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In re A Grand Jury Subpoena Directed to Marc Rich & Co.

May 4, 1983

IN THE MATTER OF A GRAND JURY SUBPOENA DIRECTED TO MARC RICH & CO., A.G., MARC RICH & CO., A.G., A SWISS CORPORATION, APPELLANT,
v.
UNITED STATES OF AMERICA, APPELLEE.



Appeal from an order of the United States District Court for the Southern District of New York (Sand, J.) holding appellant in contempt for failure to comply with a grand jury subpoena duces tecum and imposing sanctions to compel compliance. Affirmed.

Author: Van Graafeiland

Before VAN GRAAFEILAND and PIERCE, Circuit Judges, and WYATT, District Judge.*fn*

VAN GRAAFEILAND, Circuit Judge:

Marc Rich & Co., A.G. appeals from an order of the United States District Court for the Southern District of New York (Sand, J.), which held it in civil contempt for failing to comply with the court's order directing it to produce certain records pursuant to a grand jury subpoena duces tecum and which imposed a coercive fine to take effect upon the disposition of this expedited appeal. We affirm.

Appellant is a Swiss commodities trading corporation dealing in the international market in bulk raw materials such as petroleum, metals, and minerals. Its principal office is in Zug, Switzerland. Although it has forty branch offices in thirty countries around the world, it has no office in the United States. However, Marc Rich & Co. International Limited (International), a wholly-owned subsidiary of appellant, does business in the State of New York. The same five persons serve as the directors of the two companies. Three board members are Swiss residents, and two, Marc Rich and Pincus Green, reside in the United States and are employed by International as traders.

In March, 1982, a federal grand jury in the Southern District of New York was investigating an alleged tax evasion scheme, involving appellant, International, and the principals of each company, whereby, during 1980, International diverted a minimum of $20 million of its taxable income to appellant. On March 9, 1982, a grand jury subpoena duces tecum was served on International for the production of business records relating to crude oil transactions during 1980 and 1981. International complied with the subpoena. On April 15, 1982, a grand jury subpoena duces tecum, addressed to appellant and served on International, called for production by appellant of similar records.

On June 9, 1982, appellant moved to quash the subpoena on the grounds that appellant was not subject to the in personam jurisdiction of the court and that Swiss law prohibited the production of the materials demanded. In an opinion dated August 25, 1982, Judge Sand denied the motion to quash, finding that personal jurisdiction existed and that the operation of Swiss law was no bar to the production of the documents. When appellant persisted in its refusal, Judge Sand adjudged it to be in civil contempt. Appellant's arguments on appeal center principally on the issue of jurisdiction.

Discussion

Because the grand jury is a centuries-old, common law institution, adopted without definition by the framers of our Constitution, its historical purposes and functions have been explored at length by judges and legal scholars. See Wright, Federal Practice and Procedure: Criminal 2d § 101 (1982). All are agreed that a grand jury has both the right and the duty to inquire into the existence of possible criminal conduct, Branzburg v. Hayes, 408 U.S. 665, 688, 33 L. Ed. 2d 626, 92 S. Ct. 2646 (1972), and "[i]ndispensable to the exercise of its power is the authority . . . to require the production of evidence," United States v. Mandujano, 425 U.S. 564, 571, 48 L. Ed. 2d 212, 96 S. Ct. 1768 (1976). "A grand jury's investigation is not fully carried out until every available clue has been run down and all witnesses examined in every proper way to find if a crime has been committed. . . ." United States v. Stone, 429 F.2d 138, 140 (2d Cir. 1970). The jury's "investigative power must be broad if its public responsibility is adequately to be discharged." United States v. Calandra, 414 U.S. 338, 344, 38 L. Ed. 2d 561, 94 S. Ct. 613 (1974). Since the mere possibility that violations of federal law have occurred is sufficient authority for a grand jury to act, United States v. Sisack, 527 F.2d 917, 920 (9th Cir. 1976), its investigation in the instant case cannot be faulted.

Congress has made clear its intent that this nation's income tax laws are applicable to foreign corporations. See, e.g., 26 U.S.C. §§ 881-884; Bittker and Eustice, Federal Income Taxation of Corporations and Shareholders PP17.01-17.43 (3d ed. 1971). Under well-settled rules of international law, the authority of Congress to impose punishment for violation of these laws is equally clear. Of the five generally recognized principles of international criminal jurisdiction -- territorial, nationality, protective, universality, and passive personality -- Introductory Comment to Research on International Law, Part II, Draft Convention on Jurisdiction with Respect to Crime, 29 AM. J. Int'l Law 435, 445 (Supp. 1935), the territorial and protective principles justify the enforcement of penal revenue statutes such as 26 U.S.C. §§ 7201 and 7206. The territorial principle is applicable when acts outside a jurisdiction are intended to produce and do produce detrimental effects within it. United States v. Pizzarusso, 388 F.2d 8, 10 (2d Cir.), cert. denied, 392 U.S. 936, 20 L. Ed. 2d 1395, 88 S. Ct. 2306 (1968). Under the protective principle, a state "has jurisdiction to prescribe a rule of law attaching legal consequences to conduct outside its territory that threatens . . . the operation of its governmental functions, provided the conduct is generally recognized as a crime under the law of states that have reasonably developed legal systems." Id. (quoting Restatement (Second) of Foreign Relations Law § 33 (1965)).

Where, as here, the territorial principle is applicable, the Government may punish a defendant in the same manner as if it were present in the jurisdiction when the detrimental effects occurred. "The principle that a man who outside of a country wilfully puts in motion a force to take effect in it is answerable at the place where the evil is done, is recognized in the criminal jurisprudence of all countries." Ford v. United States, 273 U.S. 593, 623, 71 L. Ed. 793, 47 S. Ct. 531 (1927) (quoting 2 Moore's International Law Digest § 202, at 244 (1906)).

[I]t is certain that the courts of many countries, even of countries which have given their criminal legislation a strictly territorial character, interpret criminal law in the sense that offences, the authors of which at the moment of commission are in the territory of another State, are nevertheless to be regarded as having been committed in the national territory, if one of the constituent elements of the offence, and more especially its effects, have taken place there.

The S.S. Lotus, 1927 P.C.I.J., ser. A, No. 10, at 23, reprinted in 2 Hudson, World Court Reports 23, 38 (1935). See also Melia v. United States, 667 F.2d 300, 303-04 (2d Cir. 1981) (quoting Strassheim v. Daily, 221 U.S. 280, 285, 55 L. Ed. 735, 31 S. Ct. 558 (1911); United States v. Aluminum Co. of America, 148 F.2d 416, 443 (2d Cir. 1945). This rule is most clearly applicable where the offense involved a conspiracy and at least one overt act of the conspiracy occurred within the United States. Melia v. United States, supra, 667 F.2d at 304; United States v. Perez-Herrera, 610 F.2d 289, 290-91 (5th Cir. 1980).

It would be strange, indeed, if the United States could punish a foreign corporation for violating its criminal laws upon a theory that the corporation was constructively present in the country at the time the violation occurred, see Hyde v. United States, 225 U.S. 347, 362, 56 L. Ed. 1114, 32 S. Ct. 793 (1912), but a federal grand jury could not investigate to ascertain the probability that a crime had taken place. See Montship Lines, Ltd. v. Federal Maritime Board, 111 U.S. App. D.C. 160, 295 F.2d 147, 154 (D.C. Cir. 1961). The grand jury is an appendage or agency of the court. Brown v. United States, 359 U.S. 41, 49, 3 L. Ed. 2d 609, 79 S. Ct. 539 (1959); United States v. Stevens, 510 F.2d 1101, 1106 (5th Cir. 1975). It may investigate any crime that is within the jurisdiction of the court. 1 Orfield, Criminal Procedure Under the Federal Rules § 6:39, at 403 (1966). Its duty to inquire cannot be limited to conduct occurring in the district in which it sits. ...


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