06/09/2011
The Foreign Corrupt Practices Act (FCPA) (15 U.S.C. § § 78 dd-1, et seq.) makes it unlawful for any person or company to provide money or other benefits to any foreign official in order to obtain or retain business or generally seek an improper business advantage. The FCPA defines a foreign official as “any officer or employee of a foreign government or any department, agency, or instrumentality thereof….” 15 U.S.C. § 78dd-2(h)(2). Although originally enacted in 1977, courts have yet to interpret the FCPA in great depth. The Department of Justice has consistently taken the position that an employee of a state-owned enterprise can be a foreign official under the FCPA.1 That position has been, until recently, untested in court. A recent decision by the Central District of California in United States v. Aguilar, CR10-01031-AHM, 2011 WL 1792564 (C.D. Cal. Apr. 20, 2011), appears to affirm the Department of Justice's position on employees of state-owned enterprises.
In Aguilar, Lindsey Manufacturing Company and two of its senior officials were indicted for violating the FCPA after the United States alleged that they bribed two employees of the Comisión Federal de Electricidad (CFE), an electric utility company wholly owned by the Mexican government. Lindsey Manufacturing, its president, vice president and CFO, filed a motion to dismiss arguing that they did not violate the FCPA because state-owned corporations do not qualify as instrumentalities of a foreign government. They asserted that the definition of foreign official did not encompass the CFE employees, and that the FCPA did not apply to CFE as it is a state-owned corporation.
The court disagreed with the Lindsey Defendants' argument, and in denying the motion to dismiss, found that an “instrumentality” of government is “an entity the government uses to accomplish its functions of setting forth and administering public policy or public affairs or exercising political authority.” Aguilar, 2011 WL 1792564, at *4. The Court further noted that CFE possessed many characteristics of a government agency or department. Id. at *6. For example, the Mexican Constitution provides that supplying electricity to Mexico is solely the function of the government, and CFE provides electricity to all of Mexico except Mexico City.
Until now, corporate compliance officers and in-house counsel have made the operating assumption that they should treat employees of state-owned enterprises as foreignofficials. But this has generally been with some hesitation because it was based only on the Department of Justice's interpretation of the FCPA, not a judicial interpretation. Now, the Aguilar decision provides some more certainty that employees of state-owned enterprises should be considered to be foreign officials under the FCPA.
In using this information, those responsible for compliance programs and investigations may consider the following actions:
Our attorneys are well-versed in the Foreign Corrupt Practices Act and other antibribery laws around the world. We assist clients frequently in developing FCPA and antibribery compliance programs, and in investigating possible incidents, which may be of concern under the FCPA or other antibribery laws.
For more information on this alert, contact Russ Berland or any of our Governance, Risk & Compliance attorneys.
1See, e.g., Press Release, Securities and Exchange Commission, Tenaris to Pay $5.4 Million in SEC's First-Ever Deferred Prosecution Agreement (May 17, 2011) http://www.sec.gov/news/press/2011/2011-112.htm (agreement available at www.sec.gov/news/press/2011/2011-112-dpa.pdf) (detailing settlement reached after sales personnel made payments to officials of a state-owned oil and gas company); Consent of Defendant Universal Corporation, Securities and Exchange Commission v. Universal Corporation, 1:10-cv-01318-RWR (D. D.C. Aug. 6, 2010) ECF No. 2 (settling allegations that Universal's subsidiaries paid approximately $800,000 to officials of government-owned Thailand Tobacco Monopoly in exchange for approximately $11.5 million in sales contracts for Universal subsidiaries in Brazil and Europe).