FCPA Compliance and Ethics Blog

August 18, 2011

Stranger than Fiction: Questions in the FCPA World

I had intended to post Part II of my series the recent court rulings on instrumentalities. However, sometimes events overtake you. In the world of the Foreign Corrupt Practices Act (FCPA), some of the fact scenarios are so preposterous that if they were in a book, labeled as fiction, they would probably be placed on the Science Fiction shelf. I was reminded of the maxim that sometimes life is stranger than fiction when we saw the article “Lawyer for Mexico arm of US drugmaker Baxter recorded allegedly offering payment in lawsuitby reporter Ricardo Alonso-Zaldivar, in the Chicago Tribune’s August 17, 2011 edition. While I cannot say that the players came out of central casting, the facts certainly seem to have been dreamed up by a screen writer.

Alonso reported that a Chicago based US company, Baxter, is in litigation in Mexico with a local company Translog. Baxter alleges that Translog breached a contract for delivering certain time sensitive medical supplies. Translog alleges that Baxter breached the contract between the parties. Alonso reports that a trial lawyer for Baxter, Jorge Hernandez Martin, is alleged to have offered an expert, retained by Translog, Rafael Aspuru Alvarez money to “leave the country on a key court date to undermine the case”. At another point Alonso reports that Hernandez told Aspuru, “If you tell me, ‘You know I was going to charge 100,000 pesos (about $8,100),’ I’ll you double.”

All of the above was allegedly recorded by Aspuru during a meeting he held with Hernandez in February of this year. A Translog representative provided a copy of the recording to the Associated Press (AP). Hernandez is also reported to have said to Aspuru, “I told the company” presumably about the offer. Providing comment for article, a Baxter spokesman said to AP that “[Hernandez] now has absolutely no role in this matter or representing Baxter in any capacity.”

Inspired, as always by the FCPA Professor to question, question and question; we ask the following:

1.         Does the FCPA apply to judicial proceedings overseas?

2.         Is a private individual, who is an expert to assist a foreign court, a “foreign official” under the Act?

3.         Is such a private official an “instrumentality thereof” of a foreign government?

We could not find any FCPA enforcement actions relating to US lawyers involved in overseas litigation so there does not appear to be any case law, enforcement actions or Opinion Releases discussing this issue, we believe that US courts would find that the FCPA does apply to foreign judicial proceedings because you cannot get more ‘foreign government’ than a foreign country’s court system. We also believe that the Department of Justice (DOJ) would take the position that it does and give severe sanctions against an individual who attempts to use bribery to influence a foreign judicial proceeding. The FCPA Blog, in a post entitled, “Disorder in the Court” puts it more succinctly by noting, “judges, court clerks and others in the judicial system are ‘foreign officials’ under the U.S. Foreign Corrupt Practices Act. Bribing them can violate U.S. law and certainly violates local law.”

However, the FCPA requires an action “in order to assist such domestic concern in obtaining or retaining business for, or with, or directing business to, any person”. Right now all we have to go on is Alonso’s article. He reports that Baxter had a contract with Translog to have certain critical medical supplies shipped. Baxter alleges that Translog, after “running into financial problems” refused to make the shipments and Baxter was forced to use other shippers. Translog counters that it had an exclusive contract with Baxter and Baxter’s use of other shipping companies violates this exclusive contract. Alonso reports that the dispute is valued at $25 million. That certainly sounds like obtaining or retaining business.

Having opined that the answers to the above queries would be answered in the affirmative, is a private citizen, who provides a judge in a judicial proceeding “impartial technical advice” a private official under the FCPA?  Is this the ‘other’ referred to by the FCPA Blog? This is a closer question. In the US, an expert is generally viewed as one who can bring technical advocacy to a jury but an expert’s role may be different under the Mexican legal system. This difference might make such an expert a part of the Mexican judicial system and therefore covered by the FCPA.

So once again, unlike Socrates, we do not know the answers but at least we can pose some interesting questions. Sometimes I wonder if the FCPA Professor has to make up questions for his Final Examinations or he just reads the newspapers and get his ideas from the strange world of international business. The Baxter matter indicates that he only need look in the newspaper.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2011

July 7, 2011

Can a Libyan Rebel Be a Foreign Governmental Official under the FCPA?

What should a company do if it has done, or is on the verge of doing business in Libya? This is not a rare question here in Houston, the self-proclaimed “Energy Capitol of the World.” Many energy companies were faced with this issue beginning in March and continuing through to the present date. While there are perhaps Foreign Corrupt Practices Act (FCPA) issues regarding US entities which conducted business with the Libyan Sovereign Wealth Fund, another potential FCPA issue caught my eye recently. The said issue was published in the July 6, 2011 edition of the Wall Street Journal (WSJ) by reporters Christopher Rhoads and Neneda Salvaterra entitled, “Prolonged Libya War Puts Defected Diplomats in Limbo”.

The article discussed some of the travails of Libyan diplomats who either resigned their positions in the Libyan government or have defected since the conflict arose in the country earlier this year. The article reports that some have acted to support the rebels. So I began to wonder, can a person be a Foreign Governmental Official when  the persons they are assisting, the Libyan rebels, are not recognized as the national government of a country.

Even if a government is under economic sanctions by almost every country in the world that does not necessarily mean that it is not the government of that country. However, as pointed out in the WSJ article, many of the former Libyan diplomats are carrying on activities which would seem to be governmental in nature. Here in the United States, former diplomats are helping to unfreeze certain Libyan assets and are working on asylum cases for Libyan citizens. Some diplomats are working to obtain diplomatic recognition for rebels, while others are still actively working at the United Nations.

Also what about the oil refineries which are in rebel control? If they were assets of the Libyan National Oil Company before the revolt do they remain State Owned Enterprises, or “instrumentalities thereof” under the FCPA? What about the rebels who may be negotiating to sell some of the oil to finance the revolt, are they foreign governmental employees? So once again, inspired by the FCPA Professor, we pose these questions in light of the two federal district court opinions, from earlier this spring, on whether a State Owned Enterprise is covered by the FCPA? Initially we will review the courts’ opinions to see if they provide any guidance.

 a.      Lindsey Manufacturing

The court in Lindsey Manufacturing pointed to various characteristics of foreign government ‘instrumentalities’ that would provide coverage under the FCPA. The court listed five non-exclusive factors:

•           The entity provides a service to its citizens, in many cases to all the inhabitants of the country.

•           The key officers and directors of the entity are government officials or are appointed by government officials.

•           The entity is financed, at least in large measure, through governmental appropriations or through revenues obtained as a result of government-mandated taxes, licenses, fees or royalties, such as entrance fees to a national park.

•           The entity is vested with and exercises exclusive or controlling power to administer its designated functions.

•           The entity is widely perceived and understood to be performing official functions.

In Lindsey Manufacturing the foreign governmental entity at issue was the Mexican national electric company CFE. The trial court found that the entity had all of the characteristics listed in the five non-exclusive factors. It was created as a public entity; its governing Board consisted of high ranking government officials; CFE described itself as a government agency and it performed a function that the Mexican government itself said was a government function, the delivery of electricity.

b.      Carson

 In the Carson case, the court denied the “foreign official” challenge ruling that “the question of whether state-owned companies qualify as instrumentalities under the FCPA is a question of fact.” The court cited the following factual inquiries to determine whether a business entity constitutes a “government instrumentality” including:

(1)   The foreign state’s characterization of the entity and its employees;

(2)   The foreign state’s degree of control over the entity;

(3)   The purpose of the entity’s activities;

(4)   The entity’s obligations and privileges under the foreign state’s law, including whether the entity exercises exclusive or controlling power to administer its designated functions;

(5)   The circumstances surrounding the entity’s creation; and

(6)   The foreign state’s extent of ownership of the entity, including the level of financial support by the state (e.g., subsidies, special tax treatment, and loans).

The Court specifically noted that the factors were non-exclusive and no single factor is dispositive. Later, in its opinion, the court added additional guidance with the following, “Admittedly, a mere monetary investment in a business by the government may not be sufficient to transform the entity into a government instrumentality. But when a monetary investment is combined with additional factors that objectively indicate that the entity is being used as an instrumentality to carry out governmental objectives that business entity would qualify as a governmental instrumentality.” Lastly, as it is a factual inquiry, the question will go to the jury.

It would certainly appear that the Libyan rebels business interests do not fit either definition as set out above. However, it may be that the rebels are simply now the operators of the Libyan National Oil Company. So unlike the FCPA Professor, and Socrates, I do not know the answer, all I have is questions, questions and more questions…

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2011

May 24, 2011

Factors to Use in a Foreign Government Instrumentality Analysis under the FCPA

In a guest post on this Blogsite yesterday, my colleague Michael Volkov, criticized the two district courts which have passed on the question of whether a state owned enterprise (SOE) can be an “instrumentality thereof” under the Foreign Corrupt Practices Act (FCPA). The two cases were the Lindsey Manufacturing case and the Carson case. Volkov stated, “By deciding these cases using fact specific standards, the courts have failed to clarify this issue by adopting a more focused and simple inquiry.  Unfortunately, the courts have now obscured even more the application of the FCPA.” No doubt inspired by my “This Week in the FCPA” partner, Howard Sklar, I will take a contrarian view from Mike.

I.                The Defendants’ Claims

The issue was presented as starkly as possible to both courts. The defendants in both cases argued that employees of state-owned enterprises could never be ‘foreign officials’ under the FCPA. The defendants made five general arguments, which were

First, in the absence of an express definition, the Court must give the term its ordinary meaning as used in the statute. As used in the FCPA, the term “instrumentality” refers to a governmental unit or subdivision that is akin to a “department” or an “agency,” the two terms that precede it in the statute.

Second, the Government’s proposed interpretation would lead to absurd results. Among other things, if it were adopted, the Government’s definition would transform persons no one would consider to be foreign government employees – specifically citing the example of employees of the US company CITGO, because it is owned by the Venezuelan national oil company PDVSA.

Third, the extensive legislative history of the FCPA makes clear that Congress did not intend the statute to cover payments made to employees of state-owned business enterprises. Rather, the FCPA was aimed at preventing the special harm posed by the bribery of foreign government officials.

Fourth, as other statutes and proposed legislation make clear, Congress knows how to define the term “instrumentality” in terms of government ownership of a commercial enterprise where it desires to do so. But it did not do so in the FCPA.

Fifth, in construing statutes, courts should avoid interpretations resulting in unconstitutional vagueness. Adopting the Government’s amorphous and expansive interpretation of “instrumentality” here would result in exactly the type of unconstitutional vagueness that must be avoided.

But courts made quick and direct refutations of the defendants’ points 2-5. The major guidance provided by courts was in creating an inquiry to define the term instrumentality in response to defendants’ Point 1. We therefore turn to the respective courts holdings on what factors should go into an analysis to determine if a state-owned enterprise is a foreign government instrumentality under the FCPA.

II.             Court Ruling in Lindsey Manufacturing

The court in Lindsey Manufacturing responded to the defendants’ claims by pointing to various characteristics of foreign government ‘instrumentalities’ that would provide coverage under the FCPA. The court listed five non-exclusive factors:

  • The entity provides a service to its citizens, in many cases to all the inhabitants of the country.
  • The key officers and directors of the entity are government officials or are appointed by government officials.
  • The entity is financed, at least in large measure, through governmental appropriations or through revenues obtained as a result of government-mandated taxes, licenses, fees or royalties, such as entrance fees to a national park.
  • The entity is vested with and exercises exclusive or controlling power to administer its designated functions.
  • The entity is widely perceived and understood to be performing official functions.

In Lindsey Manufacturing the foreign governmental entity at issue was the Mexican national electric company CFE. The trial court found that the entity had all of the characteristics listed in the five non-exclusive factors. It was created as a public entity; its governing Board consisted of high ranking government officials; CFE described itself as a government agency and it performed a function that the Mexican government itself said was a government function, the delivery of electricity. (I would also note that the US entity CITGO does not meet this test, so much for the absurd result prong.)

III.           The Carson Case

In the Carson case, the court denied the “foreign official” challenge ruling that “the question of whether state-owned companies qualify as instrumentalities under the FCPA is a question of fact.”  The court cited the following factual inquiries to determine whether a business entity constitutes a government instrumentality” including (1) The foreign state’s characterization of the entity and its employees; (2) The foreign state’s degree of control over the entity; (3) The purpose of the entity’s activities; (4) The entity’s obligations and privileges under the foreign state’s law, including whether the entity exercises exclusive or controlling power to administer its designated functions; (5) The circumstances surrounding the entity’s creation; and (6) The foreign state’s extent of ownership of the entity, including the level of financial support by the state (e.g., subsidies, special tax treatment, and loans). The Court specifically noted that the factors were non-exclusive and no single factor is dispositive. Later in its opinion the court added additional guidance with the following, “Admittedly, a mere monetary investment in a business by the government may not be sufficient to transform the entity into a government instrumentality. But when a monetary investment is combined with additional factors that objectively indicate that the entity is being used as an instrumentality to carry out governmental objectives, that business entity would qualify as a governmental instrumentality.” Lastly, as it is a factual inquiry, the question will go to the jury.

IV.            Conclusion

I do not find these factors set out by either court obscure or vague. I believe that both courts provided guidance to the compliance practitioner in the form of a guideline or checklist that can be used to determine if a counter-party has these characteristics of a foreign government instrumentality. In fact, these are factors (or ones similar as they are non-exclusive) that a compliance officer should have been using to make a determination of a counter-party’s status even before these cases came down the pike. With CFE, the decision seems very straight forward. In the Carson case, there were several entities which had employees to which bribes were paid. These entities included CNOOC, PetroChina, China Petroleum Material and Equipment Corp., National Petroleum Construction Corp., Dongfang Electric Corp., Gouohua Electric Power and Petronas. Some of these companies clearly meet the Carson test, some may take additional research. The moniker “Know Your Customer (KYC)” is one that is well known in marketing circles and should becoming equally as well known in the compliance arena.

Mike and I hope to post several point-counter-point blogs over the next couple of weeks setting out our respective positions on other issues. I hope that you will find them both enjoyable and informative.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2011

April 25, 2011

National Electric Company Covered by the FCPA

On April 20, 2011 the District Court released its written decision on the defendant’s Motion to Dismiss in the Lindsey Manufacturing case. The FCPA Professor reported on the decision last week and discussed the seemingly unusual request made by the Department of Justice. This request was that the DOJ asked the Court to take judicial notice that the Mexican entity “CFE is a decentralized public entity, not a corporation.” The trial court termed this request “astounding” and declined this request.

Our focus will be on the trial court’s finding that the Mexican entity CFE was an “instrumentality” as defined under the Foreign Corrupt Practices Act (FCPA). The trial court rejected the defendants’ contention that an “instrumentality” under the FCPA must share all the characteristics of a foreign government department or agency. The trial court further rejected the defendants’ contention that “instrumentality” must be defined as to what consistent with department and agency. The trial court held that since “instrumentality” is a different word; it is logical to assume that it means something other than department or agency.

The trial court did provide a non-exclusive list of factors which could determine if an entity is an “instrumentality” under the FCPA. They are:

  • The entity provides a service to the citizens – indeed, in many cases to all the inhabitants – of the jurisdiction.
  • The key officers and directors of the entity are, or are appointed by, government officials.
  • The entity is financed, at least in large measure, through governmental appropriations or through revenues obtained as a result of government-mandated taxes, licenses, fees or royalties, such as entrance fees to a national park.
  • The entity is vested with and exercises exclusive or controlling power to administer its designated functions.
  • The entity is widely perceived and understood to be performing official (i.e., governmental) functions.

After listing out these factors the trial court found that CFE had all of these characteristics. CFE was created by Mexican statute as a “decentralized public entity”. The governing Board is comprised of high level Mexican government officials. CFE describes itself as a governmental agency. CFE performs a function, the supply of electricity, which is enshrined in the Mexican Constitution as “exclusively a function of the general nation”.

The trial court’s ruling does seem logical. Although the District Court in the Lindsey Manufacturing case is the first to rule on this issue, the CCI case was the first case where a similar Motion to Dismiss was filed. As the state owned entities in the CCI case are not the CFE there may be a different District Court ruling. We eagerly await the outcome of that Motion to Dismiss.

For a copy of the District Court’s ruling, click here.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2011

February 25, 2011

Instrumentality thereof Under the FCPA: An Absurd Result?

Filed under: FCPA,FCPA Professor,Governmental Official — tfoxlaw @ 7:06 am
Tags: , ,

The prognosticators have now spoken (yet again) and decreed that the Houston Astros will be this year’s worst team in baseball. We are well into the first week of Spring Training and the Houston Chronicle has reported that Baseball Prospectus has predicted only 67 wins for the hometown heroes this year; one less than the American League worst Kansas City Royals. Is such a result at this point in the (pre) season absurd or is it justified as defined by Baseball Prospectus’ “sobering piece of analysis for Astros fans with sobering statistics”?  You will have to prognosticate that one for yourself.

All of which brings us to one of the points the defense has used in its Motion to Dismiss in the US v. Carson matter. The FCPA and compliance world has literally been “a-twitter” over the filing of this brief which puts squarely before a federal district court the questions of just what is an “instrumentality” of a foreign government and who is a foreign government official. One of the five major points the defense argues is that Government’s interpretation that a foreign government commercial investment in an otherwise private company  leads  to the “absurd” result that such an entity becomes an instrumentality of the foreign government which made the investment.  The defense extrapolates that such an interpretation “would transform persons no one would consider to be foreign government employees into foreign officials.”

The defense provides the current example of the company CITGO which since 1990 has been a wholly-owned subsidiary of a Venezuelan-state-owned oil corporation, PDVSA. CITGO is headquartered in Houston and traces its corporate roots in the United States to 1910. Under the current thinking of the Department of Justice, the defense argues that CITGO is an “instrumentality” of the Venezuelan government and all of its Houston-based officers and employees are therefore “foreign officials” of Venezuela.

We viewed this portion of the defendant’s brief with an eye towards two recent energy related transactions. As reported in the Wall Street Journal on February 10, 2011, the Canadian company Encana will “split costs and profits” for energy development in North America with the Chinese state owned enterprise PetroChina. They will “jointly develop” shale properties and actively seek foreign investors to assist in such developments. Under the current DOJ thinking, such an entity to “split the costs and profits” might well become an instrumentality of the foreign government owned Chinese oil company. Absurd?

Back in January, BP announced it had reached an agreement with the Russian government owned energy company Rosneft, to develop energy production in the Artic. As reported in the Wall Street Journal, the two companies will jointly explore for oil and gas in the Russian Arctic, one of the world’s last remaining unexplored hydrocarbon basins. Rosneft will be issued new BP shares equivalent to a 5% stake, valued at $7.8 billion, while BP will receive a 9.5% stake in Rosneft, in addition to the 1.3% it already holds. The deal makes Rosneft the single largest BP shareholder. Could BP now become an “instrumentality” of Rosneft and thereby subject to the FCPA from that perspective? Absurd?

So at one week into Spring Training, which do you think is the more absurd result; that the Astros will be the worst team in baseball OR that when a foreign government owned entity, invests in an otherwise private company, such investment becomes an “instrumentality” of the foreign government which makes the investment?

For a copy of the defendants brief, click here.

For a copy of the Declaration of Michael Koehler (the FCPA Professor) in support of the defendant’s brief, click here.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2011

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FCPA Compliance and Ethics Blog on the Road

Next week, together with Stephen Martin, General Counsel of Corpedia, we will be having an FCPA ‘road trip’ touringn Miami on Tuesday, Atlanta on Wednesday and Cleveland in Thursday.  We will present the most current best practices for an FCPA and Bribery Act compliance program. If you reside in or near one of the venues, I hope you can join us. I would love to meet you.

All events are complimentary and both CLE and breakfast are provided. Our presentation is hosted by World Check.

Tuesday, March 1 in Miamihttp://members.ethisphere.com/events/event_details.asp?id=143046

Tuesday, March 2 in Atlantahttp://members.ethisphere.com/events/event_details.asp?id=143049

Wednesday, March 3 in Clevelandhttp://members.ethisphere.com/events/event_details.asp?id=143052


February 23, 2011

Who is a Foreign Governmental Official Under the FCPA: The Defense Attacks

As was initially reported by the FCPA Professor, lawyers for four of the individual defendants who are former executives of the Orange County, California-based valve company, Control Components Inc. have filed a Motion to Dismiss the DOJ’s case. The basis of this defense, that their actions of participating in a scheme to bribe employees of several state-owned companies in China, Malaysia and the United Arab Emirates to secure contracts, does not fall within the FCPA. This argument is based the definition of foreign official under the FCPA. The DOJ has long taken the position that any employee of a foreign government owned or back enterprise falls within the definition of a foreign governmental official under the omnibus “instrumentality thereof” clause. However, as reported by Joe Palazzolo, in the Wall Street Journal, Federal courts have never squarely considered this issue previously. The defense lawyer have winnowed the case to a single legal question: Are state-owned companies instrumentalities of foreign governments?

The defense has five points, which we set out directly from the defendant’s brief below:

First, in the absence of an express definition, the Court must give the term its ordinary meaning as used in the statute. As used in the FCPA, the term “instrumentality” refers to a governmental unit or subdivision that is akin to a “department” or an “agency,” the two terms that precede it in the statute. Thus, the term covers governmental boards, bureaus, commissions, and other department-like and agency-like governmental entities. The definition does not extend, however, to entities in which a government merely has a monetary investment (i.e., state-owned business enterprises), because such a definition would make the term fundamentally different than the terms that precede it. This conclusion is bolstered by the statute’s use of the term “foreign official,” which suggests a traditional government employee, as well as by language in other portions of the FCPA.

Second, the Government’s proposed interpretation would lead to absurd results. Among other things, if it were adopted, the Government’s definition would transform persons no one would consider to be foreign government employees – including but not limited to U.S. citizens working in the United States for companies that have some component of foreign ownership – into “foreign officials.” Additionally, in certain countries where state-owned businesses are the norm, the majority of employed individuals would be “foreign officials.”

Third, the extensive legislative history of the FCPA makes clear that Congress did not intend the statute to cover payments made to employees of state-owned business enterprises. Rather, the FCPA was aimed at preventing the special harm posed by the bribery of foreign government officials.

Fourth, as other statutes and proposed legislation make clear, Congress knows how to define the term “instrumentality” in terms of government ownership of a commercial enterprise where it desires to do so. But it did not do so in the FCPA.

Fifth, in construing statutes, courts should avoid interpretations resulting in unconstitutional vagueness. Adopting the Government’s amorphous and expansive interpretation of “instrumentality” here would result in exactly the type of unconstitutional vagueness that must be avoided. The reason is simple: The Government has never explained with any clarity what constitutes a “state-owned” business in the context of the FCPA. Is a minority investment by a foreign government enough? Is a majority investment required? Must the state direct the majority of voting rights? Is there a required element of control? Does the purpose or type of commercial enterprise matter? Could a subsidiary of a state-owned business qualify? Without a clear demarcation, especially in an era of large-scale government investments and bailouts of traditional private enterprises, the FCPA’s reach, under the Government’s theory, would be whatever the prosecution says it is in any given case. Accordingly, the Court must construe the CPA’s instrumentality provision narrowly to mean traditional government officials, and not employees of a state-owned (whatever that means) commercial business.

Oral argument on the defendant’s Motion to Dismiss is set for March 21 and as our colleague Howard Sklar has stated, “I wish I could go.”

For a copy of the defendant’s brief, click here.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2011


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