FOOD AND DRUG LAW JOURNAL

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Laurie Lenkel FDA – OC

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________________________________

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Sara Koblitz Fish & Richardson

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Nicole Negowetti The Good Food Institute

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Eric N. Lindblom

FOOD AND DRUG LAW JOURNAL

VOLUME 71 NUMBER 4 2016

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544 Early Developments in the Regulation of Biologics Terry S. Coleman 608 FDA Regulation of Clinical Applications of CRISPR-CAS Gene Editing

Technology Evita V. Grant 634 E-cigarette Regulation and Harm Reduction: The Case of Hong Kong Shue Sing Churk 658 The Extent of Harm to the Victim as an Alternative Aggravating Factor

for the Conviction of Felony Fraud in the Context of Food-Safety Violations

Yi-Chen Su 673 Knowledge Sharing as a Social Dilemma in Pharmaceutical Innovation Daria Kim

FDLI

658

The Extent of Harm to the Victim as an Alternative Aggravating Factor for the

Conviction of Felony Fraud in the Context of Food-Safety Violations

YI-CHEN SU*

I. ABSTRACT

Finding the intent to defraud or mislead for the conviction of felony fraud could be very tricky in the context of food regulation. As compared to the split among the US federal circuit courts on the interpretation of intent, Taiwan courts looked into the extent of harm to the victim to determine whether the defendant should be convicted of felony fraud. In order to limit the scope of felony liability, Taiwanese law requires an additional showing of the extent of harm to the victim. Recently, courts in Taiwan further expanded the scope of the statutory language, “harmful to human health,” to include potential harm as demonstrated by animal studies. This approach provides courts in other jurisdiction with an alternative aggravating factor to assess criminal liability in nondisclosure cases arising out of non-compliance with food law.

II. INTRODUCTION

The Melamine incidents from 2007 to 2008 and the 2013 horsemeat scandal sparked the attention of both the media and consumers about food fraud.1 While the European Commission acknowledged that food fraud has no definition in Europe,2 it generally requires the intent to deceive and the intent to obtain an undue benefit.3

Intentional violation of food-safety regulations is essential to a finding of fraud even though different countries may require different elements subject to their procedural

* Yi-Chen Su, Associate Professor, joint appointment at the College of Agriculture and Natural Resources and the Department of Law, National Chung Hsing University, Taiwan. The author appreciates two anonymous reviewers’ invaluable comments.

1 Francesca Lotta & Joe Bogue, Defining Food Fraud in the Modern Supply Chain, 10 EUR. FOOD & FEED L. REV. 114, 114 (2015). The contamination of infant formula with melamine in China affected more than 294,000 children. Children affected suffered from urinary tract stones. The UN issued a worldwide alert after 31 countries banned imports of Chinese milk products. D. SCHODER, INTERNATIONAL SCALE: FIELD WORK AND TROUBLESHOOTING IN AFRICA, IN CASE STUDIES IN FOOD SAFETY AND AUTHENTICITY—LESSONS FROM REAL LIFE SITUATIONS 308 (J. Hoorfar ed., Woodhead Publishing Limited, 2012). During the horsemeat incident in 2013, a trader was arrested for allegedly selling 300 tones of horse meat as beef. CHRIS ELLIOT, ELLIOTT REVIEW INTO THE INTEGRITY AND ASSURANCE OF FOOD SUPPLY NETWORKS—FINAL REPORT, A NATIONAL FOOD CRIME PREVENTION FRAMEWORK 64 (U.K. Government Publication 2014).

2 EUROPEAN COMMISSION, FOOD FRAUD, http://ec.europa.eu/food/safety/official_controls/food_fraud/index_en.htm.

3 Id.

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rules on criminal prosecution.4 Nonetheless, various violations in the food-safety context are based on nondisclosure of certain information. In general, nondisclosure is less likely a fraud as compared with material misrepresentation. A false statement is material if it “has a natural tendency to influence,” or is “capable of influencing” the decision of the person to whom it was addressed.5 However, it is difficult to determine where the line should be drawn.

Under American jurisprudence, the intent to defraud or mislead is essential in determining when a food-safety violation is subject to the conviction of felony fraud. The U.S. Food, Drug, and Cosmetic Act (the Act) provides for two types of penalties for violations of the law. Any simple violation of the Act is a misdemeanor under 21 U.S.C. § 333(a)(1),6 while a violation committed “with the intent to defraud or mislead” is a felony under 21 U.S.C. § 333(a)(2).7 As evidenced by the split among the U.S. federal circuit courts,8 finding the intent to defraud or mislead for the conviction of felony fraud could be very tricky in the context of food regulation. In particular, courts struggle with the materiality of concealment and the requirement of specific intent for the violation being charged.

Unlike American jurisprudence, courts in Taiwan look into the extent of harm to the victim to determine whether the defendant should be convicted of felony fraud. Taiwanese law also provides for two types of penalties for violations of food-safety regulation. Since 2000, a simple violation of the law due to negligence is a misdemeanor.9 If the product resulting from the violation is harmful to human health, regardless of the mens rea, it is a felony.10 In other words, to limit the scope of felony liability, the increased penalties provided by the Act Concerning Food Safety and Sanitation require an additional showing of the extent of harm to the victim.11

After the revision of the Act Concerning Food Safety and Sanitation (ACFSS) in 2013, if a violation is harmful to human health, the defendant can be sentenced up to seven years.12 If the violation causes severe injury or death, the defendant is punishable up to ten years or even life sentences, respectively.13 Moreover, Taiwanese case law further established that legally recognizable harm for the purposes of food-safety regulations includes the potential harm to consumers.14

Courts in Taiwan have interpreted the statutory language “harmful to human health” as not limited to actual injury. As an alternative to the theories developed in Europe and American jurisprudence, courts in Taiwan have developed an analytical

4 Id. 5 United States v. Gaudin, 515 U.S. 506, 509 (1995) (quoting Kungys v. United States, 485 U.S. 759,

770 (1988)). 6 21 U.S.C. § 333(a)(1) (2012). 7 Id. § 333(a)(2). 8 See, e.g., United States v. Milstein, 401 F.3d 53, 69 (2d Cir. 2005); United States v. Ellis, 326 F.3d

550, 556 (4th Cir. 2003); United States v. Geborde, 278 F.3d 926, 927 (9th Cir. 2002); United States v. Watkins, 278 F.3d 961, 963 (9th Cir. 2002); United States v. Jorgenson, 144 F.3d 550, 556 (8th Cir. 1998).

9 The Act Concerning Food Safety and Sanitation of 2000, art. 34 (Taiwan). 10 Id. 11 Id. 12 The Act Concerning Food Safety and Sanitation of 2013, art. 49 (Taiwan). 13 Id. 14 103 nian du su zi di 104 hao [Tainan District Court, June 30, 2015].

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framework focusing on the extent of harm to the victim for the conviction of felony fraud. This paper examines the Taiwanese court’s reasoning and rationale in two pivotal cases; namely the 2011 incident involving emulsifier containing phthalate plasticizers and the 2013 incident involving maleic anhydrite modified starch. The defendants in both cases were convicted of felony fraud. Recently, however, in cases that involved the failure to disclosure of sodium hydrosulfite as a bleaching agent in bean sprout, the defendants were charged with a misdemeanor, rather than fraud.15

The scientific evidence in these cases represents different levels of harm, namely sufficiently harmful, potentially harmful, and not harmful to human health. In cases where the food items are legally sufficiently harmful or potentially harmful as a result of food-safety violations, the defendants are subject to prosecution under the aggravated felony provision of the Act Concerning Food Safety and Sanitation.16 This approach provides courts with an alternative aggravating factor to consider in nondisclosure cases arising out of non-compliance with food law.

III. DEFINING FOOD FRAUD

In recent years, food safety incidents such as the Melamine incidents and the horsemeat scandal, have led to the proposition of a broad definition of food fraud. While some commentators distinguished food fraud from food crime, the distinction between the two becomes meaningless when a defendant is charged with criminal fraud for the violation of food safety regulations.

A broad definition of food fraud and criminal prosecution may result in wide-ranging use of stigma and erode the effectiveness of deterrence as a consequence. On the other hand, a definition too narrow could frustrate the purposes of food-safety regulation and put the consumers’ health at stake. In particular, various violations in the food safety context are based on nondisclosure of certain information. For instance, trade secrets are based on nondisclosure, the opposite of submission.17 In general, nondisclosure is less likely a fraud as compared with material misrepresentation.18 However, it is difficult to determine where the line should be drawn.

Determining when nondisclosure has amounted to fraudulent conduct is complicated because fraudulent conduct typically consists of an affirmative misstatement, rather than a failure to speak.19 Moreover, conventional statements of fraud require reliance components. Namely, the plaintiff must have in fact relied on the defendant’s misstatement and the plaintiff’s reliance must have been justifiable.20 Reliance becomes tricky when the defendant’s conduct is nondisclosure.21

15 104 nian du shang su zi di 380 hao [Taiwan Appellate Court Taichung Branch, July 16, 2015]; 103

nian du su zi di 763 hao [Tainan District Court, March 9, 2015]. 16 The Act Concerning Food Safety and Sanitation of 2013, art. 49 (Taiwan). 17 K.J. Greene, Idea Theft: Frivolous Copyright-Lite Claims, or Hollywood Business Model?, 7

HASTINGS SCI. & TECH. L.J. 119, 130 (2015). 18 United States v. Gaudin, 515 U.S. 506, 509 (1995) (quoting Kungys v. United States, 485 U.S. 759,

770 (1988)). 19 Deborah A. Demott, Do You Have The Right To Remain Silent?: Duties of Disclosure in Business

Transactions, 19 DEL. J. CORP. L. 65, 68 (1994). 20 Id. at 76. 21 Id.

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Indeed, some commentators have objected to the proposition heavily oriented toward condemning nondisclosure as tantamount to fraud.22 For instance, Wonnell suggested that the general framework for the nondisclosure problem should be open-ended to accommodate the probability of particular types of future knowledge.23 Similar to Wonnell, Demott suggested that a looser-fitting doctrine is much preferable to facilitate judicial sensitivity to context, the nature of the transaction and the parties’ relationship.24

Commentators including Wonnell have proposed various factors for courts to consider in nondisclosure cases, such as the difference in the levels of the parties’ sophistication regarding the subject matter, the relationship between the parties, the manner in which the information is acquired, the nature of the undisclosed fact, the importance of the nondisclosed fact to the parties, and the active concealment of any material fact.25 However, the literature does not bring these factors together into a general theory of nondisclosure.26 In particular, food fraud usually involves the nondisclosure of certain information. As in other nondisclosure cases, food fraud is difficult to define.

Food fraud has no definition in Europe except that intent is generally required.27 “[I]ntentional violation” of certain food safety regulations is essential to a finding of fraud even though different countries may require different elements subject to their procedural rules on criminal prosecution.28 In general, it requires the intent to deceive and the intent to obtain an undue benefit.29

Food safety incidents involving melamine and horsemeat in Europe sparked the attention of both the media and consumers about food fraud.30 The expert review and recommendations following these events were essentially built upon the investigation and fact-findings of such.31 For instance, Elliot broadly defined food fraud as the “deliberate and intentional substitution, addition, tampering, or misrepresentation of food, food ingredients, or food packaging; or false or misleading statements made about a product for economic gain.”32

To clarify the broad definition of food fraud, Lotta and Bogue identify the key features of food fraud as (1) the non-compliance with food law and/or the misrepresentation of foodstuff, (2) the intentionality of conduct, and (3) the economic

22 Christopher T. Wonnell, The Structure of a General Theory of Nondisclosure, 41 CASE W. RES. L.

REV. 329, 382 (1991). 23 Id. at 383. 24 Demott, supra note 19, at 102. 25 Wonnell, supra note 22, at 332–33. 26 Id. at 333. 27 European Commission, supra note 2. 28 Id. 29 Id. 30 Lotta & Bogue, supra note 1, at 114. 31 See, e.g., Elliot, supra note 1; Lotta & Bogue, supra note 1; NSF INTERNATIONAL, THE “NEW”

PHENOMENON OF CRIMINAL FRAUD IN THE FOOD SUPPLY CHAIN- THE RAPID RISE OF FOOD FRAUD AND THE COLLECTIVE RESPONSES TO THE GLOBAL THREAT (2014).

32 Elliot, supra note 1, at 12. NSF International defined food fraud broadly as “the deliberate substitution, addition, tampering or misrepresentation of food, ingredients or packaging.” NSF INTERNATIONAL, supra note 31, at 3.

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gain as motivation33 Lotta and Bogue argue that “the fraud definition should be wider in order to encompass all the practices that jeopardize the interest protected by food law regulation.”34 It is worth noting that in their proposition, if the defendant’s conduct was motivated by economic gain, the third requirement would be met regardless of whether the economic gain is undue benefit.

Although food fraud and food crime are often used interchangeably,35 Elliot does not equate food fraud to food crime. In his opinion, while food fraud refers to random acts, food fraud becomes food crime when it involves “an organized activity by groups which knowingly set out to deceive, and or injure, those purchasing food.36

Criminal conviction has the effect of stigmatization, especially in countries where criminal records are publicly accessible.37 Harel and Klement’s study showed that the more people are detected and stigmatized, the less deterrence there may be.38 They argue that wide-ranging use of stigma may erode its effectiveness and that the extensive use of stigma may undermine its deterrent effects.39 Their study suggests that stigma may be more effective when it is rarely used.40

The NSF International (NSFI) (formerly National Sanitation Foundation) developed a model for fraud detection and the factors provided may help to define food fraud in the criminal context. The model is focused on three factors: first, the potential profit a fraudster can make; second, the potential difficulty/cost for the fraudster of making a viable substitution; and third, the likelihood of detection by a reputable food business, customer or regulators.41 The less difficult or the lower the cost for making a viable substitution, the more likely it is a food fraud. Furthermore, if the incident is more difficult to detect, the more likely it is a food fraud.

It is worth noting that the NSFI’s proposition did not include the defendant’s intent to defraud or mislead as an essential element in fraud detection. Under American case law, the intent to defraud or mislead is essential in determining when a food safety violation is subject to the conviction of felony fraud.

IV. AMERICAN JURISPRUDENCE ON FOOD FRAUD

The Act provides for two types of penalties for violations of the law. Any simple violation of the Act is a misdemeanor under 21 U.S.C. § 333(a)(1),42 while a violation committed “with the intent to defraud or mislead” is a felony under 21 U.S.C.

33 Lotta & Bogue, supra note 1, at 116–17. 34 Id. at 122. 35 Elliot, supra note 1, at 12. 36 Id. at 6. 37 Alon Harel & Alon Klement, The Economics of Stigma: Why More Detection of Crime May Result

in Less Stigmatization, 36 J. LEGAL STUD. 355, 355-56 (2007). 38 Id. at 355. 39 Id. at 356. 40 Id. at 357. 41 NSF INTERNATIONAL, supra note 31, at 15. 42 21 U.S.C. § 333(a)(1) (2015).

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§ 333(a)(2).43 In other words, felony liability requires an additional mens rea element that is absent from the broad-reaching misdemeanor provision.44

The adulteration or misbranding of any food is prohibited under 21 U.S.C. § 331.45 Any violation of the law can be sentenced up to one year,46 or up to three years if the defendant commits the violation with the intent to defraud or mislead.47 The defendant’s intent to defraud or mislead is an aggravating factor affecting the extent of penalty after conviction. However, as evidenced by the split among the U.S. federal circuit courts,48 finding the intent to defraud or mislead for the conviction of felony fraud could be very tricky in the context of food and drug regulation.

A. Materiality of Misrepresentation or Concealment Fraud has its well-settled meaning at common law.49 Common law fraud requires

the proof of materiality—namely a misrepresentation or concealment of material fact.50 Without materiality, criminal liability would be imposed even if the means chosen by the defendant was incapable of influencing the intended victim, as long as the defendant intended to deceive the victim.51

The Ninth Circuit Court of Appeals held in U.S. v. Watkins that materiality is an element under the felony fraud provisions of 21 U.S.C. § 333(a)(2), either under the theory of intent to defraud or the theory of intent to mislead.52 In Watkins, the defendant manufactured nutritional supplements and purposefully substituted or used lesser amounts of certain ingredients.53 He was charged with concealment of these facts knowing that his actions constituted false and misleading labeling.54 The defendant claimed that his substitution of ingredients did not constitute a material difference even though he knew of the disparity between the labels and the ingredients.55 On the other hand, the government argued that, in the absence of an explicit statutory requirement of materiality, the intent element is satisfied by proving the defendant’s knowledge of falsity.56

The Watkins court disagreed with the government’s interpretation because it would impose felony liability based solely on knowledge of a false label, no matter how

43 Id. § 333(a)(2). 44 United States v. Watkins, 278 F.3d 961, 964 (9th Cir. 2002). 45 21 U.S.C. § 331(b) (2010). 46 Id. § 333(a)(1). 47 Id. § 333(a)(2). 48 United States v. Milstein, 401 F.3d 53, 69 (2d Cir. 2005); Brian Rubens, Comment, Common Law

Versus Regulatory Fraud: Parsing the Intent Requirement of the Felony Penalty Provision of the Food, Drug, and Cosmetic Act, 72 U. CHI. L. REV. 1501, 1508 (2005).

49 Neder v. United States, 527 U.S. 1, 22 (1999). 50 Id. 51 See id. at 24. 52 United States v. Watkins, 278 F.3d 961, 963 (9th Cir. 2002). 53 Id. 54 Id. 55 Id. 56 Id. at 965.

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insignificant the falsehood is.57 The court reasoned that: “Considering the broad applicability of the misdemeanor misbranding provision and Congress’s intent to limit liability for increased penalties, requiring proof of materiality would not frustrate Congress’s purpose in enacting these provisions of the FDCA to protect public health and safety.”58

Approximately four year prior to Watkins, the Eighth Circuit Court of Appeals held opposing views in a case concerning a similar criminal misbranding provision of the Federal Meat Inspection Act,59 which is a statute modeled on the Food, Drug, and Cosmetic Act.60 In United States v. Jorgenson, the court did not look further than the statutory language and concluded that a false or misleading statement need not be material to constitute felony fraud under 21 U.S.C. § 676(a).61

However, the Ninth Circuit “believed” that the Supreme Court in Neder v. United States has settled the issue.62 In Neder, the Supreme Court stated that the natural reading of the statutory language does not end the inquiry as to whether any settled meaning of fraud under common law should be incorporated into the statute.63 The Ninth Circuit interpreted the Supreme Court’s opinion in Neder as a rejection of the literal analysis employed by the Eighth Circuit in Jorgenson.64

Regardless of the different approaches that federal courts have adopted, the U.S. Department of Justice suggested a safer course to include the allegations of materiality in indictment and in jury instructions.65 In addition to materiality, another issue arising from the requirement of intent to defraud or mislead is whether the defendant’s specific intent for the particular violation being charged is required for the conviction of felony fraud under 21 U.S.C. § 333(a)(2).

B. Specific Intent to Defraud or Mislead There is a split among the U.S. federal circuit courts concerning the breadth of

specific intent required for the conviction of felony fraud.66 Some courts have adopted a narrow approach suggesting that there must be connection between the defendant’s intent to defraud and the violation being charged.67 Others have followed a broader interpretation that the defendant’s intent to defraud or mislead can be established as long as the defendant took affirmative steps to conceal his activities from the FDA, regardless of whether the defendant had the fraudulent intent to commit the offense being charged.68

57 Id. at 967. 58 Id. at 966. 59 United States v. Jorgenson, 144 F.3d 550 (8th Cir. 1998). 60 DOJML RESOURCE MANUAL, U.S. DEP’T OF JUSTICE, “MATERIALITY” IN FDCA PROSECUTIONS (2012). 61 Jorgensen, 144 F.3d at 559. 62 Watkins, 278 F.3d at 966. 63 Neder v. United States, 527 U.S. 1, 21 (1999). 64 Watkins, 278 F.3d at 966. 65 U.S. DEP’T OF JUSTICE, supra note 60. 66 United States v. Milstein, 401 F.3d 53, 69 (2d Cir. 2005); Rubens, supra note 48, at 1508. 67 U.S. DEP’T OF JUSTICE, supra note 60. 68 See United States v. Ellis, 326 F.3d 550, 556 (4th Cir. 2003).

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In United States v. Geborde, the defendant manufactured and gave away to teenagers a home-made designer drug called gamma-hydroxybutyrate (GHB).69 One teenage boy died after drinking the concoction.70 Instead of being charged with distributing GHB with the intent to defraud or mislead, the defendant was charged with failing to register a drug manufacturing facility with the intent to defraud or mislead.71 Although the government provided sufficient evidence that the defendant misrepresented the safety and nature of GHB when he distributed the substance to the teenagers, there was no evidence of the defendant’s intent in failing to register assuming that he knew that he was required to register.72 The Ninth Circuit Court of Appeals opined that in order to be convicted of felony failure to register, the defendant’s failure to register needs to be motivated by the specific intent to defraud or mislead.73

In another case also involving the distribution of GHB, the Fourth Circuit Court of Appeals was opposed to the narrow interpretation of 21 U.S.C. § 333(a)(2).74 In U.S. v. Ellis, the defendant was similarly charged with failing to register with the intent to defraud or mislead.75 Unlike the Ninth Circuit, the Ellis court stated that it is not necessary to prove that anyone is in fact defrauded to establish the specific intent to deceive or cheat.76 Hence, the court concluded that a defendant’s intent to defraud or mislead can be established by proof that “the defendant took affirmative steps in an effort to conceal his activities from government agencies, such as the Food and Drug Administration.”77

While the Ninth Circuit adopted a narrow interpretation of the specific intent to defraud, the Fourth Circuit preferred a broader interpretation. In these cases, designer drugs, rather than food, was involved. Compared with drugs, the effects of food additives on human health are less clear and oftentimes are ambiguous. It is worth noting that, in Geborde, one teenager died because of the defendant’s conduct. The extent of harm to the victim was grave, yet the government was unable to charge the defendant with felony fraud. Unlike American jurisprudence, courts in Taiwan look into the extent of harm to the victim to determine whether the defendant should be convicted of felony fraud.

V. FOOD SAFETY INCIDENTS IN TAIWAN

Taiwan experienced several food safety incidents in recent years. Among these incidents, two involved using chemical additives in food as trade secrets—such practice had existed for approximately four decades. In both cases, the defendants acquired the recipe from a third party and subsequently relied on the third party’s superior knowledge and skill in this field. They did not use the additives to cut cost,

69 United States v. Geborde, 278 F.3d 926, 927 (9th Cir. 2002). 70 Id. 71 Id. at 930. 72 Id. 73 Id. 74 See United States v. Ellis, 326 F.3d 550, 553 (4th Cir. 2003). 75 Id. 76 Id. at 556. 77 Id.

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but to enhance the texture of foodstuffs and earned consumer preference as a result. Throughout the history of use, the defendants did not have knowledge that the additives they used might be harmful to human health. Nonetheless, the defendants violated the regulation for failing to disclose the ingredient to the government.

Unlike the Act in the U.S., the statutory language of the ACFSS in Taiwan did not require the proof of intent to defraud or mislead for the conviction of felony fraud. Rather, the statute provides for two types of penalties for violations of the law. Since 2000, a violation of the law due to negligence is a misdemeanor.78 If the product resulting from the violation is harmful to human health, regardless of the mens rea, it is a felony.79

The first incident involved emulsifier containing phthalate plasticizers and the second incident involved the use of maleic anhydrite modified starch. The two pivotal cases led to the overhaul of Taiwan’s food-safety regulation in 2013.

A. Emulsifier Containing Phthalate Plasticizers The May 2011 incident involving emulsifier containing phthalate plasticizers was

considered by some as one of the most serious food safety issues that ever occurred in Taiwan.80 In that incident, manufacturers of emulsifier used phthalates to create better emulsifying effect for food items, and the use of phthalate plasticizers had been kept as trade secrets for decades.81

Emulsifiers are food additives which form or maintain a uniform emulsion of two or more phases in a food.82 Plasticizers, such as phthalate, are usually added to plastics to increase the flexibility, durability, and pliability.83 However, Phthalates are known as environmental hormones or endocrine disruptors.84 Studies showed that phthalates can prolong menstrual cycles and increase the proportion of premature menopause in animal models.85 Prenatal exposure to phthalates may impair testicular function and decrease ano-genital distance among male infants.86

In May 2011, a laboratory at Taiwan’s Food and Drug Administration (TFDA) detected unknown chemicals from a batch of probiotics raw material during routine checkup.87 The chemicals were found to have a high concentration of phthalates.88

78 The Act Concerning Food Safety and Sanitation of 2000, art. 34 (Taiwan). 79 Id. 80 Jih-Heng Li & Ying-Chin Ko, Plasticizer Incident and Its Health Effects in Taiwan, 28 KAOHSIUNG

J. MED. SCI. S17, S17 (2012). 81 101 nian du zhu shang yi zi di 295 hao (Taiwan App. Ct. Taichung Branch Oct. 4, 2012). 82 CODEX Alimentarius, Food Additive Functional Classes, Codex General Standard for Food

Additives (GSFA) Online (2016), http://www.fao.org/gsfaonline/reference/techfuncs.html?lang=en. 83 Li & Ko, supra note 80, at S18. 84 Matthias Wormuth et al., What Are The Sources of Exposure to Eight Frequently Used Phthalic

Acid Easters in Europeans?, 26(3) RISK ANALYSIS 803, 803 (2006). 85 See, e.g., Mingyue Ma et al., Exposure of Prepubertal Female Rats to Inhaled Di(2-

ethylhexyl)phthalate Affects The Onset of Puberty and Postpubertal Reproductive Functions, 93(1) TOXICOLOGOCAL SCI. 164, 167 (2006); Nigel P. Moore, The Oestrogenic Potential of The Phthalate Esters, 14(3) REPRODUCTIVE TOXICOLOGY 183 (2000).

86 Shanna H. Swan et al., Decrease in Anogenital Distance Among Male Infants with Prenatal Phthalate Exposure, 113(8) ENVTL. HEALTH PERSP. 1056 (2005).

87 Li & Ko, supra note 80, at S18. 88 Id.

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Following the finding, the TFDA and prosecutors soon tracked down two manufacturers of emulsifier.89 The TFDA inspected approximately 50,000 companies and shops using emulsifiers purchased from the two manufacturers, and nearly 30,000 food items were pulled off the shelves as a consequence.90 Food items including juice, sport drinks, tea, fruit jams or jelly, and dietary supplements were affected.91

Following the incident, scholars and government officials commented that the manufacturers’ conduct as “malicious replacement”92 of palm oil with phthalates in the emulsifier formula, and conclusively presumed that the manufacturers did so to reduce cost.93 However, the court documents released after trial suggested otherwise. The manufacturers used phthalates as trade secrets to create better emulsifying effect for food items rather than reducing cost.94

Contrary to what the government officials and some scholars have presumed,95 the defendants claimed that using phthalates was not for reducing production cost because palm oil was in fact cheaper than phthalates.96 Using phthalates increased the production cost.97 They also asserted that they did not have the intent to defraud, since they did not obtain undue economic gain because of using phthalates.98 The defendants argued that their violations should only be subject to administrative penalties, rather than criminal prosecution for felony fraud because of the lack of intent to defraud.99

In this case, the defendants were owners of two small mom-and-pop firms making emulsifiers. They conceded that they had added phthalates to emulsifiers since the 1970s.100 They followed the formula instructed by the factory manager in 1976 when they were workers at a Japanese perfumery-chemical company.101 The defendants did not have a background in chemical engineering or toxicology.102 One of the makers of emulsifiers only had a middle school education.103 They claimed that they had no

89 Id. 90 Id. 91 Id. 92 Id. at S17. 93 See, e.g., id. at S18; Ming-Tsang Wu et al., The Public Health Threat of Phthalate-Tainted

Foodstuffs in Taiwan: The Policies The Government Implemented and The Lessons We Learned, 44 ENV’T INT’L 75, 76; Jaw-Jou Kang et al., Crisis Management Turns Taiwan’s Plasticizer Nightmare Into Progressive Policy, 111 J. FORMOSAN MED. ASS’N 409, 409 (2012); Justin Yang et al., Taiwan Food Scandal: The Illegal Use of Phthalates as a Clouding Agent and Their Contribution to Maternal Exposure, 58 FOOD AND CHEM. TOXICOLOGY 362, 367 (2013); Jin-Ying Lu, Plasticizer Event in Taiwan, 110 J. FORMOSAN MED. ASS’N 553, 553 (2011).

94 101 nian du zhu shang yi zi di 295 hao (Taiwan App. Ct. Taichung Branch, Oct. 4, 2012). 95 See, e.g., Li &Ko, supra note 80, at S18; Wu et al., supra note 93, at 76; Kang et al., supra note

93, at 409; Yang et al., supra note 93, at 367; Lu, supra note 93, at 553. 96 101 nian du zhu shang yi zi di 295 hao (Taiwan App. Ct. Taichung Branch Oct. 4, 2012). 97 Id. 98 102 nian du tai shang zi di 4363 hao (Taiwan Sup, Ct. Oct. 24, 2013). 99 101 nian du zhu shang yi zi di 295 hao (Taiwan App. Ct. Taichung Branch Oct. 4, 2012). 100 Id. 101 Id. 102 102 nian du tai shang zi di 4363 hao (Taiwan Sup, Ct. Oct. 24, 2013). 103 Id.

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knowledge of phthalate’s potential adverse effects on human health.104 They relied on the Japanese manager’s superior knowledge and skill in this field.

The defendants conceded that they did not disclose the use of phthalates in the formula when they sought food-additive approval from the TFDA.105 However, the Director General of the Taiwan Perfumery Association testified that it was common practice in the Taiwanese food industry to not reveal key additives when seeking formula approval from the TFDA to protect trade secrets.106

Although the statutory language of the Act Concerning Food Safety and Sanitation did not require defendant’s intent to defraud as an element for finding felony fraud, the court has interpreted the statute as requiring the finding of the defendant’s intent to defraud and that the violation was “sufficient to harmful to human health” as elements for the conviction of felony fraud under the law. In this case, the court reasoned that nondisclosure of the use of phthalates to the TFDA alone was sufficient to find the defendants’ intent to defraud for food-safety purposes.107 Moreover, the court stated that the requirement of “harmful to human health” under the Act Concerning Food Safety and Sanitation can be inferred from the studies based on animal models, and no actual human injury was needed.108

The court found the defendants guilty of the offenses of fraud.109 Regardless of scientific studies showing concerns about potential adverse effects to the reproductive tract development in male fetus following maternal exposure to phthalate plasticizers,110 no detectable physical injury has been reported in Taiwan even if the trade secrets had been practiced for about four decades.111 Approximately two years after the incident involving phthalate plasticizers, another incident associated with trade secrets occurred. Similar to the incident involving emulsifier containing phthalate plasticizers, maleic anhydrite had been used in modified starch in Taiwan for more than 40 years as trade secret.112

B. Maleic Anhydrite Modified Starch In May 2013, the TFDA received reports that there might be foodstuff

manufacturers using unapproved maleic anhydrite modified starch as food additive. Adding maleic anhydrite modified starch would give the final products, such as sweet potato balls, an elastic texture. However, maleic anhydrite is often used in food packaging materials. It has not been approved as food additives.

104 Id. 105 Id. 106 Id. 107 101 nian du zhu shang yi zi di 295 hao (Taiwan App. Ct. Taichung Branch Oct. 4, 2012). 108 Id. 109 102 nian du tai shang zi di 4363 hao (Taiwan Sup, Ct. Oct. 24, 2013). 110 Yang et al., supra note 93, at 367. 111 Kang et al., supra note 93, at 410. 112 Hui-Zhen Lin, The Government Caused The Widespread of Toxic Starch [du dian fen liu cuan de

zui kui huo shou shi zheng fu], BUS. WEEKLY, May 27, 2013, http://www.businessweekly.com.tw/KBlogArticle.aspx?id=3736.

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Modified starch is starch treated with certain chemicals to modify its physical characteristics including viscosity, texture and stability.113 At the time the incident occurred, the TFDA had approved approximately twenty modified starches as food additives.114 Maleic anhydrite modified starch was not one of them.115

After receiving the report in May 2013, the TFDA promptly established a testing method, and examined 74 samples including products like sweet potato balls, tapioca balls, and taro balls. Five of the samples tested were maleic acid positive. Five of the samples were tested maleic acid positive.116 By June 2013, more than one thousand samples were tested, and one hundred sixty-three were positive.117 However, maleic anhydrite had been used in modified starch for more than forty years as trade secrets in Taiwan.118

The trade secret was developed by a high school teacher. He charged from one-half to one million New Taiwan dollars each time when someone approached him to learn the secret. The high school teacher did not know that maleic anhydrite modified starch could be unsafe for human consumption.119

According to the documents released by the government in response to the incident, maleic acid has a low level of acute toxicity.120 Although studies show that a single dose of maleic acid could cause kidney toxicity in dogs, there is no indication of renal toxicity in rats, mice or monkeys even after a higher dosage was given. 121 The government documents concluded that the sensitivity to maleic acid varied among animal species. 122

The defendants in this case used maleic anhydrite to enhance the elastic texture of foodstuffs rather than reducing cost,123 and the texture was supposedly readily discernible if compared with foodstuffs that did not contain maleic anhydrite. In fact, the defendants increased production cost by adding maleic anhydrite in the starch.124 However, maleic anhydrite was mainly used in the chemical industry, and it was not on the TFDA’s positive list.125

Similar to the case involving emulsifier containing phthalate plasticizers, the court inferred the defendants’ intent to defraud from the defendants’ failure to disclose the

113 Taiwan Ministry of Health and Welfare, Contamination of Maleic Anhydrite Modified Starch in

Food (June 4, 2013), http://mddb.apec.org/Documents/2014/SCSC/WKSP/14_scsc_wksp_011.pdf. 114 Id. 115 Id. 116 Id. 117 Id. 118 Lin, supra note 112. 119 Id. 120 Taipei Economic and Cultural Office in Los Angeles, Press Release, Taiwan Government’s

Reactions to The Food Safety Issue Regarding Starch Containing Maleic Anhydride (Jun. 6, 2013), at http://www.roc-taiwan.org/uslax_en/post/2209.html2; Taiwan Ministry of Health and Welfare, supra note 113.

121 Taipei Economic and Cultural Office in Los Angeles, supra note 120; Taiwan Ministry of Health and Welfare, supra note 113.

122 Id. 123 103 nian du su zi di 104 hao, supra note 14. 124 Id. 125 Id.

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additives to the TFDA and the fact that the defendants knowingly sold maleic anhydrite modified starch to wholesalers and other food manufacturers without disclosing the use of the chemical.126 The major difference between this case and the case involving emulsifier containing phthalate plasticizers is that, based on the scientific evidence available, maleic anhydrite is less likely to be considered harmful to human health.

However, the court found maleic anhydrite modified starch was harmful to human health. In its opinion, the court extensively elaborated its rationale in assessing what constitutes “harmful to human health.” The court reasoned that actual injury was not needed to meet the requirement of “harmful to human health” under the Act Concerning Food Safety and Sanitation as long as there was probability that actual injury might occur.127

The court stated that “harmful to human health” is an objective standard that should be determined on a case-by-case basis taking facts, evidence, and public perception into consideration.128 Although scientific evidence only showed that maleic anhydrite induced renal toxicity in dogs and that the toxicity varied among animal species, it remains unclear whether the chemical might exacerbate the illness of patients who already suffered from renal diseases.129 Moreover, maleic anhydrite was for industrial use only—it was unlikely trials would be conducted on human subjects to prove its toxicity in humans.130 Additionally, the fact that both Europe and the United States have set the maximum permissible amount of human consumption of maleic anhydrite suggests that maleic anhydrite is harmful to human health.131 In essence, the court established that legally recognizable harm for the purposes of food safety regulations includes the potential harm to the consumers. The defendants were convicted of fraud as a result.132

It is not coincidental that Taiwanese courts in both cases inferred the defendants’ intent to defraud simply based on the nondisclosure of the additives. American case law showed that finding intent to defraud could be difficult in the context of food-safety violations. Instead of relying on the intent to defraud, Taiwanese courts placed more emphasis on weighing the statutory requirement of “harmful to human health” for the conviction of felony fraud.

VI. THE EXTENT OF HARM AS AN AGGRAVATING FACTOR

The 2011 emulsifier containing phthalate plasticizers and 2013 maleic anhydrite modified starch rulings are two pivotal cases that lead to the overhaul of Taiwan’s food safety regulation. Responding to the public outcry led by the mass media, the relevant Taiwanese government agency and legislature accelerated the amendment of the ACFSS in 2013.133

126 Id. 127 Id. 128 Id. 129 Id. 130 Id. 131 Id. 132 Id. 133 Taiwan Ministry of Health and Welfare, supra note 113.

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Instead of finding the defendant’s intent to defraud or mislead, Taiwanese law adopted the extent of harm to the victim as an aggravating factor. Before the revision in 2013, a simple violation of foodsafety regulation due to negligence was a misdemeanor.134 If the product resulting from the violation is harmful to human health, regardless of the mens rea, it is a felony.135 After the revision in 2013, if a violation under the ACFSS is harmful to human health, the defendant can be sentenced for up to seven years. 136 If the violation causes severe injury or death, the defendant is punishable for up to ten years or a life sentence, respectively.137

Recently, in separate cases involving failing to disclose sodium hydrosulfite as bleaching agent in bean sprout, the defendants were charged with a misdemeanor, rather than felony fraud.138 The Taiwan court reasoned that, although sodium hydrosulfite was not an additive on the TFDA’s positive list, no evidence suggested that the chemical was either abstractly or sufficiently harmful to human health.139 It was the first case in which the unapproved use of additives was found harmless.

The European Commission acknowledged that “food fraud” has no definition in Europe.140 Generally however, food fraud requires the intent to deceive and the intent to obtain an undue benefit.141 On the other hand, NSFI developed a model in which the defendant’s intent to defraud or mislead was not included. The model focused on three factors; namely the potential profit a fraudster can make, the potential difficulty or cost of making a viable substitution, and the likelihood of detection.142

If courts in Taiwan adopted a similar approach, the defendants in the emulsifier containing phthalate plasticizers case would not have been convicted of felony fraud since the profit made was low and the cost of making the substitution was relatively high. The likelihood of detection was also high because of the disparity in emulsifying effects as compared with palm oil. Even in a hypothetical case where the product resulting from a food safety violation caused death, the defendant may not be convicted of felony fraud if the extent of harm to the victim is not an aggravating factor.

Similar to the Fourth Circuit Court of Appeals in Ellis, courts in Taiwan adopted a broader interpretation of the intent to defraud. The defendant’s fraudulent intent can be inferred from failing to disclose by taking affirmative steps to conceal the ingredient from the government. However, to limit the scope of felony liability, the increased penalties provided by the ACFSS require an additional showing of the extent of harm to the victim.

134 The Act Concerning Food Safety and Sanitation of 2000, art. 34 (Taiwan). 135 Id. 136 The Act Concerning Food Safety and Sanitation of 2013, art. 49 (Taiwan). 137 Id. 138 104 nian du shang su zi di 380 hao [Taiwan Appellate Court Taichung Branch, July 16, 2015]; 103

nian du su zi di 763 hao [Tainan District Court, March 9, 2015]. 139 Id. 140 EUROPEAN COMMISSION, supra note 2. 141 Id. 142 NSF INTERNATIONAL, supra note 31, at 15.

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VII. CONCLUSION

“Finding intent to defraud or mislead for the conviction of felony fraud could be very tricky in the context of food and drug regulation. Unlike American jurisprudence, courts in Taiwan look into the extent of harm to the victim to determine whether the defendant should be convicted of felony fraud. In order to limit the scope of felony liability, the increased penalties provided by the ACFSS require an additional showing of the extent of harm to the victim. Moreover, courts in Taiwan have interpreted the statutory language of “harmful to human health” not limited to actual injury. The food scare involving Sudan 1, a cancer-causing red food dye, in the Western world was comparable to the incident involving emulsifier containing phthalate plasticizers or the incident involving maleic anhydrite modified starch in Taiwan. Hundreds of products were recalled due to contamination with the cancer-causing red food dye.143 Although no evidence suggested that Sudan 1 was dangerous to human health, animal studies indicated that the dye was a potent carcinogen.144 The animal studies would have been sufficient for a Taiwanese court to find felony fraud in violation of food-safety regulations, since Sudan 1 poses a greater extent of threat to human health than maleic anhydrite modified starch based on animal tests. On the other hand, an American court would have struggled with the issue as to whether the defendant’s nondisclosure of ingredients has amounted to intent to defraud or mislead as required under the statute. Therefore, the approach adopted by Taiwanese courts provides in the alternative, an aggravating factor for courts in other jurisdictions to consider in nondisclosure cases arising out of non-compliance with food law.

143 David Derbyshire, Food Dye Scare Sparks Largest Recall in History, THE TELEGRAPH, Feb. 22,

2005, at http://www.telegraph.co.uk/news/uknews/1484071/Food-dye-scare-sparks-largest-recall-in-history.html.

144 Id.