FCPA Compliance and Ethics Blog

April 2, 2011

Lindsey Manufacturing: Judge refers to Mexican Constitution

Ed. Note-today we host a Guest Blog from our Colleague Mary Shaddock Jones, Assistant General Counsel and Director Of Compliance at Global Industries, Ltd.

On April 1, 2011 the FCPA Blog wrote that the Judge in the Lindsey Manufacturing case denied 16 motions including the “Foreign Official” dismissal motion.  There has been quite a bit written about the Lindsey Manufacturing case, such as “Is a Commercial Enterprise Owned by Foreign Government by Covered by the FCPA?” in the FCPA Compliance and Ethics Blog. For those of you who have not followed the case, the “Foreign Official” issue centered on whether or not CFE was an “instrumentality of a foreign government” under definition of “Foreign Official” of FCPA.

The “FCPA Explained” published by Foley & Lardner, LLP provides the following explanation:

The Antibribery provisions of the FCPA define the term foreign official to include, in pertinent part:

“…any officer or employee of a foreign government or any department, agency or instrumentality thereof [. . . ] or any person acting in an official capacity for or on behalf of any such government, department, agency, or instrumentality …”

The enforcement agencies broadly interpret this term to include not only traditional government officials, but also employees of state-owned or state controlled entities (“SOE”) under the theory that SOEs are an “instrumentality” of the foreign government. Even if a foreign company is not wholly-owned by a foreign state, it may still be considered an “instrumentality” of the foreign government if it exercises substantial control over the entity. FCPA enforcement actions and other enforcement agency pronouncements instruct that once a foreign company (such as an oil and gas entity, a hospital or laboratory, etc.) is deemed an “instrumentality” of a foreign government, every single employee of the entity (regardless of rank or title) will be considered a foreign official regardless of how local law may characterize the employee.

According to the FCPA Blog, “the Judges decision was primarily based on the nature of CFE and the essential governmental functions it performs”. As predicted in the FCPA Compliance and Ethics Blog, the Judge relied on the Mexican Constitution (which was the argument by the DOJ) and related statutes recognizing the exploitation of natural resources and delivery of electricity as essential public functions since Mexican law recognized that these functions are performed by and through CFE.

Lindsey Manufacturing allegedly hired Grupo Internactional de Asesores S.A. (“Grupo”) to serve as its sales representatives in Mexico in order to obtain contracts from the Mexican state-owned utilities company Comision Federal de Electricidad (“CFE).  The DOJ’s press release on October 21, 2010 alleged that part of the commissions paid to its agent, Grupo, was used to pay bribes to Mexican officials in exchange for CFE awarding contracts to Lindsey Manufacturing Co.

Mary Shaddock Jones is Assistant General Counsel and Dir. Of Compliance at Global Industries, Ltd. Mary can be reached at maryj@globalind.com. The views and opinions expressed here are her own and not necessarily those of her employer.
Stephen Martin and I will be continuing our FCPA presentations, hosted by World Check next week. All of the events are free and CLE is provided. If you are in one of these areas I hope you can join us.

Tuesday, April 5-Portland. For details, click here.

Wednesday, April 6, Seattle. For details, click here.

Thursday, April 7, Denver. For details, click here.

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