While the rest of the baseball world was focusing on #TeamEntropy, news broke this past weekend that Major League Baseball is currently the subject of a federal grand-jury investigation targeting the league’s business practices in Latin America. Jeff Passan’s report on the investigation is well worth the read, but this passage in particular highlights the broad scope of the probe:
A federal grand jury is looking into Major League Baseball teams’ international dealings and has issued subpoenas to club officials and other personnel involved in the transactions, three sources familiar with the probe told Yahoo Sports. Agents from the FBI have spearheaded the investigation, according to sources familiar with it, and lawyers from the Department of Justice who specialize in Foreign Corrupt Practices Act cases – which typically involve bribery of foreign officials – are involved as well. While the target of the inquiry could not be confirmed by Yahoo Sports, sources said investigators have subpoenaed at least one former Atlanta Braves official as well as people involved with the signing of Cuban star Hector Olivera, who agreed to a deal with the Los Angeles Dodgers before being traded to the Braves. Multiple witnesses have agreed to cooperate with the investigation, according to sources.
This has the potential to emerge as one of the more notable developments concerning Major League Baseball since the end of the Steroid Era. To understand why, let me start by discussing the significance of a grand jury. If you’ve ever served on a jury or received a summons for jury duty, odds are really good that your paperwork contained language including “petit jury.” A petit jury isn’t one that’s really tiny or consists of a dozen Jose Altuves. Instead, it’s a jury assembled to determine issues of fact at a trial. It’s also the only kind of jury with which most people are familiar.
A grand jury is something people hear about in the news a lot but which is often misunderstood except by those who’ve served on one (or who are lawyers). Instead of a jury consisting of Giancarlo Stanton and Aaron Judge, a grand jury is a group of people (usually 23 of them) assembled by a judge at the request of a prosecutor for the purpose of investigating criminal wrongdoing and determining whether probable cause exists for criminal charges to be brought.
The grand jury acts as an investigative body, acting independently of either prosecuting attorney or judge. Criminal prosecutors present the case to the grand jury. The prosecutors attempt to establish probable cause to believe that a criminal offense has been committed. The grand jury may request that the court compel further evidence, including witness testimony and subpoenas of documents. The grand jury is generally free to pursue its investigations unhindered by external influence or supervision.
A grand jury isn’t like a trial jury in that (among many other differences) no one is usually there to represent a prospective defendant. Rules are relaxed, meaning the prosecutor is typically free to present evidence in whatever manner seen fit. In most states, grand juries aren’t required to bring criminal charges, but they generally are required for federal crimes. In other words, you usually don’t convene a federal grand jury unless you’re planning to charge and prosecute somebody. And while grand juries are ostensibly independent, prosecutors tend now to keep a tight leash on them. As Daniel Engber explained for Slate,
[i]n practice, [grand juries] have very little opportunity to take initiative. The prosecutor decides which evidence will be presented, then tells the jury whom to indict on what charges. All the jury does is vote yes or no. In rare cases, a grand jury rejects the prosecutor’s direction, makes its own investigation, and draws its own conclusions. Lawyers call this a “runaway.”
Runaway grand juries are really unusual today, which means that MLB and the 30 major-league teams, or some high-level persons in the organizations, are very likely the prosecutor’s target. (On the other hand, my criminal procedure professor once told me a story about a runaway grand jury he had convened which decided to investigate the entire nationwide marijuana trade.)
With the essential characteristics of a grand jury having been established, let’s look at what this one might be targeting. A clue could appear in Passan’s article, where he references prosecutors experienced in Foreign Corrupt Practices Act cases. The FCPA is an anti-bribery law, which, as the Securities and Exchange Commission explains, “generally prohibits the payment of bribes to foreign officials to assist in obtaining or retaining business. The FCPA can apply to prohibited conduct anywhere in the world and extends to publicly traded companies and their officers, directors, employees, stockholders, and agents. Agents can include third party agents, consultants, distributors, joint-venture partners, and others.” The FCPA applies to payments made both in the United States and abroad.
To see how the FCPA might apply to Major League Baseball, we can look at an excellent article by David Peet and David Mindell from back in 2014 warning about FCPA penalties in professional sports.
Imagine a federal statute that subjects Major League Baseball (MLB) officials and member teams to hefty fines and imprisonment for their roles in attempting to sign the next Pedro Martínez, National Basketball Association (NBA) officials and member teams for trying to discover their Yao Ming in China, or National Football League (NFL) officials for staging their equivalent of the World Baseball Classic in markets around the globe. Sound far-fetched? It shouldn’t.
Why? Peet and Mindell focused on the actions of scouts.
Indeed, franchises belonging to professional sports leagues could, for example, be liable based on scouting activities conducted on their behalf by third parties abroad. FCPA liability attaches if the covered party gives anything of value to any other person while knowing that this third party will make an improper payment to a foreign official, and the standard for knowledge is surprisingly low. The covered party can face liability for having mere awareness that the unlawful conduct has a high probability of occurring. The absence of an actual knowledge requirement ensures that a covered party cannot escape FCPA liability by being willfully blind to facts and circumstances that would tend to indicate unlawful conduct.
In other words, if a scout gives something of value to a member of a foreign government to clear the way for a player’s signing, that could potentially be an FCPA violation.
Of special note for professional leagues and teams, something of value can also include tickets given to government officials. The FCPA does not have a minimum value threshold for a corrupt gift or payment, though the statute does exempt from criminal liability facilitating payments that are intended to expedite “routine governmental action” by a foreign official.
From the perspective of a professional sports league or its member team, payments made to achieve the falsification of papers for an athlete, including age records or drug testing records, would almost certainly fit within the broad definition of business purpose.
That makes sense, particularly given the misconduct of John Coppolella’s front office, as well as MLB’s general history in Latin America. And it also tracks with the possible targets Passan mentions in his piece:
Front-office officials have been sent to prison for schemes in which they skimmed money from signing bonuses. An agent last year was convicted for smuggling Cuban players, which has happened regularly over the last decade and went unregulated by the league. Other agents are alleged to have paid players to steal them as clients from competitors, an issue that directly affects the MLB Players Association.
It isn’t hard to see how any of those actions could have involved illegal payments to foreign officials. Peet and Mindell not that paybacks to buscones may well violate the FCPA under certain circumstances. And while there are at least some reports that the probe isn’t specific, focusing more generally on Coppolella’s front office, Hector Olivera is the only specific name we’ve learned so far. Given that Olivera was signed by the Dodgers before being dealt to the Braves, his acquisition seems (at least on the surface) unrelated to foreign activities. Any guesses we’d hazard right now would be just that: guesses. At the same time, the stiff penalties the FCPA carries — fines in the millions of dollars and prison time — mean that this isn’t an investigation undertaken lightly.
Sheryl Ring is a litigation attorney and General Counsel at Open Communities, a non-profit legal aid agency in the Chicago suburbs. You can reach her on twitter at @Ring_Sheryl. The opinions expressed here are solely the author's. This post is intended for informational purposes only and is not intended as legal advice.