financing, or reinsurance forCRS-3

22 U.S.C. § 2191 indicates that the Corporation, in making such determinations, must especially:(1) be guided by the economic and social development impact and benefits of such aproject and the ways in which such a project complements, or is compatible with, otherdevelopment assistance programs or projects of the United States or other donors;(2) give preferential consideration to investment projects in less developed countries thathave per capita incomes of $984 or less in 1986 United States dollars, and restrict itsactivities with respect to investment projects in less developed countries that have percapita incomes of $4,269 or more in 1986 United States dollars (other than countriesdesignated as beneficiary countries under section 212 of the Caribbean Basin EconomicRecovery Act (19 U.S.C. 2702), Ireland, and Northern Ireland); and(3) ensure that the project is consistent with the provisions of section 117 (as soredesignated by the Special Foreign Assistance Act of 1986), section 118, and section119 of this Act [22 U.S.C. §§ 2151p, 2151p-1, and 2151q] relating to the environmentand natural resources of, and tropical forests and endangered species in, developingcountries, and consistent with the intent of regulations issued pursuant to section 117 (asso redesignated by the Special Foreign Assistance Act of 1986), section 118, and section119 of this Act [22 U.S.C. §§ 2151p, 2151p-1, and 2151q].

In carrying out its purpose, the Corporation, utilizing broad criteria, shall undertake--(a) to conduct financing, insurance, and reinsurance operations on a self-sustaining basis,taking into account in its financing operations the economic and financial soundness ofprojects;
(b) to utilize private credit and investment institutions and the Corporation's guarantyauthority as the principal means of mobilizing capital investment funds;
(c) to broaden private participation and revolve its funds through selling its directinvestments to private investors whenever it can appropriately do so on satisfactoryterms;
(d) to conduct its insurance operations with due regard to principles of risk managementincluding efforts to share its insurance and reinsurance risks;
(e) to the maximum degree possible consistent with its purposes--
(1) to give preferential consideration in its investment insurance, reinsurance,and guaranty activities to investment projects sponsored by or involving UnitedStates small business; and
(2) to increase the proportion of projects sponsored by or significantly involvingUnited States small business to at least 30 percent of all projects insured,reinsured, or guaranteed by the Corporation;
(f) to consider in the conduct of its operations the extent to which less developed countrygovernments are receptive to private enterprise, domestic and foreign, and theirwillingness and ability to maintain conditions which enable private enterprise to make itsfull contribution to the development process;
(g) to foster private initiative and competition and discourage monopolistic practices;
(h) to further to the greatest degree possible, in a manner consistent with its goals, thebalance-of-payments and employment objectives of the United States;
(i) to conduct its activities in consonance with the activities of the agency primarilyresponsible for administering part I and the international trade, investment, and financialpolicies of the United States Government, and to seek to support those developmentalprojects having positive trade benefits for the United States;
(j) to advise and assist, within its field of competence, interested agencies of the Uniteda project consistent with specified criteria.

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States and other organizations, both public and private, national and international, withrespect to projects and programs relating to the development of private enterprise in lessdeveloped countries and areas;
(k) (1) to decline to issue any contract of insurance or reinsurance, or any guaranty, or toenter into any agreement to provide financing for an eligible investor's proposedinvestment if the Corporation determines that such investment is likely to cause suchinvestor (or the sponsor of an investment project in which such investor is involved)significantly to reduce the number of his employees in the United States because he isreplacing his United States production with production from such investment whichinvolves substantially the same product for substantially the same market as his UnitedStates production; and (2) to monitor conformance with the representations of theinvestor on which the Corporation relied in making the determination required by clause(1);
(l) to decline to issue any contract of insurance or reinsurance, or any guaranty, or toenter into any agreement to provide financing for an eligible investor's proposedinvestment if the Corporation determines that such investment is likely to cause asignificant reduction in the number of employees in the United States;
(m) to refuse to insure, reinsure, or finance any investment subject to performancerequirements which would reduce substantially the positive trade benefits likely toaccrue to the United States from the investment; and
(n) to refuse to insure, reinsure, guarantee, or finance any investment in connection witha project which the Corporation determines will pose an unreasonable or majorenvironmental, health, or safety hazard, or will result in the significant degradation ofnational parks or similar protected areas.
See also, 22 U.S.C. §§ 2191a, 2194, 2194a, and 2197 for other authorities and requirements.

Possible Criminal Provisions Which May Be Implicated
Whether particular circumstances give rise to criminal or civil liability turns upon thespecific facts of a given case. The following list of criminal law provisions may be of interest inconsidering whether, in a given situation, criminal liability may flow from the provision of false,misleading, or incorrect information by a corporation to OPIC or to the Ex-Im Bank in order toobtain a loan from such organizations. Depending upon how the facts in a given situation maydevelop, some of those provisions listed below might not apply, while other provisions not listedbelow might become pertinent.

18 U.S.C. § 641 (theft of public money, property, or records)–Among otherthings, this covers embezzling, stealing, purloining, or knowingly converting toone’s own use or the use of another, or, without authority, selling, conveying, ordisposing of any record, voucher, money, or thing of value of the United Statesor of any department or agency thereof. It also covers whoever receives,conceals, or retains such record, voucher, money, or thing of value of the UnitedStates or of any federal department or agency with intent to convert it to his, her,or their own use or gain, knowing it to have been embezzled, stolen, purloined,or converted. Conviction under this section may result in imprisonment for up to

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Under 18 U.S.C. § 3571, individuals convicted of a felony may be fined the greater of either theamount set forth in the offense statute or an amount not more than $250,000, while the maximum fine foran organization convicted of a felony would be the greater of the amount set forth in the offense statuteor an amount of not more than $500,000. This section also provides for an alternative fine based onpecuniary gain or loss. If anyone has derived pecuniary gain from the offense or if the offense results inpecuniary loss to any person, the defendant may be fined not more than the greater of twice the grossgain or twice the gross loss, unless the imposition of a fine under this subsection would undulycomplicate or prolong the sentencing process.

6 Id.
7 For purposes of 18 U.S.C. §§ 1341-1347, the term “scheme or artifice to defraud” includes “a scheme orartifice to deprive another of the intangible right of honest services.” 18 U.S.C. § 1346.
8 See discussion of fine options under 18 U.S.C. § 3571 in fn. 5, supra.
9 If the violation affects a financial institution, the defendant, if convicted, may be fined not more than$1 million or imprisoned for not more than 30 years, or both. Under 18 U.S.C. § 20, a “financialinstitution” is defined to include:

(1) an insured depository institution (as defined in section 3(c)(2) of the Federal DepositInsurance Act);
(2) a credit union with accounts insured by the National Credit Union Share InsuranceFund;
(3) a Federal home loan bank or a member, as defined in section 2 of the Federal HomeLoan Bank Act (12 U.S.C. 1422), of the Federal home loan bank system;
(4) a System institution of the Farm Credit System, as defined in section 5.35(3) of theFarm Credit Act of 1971;
(5) a small business investment company, as defined in section 103 of the SmallBusiness Investment Act of 1958 (15 U.S.C. 662);
(6) a depository institution holding company (as defined in section 3(w)(1) of the FederalDeposit Insurance Act[)] [the closing parentheses is missing from this subsection aspublished in the 2000 edition of the United States Code];
(7) a Federal Reserve bank or a member bank of the Federal Reserve System;10 years, a fine under Title 18, U.S.C., or both.5
18 U.S.C. § 1001 (false statements)–Among other things, this covers, in anymatter within the jurisdiction of the federal Executive, Legislative or JudicialBranches, knowingly and willfully falsifying, concealing, or covering up by anytrick, scheme, or device a material fact; making any materially false, fictitious, orfraudulent statement or representation; or making or using any false writing ordocument, knowing that it contains a materially false, fictitious, or fraudulentstatement or entry. Maximum penalties include imprisonment of not more than 5years, a fine under Title 18, U.S.C.,6 or both.

18 U.S.C. § 1341 (mail fraud)–Among other things, Section 1341 applies to useof the mail for the purpose of executing, or attempting to execute, a scheme orartifice to defraud7 or for obtaining money or property by false or fraudulentpretenses, representations, or promises. The maximum penalties include a fineunder Title 18, U.S.C.,8 or imprisonment of not more than 5 years, or both.

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(8) an organization operating under section 25 or section25(a) of the Federal ReserveAct; or
(9) a branch or agency of a foreign bank (as such terms are defined in paragraphs (1) and(3) or section 1(b) of the International Banking Act of 1978).

This term, so defined, does not appear to cover OPIC or the Export-Import Bank of the United States.For the possible criminal fines provided under Title 18, U.S.C., for a felony conviction, see thediscussion at fn. 5, supra.

If the offense affects a financial institution, conviction exposes a perpetrator to a fine of up to $1million, imprisonment of up to 30 years, or both. See discussion of definition of “financial institution” infn. 9, supra.
12 Id. In addition, 18 U.S.C. § 1956(b) provides for a civil penalty of the greater of the value of theproperty, funds, or monetary instruments involved in the transaction or $10,000, for those who conductor attempt to conduct such a transaction.

18 U.S.C. § 1343 (wire fraud)–Section 1343 covers use of wire, radio, ortelevision communication in interstate or foreign commerce to transmit or tocause to be transmitted any writings, signs, signals, pictures, or sounds, for thepurpose of executing a scheme or artifice to defraud or for obtaining money orproperty by means of false or fraudulent pretenses, representations, or promises.Maximum penalties include a fine under Title 18, U.S.C.,10 imprisonment of upto 5 years, or both.

18 U.S.C. § 1956(a)(3)(A) (money laundering)–Among other things, thisprovision covers those who, with intent to promote the carrying on of specifiedunlawful activity (as defined in 18 U.S.C. § 1956(c)(7)), conduct or attempt toconduct a financial transaction involving property used to conduct or facilitatespecified unlawful activity. It carries a maximum penalty of 20 yearsimprisonment and a fine under Title 18, U.S.C.12 The term “specified unlawfulactivity” means, among other things, any act or activity constituting an offenselisted in 18 U.S.C. § 1961(1) except an act indictable under 31 U.S.C., ch. 52,subchapter II. Both mail fraud under Section 1341 and wire fraud under Section1343 are among the offenses listed in Section 1961(1).

18 U.S.C. § 1962 (racketeering)–Among other things, this section makes itunlawful for any person who had received income derived, directly or indirectly,from a pattern of racketeering activity to use or invest, directly or indirectly, anypart of that income, or the proceeds of such income, in acquisition of any interestin, or establishment or operation of, any enterprise engaged in interstate orforeign commerce or in activities affecting interstate or foreign commerce.

“Racketeering activity” is defined under 18 U.S.C. § 1961 to mean, among otherthings, any act indictable as mail fraud under 18 U.S.C. § 1341 or wire fraudunder 18 U.S.C. § 1343. Section 1962 also prohibits any person, through apattern of racketeering activity, to acquire or maintain, directly or indirectly, anyinterest or control of any enterprise engaged in interstate or foreign commerce, or

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Under 18 U.S.C. § 3571, individuals convicted of a felony may be fined the greater of either theamount set forth in the offense statute or an amount not more than $250,000, while the maximum fine foran organization convicted of a felony would be the greater of the amount set forth in the offense statuteor an amount of not more than $500,000. This section also provides for an alternative fine based onpecuniary gain or loss. If anyone has derived pecuniary gain from the offense or if the offense results inpecuniary loss to any person, the defendant may be fined not more than the greater of twice the grossgain or twice the gross loss, unless the imposition of a fine under this subsection would undulycomplicate or prolong the sentencing process.

18 U.S.C. § 1964 also provides for civil remedies in specified circumstances.whose activities affect interstate or foreign commerce. In addition, this sectionprohibits any person employed by or associated with any enterprise engaged in,or the activities of which affect, interstate or foreign commerce, to conduct orparticipate in the conduct of that enterprise’s affairs through a pattern ofracketeering activity. Finally, Section 1962 makes it unlawful to conspire toengage in any of the activities prohibited in the section. Under 18 U.S.C. § 1963,a person convicted of an offense under Section 1962 faces maximum criminalpenalties including imprisonment of not more than 20 years, a fine under Title18, U.S.C.,13 or both, plus forfeiture to the United States of (1) any interestacquired or maintained in violation of Section 1962; (2) any interest in, securityof, claim against, or property or contractual right of any kind affording a sourceof influence over any enterprise which the person has established, operated,controlled, conducted, or participated in, in violation of 18 U.S.C. § 1962; or (3)any proceeds of or derived from racketeering activity in violation of Section1962.

U.S.C. 2197(n) (penalties for fraud with respect to OPIC)–This provisionmakes criminal penalties available with respect to anyone who knowingly makesany false statement or report, or willfully overvalues any land, property, orsecurity, for the purpose of influencing in any way the action of OPIC withrespect to any insurance, reinsurance, guarantee, loan, equity investment, or otheractivity of the Corporation under section 2194 of this title or any change orextension of any such insurance, reinsurance, guarantee, loan, equity investment,or activity, by renewal, deferment of action or otherwise, or the acceptance,release or substitution of security therefor. Maximum penalties include a fine ofnot more than $1,000,000, imprisonment for not more than 30 years, or both.

Possible Civil Penalties Or Civil Remedies That May Be Available
In some circumstances, civil penalties or remedies may be available where a corporationuses false, misleading, or incorrect information to obtain a loan from OPIC or the Export-ImportBank of the United States. As with the criminal provisions discussed above, the question ofwhether these provisions apply is a very fact-specific inquiry. Listed below are some provisionswhich may be of interest in this context, depending upon the facts of a given situation as theydevelop.

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18 U.S.C. § 1964(a).
U.S.C. § 1956(b) (money laundering)–As noted in the discussion of criminalpenalties above, 18 U.S.C. § 1956(a)(3)(A) covers those who, with intent topromote the carrying on of specified unlawful activity (as defined in 18 U.S.C. §1956(c)(7)), conduct or attempt to conduct a financial transaction involvingproperty used to conduct or facilitate specified unlawful activity. The term“specified unlawful activity” means, among other things, any act or activityconstituting an offense listed in 18 U.S.C. § 1961(1) except an act indictableunder 31 U.S.C., ch. 52, subchapter II. Both mail fraud under Section 1341 andwire fraud under Section 1343 are among the offenses listed in Section 1961(1).In addition to the criminal penalties discussed above, 18 U.S.C. § 1956(b)provides for a civil penalty of the greater of the value of the property, funds, ormonetary instruments involved in the transaction or $10,000, for those whoconduct or attempt to conduct such a transaction.

U.S.C. § 1964 (racketeering–civil remedies)–This section gives the UnitedStates district courts jurisdiction to “prevent and restrain violations” of 18 U.S.C.§ 1962, discussed above under the criminal provisions section of thismemorandum. In so doing, the district court may issue orders including, but notlimited to “ordering any person to divest himself of any interest, direct orindirect, in any enterprise; imposing reasonable restrictions on the futureactivities or investments of any person, including, but not limited to, prohibitingany person from engaging int the same type of endeavor as the enterpriseengaged in, the activities of which affect interstate or foreign commerce; orordering dissolution or reorganization of any enterprise, making due provisionfor the rights of innocent persons.”15 Such actions may be instituted by theAttorney General. In addition any person injured in his business or property byreason of a Section 1962 violation may sue to recover three times the damagessustained plus the cost of the suit including a reasonable attorney’s fee. Toestablish a violation of Section 1962 in a private right of action, reliance may notbe placed upon any conduct that would have been actionable as fraud in thepurchase or sale of securities, except as against a person who has been convictedin a criminal case for such fraud. A criminal conviction has the effect ofestopping the person convicted from denying the essential allegations of thecriminal offense in a subsequent civil proceeding brought by the United States.

U.S.C. § 1345 (injunctions against fraud)–Among other things, if a person isviolating or is about to violate the mail fraud (18 U.S.C. § 1341), wire fraud (18U.S.C. § 1343) or false statements (18 U.S.C. § 1001) provisions, the AttorneyGeneral may bring a civil action in a federal court to enjoin the violation. Thecourt shall grant a temporary restraining order, temporary injunction, orpermanent injunction without bond under these circumstances.

Conclusion
As the provisions noted above suggest, if a corporation or its officers or employeesknowingly and intentionally submit false, misleading, or incorrect information to OPIC or the

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Export-Import Bank to obtain a loan from one of those federal agencies, criminal liability mayattach to such actions. Whether a given situation will give rise to potential criminal liability,either for the corporation or for the individuals involved, depends upon the specific factualcircumstances involved. It does not appear that provision of incorrect information because of asimple mistake, rather than a knowing and intentional act, would be sufficient to trigger criminalliability. If the underlying facts include money laundering, racketeering, or false statements inany matter within the jurisdiction of the Executive, Legislative, or Judicial Branches of theUnited States, civil penalties or certain other civil remedies may also apply.

We hope that this memorandum will be of assistance to you.