New Federal Bribery Statute Brings Added Danger to Gift-Giving

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On Oct. 12, the President signed a new crime control package that will cause a major restructuring of the federal criminal law processes. Buried deep in the 800-plus-page bill and virtually ignored by the financial community are several modifications to the federal criminal laws affecting banking that could have a significant impact on the operation of virtually all federally regulated financial institutions. Foremost among these amendments is the modification of the federal bank bribery statute to turn a routine business gift given to a banker into a very serious federal crime.

The federal criminal laws have included a bank bribery statute for many years, but the statute was narrowly drafted. In general terms, the prior version of the bribery statute prohibited an officer, director, employee, attorney, or agent of a federally insured bank and certain other financial institutions from receiving or agreeing to receive from any person or entity anything of value -- except as provided by law -- in exchange for procuring for any person or entity a loan or other extension of credit.

Violation of this statute was a misdemeanor, subject to fine up to $5,000, a period of imprisonment of up to one year, or both. The critical element in the old bribery statute was proof that the fee, commission, or other payment to the banker was for the purpose of obtaining a loan or other extension of credit. A gift made to a banker that could not be proven to be consideration for a particular loan was not a violation of the statute.

The literal terms of the new bribery statute have eliminated the necessity of showing that the banker received the payment in exchange for making a loan. By its terms, the new bribery statute prohibits the offer or receipt of anything of value to a banker "for or in connection with any transaction or business of [the bank]." A regulator or prosecutor could plausibly argue from the statute standing alone that any gift or service that a bank officer or employee receives from a customer, potential customer, supplier, landlord, or other entity that deals with the bank is "in connection with" the business of the bank and thereby violates this statute.

The statute contains a number of other changes that are significant, including an increase in the severity of the crime to a felony punishable by up to five years in prison and higher fines, a prohibition against the giving as well as the receiving of a bribe, and extension of the statute to virtually all banks, bank holding companies, savings and loan institutions, credit unions, small business investment companies, and various federal land banks, intermediate credit banks, and others.

At a recent conference on bank law enforcement, federal regulators and prosecutors began to focus on the problems created by the broad reach of this amendment, and there is some indication that they may adopt prosecutorial guidelines that would limit one aspect of the scope of the new statute.

Although it is premature to predict whether guidelines will emerge and, if so, precisely what they will be, the most likely approach would be for the Justice Department to decline prosecution of business gifts with values that are below a specified dollar minimum and that are not given in exchange for receiving favorable treatment from the bank.

The policy might also include a requirement that all gifts, commissions, fees, services rendered, or other things of value offered to or received by a banker be reported immediately to the financial institutions and, perhaps, that the institution retain such records for review by the bank examiners at the next examination. Such a policy would in some ways be comparable to the rules that now govern receipt of gifts by federal employees.

Apart from prosecutorial guidelines, there are several other means to address the potential problems of the apparently broad scope of the new bribery statute. …